The Devil's Excrement

I wanted to remind everyone that tomorrow is the six month anniversary of the announcement by the Vice-President of the creation of the “Entity for the coordination of the Presidency” presided by Hugo Chavez and composed by the General Inspector of the Army, the Minister of Planning, the Secretary of the Presidency and the Vice President himself. A euphoric Rangel told us that day that they had analyzed the country with a “vision of future”. As a first task the new entity would develop in 40 days a plan initiate a battle against poverty. “We are going to employ all of the resources of the state to confront the problem of poverty”

Well, the forty days went by and nothing happened. Now, tomorrow it will be 180 days and to tell you the truth, this “entity” has not been mentioned again and this plan appears to have been shelved.

We will continue to track the progress or absence of progress of this project.

Strange interview with father Jesus Gazo in today’s El Universal. Gazo is a Jesuit priest who has been very close to Chavez; he was the resident priest at the Presidential residence, has been called the President’s spiritual adviser and advised Chavez and his ex-wife when they were separated.

Strange, because for someone that supports the Government, it is one of the most serious accusations of corruption on Chavez’ Government to date. Father Gazo not only says that corruption is rampant, but he says it goes all the way up to the highest levels. Many Ministers and Deputies are involved and the proof is in the assets these people now have, he says. Moreover, he claims Chavez knows about it, but has problems doing something about it because there is a conspiracy of the corrupt, in which they accuse honest people of being corrupt to make it hard to detect where the real corruption is. Father Gazo says that he has told Chavez about specific cases of corruption and when asked by the reporter why nobody is in jail for corruption he actually said some people are in jail for corruption, but they must be secret because there is not a single case recorded in which someone accused of corruption has gone to jail in the last six years. Gazo warns that corruption may be what unravels Chavez’ revolution in the end.

But the strangest part of the interview is actually not present in the digital version. According to Father Gazo in the paper version of today’s El Universal, about seven months ago Chavez was ready to resign frustrated over his inability to accomplish much. Gazo says he found a sad Chavez, ready to leave it all behind…How weird!

The misadventures of the Bolivarian University By Simon Bocanegra in Tal Cual

The comical performance by the Bolivarian University is truly incredible. It is already on its third management team since its creation. The new golden pair, by the way, is equivalent to our local baseball team Magallanes, just to mention the President’s favorite team, naming the bat boy as its manager. Poor University! Its misadventures were aired recently in various articles in Tal Cual, which may not be unrelated to this new change in the line up of the board of the Institution. But the sad thing is the swindle that has been performed on the, not 400 thousand students, like Chavez affirmed in one of his frequent pantagruelic deliriums, but to the 16,000 kids who are part of its student body. This is the consequence of the style of governing by stumbling around, from improvisation to improvisation, just using lots of bills, disdaining knowledge and experience, paying tribute to any rogue that Chavez falls in love with and places in positions of responsibility. The worst part is that the Government does not even allow anyone to help it. This whole disaster was forewarned by Luis Fuenmayor Toro, who has the infrequent peculiarity of merging his condition of Chavista with his knowledge of the problems of higher education. But the problem is that Fuenmayor has also a personality trait that makes him ineligible for the responsibilities that a serious Government may have given him: He does not suck up to anyone. Now, however, Fuenmayor will see going by the front of his store the corpse of the new management team, more incompetent, if possible, than the two previous one.

As usual President Chavez stepped on some steps during the bioregional south American-Arab summit. First, apparently President Lula was quite unhappy that Chavez was taking the limelight of his summit by violently attacking the US, with Chavez quoting Mao and Ho Chi Min.

But where the verbose President really ran into problem was in doing exactly what he criticizes everyone for, involving himself with sovereign issues of another country. He called for an end to the US occupation of Iraq right under the nose of Iraqi President, which clearly did not sit well with Iraqi President Talabani who immediately asked to speak again asking Chavez to rectify his words. Chavez was so undiplomatic that his words came right after Talabani’s explanation to the summit of what is happening in Iraq. In the end Chavez had to give in and agree on the final declaration supporting the Government of Iraq, which, of course, favors the US occupation until they can control the situation better.

And to make him even more popular among his Latin American peers, a Mexican newspaper is reporting that funds that came from the Mayor’s office in Mexico City were triangulated via Havana to Venezuela, so that Chavez could purchase AK-47’s for a Mexican guerrilla group. According to that report, the funds were diverted without the knowledge of Mayor Lopez Obrador, the leading Candidate for the Mexican presidency in 2006. The weapons went to the Ejercito Popular Revolucionario, Mexico’s best organized guerrilla group in Mexico.

Thus, Chavez graceful diplomacy continues to make friends all over the place.

I have been holding off talking about Chavez’ proposal for co-management because there are few details about the proposed schemes for this project (There are actually two different ones). Basically, Chavez wants to have any company declared of national importance or social interest to be expropriated by the Government. The company would then be capitalized by the Government and part of the ownership given to a cooperative of the workers via a soft loan.

So far, two companies have been expropriated, one is an agreement with the owners and a fourth one, a state owned aluminum company is under co-management. The way in which the two companies were expropriated outright, violates article 115 of the Constitution that states that in order to expropriate there has to be a final decision by a Court and “opportune payment and just indemnization” has to be made. Neither of these two was done on these two cases.

So far, the Government has expropriated two companies: Venepal and the Fabrica Nacional de Valvulas, which are respectively a paper company and a valve company. Venepal was a publicly traded company which had to declare bankruptcy in part due to political problems, when a Deputy from the National Assembly threatened to expropriate one of its plants a couple of years ago. This stopped the banks from lending the company any more money. And they were right! The Government not only expropriated the company, but paid nothing to the creditors, who by law should have received compensation.

Venepal had basically two businesses, it produced pulp from sugar cane and owned a forest and it would manufacture paper products such as notebooks, toilet paper, etc. The company suffered a lot during the overvaluation of the currency in 1999-2002 as its products stopped being competitive in Colombia and foreign products began coming in. Management took too long in deciding to streamline operations and the company went under. Paper is a difficult business everywhere in the world. You have to be on your toes to adapt, cut costs and it is very cyclical. This is what Venepal’s main competitor did here in Venezuela. The workers that are taking over Venepal’s plants are the same ones that the company had when it went under and they have opened all of the plants. Thus, the chances of success are somewhat limited. Right off the bat, the workers have to give those that make minimum salary a 26% salary increase decreed by Chávez himself.

I know little about the valve company; just know that its owners shut it down in 2002 because they were losing too much money.

What I do find incredible is that the third case is a complex arrangement with a textile company and its owners. Venezuela had a thriving textile industry until the Chinese and maquiladoras in Mexico drove them out of business. The problem? There were many, but cheaper salaries and a rigid labor legislation made it impossible for Venezuelans to compete. In fact, Mexican legislation is equally bad within Mexico, part of the reason maquiladoras were created. A third factor was technology; most plants are heavily automated and the level of automation continues to increase every year. I understand that by now even the maquiladoras are having a hard time competing with China.

Now, in the case of the textile company, the owners, the Mishkin family, will contribute their plants and land, and I understand some know-how, in exchange for 51% of the company and the Government will provide the money. Given my preamble, you can imagine that I think this is such a sweet deal for the owners. They have an asset that is not giving them any return, they can’t sell, they can’t do anything with, they don’t want to put any money into it, but they find a Government that wants to give them money in exchange for 49% ownership. What’s the worst case? You end up with nothing valuable, much like it was a month ago.

The amazing thing is that all of this is done without any feasibility studies, valuations or expert opinions let’s just do it and see if anything good happens. As Petkoff says in today Tal Cual Editorial, which I have translated below, this is likely to just generate frustration and disappointment in the workers that are being sold the idea today. Even if the companies manage to survive, barely getting along, they will end up owing money and the company is unlikely to be profitable enough to give them much dividends.

According to the Tal Cual Editorial, the Mishkin’s built all these plants by borrowing from the Government and they have never repaid their loans. I can’t vouch for that, but I doubt Petkoff would dare say it without having some specific knowledge about the case.

This is simply another Chavez economic pet project that will likely end up badly. As was the case in the IVth. Republic, it is the state that is using and wasting resources to jump start enterprises of dubious future and prospects. It is the state that is overextending itself beyond its reach. Chavez said yesterday that the money the Government has is not enough, maybe he has not learned the lesson: The state can not do it all, that is why you need a private sector. Of course, the lesson will not be learned until oil prices go down. And to those that don’t think oil prices will drop, it really does not matter, if they go up to $100, Chavez will spend $100 and there will still be a day of reckoning, nothing goes up in a straight line forever. Ever.

To complete this discussion about co-management here is Petkoff’s take on the issue

Chavista Congestion ((In Spanish co-management is co-gestion, thus the play on words) by Teodoro Petkoff

The truth is that Chavez is in the end quite gullible. Any salesman of refrigerators in the North Pole is capable of tying him up and swindle him by simply rubbing his ego the right way. With the idea of co-management, which is interesting and of which there are important experiences in some countries, especially in Germany, some sneaky people have figured out how to live off the President. It is simply enough to have a bankrupt company and suggest it to him as an experimental field for a co-management experience, for him to jump in without finding out its viability. And behind him, his whole team, that will have no qualms in believing that the boss has just given birth to a new brilliant idea.

The recent case of Hilanderias Tinaquillo, a textile company,  gives us a chance for more than one reflection. This company was part of the famous textile conglomerate-in more than one way- of Leon Mishkin, who reciprocated to Carlos Andres Perez in very generous fashion the dollar denominated loans that were given him via the Corporacion Venezolana de Guayana and which were never paid.

The factory has been around for 25 years, but it has been closed for a long time. One can imagine without difficulty that its machinery is not only obsolete, but that it will have difficulties measuring up to its competitors in an area, like Venezuelan textiles, which has almost extinguished.

-Why did the company shut down?

-Does the Government know that the loan it received was never paid?

-What happened to that multi million dollar debt, one time held by the CVF holding, registered in the books of the Fondo de Inversiones de Venezuela and we are sure in those of its successor Bandes?
–Has there been a technical evaluation of the machinery to know to what degree it is operational?

-Was the shortage of national raw materials (cotton), especially if it happens to be long fiber, which, contrasting to what Chávez has said with his usual improvisation, has never had a significant level of production in Venezuela-without taking into account that today the national production of cotton is at its lowest point ever?

-Will we import then, cotton, to give life to a project which has no viability?

But the heirs of Mishkin must be dancing on one foot. They had spent more than twenty years trying to get rid of that white elephant, without paying anything back to the state and now they have managed their objective.

Of course, there is no way to revive that corpse. The textile industry is literally finished, a victim, what an irony! of the untenable Chinese competition.

The workers that embark themselves in this project will soon be stuck.

The state will cover the losses and the Mishkins will have kept if not the goat, at least their coins (Reference to a popular Venezuelan song). Co-Management is a potentially fertile idea (the true one, not this caricature that the adecos invented, with union leaders transformed into the millionaire director of State owned companies) and of delicate and careful implementation, but if it is applied in the case of Tinaquillo or with the utopian delirium of Alcasa, it will be a terrible failure, that will discredit perhaps forever the experiences of worker participation in the management of companies.

From America Economia as pointed out by a reader, the drawing accompanies an article about Mercal: