The Devil's Excrement

This is
something I thought about a few days ago briefly, but it was not until a
conversation I had today with my brother that I realized what a good idea it
may be. The Venezuela Government wants to sell CITGO (see
article in today’s NYT) because it does not believe that the return on its investment
is good enough and the funds would be better spent in Venezuela.
Well, I think my proposal is much better: Let’s have the best of both worlds,
let’s take a large part of CITGO public, while the Venezuelan Government
retains control of it. In this manner, PDVSA or the Government, whichever way
you want to see it, will recover its original investment plus gains during these
years, but it will retain the strategic importance of CITGO in the country’s overall
oil strategy.

But first
some background for the uninitiated. (Some more here).
In the earlier 80’s there was an oversupply of crude in the world and given
that Venezuela’s
crudes are sulfur rich, it was becoming more difficult to place the country’s crude.
PDVSA first acquired control of CITGO and later it bought the rest of the
company, as well as a couple of refineries to support the policy. When Chavez
was running for President he charged that PDVSA was not getting its money’s
worth and promised he would sell the company after he was elected. Despite
this, all of the Chavez’ nominated President’s of both CITGO and PDVSA in the
last six years, found the CITGO ownership of PDVSA to be a positive and talk of
its sale had died down.

But with
the new changes in PDVSA and the ascent of Bernard Mommer to the company’s
Board, the idea of selling CITGO has resurfaced. Chavez in his characteristic
manner, has been saying that he now learns the gas stations don’t belong to
CITGO (which was known by everyone), that Venezuela is subsidizing the US and
that the money would be better used here. Except the last one, the rest are
simply not true.

While it
is true that under current strong oil prices the internationalization strategy
is no longer as critical as it was one day, it may be shortsighted to sell
CITGO now, only to see prices collapse once again. (I know, everyone is
predicting oil prices can’t go down, this time is different, I have heard all
that before, the NASDAQ could not go down and oil could not go down in 1980 or
up in 1998, but all three of these instances proved to be the same as the past,
nothing goes up forever and it is never really that different)

From an economic
point of view, I can’t really conclude whether owning CITGO has been good or
not, from an strategic point of view it guaranteed Venezuela markets for quite
a while, that otherwise may not have been available.

Thus, my
suggestion is: If the Chavez administration really believes that it is not a
good business, it can simply take the company public by selling let’s say
60-65% of the stock in an IPO in the NYSE (It could accompany it with a local
listing too). This will allow PDVSA to retain operating control of CITGO, while
the Government will be able to recoup most of the value of the company.
Moreover, by doing an IPO, the Government will realize a price higher than what
it would get in a sale, since by now, every oil company knows that Chavez wants
to sell it and will try to underpay for it. In fact, oil stocks are right now
at their historical maximum (Exxon passed General
Electric this week as the most valuable company in the world).

CITGO
would still be run by a Board with a majority representation from PDVSA, but it
will have to add external Directors. Additionally, the company will have to
clearly show that its plan for the future is to maximize shareholder value,
either by distributing dividends or expanding business. If CITGO ceases to be strategically
important, Venezuela
could even sell its stock in the market slowly over time. The company would
also have to be run with a great deal of transparency, once it becomes a public.

On the
negative side, some have suggested the Government really wants to sell CITGO as
a way of removing all valuable assets from the US,
just in case Venezuela
ever decided not to pay its external debt. This would imply this idea is of no
interest to the Chavez administration. The sale will also require that the
Chavez Government sound market friendly for a while in order to maximize the
value of the stock at the time of the IPO.

Finally, I
know that I am dreaming thinking that this may even be possible. The solution
is simply too “market oriented” for the current administration, which just
declared itself “socialist” last Saturady. But it clearly makes too much sense and
represents a win-win situation in which the country would receive a substantial
part of its investment and maximize the price of this return, while at the same
time retaining control over the strategy and future of CITGO, which may become
very important again for Venezuela
in the near future.

By now, Venezuelan Government authorities have become extremely arrogant and appear to be losing perspective about what Venezuela is in the grand scheme of things. High oil prices have become like a powerful aphrodisiac or expensive liquor and they are simply drunk, hallucinating with their empty and idiotic ideas, while trying to gain the political respect of other leftwing countries in the region. I can imagine the laughs in private of those same foreign Governments, when they talk about what a fool the Venezuelan leader and his collaborators have become. They are the noveau rich in the neighborhood that thinks that because they have a Porsche and they neighbor a Honda, they are richer, so why not help them? The truth is the neighbor has a Honda, because he understands the fragility of his wealth, while the man with the Porsche thinks his car proves he is smart.

Thus, Venezuela announces that it will send Uruguay 43,800 barrels of oil and derivatives a day, with 15 year financing and 2% interest. On top of that, Venezuela will give the poor people of Uruguay a two year grace period in payments, much like the agreement with Cuba or should I say with Dictator Fidel Castro. And I can hear the Uruguayans laughing all the way to the bank at the naiveté of our esteemed President, who is apparently so ignorant, that he does not realize that Uruguay has a much better standard of living than our poor and beleaguered country. In fact, Uruguay’s standard of living as measured by GDP per capita is not only bigger than ours, but it is almost three times larger than Venezuela’s. And three times larger when you are talking about GDP per capita is simply huge. It is, for example, the same ratio that exists between Canada (US$ 30000 per capita) and Chile (US$ 10,000) per capita. Or the ratio between the US (US$ 37,800 per capita and Uruguay (US$ 12,600).

But these guys are so intoxicated with what they believe to be the richness of Venezuela, that they will now subsidize Uruguay, buy US$ 500 million of Argentina’s  debt (another country with a much higher standard of living than Venezuela, close to Uruguay’s) and continue to ship 50,000 barrels of oil a day to Cuba, all of them free. And they not only show their ignorance with their actions, but they ratify it with words, as exemplified by the Minister of Energy Rafael Ramirez who fills his mouth saying that the agreement with Uruguay will not affect the cash flow of  PDVSA, because he states “it is only a marginal volume of barrels for the company” . Yes, it is only 1.65% of PDVSA’s production, but another 2% is being shipped to Cuba under similar terms, making it 3.65% altogether. And we don’t know how many more agreements they will sign in the next few months.

This in a country that just devalued its currency by 12% in order to cover the fiscal deficit for 2005, once again directly affecting the purchasing power of the poor, who barely have enough money to eat. As usual, it is only politics that matters, whether nationally or internationally. We need to spend, so let’s devalue, we are rich, so at some point we will not have to devalue under this strange economic concept these ignorants have. It is truly a new form of Voodoo economics.

And Government figures continue vomiting their ignorance, as in the case of the mediocre Mathematician-turned-Minister-of-Finance Nelson Merentes, who explained to the country (the world was not listening, of course) that the devaluation yesterday” is part of a plan being advanced by the Government to obtain larger economic growth and more “social inclusion”. He added: “If we want to have a strong Bolivar in 2007, we have to take measures on 2006-2005; this is one of those progressive measures to be able to obtain growth and strengthen the Bolivar starting in 2007”.

I hope not too many economists are reading this and wonder what it was they studied at the University. This is the first time I have heard that devaluing allows for economic growth. Hey Nelson! If that is true, why didn’t you devalue by 50%? Imagine the growth it would have generated!

But these are the same promises that were made by exactly this same economic team in February of 2002, when the Government was forced to devalue the currency sharply, after using these innovative neo-voodooian economic concepts which sprout from the brains of the Giordani-Merentes team. Or is it simply ignorance?

At last we have a Government that is interested in erradicating poverty……….but in Argentina stupid!

Perhaps there is no better way to show what this post is all about, than to present today’s cartoon by Weil in Tal Cual:

(Look my dear, there goes our President, may God protect him)

Indeed, how is it that such an ineffective administration can maintain such a high popularity level? How Chavez can be such a snake farmer, that people whose purchasing power has been decimated by six years of this so called revolution, still have a hope that things will improve, even if they seem to be getting worse each day.

You see, one of the mysteries of the last six years is where has the money gone? It is a premise of the Keynesian economics, so favored by most Venezuelan professionals in that field, that public expenditures alone can sustain the economy, generate economic growth and at least, give the appearance of prosperity until the day of reckoning come, when income drops and you have to face the music. But as the following slide from a presentation sent by a friend and reader I had not heard from in a long time shows, this economic formula has failed miserably in the last six years:

Despite a 142% increase in oil income, a 66% in the country’s debt, a 323% in spending, GDP per capita is down 11% in the last six years.

But you know what Chavez says; he claims that the economy does not have to grow for people to do better, a concept that certainly is in conflict with traditional economics knowledge and experience. It is clear that economic growth by itself does not generate prosperity, but the second slide shows that inflation is up 292% in the last six years, but what is worse, food inflation, which is the one that hits the poorest the most is up 383% in the same period!:

 But by now you will be saying, well if salaries are up more than that, who cares? The problem is they are not, as shown in the next slide:

And this does not even take into account the impact of the 12% devaluation today. In any case, only 30% of the population is actually employed.

Any Government policy has two attack two fronts: Growth and employment. But employment after a brief foray at the 10% level recently, is back up to 15% this month, according to official numbers, even if not shown in this graph up to June of last year, when it was at the same 15% level (which is suprising to me by the way):

But the President speaks of salary increases who only benefit the employed, jobs are not being generated and mortgages are going to be subsidized by everyone (more on that later, when time allows).

But in the end, the revolution is simply killing everyone softly, like in the famous song, but apparently some feel loved by it anyawy. The poorer get much poorer, while the rich are getting a little bit poorer, except those that are attached to the lifeline (or nipple!) of the revolution, those are getting much richer!. But despite this reality, Weil’s cartoon still reflects to some degree the reality of the effects of populism. Indeed, killing you softly with hunger, but extremely popular!

Blogging is a funny activity, there are days that there is little to post about, so I just don’t post much. But at the same time there are days that are full of stuff, some of it so outrageous, that I don’t even dare sit down to blog, because I believe no matter how absurd, ridiculous or strange an item may be, I have to try to reason through it and explain it in detail, without being emotional about it. But reason is clearly not something that is being used too much or too often here in Venezuela. The actions of this so called Government appear at times to me to be simply erratic and others so outrageous, that I do not even know where to begin explaining things.

Thus, this long post will be what I would have posted about the last few days had I not been almost at the point of not having any words to express my outrage and amazement at these events.

Cuban ID Cards

You want outrage? Take for example the announcement that the Government will give the contract for the National ID card system to the Cuban Government. First of all, “Cuban technology” sounds to me as much of an oxymoron as “competent Venezuelan Government”.

Second, it is extremely scary, I would say amazingly scary, to be informed that the ID system will be manufactured and designed by what is, after North Korea, the most efficient police state on this planet, at this time. But the news appears in print and it is as if nothing had happened. As if it were not enough that now Cuban agents can act freely in Venezuela, take depositions and do investigations after the two countries signed a treaty of mutual penal assistance. It is as if the Cuban police state will be moved to Caracas to help control people like me or those around me. The human rights implications of the whole thing are so freaky that I am not sure I know even where to begin writing about it. 

I mean, this is the same Government who held a bidding process in 2001, in which three private companies competed for a contract to do the exactly same thing. A Korean company won the contract which later the Government tried to cancel due to charges made by one of the competitors who was theoretically very close to the Government. But it may have been just a rumor.

The Government not only cancelled the contract unilaterally, but it is being sued for the indemnization of US$ 68 million according to the contract. Of course, since the Supreme Court will decide the case, these silly and naive Koreans have the same chance of winning, that Carlos Ortega has of being found innocent of the charges against him.

So, in a country with strict laws that regulate how any Government contract has to be opened for bids, the Government argues that a treaty it signed with Cuba, approved by nobody, allows it to subscribe this contract without anyone having a say about it. I just wonder what the PC’s will be, old Russian 386’s?

Strange military movements

It all begins with rumors, then all of a sudden a reporter has been jailed for taking pictures and then everyone is saying that something funny was happening in the city of Maracay, South of Caracas, where there is a big Air force base. Of course, that “something funny” that was happening were real troop movements. A “coup” attempt aborted, something strange?

You disregard it as nothing much, but then you see the reporter who has been jailed saying that he took pictures of the troop movements that supposedly never took place. In fact, the first press release says the reporter was jailed for covering a demonstration in front of the Air Force base. Except the reporter says there was no demonstration, just troop movements.

So, you forget about it, obviously these are just rumors by overanxious people and just when you are happy you did not blog about it, none other than General Raul Baduel, who is overambitious and somewhat of a real crackpot (as if we did not have enough of them) comes out and says that the troop movement was routine. But while Baduell says everything is normal, the press secretary of Aragua states says: “The situation is normal now, the 3,000 people that surrounded the military headquarters have gone back home”

Hold it! Three thousand people surround the headquarters, nobody reports it and there are routine military movements? Come again? Of course, the press reports very little of it, given that famous article of the muzzle law that says you can not cause uncertainty or create instabilities in the population. Unless you want to go to jail. Do you?

But hey! It is still only rumors, even if spooky Baduel spoke.

Arrests

I make a post about Carlos Ortega being arrested; I try to remember that Enrique Mendoza was charged that day. Then I remember I forgot TV announcer Napoleon Bravo, who was also charged that same day. Or Banker (?) Ignacio Salvatierra who has now being charged twice! A record that I am certain will not last very long. So, ten bankers will be charged this week. How many next week?. And then I hear that the person charged for hiring the mysterious paramilitary force in the outside of Caracas last year, has yet to be identified by any of the more than 100 members of that force. But he is still in jail!

Hey! And I forgot and I apologize, former pro-Chavez private property invader “Commander Manuitt” who invaded buildings in Caracas in the name of the revolution, towing a cow and all, has been condemned to six years in jail for being more radical than Chavez. Will she be reivindicated in the future?

Chavez the trader: Presidential arbitrage

Hugo Chávez wanted to be President, baseball player, TV announcer and now…he is a trader! Huguito joined the ranks of the Wall Street traders yesterday, when in a moment of amphetaminic euphoria he announced that Venezuela will buy US$ 500 million of Argentinean bonds to “back” that country and express its confidence in it.

It makes you wonder when you know that in a couple of weeks Venezuela will issue 500 million euros in debt to pay for an issue coming due. Instead of buying Argentina’s debt, why don’t we just pay part of Venezuela’s foreign debt, instead of playing Presidential arbitrage? Could he be thinking of defaulting in the future? Naw! Say the foreign analysts. Not be so sure says the Devil.

Mercal and endogenous development

And then, while the Government is supposedly promoting something called “endogenous” development, the country’s second biggest Government enterprise after PDVSA is Mercal. Mercal is the company that provides food for the poor at attractive and subsidized prices. But something is weird, Mercal does not buy local products, it imports them, in a perverted interpretation of endogenous development and the promotion of local agriculture. So the Head of Mercal, even before the devaluation today, said he had to increase prices because shipping is up, services are up and there has been a devaluation, which made everyone wonder what he was talking about. But see, Mercal by now is selling as many tons a year as the largest food company in the country, but is devoting very little of its efforts to promoting local development and employment. Problem is, it is more profitable (for them) to import and this revolution is capitalistic despite Chavez’ change in direction towards socialism last Saturday. And that in itself is another whole story I have been ignoring.

Universities

It used to be that if anyone attacked the concept of autonomy of universities, hooded students would jump to the streets riot and create havoc in Caracas. But I guess they were all pro-Chavze, because after six years of failure in trying to win an election at any of the public universities in Venezuela, the Government has decided that they prefer to go back to the system of Stalinist democracy, rather than the participatory democracy that Chavez promised to deliver. You see, participatory democracy has a tremendous flaw they had not considered: You may lose elections if the CNE does not organize the process and is fair, like it happens at every stupid University where all the oligarchic, left-wing Professors and students continue to oppose the Government.

So, the Government has decided to issue a decree that takes away most of the power from the elected University Presidents (called Rectors here), and create a council at the Ministry of Higher Education that will control everything. You just have to love the revolution and its corrupted ingenuity!

Thus, I read this post back and it all seems so unreal, so amazing that people are not our protesting, screaming and fighting for their rights. But I guess this is what totalitarian regime looks like after a while. Particularly if the psychological pressure on the government is so strong. Or the leaders are so weak.

(A friend points out I forgot the aircraft carrier in Curacao, sorry, I was not sure if they went there to play in the casino, buy Gouda cheese or they are attacking tonight)

The Government announced today that it had devalued the  currency by 10.7% from Bs. 1,920 per US$ tp Bs. 2,150 per US$ as was projected in the 2005 budget. It was uncclear if this percentage was given out of incompetence or simply another attempt to fool some of the people some of the time as the true percentage is 11.97%.

This devaluation had been expected for quite a while, ever since former Minister of Finance Nobrega had announced it for January 1st. The budget was calculated at this exchange rate, but the delay implies a deficit of 2% with respect to the original budget. The devaluation is effective immediately.

The parallel market fist jumped up to near 2900 per US$ to later drop to 2740, closing around 2790.

Chavez today in Uruguay, what’s your favorite?:

Quote 1: “The US is preparing the ground for my assassination”

Which ground, I thought he walked on water?

Quote 2: “Venezuela to stop oil exports to the US if I am killed.”

Will Venezuela care once he is dead?

Quote 3: “The US pressuring me to commit suicide.”

Did God revel this to him or is he feeling the pressure in his own deranged mind and he is thinking of doing it?

Quote 4:”The US using a communication war against me”.

I thought he was the one that talked all day.

I pick #3, it reveals sooo much!

Not to go back to the same topic because the previous post was so successful, but as pointed out by Tal Cual today, the revolution certainly loves to photoshop and as with so many things they do, they cut corners and forget about ethics and such things as property rights. The newest case in the revolution is being photoshopped comes from the Caracas Metropolitan Mayor who when he came into power chose to revamp, restructure, and relaunch his Office, as so many Venezuelan politicians, past and present, love to do as if that improved performance. For their new image they showed a lion, the symbol of Caracas, originally called Santiago de Leon de Caracas. And they “designed” this symbol:

Problem is it looks a lot like that of a US broker, bank, and company called Harris, which looks something like this:

(I took this one from a subsidiary called Harrisinsight) But if you crop and flip the one from the mayor’s office, add a few lines and smooth out, you can clearly see they are one and the same:

As someone pointed out, the revolution certainly has learned to Photoshop, even if they don’t appear to have learned very much else and that my friends, is some progress!

And so we have come full circle and the man who led the first demonstration against the Chavez regime has been detained, after going into exile, coming back, and deciding to live a full life, stupidly going to a night club, with dyed hair and a full mustache. He will now be charged with treason and rebellion, for the simple fact that he led a strike against the Chavez Government, a right guaranteed under the Bolivarian Constitution of Venezuela under article 97. But of course, this autocratic Government only recalls the rights that are convenient to its objectives and forgets those that are a nuisance to its goals. You see, after all, Ortega is the only man to have clearly and validly won an election during the last six years, a victory which Chavez obviously did not recognize, calling it fraudulent, despite the trouncing Chavez’ candidate got.

But you see, fraudulent is a one way word in Venezuela, where so many words and roads have now become one way: the way of Chavez. It is the one way of this lawless Government where opposition leaders are being charged for simply being at the Presidential Palace in April 2002, but not a single Government official is being charged for those that were ambushed and killed the day before. Where those that did not go that day to the Presidential Palace are being charged for corruption, while the man responsible for the missing US$ 3 billion when he was Minister of Finance in 2002, is rewarded with his second tour in the same position that he is not qualified to hold. And if an opposition leader can not be charged for either, then he can be charged for supposedly shutting down a TV channel. Meanwhile, US$ 1.5 billion was squandered in Vargas state and the man who presided over the waste and the deaths that followed is not even being investigated. Yes, a one way road of corrupt morals and incompetence.

And as poverty continues to rise, the Venezuelan Government gives Cuba 50,000 barrels of oil a day, which does not get paid, under a treaty never approved by the National Assembly as required by law, but the President does not get charged for that either, that would be the wrong road. Meanwhile, 18,000 oil workers who were fired in 2003, have not seen their severance pay, pension fund contributions and savings returned to them and now the same oil company is planning to accuse all 18,000 of them, from humble workers to executives, for damages and simply retain their savings. And this was supposed to be a Government with a human face. All of this, while a corrupt man who presided over the most unethical managing of any electoral process in our history, is named to the Venezuelan Supreme Court, where he replaces a servile Justice who received an outrageous pension seventy times the minimum salary for services rendered to the revolution. Not happy with this, this same man acts like a mafia Godfather before leaving his old position, acting like a true gangster without morals and principles.

Meanwhile, opposition reporters are charged with crimes committed weekly by the President himself, like defamation. Or they are fired by the owners oif the emdia who feel threatened. Other reporters are threatened by the President’s supporters, but they become heroes of the one way revolution. And yes, billions of dollars are also missing from the country’s accounts: US$ 2 billion given to the Development Bank are apparently just unaccounted for. Videos of Government officials unloading guns get no action from the Prosecutor’s office, but hearsay is sufficient to open any investigation against opposition members if it’s supreme leaders whims it.

This week, it also has become the banker’s turn. They are being charged for usury for awarding indexed loans approved by the Central Bank and the Superintendence of Banks, of this same revolutionary Government. Just find an excuse said the leader, and his lackeys and collaborators without scruples found a way and they will continue to do so whenever it is required. But the roads built under the Bolivar 2000 program, which no longer exist because they were washed away by the rains, remain a tribute to the levels of corruption of the Venezuelan military, which remains ignored by the otherwise efficient one way prosecutors. 

But not one Government official of the last six years has yet to be charged with anything in a country where ethics, on both sides, are by now almost non-existent. The phantom People’s Ombudsman shows up only to defend the Government, while the Attorney General/Prosecutor acts only on direct orders from the Presidential Palace and the assassinated star Prosecutor, hero of the revolution awarded the greatest honor in the country, turns out to have been involved in a cesspool of corruption right under the nose of the Prosecutor, while thousands in cash and unexplainable property are found in his hands.

Thus, this autocratic and incompetent regime instead of fulfilling the promises of its leader has simply magnified and taken to new levels all of the ills, crimes, distortions, intimidations and disregard for others of the previous administrations. And despite the right wing character of the regime, world opinion lives under the delusion that the poor are doing better under the empty revolution. They are not only doing worse than six years ago, but they fail to ask what this inefficient Government is doing when oil prices are four times higher than when Chavez reached power six years ago. Populism obviously sells. Six long years under a charismatic leader and some people still have hopes, despite the lack of any accomplishments other than the belief that something will be delivered. But as someone said, those promises were good six years ago, but not only have become stale, they are by now simply bullshit. But this is a Government of politics and bullshit, sustained by high oil prices and the corrupt powers that are supposed to defend the people and the law. The same ones that will twist the law to send Ortega to jail, rob the fired PDVSA workers and imprison the opposition, until we turn around that one way streett and fight to win.

I guess Mision Robinson teaches reading, but not writing