The Devil's Excrement

The man in charge of fighting corruption in Venezuela, Clodosblado Russian, is truly a remarkable puzzle. Which world does he live in? Today, as an example, he admitted, I think for the first time, that there is corruption in Venezuela, but he then proceeded to ruin it by saying that President Chavez was his greatest ally in fighting corruption. According to this man who has earned the nickname “Ruffian”, which is one of the few puns which is bilingual, Chavez has “expressed himself strongly against this scourge”.

It was, without any doubt, the wrong statement to make by the Head of an independent power about the Head of the Government that he is supposed to supervise to prevent corruption and which an Andorran Court has just frozen accounts in the thousands of millions of dollars belonging to “leading officials of the Venezuelan Government, military officers of that country and…relatives who are more or less close to the Venezuelan leader”

Thus, the Comptroller should not only be distancing himself from the Venezuelan Dictator, but should be holding a press conference to announce that he is opening an investigation on who are these people, how much did they have in the Andorran accounts and where the hell they got the billions of dollars in them. And the first thing he should do, is to contact Andorran authorities to obtain all of the relevant information.

Instead, the Comptroller, the same one that never investigated the Maletagate affair, despite the clear involvement of Ministers and Venezuelan officials in it, gives Chavez a blanket endorsement. Clearly, Ruffian is simply part of the local cover up of the accusation, much like in all of the other previous scandals for which he never opened any investigation.

And in this bizarre country, the Venezuelan National Assembly goes into a higher plane of bizarro overdrive and rather than asking who has the money in Andorra, where it came from and its origin, opens an investigation into why the accounts were frozen?

You got to be kidding me!!!

Because that is the only thing that is actually clear in the report in either the Andorran paper or the Miami Herald: They were frozen because there are suspicions that these accounts are linked to the financing of terrorist activities.  Moreover among the groups that may have benefited from this financing are none other than the FARC, Hizbul·là, Hamàs, al-Qaeda and ETA, among others.

What is not clear about that accusation to our esteemed National Assembly?

So, why not ask the right questions: Who owned the accounts? Where did they get the “thousands of millions of dollars”? Who are the relatives of Chavez involved? Who are the important members of Chavez’  Government involved? How about the military Officers? Those would be the correct questions to ask, but clearly the Assembly is simply taking part in the same cover up, much like what it happened in the Maletagate case, where nothing, absolutely nothing has been investigated by the Assembly, the Comptroller and/or the Prosecutors’ office.

Think of it, in what other country is there such an explosive accusation of a foreign Court issuing such an order without even a denial from the Government. Or even a simple response.

But there has been nothing. Absolute silence. After all, what’s a couple of billion dollars for a country like Venezuela? Chavez just got a US$ 2.2 billion loan from Russia to buy 92 tanks or something nutty like that.This in a country without hospitals, with decaying infrastructure, malnutrition, homeless people and poverty.

Can it get more bizarre than this?

Chavez came back and he is clearly noticing the criticism of the high expenses of his trip as he spent time defending why these trips are expensive and why they are needed. He never explained why he needs luxurious accommodations, 50 bodyguards or three jet planes to follow him. He also used the reverse logic that he had hoped he did not have to buy weapons, but the US Empire forces him to, as if the weapons he acquired were comparable to what the US has or as if they were designed to defend Venezuela from the US.

Separately, there were a lot of news about Venezuela and Iran and a sort of mixture of news on Venezuela’s nuclear program with Iran. The financial aspects are covered in the widely disseminated Margenthau report and the nuclear aspects by announcements made during Chavez’s trips. To me it is clear that one should separate the two. To begin with Chavez never misses an opportunity to talk about the nuclear program, while the Iranian bank was hailed as an idea only when it was created as a local development bank. Since then, little is said about it and little is known about it. One is a show, the other has a real purpose.

In any collaboration like the Iran-Venezuela collaboration, programs are either done altruistically or they are done because each side will benefit somehow from it. In the financial cooperation between the two countries, it is clear that given the restriction against Iran in the Western banking system, using Venezuela’s State banks as a conduit for transactions which would be banned otherwise is desirable to Iran. What Venezuela gains from that is first of all goodwill with a country that Chavez wants to be close to, but more importantly, there will be charges (and commissions I am sure!) to Iran for channeling money via Venezuela’s banks or even the Government to the US or elsewhere.

If one looks at the financial statements of the Iranian local bank, it is a tiny operation in Venezuela, but one does not know what other operations are handled in, for example, foreign currency, which are not registered locally. Banco Industrial de Venezuela, a fully owned bank of the Venezuelan Government could, for example, be used by the Iranian bank, given that Banco Industrial has offices in New York and Miami, where transactions and payments could be channeled under the guise of being done for Venezuelan companies or even for the Government.

Thus, there are reasons while both countries might want to do it and the financial cooperation is more than just a show.

But in the short or even medium term, I can not take Chavez’ nuclear program very seriously, beyond the exhibitionist aspects of it. There are all sorts of stories that hang around about Uranium exploration and the like, but I just don’t believe it. I don’t think Iran needs Venezuela’s uranium The same way that I do not see any connection between Iran’s nuclear program and Venezuela’s. In fact, it was interesting to hear Chavez talk today about his “peaceful nuclear energy cooperation” with Russia. For the very simple reason that these are the types of agreements that are talk and no action. And so far, that is all they have been. (Funny that Chavez says “we are going to start developing nuclear science”, in the context of modern Venezuela, that was one of the first fields of science to be developed in the 50′ and 60’s. Venezuela owned a small research nuclear reactor the RV-1 built by GE, it shut down and then became obsolete)

To do anything in the nuclear field, you need people and very simply, Venezuela does not have them. It would take years for Venezuela to put together a group of nuclear scientists to perform a small project whether peaceful or not. Unfortunately, educating high level people like that has not been and is not a priority right now and there is no local talent available to even begin doing it locally. The Venezuelan science establishment is getting old and in nuclear physics in particular, the people I know of are mostly retired or in the process of retiring and there are few people coming up below them.

The reasons are multiple, but they go from lack of opportunities,to lack of funding, to better opportunties abroad, to lack of scholarships, to the fact that it was never a terribly important field in Venezuela despite there being a small nuclear reactor (today dismantled) at IVIC.

For the Iranians, this is no big opportunity. They have no equipment to sell and I am sure they have no people to spare in their own nuclear program given how ambitious it is and the pressure to obtain results. The number of Iranians with advanced degrees in Physics are large compared to Venezuela’s, but they can’t be spared.

So to me, this is part of the Chavez show, he knows that using the word nuclear scares others, while it helps his revolutionary aura in Latin America. But a Government that can’t even build homes, or roads, or maintain hospitals, is far from being capable of carrying out a significant nuclear project for a few years.

The only thing that would change my mind on this was to learn that the country was importing huge numbers of experts from other countries for such a project. But even in this case, you would require a team of local experts to coordinate, plan and supervise and even the existence of such a team would require a level of planning and perseverance that has not been the hallmark of Chavismo management.

Thus, follow the Iranian money through Venezuela, but forget about Venezuela’s possible nuclear capabilities unless a large and dedicated human resources program is undertaken by the Chavez administration. As far as I can tell, this does not even exist.

In another revolutionary milestone, Andorran authorities have frozen the bank accounts of people close to the President of Venezuela Hugo Chavez, including “relatives fairly close to the Venezuelan President” according to the Miami Herald. The action is apparently done at the request of the US Government which tied the Andorran accounts to thousands of millions dollars of “dubious origin and possible links to the financing of terrorism”. According to the Miami Herald report, the accounts have a double link to possible fraudulent activities, first they belong to Politically Exposed Persons (PEP) plus they belong to the close circle of power of the Venezuelan President and they may be linked to terrorism.

Apparently many of these accounts were opened with the aid of “members of the Bolivarian elite, businessmen who with the aid of Hugo Chavez have obtained Government contracts which are not very orthodox”.

Of Course, the fanatics and cheerleaders of the revolution will ignore these signs of corruption (thousands of millions of dollars belonging to the people of Venezuela! Explain that Oliver!), much like the obviated Maletagate, the acquisition of companies by people who ten years ago did not have much money and the freezing of the accounts of the Generals in charge of the military and civilian intelligence services for complicity in drug trafficking.

So, I went away for four days for a family event and not much changed in that time, as expected. Chavez is still traveling as the country falls apart. He feels no need to be here, as power failures not only occur, but repeat many times a week. And while we have shortages of corn, Chavez offers Syria some of our own, and while we import gasoline, Chavez offers Iran some of that too. He is such a generous guy!

But we all know that this is not generosity, this is much like what is going in Venice, part of the show, the same tragicomedy Venezuelans have been watching for years. We have all heard about employment programs, housing programs, food self-sufficiency, lower inflation and our hate for the US. But underemployment keeps increasing, the housing programs have been a failure, food production has gone down, inflation has become “structural” and we keep exporting oil to our enemies. Simply put, the revolution is just another show, what is important is to say that we will export corn to Syria and gasoline to Iran, the rest, is simply immaterial and will all be forgotten.The show must go on!

Forgotten like all of the other promises of the revolution, the shutdown of TV and radio stations, the murder of protesters, the firing of 20,000 oil workers. Forgotten like the thousands that die murdered just because Chavez could care less about crime and the like. Or like the fact that Chavez has been in power for more than ten years, so that using the excuse that something is “structural” should no longer have any validity.

But nobody asks if Oliver Stone got paid by Chavez to make the documentary about him (or Chomsky’s trip for that matter) or whether the three jets and fifty bodyguards that follow Chavez around can be justified in a country with such high poverty levels. (But heck, we pay for Zelaya’s jet, why not Chavez’?)

Unfortunately for us, people just don’t pay attention to detail and Chavez and his cronies everywhere know how to manipulate the media and the revolutionary spirit of the ignorant. It is very romantic to hear that Chavez will replicate Iran’s nuclear efforts in Venezuela. We will just wonder who they will do it with? Will they revive Argentina’s effort under Richter who promised Peron “bottled nuclear energy” Or will we begin importing Iranians and North Korean’s to satsify Chavez’s ego?

And since those that know about oil are not interested in our heavy crude fields, we give them away to country’s as clueless in oil as we are nuclear energy, like Belarus or Vietnam, so they can get their training wheels in Venezuela, just when we will be needing more oil production to survive.

But this is not about survival, this is about the show. The show, the Hugo Chavez show, must simply go on! At any cost! So, I may go away for four days or four months, but nothing will have changed. All older projects and announcements are forgotten both by Chavez and his cheerleaders. It is the new announcements that matter, whether they are made in Teheran, Damascus, Venice or Caracas. And these in turn will be forgotten when new announcements are made later, in order to create a new show.

As Hugo Chavez told his Minister of Finance long time ago, it does not matter if there is money or not, if it gets done or not. Chavze lives for these annuncements. He only lives for the show.

And the show must go on!

And Karl Marx (the 3d. ?) sends his pictures from Saturday’s march which was fortunately peaceful.

B. Could not find a No mas Chavez protest in Seattle, so off he went to Vancouver. Thanks!

Unfortunately I will be traveling this weekend to the wedding of a close relative on Saturday. I will be flying and changing planes on Friday which will not allow me to to participate in any of the many No mas Chavez demonstrations around the world. Obviously, on Saturday I will be far from Caracas so I will not attend the local march to protest the way the Chavez Government has tried to intimidate and criminalize protests in Venezuela.

While I hope that the Government does not repress the march, recent events do not make me very optimistic, particularly on Saturday. Chavismo has once again called for parallel demonstrations, which I am sure will be there to distract and confront.

I should have access to computers and email, so that if anyone has pictures of demonstrations from tomorrow anywhere in the world, I will be more than delighted to put them up. Just tell me in what city the demonstration took place. (Send to devilexcrement@gmail.com)

I guess my new gas mask will have to wait…

(It has become a boring topic, but 40% of Venezuela lost electric power today, a common occurrence these days. due to a problem at the Tacoa Plant. Of course, the spin doctors are already out suggesting it was opposition sabotage and the matter should be investigated)

(Juan Pablo Perez Alfonso who popularized the name The Devils’ Excrement although the indians called the oil that was near the surface that.)

How could I not print an article written by Moises Naim and called The Devil’s Excrement to boot? The article appeared in Foreign Policy.

Somehow, I refused to believe we are doomed…

The Devil’s Excrement by Moises Naim in Foreign Policy

Oil is a curse. Natural gas, copper, and diamonds are also bad for a country’s health. Hence, an insight that is as powerful as it is counterintuitive: Poor but resource-rich countries tend to be underdeveloped not despite their hydrocarbon and mineral riches but because of their resource wealth. One way or another, oil — or gold or zinc — makes you poor. This fact is hard to believe, and exceptions such as Norway and the United States are often used to argue that oil and prosperity can indeed go together.

The rarity of such exceptions, however, not only confirms the rule, but also serves to clarify what it takes to avoid the misery-inducing consequences of wealth based on natural resources: democracy, transparency, and effective public institutions that are responsive to citizens. These are important preconditions for the more technical aspects of the recipe, including the need to maintain macroeconomic stability, prudently manage public finances, invest part of the windfall abroad, set up “rainy-day funds,” diversify the economy, and ensure the local currency does not reach too high a price.

It all sounds sensible, and a recent book edited by Jeffrey Sachs, Joseph Stiglitz, and Macartan Humphreys, Escaping the Resource Curse, synthesizes the consensus about what countries beset by the combination of rich subsoil and poor institutions should do. As Brazil, Ghana, and others are soon likely to become major oil players for the first time, they will provide rare real-life test cases of these recommendations.

Unfortunately, for most underdeveloped countries, the suggested defenses are as utopian as the larger goal they are supposed to help achieve. Countries that already have all these institutional strengths need not worry. For the rest, like an autoimmune disease, the curse undermines the ability of a country to build defenses against it. Indeed, we’ve learned in recent years that concentrated power, corruption, and the ability of governments to ignore the needs of their populations make it hard to do what it takes to resist the resource curse.

Juan Pablo Pérez Alfonzo, Venezuela’s oil minister in the early 1960s and one of the founders of OPEC, was the first to call attention to the oil curse. Oil, he said, was not black gold; it was the devil’s excrement. Since then, Pérez Alfonzo’s insight has been rigorously tested — and confirmed — by a slew of economists and political scientists. They have documented, for example, that since 1975 the economies of resource-rich countries grew at a slower rate than countries that could not rely on the export of minerals and raw materials. And even when resource-fueled growth takes place, it rarely yields growth’s usual full social benefits.

A common trait of resource-based economies is that they tend to have exchange rates that stimulate imports and inhibit the export of almost everything except their main commodity. It’s not that their leaders fail to realize they need to diversify their economies. In fact, all oil countries have invested massively in the development of other sectors. Unfortunately, few of these investments succeed, largely because the exchange rate stunts the growth of agriculture, manufacturing, or tourism.

Then there is the intense volatility of the commodities that these countries export. In the last 24 months, for example, oil shot up from less than $80 per barrel to $147.27, then fell to $32.40, and again moved up, to $59.87 by mid-2009. These boom-and-bust cycles have devastating effects. The booms lead to overinvestment, reckless risk taking, and too much debt. The busts lead to banking crises and draconian budget cuts that hurt the poor who depend on government programs. To make matters worse, governments faced with a windfall of revenues feel pressure to launch plans that are larger and more complex than their bureaucracies can handle. Inevitably, the overambitious projects end up generating enormous waste and are often abandoned once revenues drop.

What’s more, the oil industry is highly concentrated and capital intensive. This means that oil-fueled growth does not create jobs in volumes commensurate with oil’s large share of the economy. In many of these countries, oil and natural gas account for more than 80 percent of government revenues, while these sectors typically employ less than 10 percent of the country’s workforce. Inevitably, this leads to high income inequality.

Perhaps even more significantly, the oil curse also nurtures bad politics, and herein lies its autoimmune nature. Because governments of such countries do not need to tax the population to amass giant fiscal revenues, their leaders can afford to be unresponsive and unaccountable to taxpayers, who in turn have tenuous and often parasitic links with the state. With their ability to allocate immense financial resources pretty much at will, such governments inevitably grow corrupt.

This explains why the many sovereign wealth funds, oil-stabilization funds, and other solutions tried by resource-rich countries to avoid the effects of volatility, fiscal excess, indebtedness, export-inhibiting exchange rates, and other problems have rarely worked. Such funds either get raided before the rainy days or squandered in poor investments. Almost no resource-exporting country has been able to prevent its exchange rate from undermining the international competitiveness of its other sectors.

Once in power, oil-rich governments are deadly hard to dislodge. They stick around by spending their vast public resources to buy out or repress their political opponents. Statistically, it is far less probable that an authoritarian oil country will transition to democracy than that a resource-poor autocracy will. Oil-rich governments spend two to 10 times more on their militaries than countries without oil and are more prone to go to war. Most oil-exporting countries that do not have strong democratic institutions before they start exporting crude inevitably create an inhospitable environment for democracy.

One promising new idea is to force multinational corporations to be more transparent about their contracts, investments, tax payments, and revenues in poor countries. The premise is that more transparent information will curtail the ability of unaccountable politicians to use national resources as if they were their own. Not all multinationals are accountable and willing to play by these rules, however, and it takes more than the threat of posting a report on the Internet to stop a deeply entrenched kleptocracy from stealing.

So, is all hope lost for poor countries with rich natural resources? Not quite. Chile and Botswana stand out as success stories on continents where the resource curse has otherwise wreaked havoc. Their experiences confirm what we know is needed to inoculate a country from the oil curse. But why they were able to do so is still a mystery. Answers such as “good leadership,” “strong governance,” and “reliable institutions” only serve to mask our ignorance. Unlocking the secret of what enabled these two poor countries to successfully lift the resource curse can spare millions from the devil’s excrement. But nobody has done it yet.

From the Financial Times by Benedict Mander: Fears over Chávez threaten oil auction

The future of one of the world’s biggest oil auctions is in jeopardy as Venezuela’s socialist government and oil companies remain at loggerheads over terms to develop a key oil field.

Repeated delays in the bidding for rights to exploit the Orinoco Belt – which was postponed for a third time at the end of last month – reflect investor concerns about political risk, onerous financing costs and the profitability of the projects. Lower oil prices and a stuttering global economy only add to the problem.

Chinese, Russian, Indian and Brazilian state oil companies are competing alongside oil majors such as Shell, BP, Chevron, Total, Eni and Statoil for access to the Orinoco’s Carabobo block, which could require collective investment of between $30bn and $50bn (€34.5bn, £30.6bn) in three projects together potentially producing up to 1.2m barrels per day.

“There is a high level of interest. The Orinoco Belt is just too large to be ignored, with no geological risk but huge potential,” said Rodolfo Guzmán, a management consultant at Arthur D. Little in Houston. Low production costs and a lack of alternatives elsewhere in the world add to the Orinoco’s attractions.

But in spite of this being the first opportunity to invest in Venezuela’s vast oil reserves in more than a decade, enthusiasm has been tempered by a long list of concerns.

At the top of the list were fears about the unstable political climate in Venezuela and the unpredictability of President Hugo Chávez as he championed his socialist revolution.

“Security is still the big X-factor,” said Pietro Pitts, the Caracas-based editor of Latin Petroleum Magazine. “Scarcely a month goes by without the government taking over another private company,” he said, highlighting the expropriation of the assets of more than 70 oil service companies this year.

Worries about the sanctity of contracts were deepened by the fact that tax rates for oil companies have been increased four times since 2004, while PDVSA, the Venezuelan state oil company, has been negligent at paying dividends to partners in joint ventures.

Such concerns explain why companies were insisting on having the right to settle contract disputes in international courts, particularly after ExxonMobil and ConocoPhilips saw fit to bring billion-dollar claims against Venezuela after Mr Chávez went on a nationalisation spree in 2007.

But PDVSA is believed to be reluctant to comply, arguing that this would compromise national sovereignty – even though international arbitration clauses were included in contracts signed with investors from Russia, a close ally of Venezuela.

Another serious obstacle relates to the stiff financial terms, particularly with tough conditions in international credit markets. In spite of companies being allowed at most a 40 per cent share in each of the projects up for auction, with PDVSA maintaining 60 per cent, they are being asked to fork out 100 per cent of the financing.

The fiscal terms are equally hard to swallow, with 33 per cent royalty rates and a newly introduced windfall tax generating deep disquiet.

On top of that the projects require high start-up costs, in particular because of the need for complex and expensive refineries known as upgraders necessary to process the tar-like “extra-heavy” oil found in the Orinoco.

“As a publicly traded company we need a minimum return on our investment,” said the local head of one of the oil majors bidding, questioning whether this would be feasible under the current terms and market conditions.

As Mr Guzmán put it: “For many companies here it’s going to be very hard to convince their bosses at home to put a serious offer on the table.” Given that PDVSA will have operational control of the new projects, the argument will be even harder to make, with many companies dissatisfied with their current joint ventures with the Venezuelan group.

Such attitudes have generated speculation that the bid round could attract very few serious offers and might even need to be suspended.

Others argued that even if private companies shy away, national oil groups from countries such as China and Russia remain committed.

A representative in Caracas of one of the state oil companies bidding said in spite of the high costs involved, national energy security is the overriding consideration.

“The project may require serious investment, yes, but given that there is no exploration risk and that this could be the last project of its size left in the world, we can’t afford not to get involved.”