The Devil's Excrement

I don’t like very much the US Ambassador to Venezuela. He is quite wishy washy, sometimes it is hard to understand what he is saying and has been too diplomatic at times. Thus, I was surprised at his two interventions in the last two days which appear to be more orders from high above than his usual blah style:

– Shapiro first snapped back at Foreign Minister Chaderton who had said Colin Powell was not well informed, by saying yesterday that he kept Powell very well informed as to what was happening in Venezuela.

–Today Shapiro challenged General Melvin Lopez calling him a liar and saying more or less:” These accusations are totally false, without any foundation and we believe that to make accusations like this, in an irresponsible manner, only help to damage relations between the US and Venezuela. We are doing everything possible so that they are good. We want them to be good. But statements and accusations like these, immflamatory, besides being false, do not help at all”. He also added through the press office of the Embassy challenging the General “We challenge him to present this evidence” General Lopez has been saying for weeks that he has proof of the involvement of the US Government in the Carmona Presidency last April when Chavez left the Presidency for two days.

Minister of Planning Felipe Perez who was appointed less than a year ago was removed today by President Chavez. Perez, who has a PhD. in Economics from the University of Chicago, did little but make failed predictions as to the path of the economy while invoking the need for divine intervention and positive thinking to have things work out well.

He will be replaced by Jorge Giordani who happens to be the man that led the Ministry during the first three years of Chavez’ administration. Giordani, who is not an economist, set the country in a path that was simply unsustainable. He purposely pushed for the overvaluation of the currency while increasing internal debt by a factor of six in three years at levels above 30%, destroying much of local industry. This contradictory policy  was doomed from the beginning and eventually led to the sharp devaluation in February of 2002 and the continued devaluation since then which in turn led to exchange controls in January.

Some people believe that he comes back because Chavez can’t find anyone else. I disagree, he comes back because Chavez has extraordinary rapport with Giordani and believes in him. Giordani is a true leftist fundamentalist on economic matters who as recent as 1995 was praising the success of the North Korean economy in his academic writings on scientific planning. I see his return as a sign that Chavez wants to exert even more control on the economy. What is not clear to me is what will be the role of Minister of Finance Nobrega. Nobrega is an economist with a sound background, which Giordani does not have. Can’t see how they will get along, given that Giordani was the controlling force on the economy when he was Minister, a role assumed by Nobrega a year ago. Very bad sign for the country.

Imagine this: For four months the Government and the opposition have been negotiating to sign an agreement to defuse the Venezuelan political crisis. They reach a fairly innocuous agreement which says there will be a recall referendum if the opposition presents the required signatures, which is in the Constitution anyway, and that there will be international supervision. The agreement was to be signed today. Surprisingly, Chavez’ MVR party, which he has dominated and controlled for the last four years and has always reacted to every wish and whim of the President “refuses” to have the Government sign it and wants the agreement changed. In particular, they don’t want the international supervision and they refuse to accept that the recall referendum would take place no later than 90 days after the opposition hands in the required signatures. For all the fools, both here and abroad, who believed that there would be a recall referendum here, what more proof can you have of the true cynical and dictatorial nature of this Government? As I have said before, the Government will block any attempt to hold a recall referendum until August 2004 when, according to the Constitution, if Chavez were to lose a recall referendum, the Vice-President becomes President. Since Chavez can appoint the Vice-President anytime he wants, he will name his brother when and if he loses the referendum, if it ever takes place. Can it be clearer than this? Some people still think this is a democracy. Fools!

Scott from burtonterrace sends in and comments in his site on this link from the Christian Science Monitor about the “revolution” in the Venezuelan oil industry. Given what the article says I definitely have to comment on it:

“Nine-to-fivers have come to think of themselves as patriots. Senior managers now eat at the same cafeteria tables as secretaries.”

This is not accurate. First of all, most PDVSA workers do not work nine to five but much longer hours. Second, senior managers have always eaten in the cafeteria.

“What was widely regarded as a world-class energy company before the strike has a new philosophy: to help the poor”

This is a stupid philosophy and has never worked anywhere in the world. Oil revenues in Venezuela are less than $3 per day per inhabitant; oil income is around $1 per day per inhabitant. PDVSA should be run to maximize profit so that that income can drive the economy. Guayana companies under the umbrella of a company called CVG were always run “to help the poor”, they always lost money. In the end, the steel company was privatized and is almost bankrupt, the aluminum companies nobody ever even bid for them. (Chavez stopped the privatization when he was a candidate because the price was too low; nobody wants these companies even for free today). The petrochemical industry was in the hands of the Government for years, it never made money. It was handed over to PDVSA and it became profitable.

“The old culture is dead, and a new one is developing,” says Omar Enrique Perez, a compensation analyst with 15 years at the firm, who is working to slash salaries across the board – including his own.”

Imagine cutting salaries that are already low by international standards. High level managers at PDVSA make less than $50,000 a year. This is inconsistent and incompatible with the planned oil opening in which foreign companies will be sold tracts for exploration and productions. The Exxon’s and Shell’s of the world will come in and hire the best talent away from PDVSA and the 18,000 people fired from it. This does not benefit Venezuela or PDVSA. This already happened at the Government level where salaries were held back and no professional worth his while was willing to work for the Government. What will happen is that politics and corruption will rule at PDVSA. Moreover, the PDVSA culture was without doubt its most (and the country’s!) valuable asset. There was no political cronyism and corruption was very low. Over many years the number of corruption cases in PDVSA were orders of magnitude below the Government or the military.

“But Rodriguez has signed on with the government game plan – to divert some revenue to federal coffers that would otherwise be reinvested in PDVSA.”

This was already happening, in the last two years PDVSA was paying the Government more dividends that the company was actually earning in income (Weird concept, no?). I would like someone to convince me that this is not the sure path for bankruptcy for any company. Of course, in the case of PDVSA the end will be simply the privatization of the company.

“The new PDVSA management says much of that money was wasted, and points to operating costs that are three times higher than other oil majors as proof”

This argument is hilarious. The only reason operating costs at PDVSA were higher was that the Chavez administration held the currency constant for so long that it was overvalued. With inflation running at 15-20% and the currency being held constant, salaries were increased so that part of the purchasing power was maintained. Ordinary field workers at PDVSA, before February last year when the currency was devalued, were making $40,000 a year. With the devaluation this effect has disappeared.

“Previously, PDVSA’s management used its considerable degree of autonomy to aggressively explore for oil, develop new technologies, and acquire overseas assets”

This should be the bread and butter for PDVSA: Explore for oil to increase production, develop new technologies to be able to exploit the huge heavy oil reserves Venezuela has and acquire assets overseas to be able to place products in markets. This strategy not only worked, but is the same used for example, by the successful Malaysian oil company Petronas, which operates in a country which produces 20% of Venezuela’s daily production but operates in over twenty countries. Moreover, the Minister of Energy and Mines just announced that they intend to do exactly the same, exploring to produce 5 million barrels of oil a day. This statement is so cynical coming form the people who objected to the oil opening of the Caldera administration which was done to expand oil production without using PDVSA’s resources.

Finally, the article has some active and former military speaking on how they will change PDVSA and move on. Well, so far in the last four years, the military (from both sides) have shown to be mostly incompetent and overrated, making Venezuelans question even the need for them. Chavez’ has surrounded himself with military at all levels and very few of them have shown any management capabilities. Why should PDVSA be any different for them?

According to the National Institute for Statistics, unemployemnt has increased by 75% in the four years of the Chavez Government. (El Nacional page B-1). This despite the fact that oil income in the first four years of the Chavez Government was 41% higher than in the previous four years in US dollars. I wonder who Chavez will blame for this? The strike? The opposition? The US? The Colombians? Maybe he can just shutdown the Institute……

Upon my return I find that U.S.A. Secretary of State Powell made a very simple statement “Chavez can show his democratic vocation with the recall referendum”. To me, a very bland and true statement. To the Venezuelan Government, a violent reaction such as an MVR Deputy saying “Powell is not well informed”. But I am truly amazed at our Foreign Minister who said: ” The truth is being hidden from Powell, the recall referendum is in the Constitution and was put in there by the Government.”

This is true, but the opposition, through a violation of the previous Constitution only has four seats out of a hundred in the Constitutional Assembly, despite obtaining 33% of the vote. This violated the right to minority representation guaranteed by the previous Constitution. Now, as far as I remember these four people did not object to the recall referendum, so what is Mr. Chaderton saying? Moreover, the consultative referendum is also in the Constitution and despite the fact that the opposition fullfilled all the requirements for it, it was not held. Finally. Hugo Chavez himself, using a very vulgar expression, told the opposition that there would not be a referendum and appointed himself to a job that is not his, when he said that the signatures already collected for the recall referendum were “chimbas”. Chimba is local slang for something which is fake through dirty means. So perhaps Mr. Powell is better informed than Mr. Chaderton would like him to be.