Chavez, Russia and Mercosur

It seems that Miguel trip through the Baltic countries is having an
effect. Chavez is in Russia and we are met with this news that the
Putin dominated Duma voted against receiving Chavez. The communist
party of Russia wanted Chavez to make a speech there. The vote was not
even close, 232 to 131.

And looking at Russian statistics, Chavez is visiting Russia for the
5th time whereas there is not talk of Putin coming over here. How
come? Chavez praised the “resistance” of Russia to the empire. Putin
seems to be keeping Chavez at bay while he is packing to go and spend a
weekend at Kennebunkport.

Does Chavez know what Kennebunkport means?

No word yet as to this affecting the much talked about purchase of
totally unnecessary 9 submarines. In the end, it will depend on some
sweet back room deals more than any Vodka laced Caviar toast..

Meanwhile, back at the Mercosur summit where Chavez should be instead
of buying Fabergé eggs, Celso Amorim, Brazil’s foreign minister, said
that full adhesion to Mercosur by Venezuela would depend on a heartfelt
apology by Chavez to the Brazilian senate. Must we conclude that the
Brazilian Senate is miffed enough that Lula does not want to risk a
negative vote? The suspense is high: will Chavez apologize for
treating the Brazilian Senate of Bush’s parrot?
(
).

Spinoza,
accidental guest blogger who does not grow tomatoes.

Chavez Government attacks another icon for human rights

Internet
access has been much worse than I expected in these parts of the world
(Sydney, I have been to Russia, Estonia and Germany so far). Thus, surfing
has been very limited and I have mostly looked at emails.

Thanks to
friends, I receive the speech Spanish Judge Baltazar Garzon gave in
Venezuela, which contained general references to miscarriage of Justice and
Human Rights, but had not direct reference to Chavez’ Government. (Except
that he did say in the Q&A that shutti g down RCTV was bad for human
rights.

Well, the Government reacted in its best irked style
(http://www.abc.es/20070621/internacional-internacional/gobierno-chavez-tild
a-garzon_200706211046.html), calling Garzon a clown and a coward. As
many as three Government officials: the Minister of Foreign Relations, the
Vice-President and the Head of the Supreme Court felt “offended” by
Garzon’s remarks.

Thus, the Government sends another warning shot to
the world about what it thinks about justice and human rights when it
attacks someone who has an unblemished track record on human rights and
fighting them. To us, this is nothing new, the Chavez administration has
demonstarted over and over it cares little about human rights and freedom.
Chavez upcoming visit to Teheran at a time of more crackdowns in that
country and recent attempts at limiting fre speech in Venezuela because of
a silly sports events taking place in the country, simply prove the point
once more.

Add to that the attaks on the students attempting to
brand them as “opposition”, as if opposition were a bad word and you get
the picture. Unfortunately all we have gaiend is that the world now
understands that Chavez does not defend human rights and is no democrat,
the question is what will we be able to do about it in the absence of
honest judges willing to condemn the Government’s actions.

Watching the Soviet movie backwards

I have not been able to use the
Internet much since I left, so that I only know superficial facts about
events since my departure. Interesting that after not allowing the students
to march a couple of times before their appearance in front of the National
Assembly because of “law and order”, the authorities allowed pro-Chavez
supporters not only to surround the Capitol building, but many of them
happened to be heavily armed, in another display of how there is a double
standard today and two class of citizens in Venezuela and how the students
calling for everyone to be treated the same is so valid.

But since I
have not kept up with events in Venezuela in the last eight or nine days,
it would be difficult for me to write about my own country. However, having
visited a couple of former communist countries in the last few days, I
can’t help but see the dozens of analogies that I have witnessed in the
last week to the so called Chavista revolution, except that I get this
feeling that I am watching the same movie backwards in the countries of the
former Soviet Union, where I am.

The similarities are uncanny, even
if the Chavez revolution is unfolding in slow motion, compared to the speed
that transformed these countries into Communism. And somehow, while the
Soviet regime failed, it was able to show more successful experiences than
our tropical Dictator, despite the fact that he has had extraordinary
resources, but has very little to show for it in terms of the well being of
the people he claims to care so much for.

But the stories I heard
this week are quite similar. State planning that simply stifled private
initiative, producing shortages and making everyone equally poor. The rise
of a new rich oligarchy closely associated not only to power, but also to
the alliance between the military and the politicians. The use of State
resources to support party activities without checks and balances. Nepotism
all over the place. The exaltation of personalities. The leader who cannot
be questioned. Control of the media. Expropriation of property and
facilities which then proceed to deteriorate very fast. Allowance of
“dissent” to show that there were liberties, but mayor “dissenters” were
jailed or sometimes worse. Rotation of Government officials from one
position to the other, independent of competence in the area. Of course,
things got much worse at times than what we have witnessed so far, but we
should not forget the Chavez story is still unfolding.

I met nobody
who expressed nostalgia for the Soviets, even if not everything is fine in
these Republics these days. But they are still some around, those that
benefited from state populism and who did little and long for those days.
But in general, there is this thriving new economy, where people are happy,
not only because they have private property rights, but also because they
have freedom to do and say what they want. The young have particularly
embraced these values the strongest. Despite decades of communism, there is
a religious revival. Someone told me that Putin’s popularity arises in part
from the fact that he is the first President they have had who goes to
church and is a practicing orthodox.

But the biggest changes are in
the economy even if they have yet to be all ironed out. Traffic is a mess,
but gas is not cheap like in Venezuela, as more and more people can afford
cars. There is more construction and dock activity that I have seen
anywhere in recent years, including other European ports and Singapore. In
fact, the main gripe I heard is not about poverty or availability of goods,
but surprisingly, illegal immigration and how it is straining state
resources as immigrants from other former republics and Asia are coming in
droves to benefit form the economic resurgence.

You still see the
remnants for the Soviet era in many attitudes. You see many state employees
that do nothing, or the use of authority to deny something. I saw a tour
guide back down when she was told she could not do something, but I saw
another one get away with what she wanted just by being more forceful than
the other person.

I could write lots more, but being here these
last few days makes me wonder how anyone can think that these autocratic,
authoritarian regimes with planed economies can survive, least of all in
our countries, where disorganization, corruption and inefficiency are the
norm. History should teach people a lesson, but there are still people who
refuse to understand such economic realities.

All in all, a very
clear reminder of why Venezuela has taken the wrong path and why I felt I
was sort of watching the same movie, but backwards. Venezuela does indeed
seem to be the country where downside is up, and logic has given the way to
idiotic ideology.

The Peace of Democracy

The Peace of Democracy by Yon Goicoechea

Originally published here:
http://buscador.eluniversal.com/2007/06/01/opi_45239_art_la-paz-de-la-democra_301865.shtml

We are standing up, not to defend obscure interests, but for the
principles that should reign in a country that is constitutionally
declared democratic.

We demand to the Power to allow us exist in liberty. We demand to the
Power to recognize the legitimacy and the strength of the student
movement and ask them to abstain from intimidating acts or
manifestations that violate our rights.

We ask the police and the military authorities to abstain from the use
of fire arms and toxic substances to control the protests. We say that
there is no foundation on the criticism of high ranking civil servants
that, using their position, reiterate that our protests are political
and are part of a destabilizing plan from the CIA. We are not puppets of
any empire, except of one: the empire of democratic values.

We believe in Peace, in Concord, in Dialogue. Many years ago, when most
of us had not been born yet, a hairy man raised his voice of protest
with a sentence that, in its time, was the flag of those that are
attacking us now: “All we are saying, is give Peace a chance”. He was
John Lennon, who later died in the hands of a fanatic.

Many years later, a chinese student confronted a tank in Tianamen
square, in China. The tank could do nothing against the strength of the
ideas.

Fanatism destroys. A goverment that does not respect the values of
democracy, the right of freedom of expresion and the right of protest, a
Goverment that takes the path of imposition of violence, will always
find us standing up, in peace, but standing up. It is irresponsible the
calling of radical groups to confront us. It is unworthy that something
like that would happen in a Republic that is founded on Bolivar’s
values. We do not call for a strike, because we do not believe in
strikes, we believe in work and progress. Our call is for Peace. For
Peace and respect of Democracy.

Member of the Student Center of UCAB.

Translated by Jorge Arena,
Distinguished Ghost.
—————————————–

Happy times are here again…

happy times are here again as your favorite ghost blogger and successful tomato grower is back while Miguel is globetrotting. I must tell you though, that I am deeply hurt to know that other ghosts have been hired behind my back.

Hopefully, you all will write a letter of complaint to Miguel for allowing the access to less distinguished ghosts. We can also plot (this is only between you and me) a takeover of the blog, but for that we will need the help of the CIA and Direct TV. So please send me their telephone number so that we start preparing.

The talk of the town last week was the speech of the students at the National Assembly. I was planning to make a special post about it, but Daniel put together a spectacular post with all the details. Long, but absolutely worth reading to understand what went on. (see http://daniel-venezuela.blogspot.com/2007/06/chavez-takes-personal-role-in-venezuela.html)

I agree with Daniel: Chavez kept almost 6 hours of total news blackout on Thursday to compensate for 10 minutes of the student’s speech.

After that, I am planning to propose Chavez as the spokeperson of Vodka Absolut with the slogan:

Absolut abuse of Power.

The other interesting news is that Alo Presidente is back to make life easier for distinguished ghosts. The latest announcement was quite special: Chavez asked those that register to the PSUV to get rid of the posessions they did not need. He said, for instance, that if you had two refrigerators, you should put one in the Plaza Bolivar…so the President has plans of transforming the Plaza Bolivar in a Home Depot.
(see http://www.eluniversal.com/2007/06/11/pol_art_chavez-exige-compart_316106A.shtml)

He underlined that the members of the new PSUV party should not live in luxury and should show that they are “real socialists”. I could not agree more. I would even suggest to Chavez to pass an internal PSUV law so that no PSUV member has a dollar account outside Venezuela….

In other news, the students kept their creative protests every day. Yesterday there was a special protest for the USB autonomy. Unfortunately, I cannot post pictures, but some good ones can be found here (http://acryforhelp.cjb.net)

Reporting from Cyberspace,
Jorge Arena
Distinguished and Favorite Ghost.

_____________________________________________

Soft coups and a new civil rights movement in Venezuela.

Soft coups and a new civil rights movement in Venezuela by Brunilde Sansò.

Like it or not, the Venezuelan society wanted real change when they elected Hugo Chávez in 1998. The idea was not to elect a putchist military man. What people wanted was more justice, including social justice, more security, less corruption and a better goverment.
They wanted to get rid of the traditional parties that were blamed for the pitiful state of the country and wanted a country that is incredibly rich in natural resources and human talent to be able to finally reach its full potential.

They were fooled.

On the other hand, those, like myself, that opposed Chávez from day one, knew that a military putchist is a military putchist. We knew from the begining that his was a quest for absolute and indefinite power, like all the other caudillos we had before in our history.

Unfortunately, we were right.

Under the pretense of carrying out a Revolution, Chávez has been dismantling the few institutions that Venezuela had left. He was not just responsible for the coup of 1992, he systematically took over every major institution. In fact, one could say, that Venezuela has indeed been under a constant coup d’ état since 1998.

How was that possible? It was possible, of course, because Venezuelan institutions were weak to start with. They were institutions dominated by partisan rethoric and personal interests. As a matter of fact, the weaker the institution, the easiest it was for Chávez to take over.

It was also possible because of the extreme poverty and injustice that existed in Venezuela. When one does not have the bare essentials to be able to live decently, notions such as institutionality or independence of powers and even democracy become totally irrelevant. So Chávez worked on two fronts: he attacked and took over the Venezuelan institutions while given the poor the idea that he was doing it for them. On the other hand, he started an unprecedented campaign of hate and divisionism in the Venezuelan society. Elements such as social position and race, that in a permeable and mixed society like ours were practically irrelevant, were put upfront in the political agenda and were dangerously equated with political ideology.

After almost nine years of Chavismo, the only independent institutions that remain in the country are the Universities.

Venezuelan Universities have traditionally been free, strong and autonomous. They are a social and ideological melting pot and, like in most countries,they are the origin of free thinking and individual freedoms.

It is not by chance, then, that this new civil rights movement starts as a University movement. And it is not by chance either that the next putchist attack of Hugo Chávez will be against the Universities.

Now, how is this movement different from the protests that took place in 2002 and 2003 and that, eventually, led to the 2004 Referendum?
It is different because, at that time, the reaction of the people was “anything but Chávez”. People were aware that they had made a mistake electing Hugo Chávez and their inmediate objective was to get rid of him. They almost succeeded. In fact, if it had not been for the mistakes of those that led the opposition at the time, Hugo Chávez would not be in power today. Instead, and thanks to the absence of an organized and intelligent opposition, Hugo Chávez consolidated his power.

A few weeks ago, however, with the closing of a popular Television station, Chávez went one step too far.To understand why one has to know the history of the Venezuelan people. One must remember that the idea of independence against the mighty Spanish Empire started in Venezuela. Venezuelans are not submissive people that accept easily authoritarian rules. In fact, our history is full of caudillos precisely because nobody wanted to accept the rule of another.

With the closing of RCTV Chávez, for the first time, was confronted with the will of the large majority of the people, including those that liked him. Thus, he sent the signal that he might take away other things from them.

That is why the barrios did not go down “to defend the Revolution” when the protest against the closing started.Quite the opposite, pot banging could be heard even in the poorest neighborhoods and some declared chavistas were seen participating in marches against the closing of RCTV. The protests against the measure led the goverment to his usual twisting of civil rights but, this time, Chavista divisive rethoric of rich versus poor, oligarchs and the empire did not ring any bells in the Venezuelan spirit. On the contrary, that twisting woke up a formidable adversary: university students.

So what started as a protest against a very unpopular measure ended up being a student revolt for civil rights. Now, the difference with the classical opposition movement is that the students are not fighting to remove Chávez from power, they are fighting to be able to live in Venezuela as free citizens. They are fighting for fundamental human rights that yes, exist in the Constitution, but have long been forgotten by the regime.

The students’ fight is for equality in front of the law, non-discrimination, freedom of speech, freedom of choice, freedom of circulation, freedom of protest, freedom of ideology. Basic human rights that the citizens of democratic countries around the world take for granted, but that are restricted in Chavista Venezuela.

Chávez has been taken aback by the protests and, in his numerous “cadenas” he has accused the students to prepare a “soft coup” organized by “the Empire” .

I personally do not think that “the Empire” is behind what went on in Venezuela these last weeks but I do not totally disagree with Chávez that this is leading to a “soft coup”. Except that I do not think of one, but many “soft coups” and that my definition of a “soft coup” is different than his. In fact, in the same way he gave coup after coup after coup to all the democratic institutions, the civil society wants to recuperate its rights and freedoms and for that, it is necessary to rebuild independent institutions and create a state with check and balances and separation of powers. A “soft coup” then would not be to remove him from power, but to make him respect the Constitutional rights and freedoms of all the Venezuelan people, regardless of their ideology. In a sense, everytime we gain back institutionality, we make the goverment respect the state of law and we regain civil rights for all the Venezuelan people, there will be a reversal of the coups that Hugo Chávez has been giving since 1998. Those are the real “soft coups” of the civil rights movement initiated by the students.

Using mathematical terminology, Chávez should not be talking about “soft coups”, but about “inverse coups”.

An inverse coup is already about to happen: after this week, it will not be that easy for Chávez to carry out the tailor made Constitutional changes that would lead to a socialist state and eternal reelection, which was indeed his last coup d’ état. So he can very well say that the students are perpetrating a “soft coup” against his inmediate plans for absolute power.

To me, in the last weeks we have witnessed the dawn of a civil rights movement that can bring two things: a hardening of Chávez’s posture and a more repressive goverment to impose the changes he wants, or the softening of his current autocratic grip and a progressive regain of civil rights and democratic awareness.

In both cases, this will eventually lead to his dismissal and to a more democratically mature Venezuelan society.

It will not happen overnight. But it will happen.

It’s time for vacation

Once a year I do take a long vacation and I will be away until the first week in July. For the first 12 days I am pretty sure I will not be able to connect to the Internet at all, so my ghost bloggers will take care of it. After that Internet access will be there and I will try to post once in a while. I hope things are quiet while I am away although in te past they have stirred up in my absence (no connection!). Thanks for reading!

Revisiting the economy

I have been meaning to write about the economy, but between
work, travel and the recent events, it has been hard to sit down and do it. The
Venezuelan economy continues to be dominated by the distortions that
I have described before, except that they are much worse than they were
last time I wrote a long article about it. In September of last year, economic
variables looked much better than they do today. International Reserves were
higher, the deficit was lower, inflation was lower, monetary liquidity was
lower, the parallel rate was lower and Venezuela had a healthy balance of
payments pictures. Thus, the economic outlook has deteriorated, but the
authorities continue to act as if there was no problem In fact, the new
Minister of Finance Rodrigo Cabezas, insists that what is needed is a policy of
increasing Government spending in order to maintain growth, but it is precisely
the high growth of Government spending, which has been the primary driver in
the creation of these distortions. Spending has grown by 25% in real terms for
the last two years, which is simply unsustainable and this has created a wide
variety of distortions in the economy, which will sooner or later lead to a
financial crisis of such proportions, that it will take years to overcome it.

 

While the Government hailed the growth in first quarter GDP,
which came at 8% over the same quarter of 2007, the numbers are less pretty than
they may look at first sight. First, while the non-oil economy grew at a 10.6%
clip, fueled by high Government spending, the non-oil economy dropped 5.6% due
to lower oil production. Within non-oil sectors, those that grew were propelled
by Government spending and high monetary liquidity with the commerce,
construction and financial sectors growing by over 20% and more worrisome 9 of
the 12 showed slower growth. Unfortunately, we don’t know much about the
agricultural sector, as it is no longer reported by the Central Bank (funny,
no?) individually, but grouped with “others”.

 

But it was the balance of payments numbers that looked
worrisome, which showed a deficit of US$ 5.21 billion, down from a surplus a
year earlier. The current account surplus, which has been running positive in Venezuela and the rest of Latin
America thanks to the commodities boom, was only US$ 3.6 billion
down 47.7% from the same period in 2006. This was the result of the drop in oil
exports, but also due to the high levels of imports during the first quarter.
Imports were US$ 9.1 billion, a huge number for what is typically the slowest
quarter for imports in the year and up 47$ over the first quarter 2006.

 

To put the deficit in the balance of payments in
perspective, it is the largest of the last ten years, at a time when oil income
is booming. What this means is that once again, the economy is being run on the
back of the oil cycle and it is simply oil income which is providing growth,
while internal variables continue to deteriorate. Nothing new on the
mishandling of the Venezuelan economy, all previous recent crisis in ‘82, ‘89,
’94 and ‘02 were not that different. 
What is probably different this time around is that the huge imports are
destroying both agricultural and industrial capacity, as local inflation and
fear of controls have limited investment and made local production less
competitive.

 

In the end, the balance of payment numbers indicate that
devaluation is looming in the horizon, no matter what the Government says. Unfortunately,
the more it is postponed, the larger it will be and the bigger the crisis
facing the country as these adjustments always lead to a contraction of the
economy and it takes time for people to recuperate their purchasing power and
for the economy to settle.

 

Then, the Ministry of Finance just published expenditures
for the first quarter and during those months, the Government spent US$ 15.2
billion and the deficit was US$ 3.8 billion an remarkable clip for what is
typically the slowest quarter of the year. What is worse is that since then,
the Government has cut the VAT, will cut it again on July 1^st. and
will have to budget some  US$ 3 billion
for the salary increase for public workers announced on May 1^st. Thus,
the revenue/expenses pictures will simply get worse.

 

The problem is that this time around there may be too many
distortions in the system to make the adjustment a normal one. First of all,
interest rates are deeply negative, which encourages people to spend and go
into debt, creating a potential time bomb for the financial system. But even
worse, in previous crisis, the Government had some way of making and adjustment
but this time around, it has little room for maneuver:

 

Inflation: May
inflation just came in and the rate continues to accelerate. CPI was 1.7% for
May, giving an accumulated value of 5.9% for the year, ahead of 2006, but this
includes a fairly artificial lowering of the inflation rate, because the Government
simply cut the Value Added Tax rate in March, which gave the rate a one time
kick down which has nothing to do with fundamentals. Even more worrisome, food
inflation is 29.6% and that does not take into account the fact that 30% of the
items under control can’t even be found in the markets, so the price remains
“constant” according to the Central Bank’s methodology.

 

Inflation is not going down, because of the excess monetary
liquidity and the lower offer of goods as noted in the first quarter report by
the Central Bank. Simply put: Too much money chasing for too few goods. There
is little encouragement to manufacture, if you can import the same product, get
controlled dollars and make the same profit at the end. That is why the
commerce sector is the best one to be in.

 

But even worse, such high level of inflation is what makes
the decision to devalue so difficult: Imagine adding fuel to the fire, adding
20% devaluation to the currency. It would be terrible for everyone, but would
hurt the poor the most. Unfortunately it is simply inevitable unless oil prices
were suddenly to jump up.

 

International
Reserves: International Reserves are currently at US$ 24.4 billion, an
incredibly low level, given the strength in oil prices. This is the result of
removing the so called “excess” reserves for the development fund Fonden, together
with trying to fight the high monetary liquidity using a PDVSA bond and buying
the CANTV and Electricidad de Caracas shares. We are told repeatedly that this
should be of no concern, as the Government has lots of money in the development
funds, but I do not expect them to return these to the international reserves
and in any case, Fonden has already committed all but US$ 9.7 billion of its
funds, so the day they are needed they may not be there after all.

 

While the Minister of Finance has said that he expects
reserves to recover near US$ 30 billion by the end of the year, even if true,
it will not help much given that monetary liquidity is expected to increase by
another 45% by year’s end. And is this huge growth in monetary liquidity that
has been pressuring the currency via the parallel market and the dropping
reserves have also begun to unnerve foreign investors. It is the typical
mismanagement of the oil cycle, where the Government feels invulnerable to any
setback in the oil markets, but it is more vulnerable than ever.

 

Monetary Liquidity:
The Government seemed to finally realize that the huge growth in monetary
liquidity last year was pressuring the parallel market, which in turn was
pressuring inflation. Thus, it decided to do something and issued first Bono
del SUR II, and later US$ 7.5 billion in PDVSA bonds, a staggering amount for a
private issue. The theory was that this US$ 9 billion (There was US$ 750
million in a dollar linked bond in local currency in the Bono del Sur) would
push the parallel rate lower, by increasing dollar supply to the market and
reducing monetary liquidity. The problem is that despite this huge issuance,
monetary liquidity is only US$ 3 billion below its peak and pressures have not
been reduced. And guess what? After an initial psychological drop the parallel
rate is above Bs. 4,000 once again and not the Bs. 3,000 that Government
experts had predicted.

 

As we describe below, this becomes worse going forward, as
the amount of issuance in the next few months is limited by the announced
withdrawal from the IMF as well as the fact that the PDVSA bonds are still
being digested by the market.

 

Parallel Rate:
The parallel rate, which was at Bs. 2,700 last September shot up near Bs. 4.500
early in the year, dropped to Bs. 3,500 when the PDVSA bond was issued, but the
impact was only psychological and the price is now near Bs. 4,100. And it seems
extremely unlikely to drop at this time. There are three factors that influence
this market. Monetary liquidity, psychology and Government intervention.
Monetary liquidity is excessive and unlikely to drop, psychology is very
negative as people worry about Government threats to the private sector and
dropping reserves and recent issuance shows that Government intervention only
has a very brief and temporary effect. Thus, you can expect the parallel rate
to simply drift lower between now and the end of the year. And this, in turn,
will continue to pressure inflation.

 

Another problem with the parallel rate shooting up is that
arbitrage opportunities become more attractive. When the difference between the
official rate of Bs. 2,150 to the US$ and the parallel rate was Bs.
400, the difference was not too significant for people to find ways to play it.
But today, with the parallel rate at Bs. 4,100, the difference is almost 100%
and it is too interesting to pass up. First of all, everyone that can do it
takes advantage of requesting Internet dollars, which everyone is entitled to
US$ 3,500, at the official rate. I have heard of the existence of outfits that
go around buying the Internet allocations for those that do not have the Bs. To
do it and even the credit card to do it. This seems to be more widespread, as
one hears about it more and more.

 

Then there is travel. After two and half years of fixed
exchange rate and significant inflation, buying airline tickets at the official
rate of Bs. 2,150 to the US$ is one of the best deals in town, much like cars
subsidized at that rate are such a bargain. Thus people are traveling more and
more and taking advantage of the US$ 5,400 per person everyone is entitled to.
(Of course, only the well to do can afford it!)

 

Then there is the fact that if you get official dollars for
whatever you sell or make, with the inflation rate running at 20%, people are
actually borrowing to import products and raw materials and bringing two to
three years of stock at the favorable official exchange rate.

 

And then there is of course, corruption.

 

Sovereign bonds: For
the last three years the Venezuelan Government has used the issuance of dollar
denominated bond in local currency as a way of relieving some of the pressures
in the economy. The strategy worked for a while, but as shown by the issuance
of the PDVSA bond, the impact of these issues is not what it used to be due the
huge growth in monetary liquidity. But now, with the decision to withdraw from
the IMF, the Government ahs complicated matters by announcing a measure which
most international analysts find illogical due to its consequences.

 

Basically, Chavez himself made this decision and it was
clear that the full consequences were not known to him or his collaborators.
The main problem is that all of 
Venezuela’s debt was issued with conditions among which was one which if
this happened, 25% of the holders of each bond issued by the country could get
together and ask for the acceleration, the early payment of the bond.

 

Obviously, if the bond is above 100, you have no interest in
doing this, but if it is below 100, you can make some money by voting to accelerate.
As the Government keeps saying that it will withdraw, investors have been
buying bonds below 100 and going short those above 100. Essentially when you go
short, you borrow the bond from someone else and sell it, in the belief that it
will go down and you can buy it at a lower price later.

 

Combine this with lower reserves, deteriorating balance of
payments and there has been an important sell off of Venezuelan bonds in the
last two months. On top of that, many investors have been selling Venezuelan bonds
to purchase PDVSA ones, because they have a higher yield and because PDVSA owns
CITGO, which is worth more than the amount of bonds outstanding of PDVSA and
thus CITGO represents a guarantee if the company ever decided to stop making
payments. 

 

This sell off and volatility in the country’s bonds limit
the ability of the country to place new debt, so, for the time being at least,
the main strategy used by the Government in the past to reduce the distortions
in the economy, will not be available. Even if it were, the large PDVSA issue
and the small impact it had on monetary liquidity and the parallel rate,
demonstrates that the Government is running out of tools to control the
economy.

 

It is somewhat ironic that by threatening to withdraw from
the multilateral agencies, the Chávez Government has exchanged institutions
that do show some degree of solidarity with countries, for the biggest
investors and speculators on the planet, who are the primary investors in the
country’s debt. These investors could care less about Venezuela and
are always looking to make an extra amount using a variety of complex
strategies.

 

At the current clip, there is only so much longer that the
country can continue to spend, create monetary liquidity without something
yielding and creating a crisis. The obvious solution would be to slow the
spending rate, but it is clear that this is not being contemplated.
Unfortunately, the longer this continues without any adjustment, the bigger the
crisis that will take place in the end. There is, of course, the perverse
obvious solution, which is simply to devalue. When this type of adjustment
comes, it will be the average Venezuelan that will be hit, inflation will
accelerate, consumer loans will default, imports will become very expensive helping
local industry temporarily, but given the distortions the adjustment may have
to be so large, that its consequences may be simply unpredictable.

From Hugo’s slow fuse coup to Weil’s sleight of hand

While on the picture above left it may seem as if Chavez is explaining how to use Kirchoff’s Laws to simplify electrical circuits to the Foreign Press, he is actually displaying his newest coup theory, the “slow fuse coup” which is currently being carried out by who else…yeap, you got it, the US Government! By contrast, on the right, you have Weil’s simple explanation of the fast sleight of hand that Chavez himself has pulled on our rights and freedoms during the last few years.

Videos of the National Guard blocking the way for students to attend marches

And these two videos shows what happens in a Dictatorship when anti-Government students attempt to go to a protest: They are simply blocked from doing it by having the National Guard block the entrance to the toll booth with their own trucks or motorcycles. Please remember that last week, the students were gassed for blocking the roads, which we heard is illegal, unfair, in violation of people’s rights etc. But when the National Guard does it seems to be ok as no Government figure has come out and said anything about it, after all, it would never occur to the students to gas the National Guard. The first video is at Palo Negro (top), the second at Tapatapa (bottom):