Saturday, July 23, 2005

Chavez' blog diary parody If you have not seen the parody blog of Chavez' diary, go look at it, very funny! (In Spanish) 10:23:52 PM    comment []

La Vuelta (The Flip): A truly revolutionary swindle. When Hugo Chavez was a candidate for the Presidency, he continuously attacked PDVSA, accusing the oil company of being an island, not responding to the country’s interests, run by technocrats, corrupt and unaccountable to its owners, “the people”. Today almost seven years later, Hugo Chavez has total control of PDVSA, which is truly an island, run by incompetent political hacks, full of corruption, has not presented financials since 2002 and “the people” have no clue as to what is the real status of the company. Venezuelans have no idea of how much oil PDVSA produces, how much money it makes, how many dollars it receives. The company was not handing over all of the foreign currency to the Central Bank as required by law (the law has been changed) and even PDVSA officials disagree in public about what has been done done with the company’s funds. PDVSA has thus become another political territory to be milked and fought over. Corruption is rampant as evidenced by the lifestyle of some PDVSA executives, their purchases abroad, their trips in company’s jets, their ostentation. Even the Chavez controlled National Assembly has investigated PDVSA and CITGO for corruption, even if it has not voted to ask for the prosecution of anyone yet. Sadly, Chavez’ promise of fighting corruption is the one in which he could have made a dent the easiest. He had the mandate and the goodwill to stop it. Unfortunately, it had not been a year since Chavez had been in power when the head of the intelligence police, his comrade in arms Jesus Urdaneta presented Chavez with 42 cases of corruption within his administration. Chavez did nothing. Four months later Urdaneta, who participated in the 1992 coup attempt with Chavez split from Chavez and his Government over corruption. Since then, despite the many cases, some blatant, of corruption, not a single member of Chavez administration has been convicted of corruption and those charged can be counted with one hand. This has had the opposite effect. Since there is no fear of being punished, corruption is more pervasive than ever. In the following I tell the story of “La Vuelta” (The Flip), a financial swindle that was set up in 2003.More than US$ 600 million was bilked from people in this combination Ponzi scheme/corruption swindle set up by some “revolutionaries” aided by other comrades from within the “New” PDVSA. This scandal broke while I was away; I have been trying to piece together and understand it before writing about it. Below my take on "La Vuelta" La Vuelta (The Flip): A truly revolutionary swindle. It was early in 2003. PDVSA was upside down after the Chavez administration had fired 18,000 people for their participation in the general strike in December 2002 and January 2003. At the same time, the Government had issued a decree establishing exchange controls in the country. For companies providing services to PDVSA this created two problems: One, their contracts were in dollars, but it was unclear whether they could or would be paid in foreign currency as the exchange control decree exempted oil companies but it was unclear whether this included them. Two, the people that they used to deal with within PDVSA were all gone, replaced by a strange combination of leftist union leaders and political hacks from Chavez’ MVR and the Patria Para Todos party. A group of “entrepreneurs” with contacts at the highest levels in PDVSA West (reportedly via the union leaders) had a bright idea: Why didn’t they buy the invoices from the service companies at a discount, turn around and using their contacts collect the full amount from PDVSA? Thus was born “La Vuelta”, by which these revolutionary financiers would buy the invoices at 60% of their value and turn around and get 100% of the invoice using their contacts. This flipping of invoices was so successful that soon the entrepreneurs did not have sufficient funds to purchase all of the outstanding invoices and began setting up a network of “brokers” that would pay 20% interest per month to depositors or half the profit of their scheme, every time they “flipped it”. Reportedly, the intermediaries would get 10% and the PDVSA insiders would get the other 10%. “La Vuelta” became an extraordinary success; the problem was that they were being so successful and efficient that they were running out of “un payable” invoices. Thus, in order to keep up the scheme, they had others set up their own companies that would provide services and workers to PDVSA, inflate prices and keep feeding the scheme. Unfortunately, Hugo Chavez ordered a stop to the payments in US dollars and the whole pyramid began to shake at its foundations. At that point “La Vuelta” survives by switching to Bolivars and using the black market to sustain payments. As with any other pyramid, at this point there were some delays in paying the “customers”, but the second “Vuelta” successfully survived its conversion to Bolivars. However, in order to attract clients the clients were still paid in US dollars at the 20% interest rates. Early this year, 30 managers of PDVSA are fired for “corruption” even though not one has been formally charged with it. Separately, the union leader, that supported the Government throughout the 2002-2003 strike and thus Chavez named to the Board of PDVSA in January 2003 was also fired reportedly for being at the heart of the swindle. He has not been charged either. The departure of this 31 individuals all based in Zulia state implied the death of La Vuelta. Soon payments stopped the whole house of cards collapsed and the reported leaders of the scheme left the country. Since then, it has been charges and countercharges on the issue, with the Chavista Mayor of Maracaibo involving The Governor and even suggesting La Vuelta has something to do with the death of Prosecutor Danilo Anderson. Others have suggested that General Alberto Gutierrez, the MVR candidate for the Governorship of Zulia state was involved in the whole scheme. We might never know who was or not involved in all of this. What we do know is that there were insiders of PDVSA that were speeding up payments, allowing huge contracts with unknown companies and helping out in the whole process. It sounds naïve to believe that a single member of the Board of Directors was involved, more so when the PDVSA structure separates functions supervised by different Directors in order to prevent this type of collusion between those handing out the contracts and those making the payments. Whatever the case, “La Vuelta” swindled greedy Venezuelans of some US$ 600 million and the scheme was run for almost two years non-stop at a 20% per month clip. The numbers are simply staggering, as we may be talking of as much as US$ 1 billion in commissions to the PDVSA insiders and another US$ 1 billion to the organizers over this period of time. A truly revolutionary swindle! 12:57:11 AM    comment []