Sunday, June 29, 2008

As Petrobras becomes the top Latin American oil company, we can't accept new blacklists that bar the best from working for Venezuela Reading about Petrobras this weekend, I could not help but be envious about the different routes the two state oil companies Petrobras and our PDVSA have taken in the last few years. Petrobras, the one time oil importer has managed in 30 years to make Brazil not only self-sufficient in oil, but a company for which Brazilians can feel proud about. The article I was reading in Barron’s (by subscription, but you can read it here: http://www.marketwatch.com/news/story/drilling-deep-flying-high/story.aspx?g uid={6D03B92C-4F04-431F-936B-F03D73F5877C}) paints the company as self-sufficient and competent and sitting on top of what may be the biggest oil find in 30 years, the Tupi field. The article praises Petrobras and its people saying: "They've been deepwater drillers for 40 years and have the people and have the processes in place," she adds. "They've got top-line people. Are they credible? Absolutely." This contrasts with our own PDVSA who not only lacks the people required to do the job, but has in fact sent them over to the competition, principally Canada where they are shining and demonstrating how good they were. Meanwhile in Venezuela, production goes down and recently PDVSA signed a contract with Schlumberger as it realized how it has lost technological capacity to sustain operations. Those that were part of PDVSA, 22,000 strong, were not only fired, but to this day remain blacklisted whether they work in oil or they make food, their ID numbers are checked at every step so that not only is it that they can’t sign a contract with PDVSA, they can not even have access to PDVSA buildings to sell, as one example I know, prepared food to PDVSA workers. And as Carlos Blanco says so well today,( http://opinion.eluniversal.com/2008/06/29/opi_34919_art_tiempo-de-palabra_92 3103.shtml) our tolerance of earlier blacklists allows new ones to surface. PDVSA fired 22,000 for participating in the 2002-2003 strike, but in the end got rid of any one suspect of not being “rojo-rojito”. The 22,000 were not only fired illegally, but their personal savings and voluntary pension plans have been confiscated and there is not a Court in the country that will hear their case.  The illegality remains in place backed by Chavez, his Prosecutors, the Courts, the Comptroller and the People’s Ombudsman. And while we hear the stories of success, we don’t hear the many cases which as Blanco calls them today in his article: “Detrás de cada excluido hay un drama humano de inmensas proporciones; pero, desde el punto de vista social hay otro drama que es el de una nación que se priva de la participación de mucha de su gente mejor preparada” (Behind every excluded person there is a human drama of inense proportions but, from the social point of view there is another drama of a Nation that blocks itself from the participation of many people who are better prepared) And the drama is worse the lower level the person fired from PDVSA. The engineers and technical people, the managers found jobs, left the country or started their own businesses, but the secretaries and messengers, the field workers with careers in PDVSA, have suffered the most. Lives destroyed by the whims of Hugo Chavez and the approval of his sorry cohorts. And thus, it is Brazil with a quarter of Venezuela’s reserves, which has become the great Latin American oil company. as PDVSA has had even trouble trying to certify that it has the reserves that it has been known for years it has. But in the simple mindedness and ignorance of the President at PDVSA that certification ahs become the only purpose, never mind that he has no clue if we can ever get it out of the ground. Certainly not under his leadership. Which proves once again how powerful the concept of The Devil’s Excrement is. Brazil had to build its oil company under negative circumstances, lacking even the most basic source for its business. But it not only exploited ethanol in the lean years, but has now developed all of the country’s oil needs. And in contrast to Venezuela, Brazil has actually increased gasoline prices in the last few years, not as much as they have to but enough to make the subsidy irrelevant in contrast with the irresponsible policies of our Government. And we keep chugging along, using up as much as 800,000 barrels of gasoline a day, used to run subsidized automobiles for the wealthy classes of Venezuela. A subsidy close to US$ 14 billion a year which represents a perverse subsidy given away by a Government so that autocrat Hugo Chavez can remain in his position, literally screwing his constituency without them knowing about it. And some of those that ignored the PDVSA firings and subsequent blacklist are now victims of the new list disqualifying their candidates. And if we don’t do anything, there will be new lists, new abuses, new exclusions and new discrimination in a Government that does not pretend to include every one. And the excluded are needed to make a better Venezuela. We need every competent person. We need inclusion. We need everyone, independent of its political beliefs, as long as he/she is there to do a job and not to turn the job into a political project. And at the pace we are going it seems Chavez may have to exclude every single Venezuelan before we actually do something about it. And so many have been excluded because they were not loyal, that few competent and independent thinkers are left yo help a Government that hates "experts". Without the, we will never get Venezuela out of where it is. People have to wake up and realize they can be next. 11:39:24 PM    comment []

Random Bits from the revolution Passionate about money: Remember when the Minister of Justice dismissed the murder of RCTV’s anchorman Javier Garcia as a “crime of passion” that should not affect society? Well, as usual the Minister was talking without knowing anything about the case. Yes, the murderer was caught, but the only passion so far in the case was that of the murdered for money as the police said the motive was robbery. Another triumph for the stupidity and incompetence of Minister Rodriguez Chacin! In any reasonable country he would have resigned six cases ago. Supreme Switch: Venezuela must be the only country where the Supreme Court issues a decision, the decision is published on the Court’s webpage and sawn into the Court’s records (A strange custom in itself!), only to be modified when the Government calls the Court and tells it to change it. This happened this week with the decision by none other than the former President of the Venezuelan Electoral Board (remember the one that could barely speak?) on what is considered taxable and when it will be applicable. The original sentence said it was only regular salaries, which is the case in the new one, but the old one said it would apply from the original decision by the Supreme Court, while the new one says starting next year. The difference is important, as it would imply a credit to all those that paid taxes this year. This creates a loophole in that companies may give workers special non-regular bonuses as a way of giving them non-taxable income and thus a salary increase. Of course, the original decision was filled with revolutionary intent, which can backfire when reality hits.  Failed Plan: Two weeks ago General Manager/Chief Justice/Commander in Chief/President Chavez had the brilliant idea of stopping crime by placing two National Guardsman with FAL rifles on every public transportation bus in the country. As everything in Venezuela, this was simply improvised on his live reality show Alo Presidente, but clearly the President had no clue that this would require more National Guardsmen that the country had, without taking into account the danger of untrained, armed soldiers on every bus. Some eager beavers took the President’s words as an order and for one day many buses in Caracas carried the two guards until someone realized what a stupid idea it was (I am sure they never told Chavez). On top of that crime did not go down that day in Caracas. The idea was dropped and the new “program” lasted only twenty fours hours. Don’t complain, that is longer than many other programs started by Hugo Chavez. 1:01:34 AM    comment []

Thursday, June 26, 2008

When all the clowns in Venezuela want to run the circus Somehow the picture above reflects what is happening in Venezuela much better than any words I can put together.  It was taken on Tuesday during the parade in Campo de Carabobo, in celebration of the battle that gave the country its independence. First of all, Chavez spent this “celebration” talking about politics and telling us why it is that “no volveran” (they will not comeback). The problem is that it is no longer clear if he means “no volveran” or “yo no me voy” (I will not leave), because nobody even seems to remember who it is that will not come back. Because Chavez used his speech to tell us who among his former heroes will not come back. Baduel for example. Chavez’ former buddy, friend, confidant and the man that saved Chavez’ rear end in 2002, we were told that Baduel can go to hell and never come back. He then proceeded to do the same with burping, bumbling idiot Acosta Carles, his self-appointed Governor of Carabobo, famous for the burp that was heard around the world. One of the most visible clowns of the revolution. And we heard Acosta Carles come on and say he forgives Chavez, sounding like the veritable clown he is. Reminding Chavez that he saved his revolution with his burp. The guy is actually quite proud of his silly moment in history! And Acosta Carles turns the “Patria, Socialismo o Muerte” of Chavez in a more benign “Patria, Socialismo o Amor”, certainly an improvement and better than Chavez Minister of Defense that says Socialism is life and that is why he is ready to fight for the revolution. Another day, another clown. And just to remind us that things can actually get worse under Chavez, he praises his new hero he has found for poor Carabobo State: That perverse and despicable journalist of La Hojilla named Mario Silva. I mean, why does Chavez hate Carabobo so much? What did they do to him there? Because Mr Silva has no redeeming qualities. No managerial experience. No political following. Thus, Chavez wants him to be Governor of Carabobo. And who would have ever thought that we may be grateful to Acosta Carles for anything? Acosta Carles, while he apologized to Chavez, in his delirium said that if the “people” want to be a candidate he will be. Which is just a lesson he learned from the clown master himself, Hugo Chavez, who always says he is doing things for the “people”, but he only does what Hugo Chavez, wants. That’s the problem, Chavez has created dozens of powerful monsters, which to us appear as clowns and now he does not know how to stop them, but these clowns have undertaken a life of their own. And then Chavez showed why he is the despicable autocrat he is, when he said that he defended the Comptroller for disqualifying the corrupt of the country. Corrupt? Not one person in the list of the Comptroller has been tried or found guilty. Moreover, the most relevant ones are not being disqualified for stealing money, but for changing line items in the budget, or for violating obscure sections of the administrative code. But nobody is disqualified, for example, for charging commissions for giving bonds to anyone at a discount. Or even investigated for example, for carrying suitcases full of cash in Government airplanes. Or nobody has looked into the sudden wealth of Government officials, like Chavez’ family. Or former Vice President Jorge Rodriguez. Or the multi million dollar apartments in Miami of PDVSA Directors. Or the use of VTV for a political party. Or the use of the Electoral Board for Chavez’ party’s primary? Or front running of PDVSA bonds? Or Sovereign bonds? Or the sale of the Citibank building? Or the drop of production of PDVSA? Or stealing the funds for the non-working sugar plants? Or where did Juan Barreto find money to buy the Daily Journal? Or who owns Banco Bolivar, Banco Confederado or Banpro? Or who acts an intermediary for the structured notes and bonds sold by the Government (All 8 billion dollars of them)? Or where did the money from the FIEM go in 2003 (we are talking billions missing)? I could go on but it would get boring, it is all in this blog since August 2002. And the clowns! How about the Minister of Health who claimed the current mumps epidemic was the fault of the prior Government because 14 and 15 year olds were getting it and thus never got the vaccine, forgetting that four year olds are also infected? Or the Tax Office guy this week saying there was no Supreme Court decision on taxable salary, but it is right there on the Court’s webpage? Or the defense of the Intelligence Bill by the usual people that suck up to Chavez, until Chavez realized the issue was becoming too hot to keep and dumped them? How about the crimes that are not relevant to society, like gang homicides, jail killings and family disputes? Those don’t count for God’s sake; they are irrelevant according to the Minister of Justice. Who by the way was accused of a massacre when he was in the military during the awful days of the Fourth Republic, but now sympathizes somehow with those on the other side of the massacre! And how about the military clowns? Do you realize that almost none of the Ministers of Defense that Chavez has had could speak well? Why is that? The last one can barely put a few sentences together and now General Garcia Carneiro, one of the worst offenders of this,  is being imposed on the people of Vargas State as Chavez candidate for Governor.  As if the people of Vargas were not masochistic enough already! An act of God destroyed their state in 2000 and Chavez is making sure it stays that way and they keep voting for his people! They deserve Garcia Carneiro! They deserve their children to speak up as incoherently as him and their votes! And today the National Assembly defends the Comptroller; one day after saying the Moral Council’s attempt to remove two Supreme Court Justices was illegal. And guess what? The Comptroller is one of the three clowns in the Immoral Council! We are now supposed to believe that the same guy who could not read in the Constitution that decisions of the Council have to be unanimous and by all of its three members, can understand more complicated things like what disqualifying means, or what human rights are or how to even spell  “Interamerican Convention on Human Rights” Just think, in ten years, only one-person has been found guilty for corruption. That guy is probably innocent! Or stupid! But of all the stupid and clownish things I have heard lately, the best one has to be the General that said the media could be prosecuted for revealing national secrets. What was the context? Well, Clown #1 had ordered nine divisions to move to the border with Colombia to defend the country. For two days, the media reported that there had been no movement. That was when the Chief military clown threatened to prosecute the media for “revealing” this national secret. Of course, he never thought he should prosecute the Chief clown for announcing the troop movement on National TV. Or making the decision by himself without consultation in violation of the laws. Or maybe, just maybe, he should have ordered an investigation on why the clown troops did not obey the orders of the Chief Clown? Or why when the troops were finally mobilized, only a fraction of what was ordered was mobilized. Could it be that after US$ 9 billion in weapons purchases we are still running in place like six years ago? The problems is not the clowns, it is that by now, these guys think they can run the circus… And they all want to replace Chavez in running the circus. 11:52:10 PM    comment []

Tuesday, June 24, 2008

Another black list under Hugo Chavez: Disqualifying opponents from running for office I have not written much about the “inhabilitaciones”, the new black list by the Hugo Chavez administration, which my dictionary translates as disqualifications, but does not seem quite right. In any case, I was waiting for the time to register candidacies to be closer to talk about the issue in the still naïve belief that the whole thing was so absurd, that it would surely go away. But it hasn’t…it represents another black list and abuse of power by this Government which is only efficient at violating people’s rights. Absurd, because the procedure used to disqualify a person is so ridiculous and simple and so dependent on a single person, the Comptroller, that if the legislators had meant to it to be that way, they would have realized what a mess it would be. Just so that you understand the process, let me describe how easy it is to be disqualified. The procedure can be as simple as this: -Someone from the Comptroller’s office or a citizen detects or accuses someone of doing something improper. -The Comptroller has the lawyers that work for him interview the accused (without a lawyer being present), you are asked at the end to sign to certify that you said what is in the minutes typed by the lawyer interviewing you.  -The case is reviewed and at that point new questions may arise which require a new meeting with the lawyer, at which point they will ask additional questions and/or clarifications about the case. The lawyers will then say what sections of the administrative code were violated and the case goes to the Comptroller for a final decision. -The Comptroller, alone and singlehandedly, decides whether you have committed a fault and decides what to do. It can be as simple as a fine or disqualifying you from being appointed to office for a certain period. Up to a few years ago, it was never interpreted as you not being eligible to be a candidate. That’s how easy the process to “disqualify” you is in this new revolutionary interpretation. How do I know this? Easy. A few years ago, I was on the Board of a Foundation associated with one of the universities in Caracas. We signed a letter of intention to buy an office for Bs. 250 million (at the time around US$ 300,000) and asked for a mortgage from a bank. On the day we had to pass papers, the mortgage had not come thru, so the seller pulled out unless we paid more, I don’t recall how much more but it was something like Bs. 20 or 30 million. The case came to the Board and we approved it because we could not find anything cheaper and the location was perfect for the Foundation. A couple of years later, someone went to the Comptroller’s office and denounced that there had been a payoff of some sort and that was why a higher amount was paid. The Comptroller opened the case and all eight members of the Board were investigated and we all went to the Comptroller’s office twice to testify or be interviewed. The lawyers conclusion was that we were not guilty of what we were accused but we were in violation of the law for attempting to borrow money without the Cabinet approving it (Despite the Foundation not having received any Government funding since 1970). Thus, we were charged with this different accusation and the penalty was a fine of what was then about $700-800 and two years of disqualification from being named to any Government position. The case went to the Comptroller (Russian, the current one) who decided we were not guilty. We never knew why he ruled that way; we were just sent letters of good behavior, saying the case had been closed. This is the first reason the whole thing is absurd, you cannot have such a process dependent on one person and subject to manipulation. Yes, you can appeal, but in the appeal, you just write why you are innocent and the Comptroller once again decides what to answer back. The fact that this is the case can be seen in the statistics which show that 80% of those disqualified from running for office are opposition in a country where the opposition holds less than 30% of the offices in the country between Mayors and Governors. That extreme asymmetry is no accident. In fact, the Comptroller is not a judge, he can disqualify someone from being appointed to office, but he can not stop them from being elected. The only way to take away your political right to be elected is if a Judge finds you guilty. This is not even just Venezuelan legislation, this is part of the Interamerican Convention on Human Rights (The San Jose pact) which in its Article 23 clearly says that your political rights can be limited by a number of reasons such as age, nationality and…”sentence, by the competent judge, in a penal process”.  Article 65 of the Venezuelan Constitution establishes a similar limitation, which I still find it hard to interpret in any other way, and takes precedence over any legislation below it. But in any case, Venezuela signed the San Jose pact, which will clearly delimit how anyone’s political rights can be taken away: Only by sentence of a judge in a penal process. Thus, we are once again facing a gross miscarriage of justice by the Chavez administration, which has simply disqualified those figures of the opposition that were a threat, while at the same time using similar arguments to remove pro-Chavez figures from office in the case of those Chavistas who were a nuisance to Chavez’ plans and desires, such as the recently removed Governor of Yaracuy State. If the rule of law existed in Venezuela, this would be easily and readily fixed with a ruling from the Constitutional Hall of the Venezuelan Supreme Court, but despite numerous injunctions submitted to that body, the Court has either ruled against them or denied the injunctions on technicalities. All of this has been helped by the absolute obedience of the Electoral Board, who despite the fact that none of them are lawyers, reached a decision on the matter without even asking for an opinion from its legal counsel. I have no hope that this new black list by the Chavez Government will be revoked. It is a Government for which the wholesale violation of human rights represents no problem if they are in the way of the empty political project of the Chavez revolution. From the PDVSA workers, to the Maisanta list and now the black list of the “inhabilitados”, it is a way of life for Chavez and his comrades to perversely violate the rights of those that get in their way. 11:29:08 AM    comment []

Sunday, June 22, 2008

Chavez Guisonomics 101, part IV: Why did the Government stop the use of structured notes to buy a bank? For a few weeks, there had been rumors that one of the largest banks in Venezuela, Banco de Venezuela, owned by Banco Santander of Spain, would be bought off by one of the largest banks at #5 in the country Banco Occidental de Descuento (BOD), creating the country’s largest bank. What was not clear was how the deal could be pulled off. Then, at the beginning of this week, someone explained to me that the transaction would simply be a hand off of the structured notes denominated in Bolivars in the hands of BOD. Such notes are worth slightly above the half of the US$ 2.4 billion registered on the books. Santander would receive them and ask the Government for the dollars at the official rate of exchange. While I haven’t seen the numbers, it made some sense if the regulator (the Government) allowed the transaction like it has allowed the others that have taken place. For Santander, it would be an elegant way out of the country (the bank has been rumored to be for sale for ages) and BOD would get rid of the notes in its balance sheet, acquiring a very healthy bank with the largest branch network in the country. Of course, the purchase would still be suspicious in the sense that those notes were purchased with depositors money. That si why I started this series. But then on Thursday there was a bombshell, the Government issued a very strict resolution essentially banning any bank or financial institution or even anyone currently owning more than 5% of any such institution from buying another one, reaching an agreement to buy another one, without prior permission from the Government. Moreover, the resolution bans the transfer of the structured notes without the financial institution having prior approval from the Government. Lawyers are still arguing whether the resolution banks the BOD/Banco de Venezuela acquisition as described, but most think the Government’s resolution is airtight. But whatever interpretation anyone may give it, to me it expresses in no uncertain terms that the Chavez administration does not want the transaction. Thus, unless Chavez himself gives the green light I don’t think the acquirer or the subject of the acquisition will go ahead with it. The puzzle is why it was blocked. All sorts of rumors are flying around Caracas about this. There are basically two ways of thinking: One, that blocking the transaction originates, as has become customary in the robolution, in some parallel racket (guiso) being set up by someone else who wants to by the same bank. The second one is that this reflects the arrival of the more fundamentalist Ali Rodriguez to the Ministry of Finance and that he stopped it. I would lean towards the first explanation, because it has always worked so far when you are trying to find a rationale to some act by the Government that does not make sense. But the same resolution contained what to me is a somewhat worrisome proposition: It orders auditors of banks to reflect as of June 30th. 2008 the quantitative impact of the notes being valued at its true worth. Additionally, it bans any bank from divesting itself of the notes until the Government approves it. The problem with this is that June 30th is this week and I doubt any bank is ready to divest. This means that the auditors will look at he notes and calculate their value at the only exchange rate accepted by the Government Bs. 2.15 per US$. But these notes are worth more than that since the guarantees behind it are US$ which can be sold in the parallel swap market currently around Bs 3.4 to the US$.. So, if you look at what the auditors will say, it will exaggerate the loss incurred by these banks to the point that many will look absolutely bankrupt. Today the Minister of Finance complained about this situation, saying bankers will have to capitalize their institutions because they bought the notes with the depositors money. (Will all of them?) And he is right. However, he fails to say that it was Chavista Government officials that allowed this to happen without any action. For a Government that likes to blame the 40 years of the Fourth Republic for everything, this time around, it can’t use that excuse, exchange controls have been in place since 2003 and all of these structured notes were created since then. Who is to blame? I am pretty sure that not only will the Government not do anything about prosecuting those buddies responsible for it, but I am sure all of them can run for office in the November regional elections. And will we see if the “guisos” continue now that Rodriguez Araque is in the Ministry of Finance? He is supposed to be extreme radical, but a straight arrow. His tenure at Finance will tell us if the latter is true. More guisos, as they show up. Stay tuned. 7:53:30 PM    comment []

Saturday, June 21, 2008

Chavez Guisonomics 101, part III: How to buy a bank without using your money Growing your market share as a bank is not easy, you have to work hard, do it for many years and convince depositors that they should prefer you over your competitors. On the way you also face many hurdles, economic swings can affect your performance and if you stumble once, depositors and clients will never forget it. While history says that “good” bankers are the ones that grow their business organically, slowly and carefully, “nouveau” bankers tend to want to grow faster by acquiring other institutions and/or straying away from the core business of banking. Venezuela is no different, for decades we have seen acquisitions and takeovers as the way to grow banks and the last few years have seen quite a few of those transactions. In many cases, these transactions were made at prices which make no sense if you are a true banker. Problem is, you may be stingy if you are buying something with your own money, but if it is someone else’s money, you may not care if you are paying too much. In this third installment I explain how if you own a bank in Venezuela today, it is possible to buy another one without putting up any money. In fact, at the end of the day the transaction is such that the money you used to buy the other bank simply “disappears” under the magical world of structured notes. Suppose you are a Venezuelan banker and you know one of your competitors wants to sell. Unfortunately, you own a bank, but don’t have enough money to acquire the other institution. But wait! You have your depositors money… For the sake of argument let’s say the bank is being sold for half a billion dollars and your own bank has capital roughly the same as that, but it has deposits that are eight times as much (US$ 4 billion). The official rate of exchange is, of course, Bs. 2.15 per US$ and the swap or parallel exchange market is at Bs. 4 per US$. Well, you go to the parallel market and buy half a billion dollars using Bs. 2 billion of your depositors money. But wait, there are regulations that say you can not have more than 30% of your capital in foreign currency, thus, you turn around and give the money to a European bank or Wall Street firm and ask them to issue a “note”, guaranteed by them, but issued and denominated in Bolivars (2 billion) and having as its underlying asset the dollars you gave them. This “note” is simply a contract between your bank and the other financial institution and it is likely to have some conditions, such as a rate of return, conditions under which get US$ or Bs. and even clauses about borrowing against the guarantees. From the point of view of your bank, you have done nothing but take your depositors money Bs. 2 billion, “invest” it at the other institution with a certain return, which is typically low. In your balance sheet the money appears simply as an investment at XYZ Inc. in Bolivars. Now you ask XYZ to lend 80% of the guarantee at a market rate to a company which is part of your financial group, as was pre-agreed in the “note”. This company in turn, goes and buys the bank that is on sale using your depositors money. Voila! You have acquired a bank with your depositors money, the money is no longer there, but you have doubled the size of your holdings! Hopefully, five years down the line, the parallel exchange rate will be four times higher, you can bring bank the 20% of the original amount that is left and tell the bank that hold the note to keep the other 80% as you have no plans to pay back the loan. Or maybe the bank you bought will make enough money to pay the loan back or a combination of both. The point is that at the end you own that bank, for free! You put none of your own money on the line and for quite a while you really don’t even have the money you claim to have in your balance sheet and you are circumventing Bank Laws by having more foreign currency than it is allowed. How many times has this been done in the last few years? At least four, as far as I can tell, but maybe more. And I started this series because a fifth case was ready to be announced and may even still be announced, except that… The Government decided to stop it for reasons that are not quite clear to me. This time, the operation was going to be more sophisticated. Remember that the Government issued a resolution ordering banks to get rid of these notes? Well, one bank decided to do the following: Rather than “get rid” of US$ 2.4 billion in notes that are worth about US$ 1.2 billion, it offered to buy one of Venezuela’s largest banks by handing over the notes to the owners of that bank. In one swipe, this bank gets rid of these “bad” notes and acquires a healthy, large bank, one of the largest in the country. Creative, no? Almost like magic… Except that the Government decided to stop it this time around… Next: Chavez Guisonomics 101, part IV: Why did the Government stop the latest bank takeover? 9:30:38 PM    comment []

Thursday, June 19, 2008

Chavista Guisonomics 101 part II: There is indeed no such thing as a free lunch I am going to have to speed up this primer, as events that led me to write part I have accelerated in an unexpected fashion, forcing me to cover the material faster than I expected. There is indeed no free lunch for Venezuela in always “making money” when it buys Argentinean bonds even if they drop in value. In fact, you and I are simply paying for it as usual, if you are naive enough to think the money is "ours". The apparent free lunch arises from the fact that at the end of the day, what is happening is that the Government is leaving a lot of money on the table. Our money. Let’s look first at the Government’s profit in our previous example: The Government bought one million dollars of Argentinean bonds at 100%, sold them at 110% for a 10% profit of Bs. 215,000. But suppose for a minute, that rather than buying bonds from Argentina, the Government went straight to the banking system and offered to sell them US$ 800,000 at Bs. 2.965 per dollar, the same amount and price at which the bank effectively bought the dollars when it bought the Argentinean bonds and sold them in the international markets in part I. From the point of view of the bank, the transaction is identical, no? But it makes a world of difference for the Government which now, rather than making a puny 10% profit, will get (US$800,000x Bs. 0.815)=Bs. 652,000 for the transaction. Huge difference, no? Of course, the Government made now Bs. 652,000 on the transaction, rather than Bs. 215,000, but on top of that, it sold US$ 200,000 less! Who kept the difference? Easy, Argentina, which received in the case of the bonds a full one million dollars but the bonds later dropped 20% (US$ 200,000 less). And of course, we Venezuelans are better in theoryof, because we all collectively have US$ 200,000 more.(Even if we will never see it!) Is the Government stupid? Of course not. First of all, it helps Chavez friends Mr. or Mrs. Kirchner in placing a billion or so dollars of Argentina’s debt with one call. Second, by hiding the transaction behind bonds, most people do not understand that the whole thing is just a “guiso” or racket at the same time. (Call it corruption if you like!). Third, the Government can maintain the official line, that there is no and there will be no devaluation and dollars are worth Bs. 2.15 per US$. Because these type of transactions are given only to a select group of “friendly” banks or financial institutions who are friendly because the obviously pay somebody off, no? But it doesn’t end here…because, why should the Government allow the bank to make so much money. The bank buys each dollar at Bs. 2.956 and sells it for Bs. 3.45, making a nice profit of Bs. 0.494 or 16.7% without doing anything! Thus, the more normal, regular, rational, customary and transparent manner would be if the Government offered the same US$ 800,000 to ALL financial institutions at Bs. 3.4 per US$ for their customers. Then, the Government would make US$ 800,000 x (Bs. 3.4-Bs. 2.15)=Bs. 1,000,000, rather than Bs. 652,000. The banks would make a tidy Bs. 0.05 per dollar, which adds up after a few million dollars. That is the usual way foreign currency markets work. Thus, there is no such thing as a free lunch, just a bunch of people having a profitable lunch off us Venezuelans. Soon: part III, how to buy a bank with no money... 9:31:09 PM    comment []

Chavista Guisonomics 101, part I: Why the Government never loses money with Argentinean bonds The word “guiso” in Spanish means “stew” and is used as slang  for those fraudulent transactions or deals that take place whenever two or more parties find a way to fix things in such a way that they can make a lot of money. In the Chavez revolution, Guisonomics has truly become a science thanks to the wonders and arbitrage provided by foreign exchange controls. Simply put, the fact that the Government has access to or decides who has access to foreign currency, allows it to generate huge amounts of profits from the artificial arbitrage between the official and the parallel swap exchange rate. In fact, hiding behind the exchange controls, corrupt Government officials can obtain illegal profits in magnitudes never seen before in Venezuela’s history of corruption. Sometimes, there is not even enrichment involved, just the ability to use creative accounting and the artificiality of the exchange rate to help the revolution and/or its friends without most people noticing or even realizing what is going on. In this first installment of Guisonomics 101, I will describe the simplest transaction there is, in order to prepare you for some transactions that I expect will be in the news in the next few days. If you have been following the news lately fo example, Argentinean bonds have been dropping like a stone in the last few days as the conflict between the Kirchner Government and the farmers has intensified. In fact, talk of a second Argentinean default in this decade have also intensified as that country’s debt levels reach historical highs once again. But if you have been following the news, it has been Chavez and Venezuela that have been saving the day for Argentina buying close to US$ 6.5 billion in the last three years of the countrys’ debt. Only three weeks ago, Venezuela bought about US$ 1.4 billion of that country’s bonds the so called Boden issue, of which between US$ 400 to US$ 600 million has been sold by the Government in order to lower the parallel swap rate. Thus, there is about US$ 800 million left and their prices have been dropping. But, you may wonder, has Venezuela lost money because these bonds have dropped in the international markets? The answer is no, because thanks to some of the elemental principles of Chavista Guisonomics, for the Venezuelan Government it is very difficult, if not impossible,  to lose money in these transactions. Say what? This almost magical trick is possible, because accounting-wise, for the Government all Bolivars are valued at Bs. 2.15 to the US$, while it can manage to sell dollars at a much higher rate in the swap market. Let’s look at an example: Suppose the Government buys one million dollars of Argentienan bonds. From an accounting point of view, only the exchange of Bolivars is registered, thus, the US$ 1 million cost Bs. 2.15 million. Let us assume, that the Venezuelan Government bought the bonds at a price of 100% and that they drop 20 points to 80%. (These prices are faked for illustration purposes). How can the Venezuelan Government make money if they have dropped so much? Easy. It can sell these bonds to a local bank at 110% of its value, but at the official rate of exchange of Bs. 2.15 per US$. Thus, the Government bought the bonds at 100% and sold them at 110% for a tidy 10% profit of 215,000 Bolivars, even as the bonds dropped in price. But why would the local bank buy them? Also easy. The local bank paid 110% for them at the official rate of exchange or Bs. 2.365 million (1.1x2.15). But then it turns around and sells the bonds at 80% of their value in the international markets. Thus, it receives US$ 800,000 for them. Thus, the local bank paid in the end Bs. 2.956 (Bs. 2.365 million divided by US$ 800,000) for each dollar it receives. But since the swap rate is somewhere between Bs. 3.4 and 3.5 per US$, the local bank makes roughly half a Bolivar per dollar or 16.9% profit in the sale of those US$800,000 to the swap market. Thus, the Government makes money, the bank makes money and there is indeed such a thing as a free lunch in Chavista Guisonomics. Or is there? More in Part II 12:14:14 AM    comment []

Wednesday, June 18, 2008

US Treasury Department ties Venezuelan diplomat to Hezbollah Today the US Treasury Department identified two Venezuelan citizens as Hezbollah supporters, identifying their names, businesses and activities, accusing them of providing support for the terrorist organization and making fundraising efforts in behalf of that organization in Venezuela. The charge are not new, exiled reported Patricia Poleo made similar charges with even more details last week in her column in Nuevo Pais. Poleo gave names of people who come to Venezuela to train Venezuelans as well as Venezuelans who travel to Lebanon to train in guerrilla warfare. Poleo also linked one of the men designated by the Department of the Treasury as being linked to badass Chacin’s Vice-Minister Tarek el Ayssami. The Treasury Department froze the assets of the two Venezuelans. One of which is actually a new era diplomat for our country, who was in charge of the Venezuelan office in Syria and is now at the country’s Embassy in Lebanon. As I noted a few days ago, it was the new Minister of Finance Ali Rodriguez who took charge of destroying the country’s diplomatic service, replacing professionals with only supporters of the revolution with no qualifications. I am sure that tomorrow we will have Minister of Foreign Relations Maduro call this another attack on Venezuela and the usual empty garbage the thugs spew out when they are caught red handed, but I wonder whether Maduro will address such issues as: ---The Venezuelan diplomat Ghasi Nasr al Din is also known by eleven different names in the best tradition of badass Rodriguez Chacin. Maybe we can learn who was in charge when this guy was nationalized Venezuelan or how many ID cards, names and the like he has. ---The other character in this plot, Fawzi Kan’an is known by about seven other names, with a variety of birthdates and birthplaces. Maybe his ID number is fake, as the number is simply too low for someone who claims to have acquired the Venezuelan nationality in 1997. Maybe Maduro can also enlighten us on this. Kan’an or whatever his name is also accused of funneling money to Hezbollah, as well as setting up its office and community center in Venezuela. Of course, in a Government with no accountability or checks and balances, all we will get are denials by the same thugs and hoodlums that we have by now all gotten accustomed to. In any serious country there would be at least an investigation, but in “revolutionary” Venezuela, impunity rules if you are a friend of the process. Remember suitcases full of cash? Remember sugar concerns in Barinas? Remember structured notes? Thugs and hoodlums run and rule in Venezuela! 10:13:07 PM    comment []

Venezuela is being run by irresponsible, miserable hoodlums While there has never been any doubt that Minister of Interior and Justice Rodriguez Chacin is the closest thing to a hoodlum and a public gangster that there is in Venezuela, his irresponsible behavior either shows that the man is close to an intellectual retard or he thinks we are. During his various tenures as Minister, Rodriguez Chacin has assumed multiple identities, used them for personal enrichment, allowed FARC leaders to come to Venezuela legally, nationalizing them and even allowing them to vote, as he has flirted with the worst elements of the FARC, who impressed with his personal destructive qualities and inhuman nature, labeled him a badass. But he is much more than a badass, he is simply an irresponsible bastard, who has no respect for human rights and who does not assume the responsibility he has to share in the failure of the Hugo Chavez Government to stop the growth of crime and homicides during the last ten years. Because it has been ten years since Hugo Chavez got to power and for nine of them Hugo Chavez did not even acknowledge the crime was even close to a problem. He can ignore that the homicide rate had tripled in those nine years, he can ignore that he had promised to fight crime when he was a candidate in 1998, he can ignore that more Venezuelans have died in the last ten years than Iraqis in the war in Iraq, he can ignore ten years of absolute disregard for the human rights of Venezuelans, but neither Hugo Chavez neither his Minister of Interior and Justice can ignore their responsibility for the pain, the sorrow and the sadness that with their negligence they bring to so many Venezuelan homes everyday. But rather than accept that responsibility, like so many other failures of the empty Chavez revolution, instead Rodriguez Chacin shows what a miserable human being and “leader” he is when he begins classifying crime as relative, telling us last week that weekly deaths in Caracas were down to zero, but backtracking this week and acknowledging that there are 40 deaths per week in this city, absurd for a city of five million. But then he shows he is a man to be despised when he states that deaths between gangs are not part of citizen safety¨ and that “crimes of passion” are also second-class homicides, not worth his time or his tears. What´s next? Dismissing crimes against old people? Or opposition members? Give him one more week and this misery of a man maybe will tell us that stray bullets should also be ignored when compiling crime statistics and well, I guess suicides are also not his responsibility and cab and bus drivers are also asking for it by driving late at night trying to make a living. This is a socialist society after all... Because it has been ten years of total irresponsibility where all problems, whether inflation, shortages, crime, garbage, unemployment, kids in the streets, poverty and the like, are always the responsibility of some long forgotten Governments or people, who nobody remembers or cares for any more. People who had many faults, but at least there was respect for human rights and the law and while there was corruption, it was kept in check by the rightful institutions, which have been destroyed by Chavismo to protect their stupid project. Remarkably, Chavez, who claims to care so much for the people, not only brought back this man that should be in jail for stealing and killing fellow citizens, but keeps him in his all powerful position even if he legislates at will on his shadow the most absurd bill to control the population, while creating his own “badass” hierarchy of crimes. But “badass” Chacin is in the end just a poor soul who through his friendship with Hugo Chavez has managed to impose his non-existent system of values and his disregard for human life and rights on all Venezuelans. Who has managed to reach dozens of levels above his Peter principle, where death is irrelevant, human rights just a vague concept and playing at being soldier and guerrillas and being a tough guy, are more important than assuming the responsibility of running and managing his Ministry or upholding the laws of the country. The fact that this irresponsible Minister remains in charge today, is simply another sign of the tragedy that the Chavez Government has become for our beleaguered country. And Chavez and him are responsible for the deaths of close to one hundred thousand Venezuelans in ten years. A record for the type of miserable, irresponsible hoodlums they represent... 12:58:29 AM    comment []

Monday, June 16, 2008

As Chavez rolls over them with his new pragmatism, people feeling optimistic One of the benefits of the controversy and the abrogation of the intelligence Bill is that Chavez seems to have gone on the defensive, concerned about any possible reaction by the opposition and/or students that his Government’s actions may have. Which actually puts him in a difficult position, as the end of the Enabling Bill is coming soon and Chavez was supposed to take advantage of his special powers to legislate by decree and put a framework to his “XXIst. Century Socialism”. Except that project seems to have been diverted by Minister of Planning El Troudi, combined by Chavez’ dwindling popularity. El Troudi’s theory seems to be that the Government needs the private sector (duhh!) as investment has reached ridiculously low levels for the private sector, while Chavez spends too much money on imports and current expenses and no real investment takes place. Thus, despite high oil prices, the economy is actually cooling off under the effect of inflation, high interest rates and the surprisingly low Government spending in the first five months of the year. But even if cooling off is what Chavez needs, the question is whether he can afford to pass up the opportunity to legislate on important economic matters before the July Enabling Bill deadline. Reportedly, there was a new Commercial Code ready to replace the one that has been around for over a century and a half, and people expected it to redefine property and to have elements in it that would force the private sector to “integrate” more with the public one, whatever that may mean. This is no longer expected because it may raise an outcry, but I find it very hard to believe that this is the case. As witnessed by the nomination yesterday of Ali Rodriguez to be Minister of Finance, Chavez has not changed one bit, he just has had these lapses of trying to convince people he is a good guy, while he plots how he will manage to implant his vague revolution on our country. People are so complacent these days in Venezuela that I actually heard people call Ali Rodriguez a pragmatist a couple of times today. That is how much Chavez and his cronies can abuse Venezuelans without them realizing what a masochistic bunch they have become. This “pragmatist” was responsible for the firing of 20,000 PDVSA workers, whose severance and pensions, whether voluntary or not, were simply confiscated, as he destroyed Venezuela’s oil science and technology center, sending hundreds of the most competent engineers and scientists to work for the competition everywhere else in the world. And once Ali Rodriguez was done with this “pragmatic” solution, he went to the Ministry of Foreign Relations where he repeated his act, except that he just recalled any diplomat not with the process and has kept them in a room doing nothing for the last three years. Of course, this requires naming former military and loyal supporters to diplomatic positions, also destroying the Venezuelan Foreign Service in the process. Costly? You bet, but for Rodriguez, the ends justifies the means. Let’s see what his pragmatism does in Finance this time around! Meanwhile, the Venezuelan Supreme Court “approves” the decree that will allow the Government to take over the cement industry. Nobody knows what this means, whether the Government will bypass the capital markets laws that says there has to be a tender for these companies. Who cares? I bet nobody complains if they do, much like the Government gets away with mosth of what it does and says. Somehow, it just seems as if people are immune to the fact that the Government is taking advantage of them, bypassing the laws and the Constitution so that Hugo Chavez can push his undefined program and revolution. Opposition candidates are not only banned from running, but the Chavez appointed and controlled Comptroller seems to come out daily to defend this gigantic abuse of power, which is being ratified by the same Electoral Board that has failed to finish counting the votes from the December referendum. But of course, we are supposed to trust these same guys to count the more easily manipulated results from the November regional elections. Sure, just look at this graph in esdata and tell me you really trust them. But those are the guys that will count the votes in November and that is the Court that will decide controversies if there are any. But somehow, people are optimistic and I am not sure about what… 10:15:29 PM    comment []

Sunday, June 15, 2008

An old, new and radical face is named to the Ministry of Finance Well, despite the new, new Chavez attempt, today the President named his new Minister of Finance, proving that little has changed. Chavez named Ali Rodriguez Araque, whose only qualification for the position is his total and absolute loyalty to Chavez and his revolutionary credentials. At a time that Venezuela needs more than ever someone with knowledge of macroeconomics, Chavez names a lawyer, a former guerrilla fighter who was still in the mountains when there was no armed fight in Venezuela in 1963. Rodriguez Araque, who is a lawyer, became a Deputy of the old Congress in the 90's, where he specialized in oil Law. He has served as Minister of Energy, President of PDVSA (where he presided over the firing of 20,000 people and beagn the destruction of the country's oil industry) and was Foreign Minister. When he got sick, he was named Ambassador of Venezuela to Cuba. About the only good thing I can say for him is that he will not participate in the corruption of the sale of bonds and notes to those friendly to the Government as he has no interest in getting rich. Thus, I expect the sale of bonds and structured notes to the banks to stop, which will make the swap rate go up for a while until he can figure out a different way of selling dollars into the parallel market. The nomination is unfortunate, as inflation continues to roar ahead and distortions are being sustained only by the high oil prices. Rodriguez Araque does not have the knowledge to manage the country's economy at a time that it requires strong measures. So much for "change". Rodriguez Araque is as radical, conniving and left-wing as they get.He will be there plotting from day one and his ignorance on economi matters is bad news for Venezuela. 8:31:49 PM    comment []

Friday, June 13, 2008

Review of the Hugo Chavez system, Version 6.0 beta This week we saw the completion of the introduction of Hugo Chavez 6.0 a more user friendly, gentler beta version of the well-known Hugo Chavez system. The new version is, like all previous even numbered versions, an attempt to remove some of the confrontational issues of the odd numbered versions. However, as all other previous even versions, this one is likely to be short-lived and replaced by a more robust and intransigent version. The biggest change in the new version is that it is not FARC friendly. All previous support of belligerence and armed revolt has been eliminated and support is only available for total surrender in exchange for very little. The new version is not only not FARC friendly, but it is attempting to remove all FARC hostages at the same time, an incredible twist given the previous versions required swapping of hostages on a one to one basis with a hierarchy of demands. We found the private sector friendly part of the system quite buggy and it seems as if it was rushed to market. In fact, the system seems to be discriminating between local and foreign private sectors. On trials on Tuesday and Wednesday the system gave responses that were far from robust and consistent. On Tuesday, the foreign private sector was not accepted on input, while on Wednesday there were repeated requests for foreign investment input. While the system attempts to remove some of the rough edges of previous versions, we found it to be difficult to interact with. First of all, there appeared to be little to interact with beyond the more friendly user interface, but little at the core of the system. After using the interface for hours, there seemed to be little behind it except from very simple operations like the elimination of the financial transaction tax and some minor reductions in transfer times for the foreign exchange conversion system, which in the end is a simple eight-byte system with no sophistication. The interface of the system with the opposition has turned out to be quite unstable and buggy. The system appears to separate private sector from opposition, ignoring the large overlap between the two. Moreover, it seems to be quite incompatible with PSUV sectors, which find the new version to be too conservative and unstable for their taste. PSUV users have found too many conflicts with the new version and have decided not to switch to the new version and even change brands, This would create two sectors of users which HG Inc. is not willing to support as the systems will not be made backwards compatible as in previous versions. New users who appeared to be switching to Hugo Chavez 6.0 on Wednesday night, found the system jokes offensive and cynical and expressed doubts that they will really switch at the end even if they were offered half of the US$ 1 billion joint venture fund in order to change systems. Those that have performed extensive testing of the system, found that the use of the same old quirky eight-byte CPU Chavez unit limits the possibilities of success of the system, which they found to be limited, unstable and containing both numeric and alphanumeric inconsistencies. The new Chavez 6.0 system also suffers from limited networking compatibility, and seems to be able to connect only to the same peripherals that have been part of the Chavez system for the last ten years. In our testing, we found the Hugo Chavez 6.0 system to be too unstable to last and expect a new more traditional version to surface in the next few months more in line with the previous long lasting, odd numbered versions in which all of the user friendly, gentle features are once again removed. We do not recommend the Hugo Chavez 6.0 system for either corporate, personal, sovereign or revolutionary use. We suggest users await for the new version and once again get used to it however quirky, difficult to deal with and disgusting it may be. Prospective profits and gifts may be the same under all systems, thus switching represents no real advantage for those just seeking profits. There seems to be no alternatives out there at this time with a chance of replacing any of the current active versions of the Hugo Chavez system in any case. 11:33:49 PM    comment []