Thursday, July 14, 2005

The incredible Scotch drinkers from Venezuela I like numbers, but I also like to understand them. Whenever I hear a number, I try to figure out whether it is reasonable, makes sense or if I need to learn more about it. Some may think that is my science training at work, I think it is the other way around, that is why I became a scientist originally. All of this comes to mind because during my vacation I came across a statistic that flabbergasted me, but that I am still not sure I do understand or can even come close to understand: Venezuela was once again the number one country in per capita consumption of imported Scotch whisky. Now, you may think this is not that hard to understand, but I do. I have always said that I am almost 100% Venezuelan, except for two facts: I like to arrive right on time and I don’t drink Scotch, which may explain how mystified I am by the fact that Venezuelans consumed in 2004 a staggering 25 million liters of Scotch whisky that comes out to basically a liter per year per capita. To put this number in perspective, the US imported 139 million liters in 2004 or less than half a liter per person (0.45 to be more precise). Problem is, how can Venezuelans consume so much more imported scotch per person than the US, given the much lower purchasing power of the Venezuelan population? Imagine this: Let’s assume 10% of the Venezuelan population can afford to buy scotch. Let’s then say than half the population is under 18 and can not drink. Let us further assume that like me, some percentage of people just don’t like scotch and moreover, men drink more scotch than women, let’s say aggressively by a factor of two. That says that roughly these Venezuelan scotch drinkers consume 50 liters of imported scotch per year or one liter per week. Problem is, this is simply one type of liquor, and this excludes beer, rum, crummy Venezuelan whiskies and the like. Thus, let us assume, imported scotch makes up half the drinks they have, this leaves us with a liter of hard liquor per person every three and a half days. Can a country function like that? Maybe that is part of our problem. Who knows? The truth is that I think that politicians (of all sides) have something to do with this. I am sure an outrageous percentage of Government funds pays for the nice scotch that politicians consume. Any anniversary of a political party, meeting or negotiations seems to be followed by the boxes of bottles of Scotch, ice, water and soda. But even with this, I really have no way of justifying the numbers and have begun gathering the consumption of other alcoholic beverages, in order to delve even deeper into the problem in the future. Stay tuned! 10:37:35 PM    comment []

Dire warnings by Central Bank Director Imagine a country in which a Central Bank Director warns that a change in the law will eventually "burst somewhere". Markets would panic the currency would drop, Congress would reconsider what it is doing. But not in Venezuela. Yesterday the Finance Commission of the National Assembly approved the reform of the Central Bank Law requested by Chavez and Central Bank Director Armando Leon had such dire warnings in an interview in El Universal today. But nothing happened. The currency can't move because there are exchange controls and little money is invested in the local stock market these days. But Leon's statements represent a very serious warning by a trained economist that nobody could accuse of being rabidly anti-Chavez. Leon warns that the transfer of international reserves will create economic disequilibria. He goes even further than that warning: "If that is maintained in the reform, there will be a permanent financial instability", concluding:"sooner or later the pressure created by these changes will burst somewhere". Scary warning from a respected central bank board member.  10:08:11 PM    comment []

Oil money hides the failure of Chavez' statist model This Government professes to have an unrelenting belief that the Government can do better than the private sector. International and historical experience shows that to be the case extremely infrequently. As the Government creates new institutions almost daily, it turns out that the old ones, even those that should be easily profitable, like Banco Industrial de Venezuela, continue to lose money and seem to prove exactly the opposite of what the Chavez administration wants to sell to the people and the world. Banco Industrial is a good example to follow. It has been capitalized twice already during the current Government, it has been the subject of accusations of corruptions repeatedly in the last few years and Chavez has changed its President three or four times in the last seven years. In addition, the financial sector has benefited dramatically from their large spreads as well as the tax free status when they invest in Government bonds in an environment of dropping interest rates. Despite this, the bank is asking the Government for some US$ 80 million in a capital injection, because it ahs enjoyed huge losses in 2004 and the first five months of 2005 In the first five months of 2005, Banco Industrial lost close to US$ 400 million, on top of the US$ 3 billion that it lost in 2004. In fact, the bank regularly violates the indices of liquidity and overdue loans required by law. Like many other institutions, Banco Industrial is the victim of mismanagement and the belief that it is one of many sources of “petty cash” for the Chavez Government. The amazing thing is that they can even manage to lose so much money. 2004 was a banner year for the Venezuelan banking system with outrageous profits based on return on equity. But not for the main Government bank, which is not only the source of easy credit for the friends of the Government, but periodically receives orders for financing projects like its recently inaugurated office in Cuba. Of course, the Government will contribute the US$ 80 million and will check little of the bank’s management until the next crisis. But the deeper problem is that Chavez’ belief that Government can do it all has led it to create an inordinate amount of institutions such as Telesur, Conviasa (does it fly?), the Venezuelan satellite, the people’ s bank, the floating of bankrupt companies and the like, which can easily hide their loses thanks to the strength of oil prices. But in the end this is an irresponsible use of state funds at the expense of the “People” who should be the true beneficiaries of the bonanza. But all the money is doing is hiding the inefficiency and corruption of Chavez’ collaborators. And giving the appearance, for the time being, that Chavez’ statist model works. But at some point the growth in the cash flow will stop and the model’s day of reckoning will be here. 9:47:29 PM    comment []