Wednesday, November 02, 2005

Clodo draws the sword by Teodoro Petkoff I was going to write about this, but Petkoff did it before me and it is hard to improve on what he wrote. I would only add, that this is done daily by Venezuelan Government officials and in the case of our current Minister of Finance, he “claimed”  (The money was never found) that he did the same diversion of public funds to pay salaries that Chacao’s Mayor is being accused for, except the minister was talking abut US$ 3 billion and not a few million as in the Mayor’s case. The second curious item, is that Leopoldo  Lopez is not only successful as Mayor, but if my memory serves me right, he received the highest number of votes, percentage-wise, than any Mayoral candidate in Venezuelalast year.  Clearly the Government fears Primero Justicia, first it was the skeletons, then this story and now today the President of the Assembly accuses it, without presenting any evidence of receiving support from the US Embassy. Here is Teodoro on Leopolod Lopez. Clodo draws the sword by Teodoro Petkoff in Tal Cual This small reporter asks himself if Clodosbaldo Russian, when he looks at himself in the mirror, is capable of looking at himself without looking down. This guy, that has played dumb in the face of tons of cases of corruption, that has seen hundreds of payment orders for works never built, that can not ignore the scandalous proportions that administrative corruption has reached, that when the Bolivar Plan was investigated, after he killed the tiger he s… in his pants when he faced the skin and left it at that, without ever producing a “second report”; this grotesque personality of the oficialist troupe, found, at last, a “corrupt one” to punish. Yesterday he announced triumphally, that he had caught Leopoldo Lopez, Mayor of Chacao, in an administrative crime. I do not know the details of the case but it makes me suspicious given Russians record that the only corrupt person that he has found happens to be an opposition Mayor. What a coincidence! And it is also a coincidence that he banned him politically staring in 2008 (when his terms ends), when young Lopez, obviously, could aspire to other public positions. Well, the truth is that after the sentence about the morochas, in the officialist circus, even the hens are beginning to crow like cocks. 10:58:41 PM    comment []

The strange tale of Bandes, the Ministry of Finance and structured notes Bandes is the Development Bank of the Government. It owns companies, it manages money such as the social fund for PDVSA, and it owns bonds, invests and performs financial operations that are required for the promotion of development. Ever since it was created as the Venezuelan Investment Fund (Fondo de Inversiones), it has played an important role in buying and selling the country's sovereign debt. And this makes a lot of sense, a treasury rich, Venezuelan Government institution should play those markets since the risk is its owner and those sovereign bonds have some of the highest yields in the world's emerging markets. More importantly, the Bandes funds can be used in the Government's own strategy to repurchase its own debt, support it and why not, even manipulate it. After all, who else has such deep pockets and the interest in Venezuela's sovereign bonds being strong? Truly nobody. No fund or institution other than Bandes and maybe now the new Treasury Fund, Foden, has such deep pockets that can be invested in the Venezuela’s securities. Unfortunately, the creativity of corruption knows no bounds and can sidestep the logic and even the appearance of propriety as in the case and others. As in the case I reported last year in which Bandes sold to private groups its portfolio of bonds, only to have the Republic announce soon after that, the repurchase of coincidentally the same bonds that had been sold by Bandes a couple of months earlier. Some of these groups the bonds were sold to, would qualify as what is coarsely qualified in Venezuela as "Con que culo se sienta la cucaracha" or "On what ass does that cockroach sit" in terms of the size of the financial transaction, but everything was structured in such a way that it could be done by them, without transparency and, of course, no investigation was ever called on the matter. (And the size of the ass of the cockroach increased significantly as profits in that transaction alone were in the dozens of millions of dollars) Which brings us to today. For quite a while the market has been hearing that mysterious purchasers had bought structured notes on Venezuelan sovereign bonds in big sizes from various Wall Street firms. We are talking US$ 100 million at a time, too big a size for regular investors. But let me explain what this structured notes entail. Suppose that you are not willing to buy Venezuela's 2027 bond because it is too risky in terms of maturing in 22 years. But the yield is attractive. So, you ask a Wall Street firm to issue a structured note for let's say three years, in which the Wall Street firm guarantees that you will receive a certain fixed interest rate lower than the one those bonds offer over 22 years but still attractive, as long as the country does not default. Thus, you sacrifice some of the yield for security in the short term. You know exactly how much you will be paid and at the end of the three years of this example, you get your capital back. Now, it does not make sense for Bandes to ask for someone to structure notes. First of all, with the notes you add another risk to the Venezuela risk, the risk of the "issuer", the financial firm that issues the structured note. There is also the custody risk, as in the recent and fresh case of Refco, which will show up again at the end of this story. (Actually Refco could also issue the notes up to recently so the risk is quite real) Issuing these notes is great business for the issuer, who charges hefty commissions to the buyer, as well as making money in the trading of the underlying securities. A few months ago, an acquaintance told me that he had gotten huge orders for these notes from "unusual" countries, where he did not think there were investors who woke up in the morning with a strong desire to purchase say US$ 100 million in Venezuelan sovereign bonds structured notes. He thought there was something "fishy" about these and his suggestion was some intermediary or Government official was making a lot of money on these deals and the end client had to be the Government. Then, as if to complicate matters, last Saturday the President of Bandes acknowledged that his institution had sold US$ 662 million of the US$ 1.6 billion in such notes Bandes owned to none other than the Ministry of Finance. Thus, the mystery of the notes was unveiled and indeed they were purchased by the Venezuelan Development Bank and the amount was huge for those markets: US$ 1.6 billion! Moreover think about it, US$ 1.6 billion in structured notes, where commissions are of the order of let's say a couple of percent (US$ 32 million!), versus buying the bonds outright, where commissions could be as low as 1/16 of a percent. (Only US$ 1 million). If you are an intermediary there is a huge difference! But it actually gets even worse. The Ministry of Finance turned around and sold those notes (denominated in US$) to "four local banks" at the official exchange rate in a process that lacked any transparency. Imagine, just for being one of the "chosen" four banks you were able to purchase, in bolivars and at the official exchange rate, these notes, which you could then turn around and sell in US$, get dollars and bring the funds back at a rate much higher ( 27.9% to be precise!) than that! Nice deal! And then the VP says that local businessmen lack competitiveness! Why be competitive when life can be so easy? And who promotes it? None other than the Government itslef! The case smells so bad, that there are suggestions that the statements last Friday by the President of Bandes were simply a way of saying:” I had nothing to do with the placement of the notes in local currency”. However, the reporter apparently was not knowledgeable enough to ask why Bandes used these structured notes rather than buying the bonds outright. Descifrado suggests today (Subscription area) that the Government may have gotten wind of this too and the President of Bandes may not last long in his position. But I have to wonder given the next post, where is Comptroller Russian in all this? Finally, where does Refco come in all this, you may wonder? Well, reportedly some of the money and securities that got stuck in the bankrupt company from Venezuela is in the form of these same structured notes. And there may be another new story in that part in the future, as this country never ceases to amaze everyone! 9:18:01 PM    comment []

Extermination in Falcon by Teodoro Petkoff Extermination in Falcon by Teodoro Petkoff in Tal Cual Once again the country is shaken up by the brutal news of the murder of young people, apparently in the hands of the police. In Falcon state the sinister figure of “extermination” groups has reappeared. Five boys were massacred by bullies encrusted in the police corps. Once again an investigation is announced “to the utmost consequences” and “no matter who falls”. We have heard this song so many times! The ineffable “utmost consequences” are always the impunity of those accused. Whatever happened to the investigation about the crimes committed by the Guarico police? Lots of noise and few nuts (sic). Whatever happened to the trial of the cops of the first “Extermination” group detected in Portuguesa state? It also ended in the freedom of those accused. Whatever happened to the investigation opened in Anzoategui State? Nothing ever came out of it. How many cops are in prison in Aragua state, the state with perhaps the worst registry in police assassinations? None. The assassins act with their faces uncovered, there are witnesses of the crimes and nevertheless, there is never a sentence condemning the accused. Absolute impunity protects these state criminals. State Criminals? Yes. The actions by these “extermination “ groups, which is not recent but that during the last years has acquired the character of an epidemic, is associated with an unwritten conception and only commented in low voices among the police headquarters, that the fight against criminals passes by the execution of supposed and true criminals. The State and the Government play dumb in the face of these actions and only when the scandal overflows all borders, as in the Kennedy barrio case, do they pay attention. The rest of the time, they let it be. Because the assassins have carte blanche and are at the same time judges and executioners and decide on their own and by their will who should face the weapons, the result has been an orgy of blood in which presumed criminals and other people have fallen, young in general, which have nothing to do with crime. More than five thousand assassinations of this type have occurred in the last five years. Official tolerance in the face of these “extermination” groups drives inexorably to the decomposition of police corps, to the putrefaction of the ethical and moral values that one would think they should be imbued as public servants and transforms them into criminal groups which are much worse and pernicious than the common criminal gangs. A police unit that acts on the side of the law, violating codes and ordinances, is a danger to society. And it turns even more dangerous when the Government’s failure in decreasing the social crisis derived from unemployment and informal subemployemnt, with the consequent expansion in personal insecurity, leads a portion of the people to assume with indifference, if not with approval, the episodes of extermination. The conclusion is unavoidable: there is no true policy for public safety. This Government does not know what to do to guarantee the safety of Venezuelans. The police, the courts and the prisons are a disaster. How can we be surprised that our criminality indices are among the highest in the world. 6:47:02 PM    comment []