The Devil's Excrement

Obama
campaign spokesman Alejandro Miyar responded that Washington’s relationship
with Venezuela will not improve unless Chavez “respects democracy and the rule
of law.”

The statement contains two of the three basic elements
missing from Chavez’ autocracy, I just wish Mr. Miyar had explicitly added
human rights to the request, but two out of three ain’t bad. Democracy includes respect for human rights, but it would have been a nice and very complete message anyway.

“For the first time in the political history and in the administrative
life of our country, the high level leadership of our country, represented in
the President of the Republic, the Heads of Public Powers, their closest collaborators,
a wide range of public managers and the large majority of public servants,
maintain a marked ethical profile in the execution of their delicate functions.
It would an unforgivable error of history to obviate this truth. This is a judgment
not only on the sidelines of political diatribe, but also diffused through the
personal conviction that the authentic revolutionary conduct is against being cunning,
having willful bad faith and thievery.”

Wow! Where should I start?

How about CAEEZ, Bolivar2000, Duran Kauffman, Rafael Ramirez,
Nobrega, Merentes, Jorge Rodriguez, Maionica, Jhony Yanez Rangel, VTV, PSUV,
CNE, Cruz Weffer, Juan Barreto, Aristobulo Isturiz, El Gordo Bermudez, Chavez’
brothers, Rafael Isea, Cedel bonds, Structured Notes, CADIVI, Maletagate,
Antonini, PDVSA bond repurchase, FOGADE, commissions on official bank deposits,
Banco del Pueblo, Banco de La Mujer, Banco Industrial, Arnie Chacon, Danilo
Anderson, Rodriguez Chacin, Mercal, EDC bonds, Bandagro bonds, Citibank building,
Otaiza’s gyms (remember he was appointed anti-corruption
czar), 95% of Government contracts assigned directly, only six of 337
municipalities provided financial information as established by law, PDVSA
bonds, Bs./US$ bonds, convicted murdered named judge, Montesinos protected by
Venezuela after denials, Chinese oil drills, Fondafa, Carlos Gimenez, Supreme
Court building, Miquelena, Tobias Carrero, BBV campaign contributions, use of
state funds for campaigns…

Need I say more? I wrote that list from memory!!!

But our own ruffian simply comes up with EIGHT cases where
the violations led to the Comptroller sending the file to the General
Prosecutor, out of 958 investigations.

Amazing, no?

This is sort of like don’t seek and you will not find, everything is cool!!!

And then they pat themselves on the back and proclaim the
revolution to have a marked ethical profile, whatever that may mean in the
perverted and distorted mind of the Comptroller, who by the way does not
consider he is in violation of the law because he collects a pension and receives
a salary from the Venezuelan State simultaneously.

Yeap, a marked ethical profile indeed!!!

People are once again being naive.

Because in the end Chavez did not care about anything but
his preservation in power and if he bans or jails Rosales it is because this
fits his grand scheme of things.

And in this grand scheme, it is clear that polarizing the
voters is important, not only as we go into the regional elections, but as
Chavez seeks the legal means to change the Constitution so that he can remain
in power beyond 2013.

Which is what his active participation in the campaign for
the regional elections is all about.

In the end what is important for the autocrat is that his
PSUV score enough of a victory in November so that Chavez can press his
personal agenda to remain in power forever.

And there is no doubt he can do it.  His popularity right now could be
sufficient to carry him in a Constitutional referendum in 2009, even if he can
not use it now to score a huge victory in this month’s regional elections.

Which by the way is absolutely illegal, since the
Constitution does not allow the same question to be brought up during the same
Constitutional period. But they will have the question brought up to referendum
in a different way and argue that this simple fact makes it legal and the
Venezuelan Supreme Court will agree with it.

So, in the end, banning Rosales from office, jailing him
will be about erasing him as the closest thing the opposition has to a leader
when and if this Constitutional referendum takes place in 2009. And when the
Comptroller says that Rosales could be banned for fifteen years from running
for office, it means that even if the charges have not been formally
investigated, the case has been studied and they have even formed an opinion as
to what the penalty will be, much like on the cases of Enrique Mendoza and
Leopoldo Lopez. Thus, with a single stroke Chavez would eliminate from office
the last nationally known opposition leader who could become the leader of a
push against the approval of the referendum next year.

That is why Chavez is fighting for the regional elections
with all his might, polarizing and radicalizing the electorate. He knows that
the opposition will do well in the most populous states of the country, but he
has to limit the victories as much as possible because otherwise he will not be
able to obtain a victory next year.

While I leave the electoral predictions to Daniel, even if Chavez is
popular today, he will not be able to pass on this popularity to his candidates
in three weeks. And he knows it and we see it in his daily campaign in the
states that are key for power in Venezuela, which are the most populous states
like Zulia, Miranda, Carabobo, Lara, Tachira, Anzoategui, Bolivar and Aragua.
Of these, all but Zulia are today in the hands of Chavismo and it is likely
that more than half will fall into the oppositions hands in three weeks.

Even three weeks before the election the results are not
written in stone. Acosta Carles could withdraw in Carabobo making Chavismo a
little stronger in Carabobo, or Manuel Rosales could be jailed throwing Perez’
and his campaign in disarray in Zulia.

Sound crazy? So did all of the other candidate bans, the
shutdown of RCTV and the like. Not all of these actually helped Chavez, but
when first suggested they appeared to be strategies that sound as crazy as
erasing Manuel Rosales from the Venezuelan political arena today.

Just wait!

Actually, today the Chinese launched a satellite called
Simon Bolivar for which the Venezuelan Government paid US$400 million to have
the Chinese build it.

Good deal for the Chinese, I Haven’t bought a
communications satellite lately, but I am sure the Chinese made a bundle
selling it and selling consulting and training going forward.

Supposedly, this satellite makes
us more independent. Sure, we have an independent communications satellite,
but it gives us little independence as if we don’t pay the Chinese I am sure
they will turn everything off.

To make the scene even more bizarre, we were told by the
autocrat himself that our scientists (which ones?) will use this satellite
somehow. I guess they will make phone calls or connect to the Internet or
something like that. This contrasts with the statements by Evo Morales, who was
invited to the launch, that he hopes the satellite favors the indigenous people
of Latin America.

Jeez, this satellite is certainly quite versatile if it
will satisfy both needs. It certainly has no remote sensing capabilities.

To complete the tour of ignorance and misleading statements,
we were told that it is the Ministry of Science and Technology that runs the
project.

Another giant step for ignorance and false advertising in
Venezuela.

What’s next? Self sufficiency in food by buying
Argentinean farms and importing their production?

I guess all of the accusations against prominent
Government figures are irrelevant to this bastion of Venezuelan Justice. And
given the fact that the suitcase full of cash was taken to Argentina about 15
months ago, it may be good to remind her of the trial of the cops accused with
deaths on April 11^th. 2002, who have been detained for four years
and have yet to be brought to trial.

—And then, just like that, this
same lady turns around and says the accusations against opposition leader
Manuel Rosales brought up by President Chavez and Maracaibo’s Mayor Di Martino,
will be investigated “in quick and expedite fashion”. This despite the fact
that she has no clue what the accusation of corruption is about and no formal
case has been presented yet.

What a difference between the two cases, no?

—And in the same case, the Venezuelan National Assembly discussed today
opening an investigation against Manuel Rosales. Since they are there the
Assembly will also
investigate him for trying to kill Chavez. Faster than a speeding bullet in
the middle of an electoral campaign. Such nice people!

—And then as a Director of the Electoral Board says that the Board
should investigate Chavez taking advantage of his position, the
head of the Board says that the institution she presides has no accusations
that the President is taking any advantage of his position. Funny, I guess that
Director must be irrelevant or does not exist, no?

It is not easy to know how much is
out there, by moving funds out of the Central Bank and into the development
funds one does not have regular information as to the assets available. Thus,
we can only look back at most numbers as of June 1^st.

Venezuela currently has US$ 39
billion in reserves, which corresponds to roughly 9 months of imports. I have
never liked to use this number, because panic begins way before the money looks like
it is dwindling down.

I prefer to leave international
Reserves outside the calculation, so that I can look at how much money the
Government has in Bolivars as well, otherwise I would be double counting because those
Bolivars came from the backing of those same reserves.

Thus, we look at the dollars and Bolivars held by various institutions and later we add them up

Fonden: As of
June 30^th. Fonden had US$
14.7 billion between cash and investments. However US$ 7.7 of that has been committed
to projects that are being executed and US$ 2.51 billion have been spent or are
due, leaving US$ 4.41 billion. We know Fonden has left about US$ 1.4-1.5
billion in Argentinean Boden 15’s purchase at 65%, but which currently trade
around 25%, representing a loss of US$ 560 million. Additionally, Fonden had
US$ 525 million in Lehman Brothers instruments, which are simply unavailable
for use. Thus, Fonden has no more than US$ 3.3 billion available, some of which
may be invested in Sovereign debt, which is at lower prices.

Total Fonden: US$ 3.3 billion (Not all of it may be in US$ but given the law
regulating Fonden I would assume it all is)

Bandes: According to its financial
statement Bandes
has more or less US$ 2.7 billion a number that has changed little in the
last six months. However, other Government funds different than Fonden, keep
their foreign assets in US$ at Bandes, in June this amounted to US$ 7.9
billion

PDVSA:
Reportedly PDVSA has US$ 3 billion
in cash and Bs. 3 billion in
cash.  

FIEM: FIEM
has US$ 0.8 billion

Banco del Tesoro: US$ 0.3 billion

Bs. The Government has in the
banking system Bs. 18 billion

Bs. The Government has at the
Central Bank Bs. 4.6 billion

Various Bs., Bs 3 billion

—Total Assets in US$

            Fonden                   US$ 3.3
bil.

            Bandes                   US$
10.6.

            PDVSA                     US$
3.0 bil.

            FIEM                       US$
0.8 bil.

            Tesoro                    US$
0.3 billion

Total dollars                     
US$ 18.0 bil.

—-Total Assets in Bs.

            PDVSA
                     Bs.    3.0 bil

            Banks                        Bs.
18.0 bil

            Central
Bank             Bs.
4.6  bil.

          
Various                      
Bs. 3.0 bil

            Total                          Bs.
28.6 bil.

Let’s look first at the budget,
which is US$ 89 billion, with no salary increases, additional expenditures and
the like:

Local Revenues                US$
38 billion

Oil Revenues                    US$
38 billion (Assuming
average US$ 80 per barrel)

Local Debt Issues            US$   5 billion

Deficit                            
US$ 8 billion

This can be compensated with
Bandes and Fonden funds. Alternatively, a 30% devaluation would yield US$ 10
billion. Thus, the numbers don’t look terrible at US$ 80 per barrel. At US$ 60
there are problems because you need and extra US$ 10 billion, thus you would
deplete Fonden and Bandes and have to devalue.

It thus looks like we will see a
devaluation, use part of the Bandes and Fonden funds and I suspect there will
be an increase in both the value added tax as well as the implementation of a
debit tax.

Before you think I am too
optimistic for 2009, I really don’t think the average price in 2009 will be
below US$ 60 per barrel even if it looks that way right now. Oil prices are
likely to overcompensate on the down side as much as they did on the upside,
given the uncertainty in the future of the world economy. Prices are acting
right now like the worst case scenario is likely. I am not sure that is going
to be the case.

More worrisome is the balance of
payments issue.

Revenues from oil exports (US$80
per barrel)                US$ 38 billion

Other Exports                                                                 US$   6 billion

                                                          Total                    
US$ 44 billion

Imports this year                                                            US$ 54 billion

Deficit                                                                              US$ 10 billion

Thus, this is really a problem, because you would have to use all of
Fonden and Bandes US$ in order to satisfy dollar needs or draw down
international reserves. The problem is that M2 is getting to be US$ 80 billion,
so if reserves drop, people are going to get quite nervous.

Note that this is the optimistic
scenario of US$ 80 per barrel. Things would get really critical at US$ 60 per
barrel.

Even more worrisome, note that the
Government would have no money to intervene the parallel swap market which
could go to stratospheric levels and thus a devaluation looks inevitable.

Finally, I have not included in
any of this Chavez’ folly of nationalizating Cemex, Petrozuata, Cerro Negro,
Sidor and Banco de Venezuela. All of those add up to US$ 14 billion. By late
2009 one may expect one of the two heavy oil arbitrations to come to a close
and Chavez is likely to pay Banco de Venezuela US$ 1.2 billion before the end
of the year.

It certainly looks like things
will get very complicated at these levels of oil prices for the Venezuelan oil
basket. In both the ficsal and balance of payment scenarios a devaluation certainly looks like a sure thing in the first half
of 2009.