The Devil's Excrement

Today everyone is talking about this document that Spain’s ABC newspaper wrote about in which reportedly a Communist Deputy that supports Chavismo wrote this highly critical article about the way the Venezuelan economy has been managed and proposes solutions to avoid what it calls “an economic atomic bomb”, which “has practically exploded”.

While I am sure the document is real and written by someone on the Chavista camp, I doubt very much that this person exerts any sort of influence over the Chavista leadership. Clearly, the author is well versed on economic matters, providing a good diagnoses of the situation, except that I don’t think the Chavista leadership would consider that this atomic bomb is already exploding. If that were the case, then all of the polls that have been telling us that Maduro is likely to win are all wrong and we would see some sort of desperation on Maduro’s part. (Although today’s attack  by Maduro on pro-Chavismo Ultima Noticias was certainly peculiar)

But beyond that, the document seems to be inconsistent with the trends one sees in Chavismo under Maduro. Yes, Giordani seems to be on the way out, but it does not look, like the document suggests like Ramirez will give up any part of what is under his control. Nor do I believe that Ramirez or Maduro will like an “opening” to the Venezuelan bourgeois or “selective opening to foreign investment”.

Thus, I think this document comes from a Chavista economist, an idealist, who mixes up religion and state, who really believes the whole model is wrong, but who I think has little weight under a possible Maduro Government.

There is a second report of Chavez appearing in the form of an animal, as Bloomberg reports that the horse Revolutionary seen above winning the Louisiana Derby, may be the reincarnation of the Venezuelan President. The horse has raced three times, always ridden by a Venezuelan jockey (two different ones) and is one of the early favorites to win the Kentucky Derby.

In contrast with Maduro’s bird, which could have been born after March 5th., Revolutionary is a three year old horse and was actually winning races before the demise of the Venezuelan President, so that it is difficult to ascribe it as much veracity as to Maduro’s more realistic and believable apparition.

Of course, I am not that knowledgeable in terms of how this after life stuff works and whether the body and spirit are born at the same time or the spirit can pick and choose an already existing body to be carried in. But in any case, Revolutionary won its first two races before March 5th., so it seems as if Hugo may only have helped in the last race.

Fortunately, the horse will play no role on the election, as the Kentucky Derby takes place on May 4th. after the Venezuelan Presidential election.

(Video also here)

You can’t make this corny, stupid, silly stuff up. Interim President Maduro says that this morning he went to a small chapel made out of wood (Where? Made out of wood. Really Nicolas? He was also alone, praying, sure Nicolas, we believe you) and a little bird came in and chirped at him (Maduro repeats the sounds and everything) and he whistled back the same pretty chirp. And then comes the jump into the mystical, it was Chavez, he felt the spirit, blessing the campaign, yada yada yada…

Really, hard to make this stuff up. Hard to even think of saying such things.

Chigüire Bipolar gives up making jokes, says it is really hard to make things up after Maduro saying this.

It is really difficult not to get upset watching the lady above, Electoral Board President Tibisay Lucena, come on TV and with that impish grin begin pontificating to the parties and to the candidates to follow the rules and not violate them during the upcoming campaign.

Of course, Lucena said nothing about the military plan to help Chavismo’ party PSUV to get the vote out, which was leaked to candidate Capriles by the same military. She also selectively forgot to talk about the obligatory nationwide addresses by interim-President Maduro to the country during the last two weeks, which are certainly going to continue in the next two weeks. For God’s sake, she event talks about limitations in the number of text messages candidates can send, while the TV station of the “people” campaigns for Maduro 24×7.

And then she calls for “respect”. The same woman (she ain’t no lady in my book) who allowed so many violations of the same rules. Who has introduced rules into the electoral process to intimidate and delay and who time after time never dared fine Hugo Chávez (and now Maduro) for the continuous violations of the electoral rules.

This is the same self-proclaimed “impartial” President of the Electoral Board who showed up at Chávez funeral wearing an armband celebrating Chávez 1992 coup. She is not only partial, she is also indecent and abusive. As simple as that.

I don’t know if Chavismo will ever be unseated in my lifetime, but I do hope that if it ever happens, cynical human rights abusers like Tibisay Lucena are punished in some way. Something simple, something revolutionary and socialist, something she cares about, like suspending her upcoming pension for a job not done. Or having to chat every day with Cilia Flores for the rest of her life.

Lucena is one of those lowlifes of the revolution who backed into her position, lives splendidly off it and regularly abuses her power violating the rights of most Venezuelans, including those Chavistas who truly believe that if they don’t vote for Chavismo, lowlife Lucena will have her in one of her fascists lists.

And on April 15th. Jimmy Carter or one of his acolytes  will come out and say what a wonderful job she did. I hope the election is really close, only to see Tibisay sweat and manipulate. I wonder if she will burn the Electoral Board papers. I am sure she will try.

I have been pondering about the new foreign exchange auction system SICAD since it was first discussed. Besides all of its weirdness, what I have had the toughest time dealing with is very simple:

Why?

Why the rush? Why the second price for the US dollar even if it is a State secret? Why before the election? Why take the risk? Why devote so much time to it?

It can’t be to get more Bolivars. It can’t be to lower the black rate. It can’t be to reduce shortages.

And now that one auction has taken place and Bolivars reportedly assigned to a range between Bs. 12.5 and Bs. 18 per US$, I am left with only one theory:

Someone sat down with Maduro and explained to him that what Giordani wanted was a sure path to self destruction and convinced Maduro to change the whole system and manage the economy differently. And this someone convinced him  to start the process ASAP for the good of the economy he will have to manage if he wins. And he decided to be his own man, even if Giordani is still around.

Thus, I think we are in the face of a radical change on how the Government plans to manage the economy. Maduro may remain radical in his political speech, but the moves suggest he will be more pragmatic on economic matters. And the changes in CADIVI seem to confirm this, he switched two Chavez/Giordani guys for two 100% Merentes buddies. And we all know Merentes is more pragmatic and has been losing battle after battle with Giordani since 2010.

Which suggests that Giordani will be gone if Maduro wins, and hopefully someone better comes in.

I have to say this is a step in the right direction, maybe in a month the foreign exchange system will be unrecognizable.

Let’s hope I am right, it is the only explanation I can find for all the SICAD nuttiness and noise

El Mundo and financial sources are reporting that in the first SICAD auction, the average price at which the Government will sell foreign currency is over Bs. 10. Different sources say different numbers, but in the end they all say it is above Bs. 10. (EL Mundo says Bs. 12 to Bs. 15, I heave heard the average was Bs. 11)

I find this whole thing really puzzling. If I never understood why the Government wanted to make an issue of this, I now don’t understand why they rushed the whole thing to the point of holding the first auction today and announcing the results tomorrow. Chavismo has never been dumb about when to do things, so what is the rush?

I mean, when I left Caracas on Friday banks did not know how the whole thing would work and by Monday they had sufficient offers to hold the first auction?

Call me dumb, or call me puzzled.

If it is shortages, not one dollar assigned tomorrow will help anything arrive in Venezuela or be produced in Venezuela before the April 14th. election.

But, a second devaluation with a value of the currency above Bs. 10, essentially implying an almost doubling of the previous official exchange rate, simply makes no sense three weeks before the election.

Last week, El Mundo published an article quoting Datanalisis saying that the first devaluation on Feb. 8th. reduced the Government’s popularity by 20 percentage points by the beginning of March before Chávez died. Then, the popularity reportedly jumped back up when Chávez died, making things almost even. What this shows is that the topic of a devaluation is a sensitive one and now Capriles can charge Maduro with devaluing twice in 100 days and by a huge percentage.

The Government clearly gains nothing from giving this ammunition to the opposition. Economically, three weeks, including dead Easter week is such a short time, that waiting would have made no difference.

The only possible argument is that this is the result of some sort of internal struggle for control over economic policy, if true, I would hate to see what happens after April 14th. if Maduro wins, if these are the salvos, I don’t want to be around when they start shooting each other.

But in the end, this is very puzzling to me, I see no reason for this new devaluation at this time, it seems senseless, illogical, simply a puzzle…

Yesterday, students went to the Electoral Board to present their demands for more transparency on the day of the Presidential elections on April 14th. They were met with violent Chavista groups aided by none other than the Venezuelan National Guard. The march had to be cancelled as it was not only met by the violent groups, but there were more surrounding the building of the Electoral Board. Moreover, the National Guard used tear gas on the marchers. A total of seven students were injured.

There was barely any police to protect the marching students.

To add to the fascism, students coming to Caracas to the march were stopped before arriving in the city and their buses were not allowed to go through.

But the fascist statement of the day came from Chavez’ son in law and now Vice President Jorge Arreaza who actually justified the violence by saying ” The tone in which the march was convoked, was not the most correct one”.

Fascist is, fascist does…

In his attempt to be like Hugo, Maduro is showing he ain’t Chávez as in this TV scene in which he starts reading Tweets to his new Twitter account and reads one which was essentially telling him that people are not paying attention to him:

Nicolás Maduro: No te estamos parando bolas pana, estamos viendo el programa… (Maduro, brother,  we don’t give a damn about what you are saying, we are watching such and such a program)

Chávez would have been quick enough to ignore the comment…He recovered fast by saying maybe the guy is watching two TV’s at once, but too late.

So today, the Minister of Planning and Finance, Jorge Giordani, the Minister for Energy and OIl Rafael Ramirez and the President of the Venezuelan Central Bank, announced the new “Complementary System For Foreign Currency”. If you ask me, the system is still not completely well defined and as the President of the Centarl Bank roughly said when he answered a question: “The point is not that we will all get A’s when asked how the system works, but we will learn about it as we go along”. My translation: “This is all still being worked out, please don’t ask so many details, as we are improvising as we go along.

Clearly, there were and are differences between the various members of Government. The radicals, which includes Vice-President Arreaza and Jorge Giordani, go under the Pol Potean theory that they know how much the country needs to live on in terms of imports (US$ 40 billion) and that should be it. On the other side are the pragmatists with the President of the Central Bank Nelson Merentes and the Minister of Energy and Oil, Rafael Ramirez, who want to be more pragmatic and the latter wants PDVSA to get more Bolivars for its foreign currency.

Only yesterday, Giordani was saying he was opposed to an alternative system to SITME, during the baptism of his latest book, the only Minister of Finance in the world, who has time to write books, because the economy of Venezuela does not require his constant attention, because it is doing so peachy. Today, he oversees the compliance of the system.

Somewhere in the middle is interim President Maduro, who seems to be trying not to take sides until it matters.

Well, it seems as if the pragmatists won for today. They went from no alternate system, to a system with a Vietnamese auction (previous post) which meant having a reference price, to a modified Vickrey auction, which if you put together all of the answers given today during the press conference, implies the following:

The Government will hold non-daily auctions of cash dollars. The Superior Entity for Foreign Currency (SEFC) will decide when these auctions take place and how much will be sold at each auction.

For now, to participate in the auction, you have to be registered in RUSAD, the same organism that you needed to be registered for for SITME or CADIVI if you were a company. (No individuals may apply for now)

The main difference is that for CADIVI, CADIVI looked up if what you are asking for is in the list of approved items. In the new and “improved” SICAD system, you can ask for anything you want, attach a quote and someone will decide if your request can go to the auction. You will make the request for XX US Dollars via your favorite bank and specify at what price you are willing to buy the dollars.

Once the auction is called, the SEFC will decide how much it wants to sell. The top bidders for the amount available will be able to buy the foreign currency, but rather than at the price they bid for, at the average price of all the bidders that qualify. This is what apparently means by a “modified” Vickrey auction, it is not the second best price, but the average price of all the bids accepted. (It is unclear if the average is weighted or not)

Now, when asked at what price, the President of the Venezuelan Central Bank said quite clearly: “At the price of the best bids”, implying and suggesting that there will be no cap to the price set by each auction. While we find this hard to believe, this seems to be the understanding of most analysts.

What we can gather from this, is that this is nothing but a disguised or veiled devaluation, whereby the Government introduces a “new” system where it will sell as many dollars as it wants (or not), becoming a de facto large devaluation, where it may decide to sell as few or as many dollars as it wants.

And where do the dollars come form? Easy, there are no new dollars in this equation. As Ramirez said, there is a finite number of dollars from PDVSA and from Fonden. The Government will assign cash to CADIVI requests or cash to SICAD requests, deciding to prefer one over the other, at its convenience.

Now, given that this system will not produce results before the election. That it was not an electoral priority, I can’t help but believe that this is a veiled devaluation, whereby the Government will assign more dollars at the much higher rate (in the teens?) as needed, in order to help the economy function and ease PDVSA’s cash flow problems by having it receive more Bs. per dollars than Bs. 6.3. In fact, PDVSA will receive many more Bolívars. Like over two times more.

In fact, if my interpretation is correct, more and more requests will come via SICAD and companies will wise up to the fact that they have a better chance of going to SICAD than CADIVI. In some sense this may even open the doors to removal of the exchange controls, but at a much higher rate of exchange, keeping only a few items at the lower rate of Bs. 6.3 per US$.

This is in fact, just another dual exchange rate system, common in our history, in which the discretion of the Government will determine how much is sold at the lower rate and how much at the higher rate, at its convenience. This convenience implies heavily subsidizing basic staples and allowing inflation rates to be very high temporarily on non-essential items.

The presentation was confusing, not clear, and vague, but in the end it creates a more realistic system. It suggests that the pragmatic wing has taken over and if Maduro were to be elected, the system may be made even more pragmatic than described here, despite its political costs.