The Devil's Excrement

Oscar Garcia Mendoza is President of Banco Venezolano de Credito, as you can see his article in yesterday’s El Universal, agrees with everything I have said here about the banking system, its present and its future:

Long
live Chavez by Oscar Garcia Mendoza

After seven years of his
Government, there are very few Venezuelans that are thankful of Chavez’
Government. The country has received more than US$ 375 billion in oil income
and the reality is chaos in the infrastructure, increase in malnutrition and
poverty, administrative disaster and one can’t stop counting.

Some have benefited. Among
those, the banking sector has been quite privileged.

In these seven years the
earnings of the sector have been the highest in its history. It has grown
substantially and in its majority it backs the Government.

What has happened? The
banking sector from the beginning of the regime has acted as a facilitating mechanism
for the cash flow of the Government and has allowed it to take unproductive
current spending to the levels desired by the administration. It has been the
mechanism to conduct the flows of the Government. On the one side it receives
funds from state companies and ministries and on the other it acquires public
debt instruments which are exempt from income tax, realizing great benefits
from this.

In recent days, the Superintendent
of banks was complaining that banks barely pay taxes, the reason is there for
everyone to see: if a great part of its earnings arise from exempt bonds they
have to pay or little or nothing.

On January 31, an article
in the Financial Times related how the Ministry of Finance was making opaque
sales, without an auction, of Argentinean bonds to local banks, which it
mentions by name. Those banks, says the article, acquire those bonds in
bolivars at the controlled exchange rate and immediately sell them generating a
profit that miraculously evaporates. Up to now those involved have not denied
the news.

Banks enjoy on top of that
accounting privileges: revaluations, portfolios outside the balance sheet. And
it is rumored that given the huge monetary liquidity the Basel indices will be
lowered so that banks can capture more deposits, without the bankers having to
capitalize.

The feast may last as long
as oil income can support it or maybe less, because the level of spending is so
exorbitant that they will have to rely more and more to inorganic issuing and
to inflation, in fact the highest in Latin-American for years.

The time will come in
which “out of friendship” it will no longer be possible to sustain the earnings
and the illusion of solvency and at that moment the losers will be the
depositors, as it always happens. With the regime collapsed some, from afar,
will continue to gratefully proclaim: “Long live Chavez”

A year ago, the Government banned airplanes from using the Caracas military airport “La Carlota”, decreeing that only helicopters could take off and land from that day on. The ostensible reason was that this represented a danger to the population of the city and, after all, it was only used by a “priviliged few”. The ban held until the viaduct collapsed and I had heard rumors that planes were landing there once in a while. Yesterday while taking part in the march I took the picture below. Unfortunately, one can not see the letters on the plane to check who it belongs to, but I am sure that it belongs to the Government and this is just the new oligarchy and their friends, taking advantage of their priviliges. I am sure that in their minds, some are more deserving of priviliges than others. Unless it is a well-designed UFO. Viva la Revolucion!

There were two marches today, one by “officialdom” which went from east to west of Caracas via the north part of the city and a second one by the opposition, which also went from east to west but via the south of the city. The diagram below shows both marches.

The opposition was commemorating that black day 14 years ago on February 4th. 1992,, when Hugo Chavez and his cronies staged a bloody and unsuccesful coup that changed the history of the country for the worst. I am still not sure what it was that Chavez and his MVR were celebrating, it seems hypocritical to celebrate his coup given how hypercritical Chavez and other Government officials are of the supposedly daily coups the oppositon is attempting. But Government officials kept saying their march was a “reaffirmation” of democracy, which is simply contradictory, democracy’s day in Venezuela was January 23d. when in 1958, truly democratic forces ousted General Marcos Perez Jimenes and Venezuela became a democracy for 40 years. We now only have only vestiges of that democarcy as the last few years have proven. And Chavismo was celebrating the anniversary of that bloody coup,when 173 people died because of the power aspirations of our current autocrat and his friends, but they are all forgotten today. I could not help but cringe at ads like this which appeared in today’s paper and which shamelessly celebrated that fateful day:

The two marches were fortunately separated by quite a large space. However, they were also quite different in style and spirit. The Chavista march had lots of people, after all, all Government workers, two million plus of them were ordered to attend under threat of firing. The highway that took people from the West of the country to the starting point of their march ran right along the opposition march. While I was waiting for our march to start I took some pictures of the buses, most of them private, paid by the Government to bring people in to their march (Many of the people also get paid extra to attend). It is not easy to take these pictures because of the shutter delay of digital cameras. But in the first ten minutes, I managed to take some twenty pictures of buses that could be easily distinguished by the red flags, the brand new red t-shirts (ten million votes!)and the white writing outside the buses. Some were actually Government buses illegally being used for political purposes. (In the awful years of the IVth. Republic, somepeople wnet to jail or exile for using public vehicles for political use, but this is the “pretty” revolution)

As our march moved along I would take a picture of a bus everytime I was ready for it. But there were so many of them that it happened regularly, despite the fact that both marches were supposed to take place at the same time. By the end of our march I had taken pictures of 85 different buses paid by money needed for other purposes, but in what has become the norm in this Government, most of the money is used at will to promote Chavez and his silly revolution to no end. If I leisurely managed to take pictures of 85 different buses, on one highway, late in the day in terms of the march, iamgine how many hundreds of them were brought in to guarantee the “success” of Chavez’ event. This is about the only thing these guys can organize well.It is a one time event, not a sustained an organized effort.Below a collage with the 85 pictures I took.

In fact, everywhere you went in Caracas today, even as the Chavista march was going on, you would see red shirts all over the city, as the less hardcore takes advantage of the ride to do some sightseeing around Caracas, or as was the case right outside a Restaurant in Bello Campo where I saw some two dozen red-shirted Chavistas exiting after a well deserved meal. These people are what is typically called “Chavista light”, but when I saw them they were heavier from the food and light-headed from the drinking.

Our own march was quite unique. It was big, more so given the bad publicity and the fact that only one group led by Oscar Perez invited to it. You can see a picture of the march above left. On the right a very fiery lady from ABP (Alianza Bravo Pueblo) who was being interviewed by Globovision on the overpass as I went by. I have no idea who she is, but she was fiery, eloquent and articulate. She can have my vote for any position she wants, including President. More pictures here.

But our problem continues to be the same. None of the “leading” candidates were there. People went on their own, in disorganized fashion. But there were lots of them. Thus, we remain a heterogenous group in search of a leader, but nobody wants to assume that role. Where was Primero Justicia? William Ojeda? Petkoff? etc? I have no clue where they were and I have no clue what it is they are thinking. But time is running and they do not seem to be taken advantage of this leaderless opposition.

The march was a little more joyful than last time, but there was the same anger I described then. People are mad, wondering how long this can go on or will go on. Publicity is bad, there is no money for these events to the point that the same stage as in Jan. 23d. was used. But people show up in droves and that should send a message to someone, no?

(More pictures of buses for the Chavista march in Noticiero Digital)

This
morning in a TV program, the President of the Venezuelan Supreme Court (see report
in Tal Cual) had the audacity of suggesting that the chanting that took
place the other day in the inaugural session of the Supreme Court for the year
2006, was nothing more than a case of euphoria, the people expressing their
happiness at “the opening of an electoral year”. (Yes, he said
electoral, the event had nothing to do with elections, but that is all these
people think about each day) He said that it was not only the judges that
chanted, but their families and the workers of the highest Court of the land. He
called the event intranscendental and just due to happiness.

I then ask
you Mr. Mora: If the High Court of the land should reflect non-partisanship and
independence, how come such a high percentage of those present expressed that
euphoria and happiness at the President’s presence, while barely 18% of the voters
managed to show up at the recent regional elections? Why weren’t Venezuelans showing
that same euphoria that day, staying home and exhibiting an apathy that has
clearly become a huge cause for concern within the Government?

And then you
contradict yourself and the way you have acted so far in the Supreme Court. You,
Mr. Mora said: “it is not good for judges to be allowed to be carried away by
their emotions that may put in doubt the autonomy of the Judicial Power”

Hello?
Didn’t you just contradict yourself there? Do you follow the same irrational
logic in your decisions? Maybe I now understand most of them Mr. Mora. You come out in defense of the Government regularly;
give opinions in cases that you may be involved, even before they are brought
to you and the Hall you preside has yet to rule against any of the positions of
the Chavez Government. Moreover, whenever an international human rights organization
criticizes the Chavez Government, you claim it is an intromission in the
country’s affairs. In that way, you are simply helping to violate those same
rights. Who are you defending then?

Yes
Justice Mora, justice in Venezuela is not doing very well, not only do most Justices
in the Court that you preside chant and jump in praise of that autocrat called
Hugo Chavez, but one Venezuelan is killed daily in the country’s jails and
after seven years of “cleaning up” the judicial system, close to 40% of the judicial
positions have yet to be filled permanently. While cases against opposition figures,
some of them basically irrelevant in the scale of what is going on in the
country, are prosecuted and persecuted relentlessly, murder, assassination and
corruption cases are not followed up in the most outrageous impunity this country
has even seen. Chavista murderers go free, tried by Judges that have been in
some cases, convicted
murderers themselves. Judges who do not rule according to the Government’s
line of thinking are shamelessly and routinely removed within days of their
decisions. Civilians are tried by military Courts and the Court itself expanded
itself using an unprecedented interpretation of the Constitution. Additionally,
for the first time in Venezuela’s
history, a case tried by your Court, has been admitted for review under the
same arguments rejected before!

Some
Justice!

The truth
is that the grotesque and shameful spectacle that you and most of your
colleagues held in what should have been such a solemn occasion, simply shows
how servile you are to Hugo Chavez, how you have no independent criteria and
how your personal gain, profit and position is above your ethics and
principles.

Your
interview today was as disgusting as the show you presided over the other day
and simply proves that our Justice system is not in good hands. In fact, it is
in the worst of possible hands. You have become part of the autocracy. You no
longer protect the people or defend Justice; you have sold yourself in the name
of power and personal gain.

And everyone should read Quico’s piece on how no idea is too discredited to be revived by the revolution.Excellent reading, particularly for those that may have been born after 1980 and don’t have a historical memory of what happened then.

A couple of
months ago I
wrote a piece on the Argentinean bond swaps the Venezuelan Government was
making, which I accompanied with an Editorial on the subject from Tal Cual. Basically,
in the name of “solidarity” the Venezuelan Government was buying Argentinean
bonds, only to later sell them at the official exchange rate to local banks
without any transparency. These banks then turned around, would sell the bonds
at a slightly lower US$ price in Wall Street; obtain dollars which are worth
much more in the “parallel exchange” market, making the banks a tidy profit.

Today. The
Financial Times has a
nice article by Andy Webb on what a windfall this has become to “certain”
banks in the Venezuelan financial system. I thus have a quiz for my esteemed
readers, particularly those that support the Chavez Government, before I let your read Andy’s article:

1)
Why
would a “revolutionary” Government allow the banks to make the money, rather
than having the Venezuelan Government make it and thus make the “people”
richer.

2)
Why
is there so little transparency to this? When I wrote that piece in November
the numbers were fuzzy and still remain fuzzy. How much of the bonds that Venezuela has
purchased have been sold in this fashion? By whom? At what price?

3)
How
are the banks that benefit from this chosen?

4)
Who
decides who gets the bonds? How much does he charge for favoring you?

5)
Does
Chavez know about this and if he doesn’t, who in Government has convinced him
in the name of solidarity to do these transactions to enrich the banks and whoever
collects the tidy commissions?

Read on
about how the rich (and the “bolibourgeois”) get richer in the name of and in the same bed with “the
revolution” in Venezuela:

Venezuelan banks enjoy treasuries
windfall by Andy Webb-Vidal

A select group of Venezuelan banks is
profiting from opaque government treasury operations involving hundreds of
millions of dollars of Latin American sovereign bonds under a financial
programme fostered by President Hugo Chávez. Backed by record oil revenues, Venezuela has
bought $1.6bn in Argentine debt during the past year – mostly
dollar-denominated Boden bonds maturing in 2012. They were purchased in
auctions that were eschewed, in some cases, by big investment banks, such as
Citigroup and JPMorgan Chase, because the yields offered were considered too
low.

Venezuela, which has been the largest buyer
of Argentine sovereign debt since the country defaulted on itsforeign debt in
2001, has said it is ready to buy up to $2.4bn worth of Argentine bonds.

It has also bought $25m of
Ecuadorean debt and finance minister Nelson Merentes recently said he was
looking at buying Brazilian and Chinese bonds.

Investment banks Morgan
Stanley and Deutsche Bank are reportedly advising on the bond transactions.

Mr Chávez justifies his
virtual “hedge fund” as a benevolent concept that will allow Latin American
nations such as Argentina to “liberate’’ themselves from an international
financial system that, he asserts, is manipulated by the US.

Last year, Venezuela transferred all of its foreign
reserves that were held in US Treasuries or that were on deposit at US banks,
about $20bn in total, to the Bank for International Settlements in Basel, Switzerland.

Venezuela’s bond purchases have helped Argentina
increase its foreign reserves. President Nestor Kirchner’s government last
month paid off its outstanding $9.5bn debt to the International Monetary Fund,
in part thanks to the cash injection from Mr Chávez.

“Whilst the [bond]
purchases are good news for the Argentine government, the benefits for Venezuela are less clear,” said Vitali
Meschoulam, emerging markets strategist at HSBC Securities in New York.

The Financial Times has
learned that significant profits deriving from the bond transactions are being
accumulated by a few private banks, rather than by the Chávez government.

In late November, Mr
Merentes announced that some of the bonds had been liquidated, leaving a profit
of $40m. Mr Merentes said last month that $600m worth of the Boden 12 bonds had
been sold, without elaborating on the method.

Most of the bonds were
sold directly – instead of in an auction – to two local banks, Banco Occidental
de Descuento and Fondo Común, according to two people familiar with the deal
and a senior official at a financial regulatory authority. The banks have since
re-sold the bonds into the open market.

Mr Merentes didn’t respond
to several requests for comment during the past week. Victor Vargas, president
of Banco Occidental de Descuento, and Victor Gil, president of Fondo Común,
also didn’t return messages seeking comment.

But though the chosen
banks are likely to have profited from increases in prices of Argentine bonds,
they have benefited more significantly from Venezuela’s foreign exchange
controls, in place since 2003, and a flourishing but tolerated parallel market.

Venezuela’s treasury sold the Boden 12 bonds
to the banks at the official exchange rate of 2,150 bolívars to the dollar.
But, according to the people familiar with the transactions, the banks re-sold
the bonds at the parallel market dollar rate, which trades at about 2,600
bolívars.

On a re-sale of $100m
worth of bonds, the banks would gain bolivar profits equivalent to about $17m
at the informal market rate, or $21m at the official rate.

Following alleged
complaints from banks that were excluded from the operations, in recent weeks
the finance ministry has also begun selling directly to them some of the bonds
that it still holds, in $40m-$50m tranches every two weeks.

Orlando Ochoa, an
independent economist, said that a lack of transparency has become the hallmark
of the Chávez government’s financial administration.

‘’The ministry of finance
is allocating windfall gains in Argentine bond operations to selected domestic
banks, without bidding rounds and without financial reasons to privilege
them,’’ Mr Ochoa said.

“Autonomy of the Supreme Court Guaranteed”

“Uh Ah Chavez no se va”

Pam Chito from Notitarde strikes again!

I was going to comment on this news about Venezuela’s Scotch Whisky consumption, but this article from American Thinker has largely stolen my thunder. I always say that I always feel Venezuelan, except when it comes to not drinking Scoth and arriving punctually on time. I have never understood the local fascination with Scotch and would love to understand it better. We have great and reasonably priced rhums, so why the Scoth craze? I am the wrong person to ask. I once went to a wedding where after a glass of champagne, all you could drink the rest of the evening was Scotch. I left early, I like Coca Cola, but come on!

But you have to wonder whether Chavez will ban Scotch at official functions, much like he banned the use of Santa Claus and other symbols of foreign influence last Christmas. I doubt it, Scotch is as deeply ingrained in the Venezuelan psyche as baseball, Christmas trees, Panetone, nuggat and one of our national staples:hallacas, which have very foreign raisins and almonds embedded in them. But what I find remarkable is that 2002 is the record, but we are now approaching it, despite the graph I posted two days ago. But this time I do have an economic explanation: First the old oligarchy keeps drinking Scotch as many of them are making money hand over fist with the “robolution” which can’t resist a comission, add to that the new oligarchy, called the “boliburgeois”, who love the 18 year old Scotch and have become the new businessmen of the revolution and the near record consumption of Scotch in 2005 needs no further explanation.

And the poor? Waiting for the VIth. Republic.