Caracas Chronicles

BCVSA and The Exchange Rate that Must Not Be Named

2009-11-04T01:24:00.005-04:30

Quico says: Two and a half years ago, when Chávez announced PDVSA would start manufacturing shoes and selling beans and I wrote this snarky little post about the acute outbreak of role confusion in Venezuela's institutions, I could not have imagined that the trend would reach the extremes it has. As the decade comes to a close, Venezuela faces a macroeconomic reality that is bizarre on so many levels that it seems almost normal that our oil company is now, effectively, our Central Bank.

It all goes back to this blog's favorite hobby horse: the dual foreign currency market.

Your economics textbook will tell you that a country's Central Bank is the public entity charged with issuing the nation's currency and preserving its value. Operationally, that usually translates into a mandate to fight inflation by keeping the money supply from growing too much, too quickly.

But in a port economy like Venezuela's, where the vast bulk of consumption goods are imported, inflation is driven as much by the price of foreign exchange as by the absolute amount of money in circulation. The reason is easy to grasp intuitively: if you eat a lot of imported rice at $1 per kilo, and the price of that dollar rises from Bs.2 to Bs.4, you've just imported 100% rice inflation via the exchange rate.

Which is why, in import-dependent economies like ours, managing the foreign exchange market is one of the Central Bank's main tools as it seeks to control inflation. After all, if you want to control the price of dollar-denominated goods, you would be well advised to control the price of the dollar.

Enter Venezuela's Alice-in-Wonderland exchange-rate system, where the gap between government-speak and reality gets wider every passing year. While the Central Bank controls the official exchange rate, this rate is increasingly irrelevant to the Venezuelan economy. Everybody knows that in Venezuela, the price of imported goods tracks the Voldemort Exchange Rate - you know, the one that must not be named.

Which makes the Central Bank an ever more marginal player in the management of the Venezuelan economy: its control extends only to the de mentirita exchange rate, not to the real one.

Over time, even the nullities that govern us were forced to come to grips with the obvious: that prices in Venezuela are highly sensitive to an exchange rate that's not supposed to exist. The policy of wishing it away was not sustainable. The catch is that there wasn't an evident way to intervene the other market without acknowledging its existence.

To come to grips with the no-kidding exchange market, the authorities needed to find some highly opaque, politically docile institution with lots and lots of dollars on hand that it could spend off-budget and off-adult-supervision and with an upper management greedy enough to jump at the chance to manage the Voldemort market...and, well, in Venezuela that brief describes just one entity.

For months now, PDVSA has been more or less openly intervening the parallel dollar market, sporadically stepping in to keep the Voldemort Rate from climbing too high. But...that kind of macroeconomic management is supposed to be the Central Bank's job...ergo, PDVSA is, in all but name, the new Central Bank: BCVSA.

What we have in Venezuela is an all-but acknowledged dirty float, a system where the government accepts that the currency's fluctuations are beyond its control but nonetheless steps in now and then to manipulate the exchange rate.

The problem with this - aside from the whole "illegal", "unconstitutional," yada yada boring counter-revolutionary stuff people like me always write - is that it's insanely, incredibly opaque. Billions of dollars are at stake in a market that the government actively fosters and periodically intervenes, but whose existence it can't acknowledge.

Maybe a "self-loathing float" is a better description: what we have here is a heavily meddled with float that the government refuses to even talk about, subject to interventions it sure as hell won't let anybody audit. The truly remarkable thing would be if such an extraordinarily cash flush, deliriously opaque arrangement didn't breed a mass of corrupt practices.

Take a moment here to think through the possibilities. If you have the inside information to accurately time the fluctuations of the Voldemort Market, you suddenly put yourself in a position to make genuinely obscene amounts of money off of that information. Say you know that BCVSA plans to intervene tomorrow, selling $200 million to operators to take 20 cents off of the Voldemort rate. You just go to your bank, borrow some dollars, use them to buy bolivars, sit tight, and sell the bolivars tomorrow, when each of them is 20 cents more valuable. Then you pay back your bank and you pocket the difference. Money for nothing and chicks for free, no risk involved.

Sure, 20 cents may not sound like much, but do this kind of thing on a big enough scale and you can make millions and millions of dollars. Which is why I'm convinced that every time the secret dollar ticks up or down 20 cents, another batch of Bolivarian millionaires is made.

Now, imagine you're working in BCVSA and you're in a position to directly decide when you're going to step in to inject dollars into the Voldemort market. In that situation you're not just able to profit for yourself handsomely, but you're also in a position to make or break fortunes all around you.

One call to your friend with that tip and you've turned him into an instant millionaire. The same call, recorded by spies in Miraflores, earns the Executive Power the unwavering loyalty of the civil service reaping the benefits of the Revolution's discretion.

That's the stuff power is made of in the Chávez era.

There is simply no way a system that works on such levels of secrecy and opacity and that handles the kinds of sums BCVSA handles is anything less than writhing, heaving cesspool of corruption. The benefits from diving in are too strong, and the disincentives are practically non-existent.

Reproduced Verbatim

2009-11-03T15:22:00.007-04:30

The North Korean State (what other kind is there?) News Agency says:

National Seminar on Juche Idea Held in Venezuela

Pyongyang, November 1 (KCNA) -- A national seminar on the Juche idea and the Songun politics took place in Venezuela on October 17 on the occasion of the 64th birthday of the Workers' Party of Korea.

Omar Lopez, chairman of the Venezuelan National Society for the Study of the Juche Idea, explained the essence of the Juche idea founded by President Kim Il Sung, saying that the idea is fully displaying its vitality in the Venezuelan people's efforts for building socialism.

Diego Antonio Rivero, chairman of the Venezuela-Korea Friendship and Solidarity Association, said that Kim Il Sung was the great leader of the Korean people and the world people as he led the socialist revolution and construction in Korea to victory and devoted himself to the cause of global independence. That is why the progressive people are still highly praising his immortal exploits, he added.

A professor of Bolivar University stressed that all the achievements made by the Korean people are a brilliant fruition of the Songun politics pursued by General Secretary Kim Jong Il. The cause of the Korean people facing down imperialism gives strength and courage to the world revolutionary peoples including the Venezuelan people and it has become a model of anti-imperialist struggle, he stressed.

A message of greetings to Kim Jong Il was adopted at the seminar.

Hat tip: SG

What's happening in Táchira?

2009-11-03T09:38:00.002-04:30

Juan Cristóbal says: - The border is closed.

Two National Guardsmen were murdered.

Nine Colombians were murdered last week.

What's going on? Is this related to the government's crackdown on the illegal smuggling of gasoline?

If you're on the ground or have relatives in the Land of Presidents, tell us what you know.

The view from your window: Montreal

2009-11-03T06:00:00.000-04:30

Montreal, QC, Canada. 31 October 2009, 5:00 pm.

Send us the View from Your Window: caracaschronicles at fastmail dot fm, or nageljuan at gmail dot com.

Please ensure the window frame is visible, and tell us the place and time the picture was taken. And don't try to "pretty it up" - just show us what you see when you look up from the seat where you typically read the blog. Files should be no bigger than 400 KB.

Is Iberdrola scamming Venezuelan taxpayers?

2009-11-02T12:00:00.008-04:30

Juan Cristóbal says: Why does it cost 39% more than average for a Spanish company to build a power plant in Cumaná than anywhere else in the world? Why does it cost 12% more than its next most expensive project anywhere in the world? And what does it take these days to get anyone in Venezuela to take a hard look at these numbers?

These are just some of the questions arising from the deals now being struck between the Spanish government, Spanish multinationals and the Chávez administration. Using estimates from the International Energy Agency, I've argued there is no way the 1,000 MegaWatt (MW) combined-cycle electric plant being built in Cumaná for 1.4 billion Euros is being purchased at market rates. The multi-million dollar overcharge is out in the open.

Of course, whether or not you believe you're being overcharged depends entirely on how reliable you think the benchmark is. If you believe the IEA is a questionable benchmark, then on the face of it, there is no way of knowing whether the Iberdrola project is based on real costs or whether something far more sinister is at hand.

As it turns out, there is another set of benchmarks available: Iberdrola's combined-cycle projects in other parts of the world.

As we said in the previous post, Iberdrola's project costs Venezuelan taxpayers 1,400 Euros per KiloWatt (kW) of installed capacity. To get that number, simply divide 1.45 billion Euros by the 1 million kW capacity the plant will have (1 MW is 1,000 kW, so 1,000 MW is 1 million kW).

The question that begs asking is: what were the costs of Iberdrola's other combined-cycle projects? Let's see.

- In Lithuania, it is building a 440 MW plant for 330 million Euros. The cost of the Lithuanian plant is 750 Euros per kW.

- In Algeria, it is building a 1,200 MW plant for 1.47 billion Euros. The cost of the Algerian plant is 1,225 Euros per kW.

- In Russia, it is building a 403 MW plant for 311 million Euros. The cost of the Russian plant is 771 Euros per kW.

- In Qatar, it is building a massive 2,000 MW plant for 1.63 billion Euros. The cost of the Qatari plant is 815 Euros per kW.

- In Latvia, it is building a 420 MW facility for 300 million Euros. The cost of the Latvian plant is 714 Euros per kW.

The numbers don't lie. The Cumaná project is, by far, the most expensive combined-cycle power plant in Iberdrola's investment portfolio.

There may just be a perfectly valid reason for all of this, but I doubt it. What possible explanation, other than corruption, can there be for such a difference? Are Iberdrola's stockholders aware that, because they list their ADRs in the New York Stock Exchange, Iberdrola would fall under the jurisdiction of the U.S. Foreign Corrupt Practices Act? What does European legislation say about this? Why aren't European MPs looking into this?

And why are Venezuelan journalists simply ignoring this issue?

Venezuelan taxpayers deserve an answer.

Headline of the Year

2009-11-02T00:08:00.006-04:30

Quico says: I dare you to click on this and not laugh.

Go on, click.

You laughed, didn't you?

Oh sure, a second later you caught yourself. You realized this isn't actually funny at all. You felt vaguely guilty that you couldn't contain that chuckle. The man is dead, for god's sake. It's no joke.

But admit it, before all that, you chuckled.

[Hat tip: CL.]

The Real Winner in Honduras

2009-10-30T08:02:00.019-04:30

A longer version of this post appears on The New Republic's blog, The Plank.

Juan Cristóbal and Quico say: The Honduran tragicomedy that has consumed the hemisphere's diplomats for months is at an end (read the details here). Barring the unforeseeable - which is always an iffy thing to do in Honduras - Micheletti is out, Zelaya is in (pending a face-saving vote by Congress and the Supreme Court), and an election to replace him will be held on November 29, as planned.

In light of all this, who was the winner in the Honduran crisis?

Certainly not Zelaya. He's back in power, but is significantly weakened. He will not be allowed to push for the Constitutional Reform that precipitated the crisis in the first place. He'll be forced to head a "unity government" (a.k.a., an "amarren-al-loco government") and he'll have to find himself another job in January.

Certainly not Micheletti. By giving up power to Zelaya, he loses a massive amount of face and may face criminal charges down the road. In spite of having stopped the illegal referendum Zelaya was pushing for, his fate is up in the air.

Certainly not Chávez, who can say goodbye (for now) to his main objective: ensuring Zelaya remained in power through indefinite re-election and permanently adding Honduras as an ALBA satellite. His intervention in the crisis, which went from ridiculing Micheletti to threatening to ignite civil war, was as hyperbolic as it was ineffectual; it left him sounding like a clown. Count on Chávez to ignore reality and call this a heroic, historic, glorious triumph of the Revolution, though.

Certainly not the OAS. In a futile attempt to compete with Chávez's maximalist rhetoric, the regional body let its presumed power get ahead of its actual leverage, effectively sidelining itself from the negotiations that eventually brought the crisis to an end. The hypocrisy of the organization's scorn toward the Honduran Supreme Court became overwhelming when Daniel Ortega of Nicaragua pushed an illegal, clearly unconstitutional Supreme Court ruling giving him the power to be re-elected indefinitely and the OAS erupted in silence. The region's heavyweights (a.k.a., Brazil) showed that, without US influence, they have little to no leverage.

No. The real winner in this drama is the power broker, the top diplomat for the key power who quietly, patiently pushed for this settlement all along.

If this deal leads Honduras away from crisis and toward a legitimate Presidential election, if it leads Zelaya and Micheletti to the dustbin of history - I think we have the lady in the picture to thank.

The view from your window: Reading

2009-10-30T06:00:00.000-04:30

Reading, Pennsylvania, USA. 10 AM.

Send us the View from Your Window: caracaschronicles at fastmail dot fm, or nageljuan at gmail dot com.

Please ensure the window frame is visible, and tell us the place and time the picture was taken. And don't try to "pretty it up" - just show us what you see when you look up from the seat where you typically read the blog. Files should be no bigger than 400 KB.

Iberdrola and Elecnor supply the electricity to cook the books

2009-10-28T18:00:00.006-04:30

Juan Cristóbal says: - Venezuela is in the grips of an unprecedented electricity crisis, and much of it has to do with festering corruption and boundless incompetence.

Since Hugo Chávez nationalized the electricity sector, blackouts have become the norm in much of the country, and the President has gone so far as to threaten shopping malls and love motels - Miraflores not included - with cutting their power. Our Commander-in-Chief is now our Conserje-in-chief, quite literally looking to pull the plug on the undeserving.

The corruption that seeps through all levels of the chavista administration and its international allies is a big part of the problem here.

Take the deal, announced last July, by Spanish companies Elecnor and Iberdrola (IBE in the Madrid Stock Exchange). The companies said they had signed an agreement with the Venezuelan government to build a power plant in Cumaná, in eastern Venezuela. The plant, which is being built for PDVSA and will use combined-cycle gas turbines (CCGT), wasn't tendered. As has become usual, the contract was just assigned, a dedo, on a presidential whim.

(We'll leave it to far more cynical minds than ours to wonder whether the Spanish government's longstanding reticence to criticize any aspect of chavista governance had anything to do with the fact that this deal went to Spanish firms...)

So what do we know about the particulars of the deal? Sadly, little, and mostly what the companies themselves - rather than the government - has chosen to make public.

Funny detail, Elecnor's press release curiously left out a key component of this deal: the plant's capacity. They only disclose the plant will cost 1.4 billion Euros, roughly $2 billion at current exchange rates.

However, Iberdrola's press release goes all chatty Cathy. It proudly pegs the plant's capacity at 1000 MW. It also goes into great detail, boasting about who was in on the deal. The agreement was signed in Miraflores Palace by high management of both Elecnor and Iberdrola, and by the President of PDVSA Gas, Mr. Ricardo Coronado. Present in the signing ceremony: Spanish Foreign Minister Moratinos and Hugo Chávez himself.

So far, so kosher, right? Not so fast.

It turns out that the 2008 World Energy Outlook, an annual publication put out by the International Energy Agency, says that the typical construction cost for a CCGT plant in Latin America is on the order of $750 per kW. It's right there, in Table 2.

In other words, the estimated cost of a 1000 MW CCGT plant in Latin America should be in the order of $750 million, not $2 billion.

Now, some may say that the World Energy Outlook estimate is an average, that there is a lot of variation between Latin American countries. Others might argue that the contract may include other things, such as maintenance or the actual operation.

Baloney. The gap between $750 million and $2 billion is too large to reconcile. Any of these considerations should have, and would have, been made public. They haven't been. Google the cost per kW of building a CCGT plant and the figures vary, as they should. Nowhere do they reach the astonishing figure of $2,000 per kW the Venezuelan government is paying.

Assuming $750 million is the true cost, can anyone doubt that if the government had run a proper public tender, we would collectively be $1.25 billion richer than we are? At what point do the crimes against public coffers reach the tipping point when people realize their country is being pillaged from the inside out?

Of course, Chávez has a few madre patria enablers in this deal. And while it is impossible to claim they are in on it, they are hardly innocent bystanders.

The irony reaches pitch level when you find out Iberdrola is listed in the Dow Jones Sustainability Index, scoring highly on, among other things, "social responsibility." One has to wonder: are Iberdrola's and Elecnor's shareholders aware of these shenanigans?

What do episodes like this one say about Chávez's priorities? If the Venezuelan government was worried about the electricity sector, it would spend more time thinking of ways to increase investment in this vital industry, and doing so in an efficient manner. Instead, it spends its energies currying favor with foreign governments by paying their firms for an electric plant three times the going price.

It's not about the people. It's all about staying in power and keeping the cronies happy.

Dear Editor

2009-10-28T09:17:00.008-04:30

Quico says: I was about to send this as an email to an editor who asked me to write something about Chávez's hypertrophied presidential office budget. But as the rant took shape, I found myself thinking... "hmmmm, did I just write a post without meaning to?"

Dear [Name withheld],

Thanks for getting in touch. It's always a bit funny getting to realize which kinds of stories about Venezuela pique a foreign editor's interests: if you'd asked me a week ago, I wouldn't have guessed that a largely bureaucratic story about the Presidential Office's budget allocation would get so many papers abroad interested, though in retrospect I guess I can sort of see why it's a resonant theme. My blog partner, Juan Nagel, sure got into it.

I don't think I can write it, though, for two reasons. The first is a bit technical and has to do with the way the budget process works in Venezuela, or rather, doesn't work. The second goes more to the heart of the issue...

First, the technical bit: Venezuelans who follow these things all know that the official budget the Finance Minister presents to our National Assembly each year is more like an opening gambit than a finalized statement of what the state expects to spend in the following fiscal year. For as long as anyone can remember, Venezuelan law has allowed the government to go back to parliament in the course of the fiscal year and ask them to top up whichever accounts have run dry earlier than expected, a handy little procedure known as an "additional credit" ("crédito adicional").

On some abstract plane, I guess having some mechanism in place to make sure the budget is flexible enough to adjust to changing realities is a good idea. But as with most good ideas in Venezuela's political system, this one has been abused out of any semblance of good sense over the years.

I'm not blaming Chávez here, this is one of those old-regime vices the revolution just sort of forgot to revolutionize. But the long and the short of it is that initial budget figures are an extremely misleading thermometer of how much a given government office in Venezuela will spend at any given time, because actual spending is often many multiples of the original figure, thanks to "additional credits."

In this case, in particular, the amount the government is budgeting for Chávez's office in 2010 is several multiples what they had budgeted for 2009, but I doubt very much it's what they actually spent this year: take the time to go through the additional credits and I bet the rise looks a lot less scandalous.

So it seems likely that what we have here is a kind of accounting mirage: the government deciding to ask for more of what Chávez will spend up front rather than returning to the parliamentary teat again and again over the course of next year. If you were so minded, you could even see this as an advance in terms of monetary transparency. (Though, of course, to make Venezuelan budgets genuinely useful as analytical and planning tools they would need much tighter controls over the "additional credit" mechanism overall, and the government sure isn't about to consider such a thing.)

I tried to think of a pithy way to explain all that in 3 sentences in a way that would make sense and wouldn't put your readers to sleep, but couldn't really think of one.

But beyond the accounting angle, there's this thing that's been gnawing away at me about the way the presidential budget is being reported abroad: when you're talking about a political system like the one we have, the whole notion of a "presidential office" budget that's somehow separate from the rest of the budget seems quaintly out of place. In Venezuela, every ministry and every agency's budget is at the president's unrestricted discretion...that's what petrostate autocracy boils down to!

You could multiply the examples here. I could tell you about Chávez's explicit threat to private shopping mall owners last week to get their own power generators or face power cuts from the public utility companies: a guy who micromanages the operations of even parastatal agencies like the utilities like that doesn't need a ringfenced private budget to spend as much as he wants on whatever he wants, he can just pick up a phone, call any agency head, issue a direct order and get his way, pre-existing budget commitments be damned.

I could go into the details of Fonden, the government's hyper-opaque "national development fund" which hasn't presented a balance sheet in public in over a year, whose actual holdings are a matter of simple-conjecture, but which by most accounts has at least several billion dollars and, according to some government spokesmen earlier this year, as many as $50 billion at its disposal: all money that's spent at Chávez's discretion, with simply no oversight, no previous budgeting, no form of outside accountability or control whatsoever.

I could go into the way the New PDVSA's management also spends money discretionally, on Chávez's orders, before handing that money over into the finance ministry's budgeting stream, such that that nearly endless money-stream is also, in effect, part of Chávez's no-oversight, no-controls budget.

When you think through the realities of the way money gets spent in a country like ours, where no public institution is ever able to put a check or a balance on the president's whim, getting upset over a $341,000 allocation for the president's clothing seems grotesquely out of place. I mean, what we're focusing on here is the fig leaf, the part they had the decency to declare, the equivalent of the profits Vito Corleone reported through Genco Olive Oil.

It's the millions upon millions of dollars they're spending off the books, to fund FARC or Iranian uranium exploration in Bolívar state, or extremist groupies' presidential campaigns in the rest of the hemisphere that I'm worried about. It's the unbudgeted, unreported, unaccounted for and officially non-existent billions flowing from PDVSA through various financial intermediaries and into the accounts of Ricardo Fernández Barrueco and Pedro Torres Ciliberto and Arné Chacón that I'm concerned about. It's the whole black underbelly of the parallel, off-the-book Chavista Second (and Third, and Fourth) Budget that we need to focus on, not the vanilla $1.4 billion they had the modesty to own up to!

In conditions like these, writing a story about the presidential office's official budget allocation is, in itself misleading. A first world reader looking into is bound to read the story and think, "so...they have budget debates, we have budget debates, they have controversies about particular budget items, we have controversies about particular budget items, they have venal politicians who make a grab for the sweet life while in office, and so do we!...hey, Venezuela seems like a pretty normal country!"

But it's not like that, my friend...it's just not like that at all...

cheers,
ft

Tell me how you budget and I'll tell you who you are

2009-10-27T09:52:00.013-04:30

Juan Cristóbal says: - Hugo Chávez's administration introduced a draft 2010 budget a few days ago. The project promises a whopping $84 billion in spending that somehow manages to disappoint. It is lower than the 2009 budget in real terms, and assumes an optimistic 0.5% GDP growth and a frankly fantastical 22% inflation, in itself nothing to shout home about. But a few hidden gems are raising significant eyebrows.

The main one: Spain's El Pais, through the inimitable pen of Maye Primera, is reporting that Chávez's discretionary spending will rise by 638% in 2010, to an astonishing $1.5 billion. This is twice as high as the entire budget of the Energy and Oil Ministry, higher than the budgets of the Agriculture, Mining or Foreign Affairs Ministries.

Nevertheless, the more egregious comparison is with the funds assigned to our embattled judicial system. Chávez's personal budget is on par with the $1.7 billion allocated to all the country's courts, and several times larger than the miserly $474 million that go to Prosecutors. Both amounts are 16 and 9% lower, respectively, in nominal terms than they were in 2009.

But it's just as well. The budget instructs the "justice" "system" to work in advancing the government's socialist agenda. If the courts are ordered to defend a political project instead of the rule of law, then there must be some sort of silver lining in them getting the axe, right?

The numbers underlying Chávez's discretionary spending offer cynics a not inconsiderable serving of red meat. There is a paltry $9 million allocation for Chávez to give out freely to those pesky people asking for help at the front door of Miraflores Palace, while security for the President (presumably to guard him from those very people) gets $16 million. The President's trips overseas (to get away from those people) get another $9.1 million, while his weekly TV show Aló, Presidente (so those people can be entertained while keeping quiet) gets $2.6 million.

Chávez's appearance clearly shall not bear the brunt of budgetary restrictions. The president's clothing gets $361 thousand per year - three times what Sarah Palin scandalously got for the 2008 US Presidential elections. This amount is, according to Chile's La Tercera, the highest in South America, exceeding even Cristina Kirchner's gaudy, unseemly $350 thousand-a-year wardrobe (which, come to think of it, Venezuelan tax-payers also help pay for.)

But as any fashion consultant will tell you, it's not just the clothes, it's how you wear them. That's why dry-cleaning gets $92 thousand, while $84 thousand are earmarked for stocking the President's palaces with "personal care" products. Assuming the President spends three minutes in the shower each day, his grooming costs taxpayers $76 per minute. Quite literally, he is throwing our money down the drain.

As snicker-inducing as these numbers are, they are not the most astonishing part of the Miraflores budget. Chávez is a well-documented narcissist, so these figures fit the bill. Unless you were still under the delusion that Chávez was sincere in his zest for socialism and his constant decrying of consumerism, these numbers are "dog-bites-man."

What these figures point to is Chávez's increased reliance on discretionary spending for his own political survival. As poll numbers for the President go from red to very red, Chávez knows his fate cannot be left to the headless bureaucracy he has fed all these years. As in 2003, he is well aware that the key is to have the cash ready to spend on quick, easy fixes that will somehow dupe the population into thinking he's solving their problems.

So the real headline shouldn't be what Chávez spends on clothes. The real headline is Chávez's strategy to stay politically relevant. In a country with the highest crime rates in the world, where personal safety is by far people's top concern, the President cuts funding for the justice system to increase his own discretionary funding. He clearly believes his own political survival depends not on solving people's problems, but on having the cash to look like he's doing so.

Chávez thinks you suck; you agree

2009-10-26T01:45:00.004-04:30

Quico says: As Chávez takes to blaming more and more of the nation's problems on you, the latest Datanalisis poll confirms it: 23.9% of respondents identify "la gente" (the people) as the main culprit for the nation's problems, just beating Chávez (23.2%) for top spot.

You suck, and you know it.

Killing capital

2009-10-23T05:59:00.006-04:30

Quico says: Hernando de Soto's conception of "dead capital" is one of the genuinely intriguing ideas spawned by the development literature in recent years. For de Soto, the problem facing the third-world poor is not just that they own too little, but that the things they do own are economically "dead."

In the absence of clear titles, the shanty where you live or the buhonero stall you sell from can't be used as collateral, or rented, or even sold. Because it can't do any of those things, it doesn't earn you an "in" into the formal financial system like the capital of the middle class or the rich. It's yours only in the sense that you can use it, nothing more.

But capital is much more than just the right to use the things that belong to you: it's the right to leverage them as tools for your economic empowerment and advancement.

Dead capital is the capital of the unfree.

What de Soto is getting at is an old idea in economics: that property is about more than just possession. Capitalism can only work when ownership carries with it a set of rights that include your ability to transact what you own, to borrow against it, to rent it or subdivide it or otherwise leverage it into a tool for attaining your goals. A major reason that the poor find themselves trapped in poverty, in this analysis, is that their property rights are partial and tenuous: they exclude many of the key features that turn mere stuff into living, breathing capital.

The debate in Venezuela's public sphere has too often missed this distinction between "property" and "property rights." Earnest chavistas have often pilloried the opposition for scaremongering, putting down their 2007 referendum defeat to a successful opposition scare campaign to convince people that the government was going to literally disposses them: kick them out of their ranchos or move cubans into their apartments.

"Nationalization is about the means of production," they'll argue, "about factories and farms and banks...not about people's houses!"

And while fears of reds knocking down your door may indeed be overblown, what can no longer be doubted is that even if chavismo won't take away your property, it sure is eager to truncate your property rights. They may let you keep your stuff, but your ability to dispose of the things you own in the way you judge most likely to bring your family prosperity is being aggressively fenced in.

This is the real story of Official Gazette No. 39,272 . Without having to expropriate anybody outright, the Gazette truncates hundreds of thousands of caraqueños' property rights, eroding their ability to leverage their belongings into tools for their own economic empowerment.

What we have here is a kind of capital massacre: the willy-nilly deadening of a massive store of previously living capital. The second your apartment is designated a "historically protected site" it takes a massive step from the category of capital to mere belonging.

When historic-site status is conferred on entire swathes of Caracas at one go, what we're seeing is the indiscriminate degradation of thousands upon thousands of families' rights to dispose of what belongs to them as they see fit, and all for the most tenuous of public-interest reasons. The government kills capital, apparently, for fun.

"Well, of course they do," you may be tempted to say, "they're communists: railing against capitalism is their whole thing."

But that's not right either. Marxism, for all its faults, at least offers a coherent response to the question of how to generate investment in a post-capitalist order. By socializing the ownership of the means of production, the workers' revolutionary state itself acquires the tools to leverage the society's material base into a (hoped-for) better standard of living for everyone. You don't have to agree that this is a good or even a feasible solution to recognize it as, at least, a solution: a serious, internally consistent stab at explaining how to bring prosperity in the absence of individual property rights.

The problem is that chavismo fails to rise to the threshold of intellectual seriousness Marxism sets out. In Venezuela the state is eroding individual citizens' rights to leverage their property into capital without proposing any coherent alternative.

Rather than nationalizing all industry and accepting responsibility for the management of society's productive processes, the state has created a thicket of stifling regulations instead. Those regulations keep a truncated version of ownership in private hands while at the same time preventing private owners from doing the things capitalists normally do for society's welfare: invest, produce, grow and generate jobs.

They wash not, and yet they refuse to lend out the wash basin.

In Venezuela, capital is not being socialized; it's being hunted for sport.

Our future at fire-sale prices

2009-10-22T18:00:00.001-04:30

Juan Cristóbal says: - Not content with issuing debt to finance capital flight, as they did a few weeks ago, the Chávez administration recently announced a new round of debt to finance even more capital flight, this time backed by the third-world thrift store that is PDVSA. One small problem stood in its way: not enough buyers.

Investing in Venezuela is way too risky even if you earn an infinity rate of return.

So what does the government do? Why, sweeten the debt emission deal, of course!

Yesterday, PDVSA said they would not change the conditions. The Central Bank chief parroted that line. But since they have no credibility to save any more, today they did the exact opposite and announced a heavily edulcorated new set of incentives to get people to buy their bonds.

The new rules exempt the interest earned from holding the government's debt from taxes. With this measure, the government ups the ante: not only is it encouraging you to take you capital abroad, it's actually paying you to do so.

The rules also say that holdings of these Boli-delicious, guapo-doble-con-queso bonds will not count toward bank holdings of foreign currency. As you may recall, a few months ago the government decreed to place a limit on the percentage of their capital Venezuelan banks could keep in foreign currencies. This caused a lot of scrambling among bankers who, wouldn't you know, held a lot of foreign currency.

Well, in a reversal, banks can now hold these PDVSA dollar bonds and not have it count. And bankers who buy the bonds will be eligible for a free weekend at the Margarita Hilton ...

Apparently, the constant threat of nationalization wasn't enough to keep them on their toes. Now the government has to sweet-talk the banks into buying their debt.

But that's how it is. We've gone to this proverbial well so many times, nobody wants to lend to us any more. Cuz you know the government's finances are in desperate shape when it has trouble pimping its papers to the Victor Vargases and Arne Chacons of the world.

What El Sistema teaches us about social policy

2009-10-22T13:00:00.004-04:30

Juan Cristóbal says: - The well-deserved, near-universal praise heaped on Venezuela's Youth Orchestra Program ("El Sistema") is a source of pride for all Venezuelans. And yet, reading the latest article to sing its praises, this time courtesy of The Toronto Star, I was left wondering: what is it about El Sistema that makes it so succesful?

Simple. It's José Antonio Abreu.

Of course, Abreu is mortal, and we would be selling the program short if we were to place its success on his shoulders, condemning it to oblivion once he is not there anymore. It's the parents, the musicians, the government - they all keep the train humming along.

But through it all, the fact is that Abreu has been persistent, leading the ship since the mid-70s.

It's hard to imagine El Sistema having this kind of impact without someone there, day in and day out, with a vision, navigating the perilous waters of political turmoil, oil-price shocks and a society that is, at times, at war with itself.

Abreu never set out to make this program for political gain. He doesn't appear to have wanted it as publicity, or to gain fame, or to boast in international forums. In his own words, "those of us who have been involved from the start were never really aware of what we were doing."

All he set out to do was create orchestras.

That concentrated focus has, almost miraculously, allowed him to gain the favor of governments left and right. He has sold his foundation as a Venezuelan institution, and has worked to resist being framed by either side in the current political squabbles. He has involved the communities, the parents and the local authorities, making them all have a stake in the outcome.

El Sistema could only work because of what it is not: a government program. Although the government supplies much of the funding, and the current administration has shamelessly tried to appropriate the fruits of their labor, El Sistema is not the product of the State.

It's the product of a single man's vision and the tireless work of hundreds of thousands of ordinary Venezuelans. It is not the fruit of some politician's imagination. It is not a three-headed bureaucracy run by a random army general who is replaced every six months. It's not a cash-distribution scheme concocted on the fly to help win an election.

This isn't to say that government social programs can't work. They can, and do. It's government programs run by the Venezuelan state which have proven to be ineffective and inefficient. They could be made to work, as long as they learn some lessons from successful experiences such as El Sistema.

Think about it:

clarity of vision,
persistence and permanence of its leadership,
resistance to using the program as something it is not intended to be,
positioning of the program above day-to-day politics,
minimizing of direct State involvement,
involvement of the community no matter what their political views.

All those things make El Sistema work. All those things are lacking in Venezuela's Misiones. Is it any wonder The Toronto Star is not raving about Misión Ribas?

With no electricity, nobody can hear your cadenas

2009-10-22T08:00:00.008-04:30

Juan Cristóbal says: - The two short videos are fascinating. In a few short minutes, you can see Chávez the deranged (hiring "planes" to bomb the clouds and create rain), Chávez the amusing (telling people three minutes are more than enough for showering, saying that's what he does, "and I don't stink"), Chávez the authoritarian ("why do people need hot water? why do they need jacuzzis?"), and Chávez the loose-tongued, Freudian-slip communist ("what kind of communism are we building here?").

My apologies, but they are in Spanish only.

The stuff about the showers, in particular, is another manifestation of a tendency we don't talk about enough: for Chávez, Venezuela's problems are Venezuelans' fault. They have nothing to do with him.

No food in store shelves? You're all shopping too much. No electricity? You bunch of wasteful pricks. No water? Get out of your jacuzzis! No dollars? Stop drinking Scotch and we might come up with some.

It used to be his Ministers' fault, or the IVth Republic's, or the Empire's. But those scapegoats doesn't seem to be working anymore.

Now, it's all your fault ... yours, and the weather's!

Your apartment is their heritage

2009-10-21T11:51:00.009-04:30

Quico says: Chavismo has surely entered its churrigueresque period when the government decrees a gas station as a protected historical site, an irreducible part of the nation's cultural and ethnic heritage. Yet there it is, in the official black and white of Official Gazette No. 39,272.

Mind you, Estación de Servicio Los Caobos is merely one item in a list of over 1,200 buildings, homes, parks, schools, churches, streets, highways and entire neighborhoods that figure in the Culture Ministry's new list of "protected historical sites" in Caracas' Libertador district.

The decree is a classic statement of dadaist tropical despotism. In one fell swoop, the government designates whole swathes of the city as protected heritage sites. El Nacional's headquarters is on the list, as is Banco Mercantil's. Not even the Distribuidor La Araña (pictured here), the crucial highway interchange that links up the Francisco Fajardo Highway with the one that goes to La Guaira, is saved from the mighty sword of cultural protection. Do you feel your ethnic heritage safer already?!

The slight bemusement this piece of bureaucratic protectionism stirs up quickly dissipates when you realize that, as protected heritage sites, all these areas come under a slew of new regulations. Suddenly, if you live anywhere in El Paraiso, Bella Vista, San Bernardino, La Florida or Los Caobos, you live in a protected historical site. Even if you manage to find someone willing to buy it, you can't just up and sell your house whenever you want. You can't even rent it, or get a mortgage loan against it.

No siree. Now, because your dilapidated, 50s-era, never-renovated San Bernardino apartment building is deemed part of the nation's "cultural heritage," you need special permission from MinPoPoCulture to do anything with it.

Another bit of paper, another chavista ideologue looking to screw with your life as long as you don't pony up and get off your mule. One more hoop, and one more layer of political control added to the mix of an already asphyxiated society.

The part that gets me most about this is that these people just don't have the courage of their convictions. If, as is clearly the case, they just plain don't believe in private property rights, why don't they come out and say it? Why all the sniveling, semi-covert, back-door, fine-print nationalizations? Why don't they make an honest woman out of their convictions? If they did, we may just be able to have a serious debate about it.

As things stand, we can at least take some comfort from knowing we can pump our massively subsidized gasoline from historically protected pumps.

Evita G. officially loses it...

2009-10-20T21:06:00.005-04:30

Quico says: Read this and tell me Eva Golinger hasn't lost her marbles completely.

I can't even piece together what the specific offense she's accusing MM of was in the first place. Seriously!

No good, two-timin' SOB...

2009-10-19T17:54:00.003-04:30

Quico says: OK, I admit it: I haven't been posting very much recently cuz I've been...gasp...two-timin' this blog!

The shame!

The other blog project is, erm...a lot different.

The final frontier

2009-10-19T08:36:00.003-04:30

Juan Cristóbal says: - Loyal reader Kepler has a post on his blog about Amazonas state. It's well worth a read, if anything for the links and the work he has put in mapping demographic and political trends in the state (inasmuch as there can be "trends" in a crimson-red state such as this).

Iranian uranium turns Iranian centrifuges into silly putty

2009-10-16T10:01:00.007-04:30

Quico says: For the longest time, the conventional wisdom was that it would be senseless for Iran to seek uranium supplies outside its own territory, because they could source plenty of the stuff domestically.

It now turns out that impurities in Iran's uranium supply may be wrecking their enrichment hardware.

Now, I'm no nuclear scientist...but isn't this precisely the kind of thing that might send you off looking for higher grade supplies elsewhere? Say, in a close ally's sparsely populated jungle regions?

Speaking truth to power, Cuba-style

2009-10-16T07:54:00.002-04:30

Juan Cristóbal says: - Blogger extraordinaire Yoani Sanchez fights for her rights. In Spanish only...

Former communist guerrilla blasts state intervention in the economy

2009-10-15T08:49:00.011-04:30

Juan Cristóbal says:

(With my apologies to Teodoro-groupie Quico, but that headline wrote itself.)

In today's Tal Cual, Teodoro Petkoff sensibly butchers the Chávez administration for involving itself directly in every last corner of the economy and making a mess wherever it pokes its nose. I was stratled by the tone of the piece, specially considering who the messenger is.

The Venezuelan government has a knack - the understatement of the day - for involving itself in the direct production of goods and services that could be supplied better and more cheaply by private industry. Every time, yes, every time it does so, the results are sub-par and all Venezuelans end up poorer for it. Teodoro echoes this idea more strongly than I recall him ever doing so, and for that he earns two thumbs up from me.

It's funny that a right-wing talking point like that could come from a man like Petkoff, no ifs, ands, or buts. It's not just that he's correctly framing Chávez as the anti-Midas that he is, it's that he does it so vehemently. It's as if he's channeling his inner Margaret Thatcher.

Now, the issue with this argument has always been how to sell it. How can we convince Venezuelans that state-owned enterprises are a waste of money, that when the chavista heads of the Venalums, the Banco Industriales and the Venirans of the world call for the government to "capitalize" their companies, we all end up paying? Where is the outrage when the government announces its foray into the hospitality industry? Where is the outcry when we hear our tax money will be used to sell cars?

After all, explaining this is just a matter of math: it's a whole lot easier to simply pay workers in these companies wages for doing nothing than have them be a part of a company where you also have to pay bribes, managers, distributors and foreign suppliers, with all the "surplus" pricing that comes with it.

It's also a lot less time consuming for government decision-makers who, instead of focusing on these empty shells, should be thinking about education, national security and crime. How much time does Chávez spend coming up with funky names for his new companies?

The fiscal and welfare consequences of a badly-run state-company are unequivocally sub-optimal relative to simply giving the workers cash.

This is an issue some Venezuelan politicians have meekly tried to sell, and time and again, they retreat. Ultimately, it always proves easier to just continue doing what we're used to and keep feeding the statist beast.

But how can we break this vicious cycle?

We may never find out.

The curious case of the missing panic

2009-10-13T11:42:00.012-04:30

Juan Cristóbal says: As the government's authoritarian noose tightens, and next year's Legislative elections draw ever nearer with zero progress on a unity platform, it's fair to ask: is it time to panic yet?

Panic is underrated. It can be just the thing to get you going. As the great Billie Jean King puts it, "pressure is a privilege." But it can also shut you down. Deer, meet headlights.

Politicians who figure out how to turn their moments of panic into "the fierce urgency of now" are often the most successful. Frankly, in Venezuela, we could use some of that fierce urgency.

Surely, some opposition politicians are panicking, but none are panicking constructively. Come to think of it, it's our leadership's total inability to do constructive panic that's been spinning me into, well...a panic.

That's the first thing that crossed my mind when I read that the government is apparently considering bringing forward the Parliamentary elections currently scheduled for December 2010. According to El Nacional's sources in Miraflores, the government is seriously pondering holding the elections as early as March. Some deputies have admitted they have discussed the issue, and you know it's true when Darío Vivas says it ain't.

A move like this would catch the opposition with their pants down, and it wouldn't be the first time. All the talk about unity would have to give way to real results, and the shift would need to happen yesterday. A change in the schedule would dramatically compress the time available for selecting candidates and raising funds.

It shouldn't have to be like this. Here we are in October, and the progress on choosing unity candidates can be measured in millimeters. The alarm has been sounding for months, but our guys can't hear it.

We've been saying since at least February that the congressional elections are the central issue we face, that failure will seal our chances until at least 2018, that the work needs to begin right away. Nobody seems to understand this.

Leopoldo Lopez has brought up the idea of primaries, and I have enthusiastically boarded the bandwagon. But his failure to bring specifics to the table - in fact, his failure to even sit at the table - has all but doomed its chances. And while there has been much huffing and puffing about "reaching consensus" or "using opinion polls," so far, these debates have the air of a carrito-por-puesto discussion instead of the desperate urgency of a firefighters' huddle by the side of a blaze.

Tranquilo, chamo, we have all the time in the world, right?

Well, we don't. People may not remember, but Manuel Rosales didn't begin his Presidential campaign until the idea of primaries had fizzled (yes, we've been down this road before) and the World Cup had ended. In fact, the precise date of Rosales' selection was August 9, 2006, less than three months before the election.

With so little time to pick a team, settle on a message, and campaign, is it any wonder we got our asses handed to us? That's what "consensus" gets you - a weak candidate with an incoherent message selected way too late.

Regardless, the discussion of primaries vs. consensus vs. Pérez the Mouse deciding unity candidates would be completely beside the point if the schedule changed. The CNE throwing down the gauntlet should, in theory, force our politicians to zero in and focus on finding a solution, any solution, quickly.

Don't count on it. Instead, our Scotch-soaked, 360°-haunting geniuses are busy worrying about the OAS, visiting hunger strikers, collaborating on fluff pieces and, generally, avoiding jail. But where are the politicians telling people the truth - that unless we start playing as a team now, not only will we lose the 2010 elections badly, we will also have sealed our fate for 2012?

Some of our politicians are feeling the panic and acting on it, but it's not the good type of panic. Instead of running around like headless chickens or fleeing to Lima, they need to jujitsu that pressure into stamina. They need to do their job.

Catch My (Authoritarian) Drift?

2009-10-13T07:46:00.006-04:30

Quico says: In the Guardian today, Rory Carroll manages the impossible: getting a major first world paper to buckle down and give detailed attention to Chávez's authoritarian drift. No cutesy hook hung around Miss Venezuela, no quirky angle with El Vergatario. Not even a clear news hook. No bullshit at all. Chávez's drift towards authoritarianism is the story.

Well halle-friggin'-lujah....

Listen, lets get real. Stories like this one are always going to be rare. When they appear, they're never going to generate the kind of torrent of click-throughs that you get whenever Chávez does that thing he does and starts decreeing that underwear must be changed every half hour and worn on the outside, so they can check.

Carroll's story isn't sexy. Its forlornly imprisoned generals and its exquisite neoscholastic distinctions between imperfect democracies and authoritarian regimes with democratic characteristics won't send you rushing to twitter the link. Like Venezuelan reality, the whole thing is just grim.

Nobody likes grim.

But, more and more, stories like this are vital.