Venezuela’s Economic Adjustment That Never Was Or Will Be

If there is one thing that surprises me about people’s reaction to the Maduro Non-Adjustment, it was that people were surprised. For seventeen months then Minister of Energy and Oil and later VP for Economic Affairs had been telling us about the adjustments coming, but nothing ever happened. He proposed a system that would break the back of the parallel dollar, but all he did was recreate SITME at a much higher rate, creating a useless system once again, that did nothing but dispense, as usual, foreign currency arbitrarily. Ramirez also suggested regularly that prices of gasoline and certain products should be raised. Not much happened in this front either.

The problem was that we were hearing only one side of the debate taking place within Chavismo. Never the others who talked quietly among themselves. Ramirez tried, unsuccessfully, to gather support for some form of adjustment, fearing that not doing so would be worse than the alternative. In the end, Ramirez did not seem to convince too many people, others banded together and convinced Maduro to get rid of a man that had been a constant presence over oil and energy policy in Venezuela for almost ten years.

Yes, he did stay at another position in the Cabinet, but his lonely voice over the need of an adjustment becomes weak now. At the same time, giving him some perks and keeping him close, allows Maduro to insure that Ramirez will not play a Giordani on him, writing letters, criticizing or renewing his crusade for an adjustment outside the Government.

I have always been very skeptical as to the probability of a significant adjustment taking place. I always believed that it would be too little, too late. Not enough to mitigate the many distortions of the economy. Thus, the outcome of just nothing is not even a surprise, even if later we may see some small adjustments. Maduro has always acted like he is a man without concerns about the economy. This is likely to his ignorance or the existence of a plan B (Everyone in Venezuela has a plan B). It could be due to both too.

But by waiting so long, Maduro not only made an adjustment more difficult in terms of getting results before next year’s elections, but he also gave time to those opposed to a partial or a full adjustment to get together and create groups. Thus, those benefiting from the rackets oppose any form of adjustment, those that ideologically oppose the adjustment began accusing Maduro of betraying the revolution, those that thought the adjustment would be worse than not doing anything, also sided with the non-action.

In the end, in the absence of economists in or near the Cabinet, Ramirez was a lonely voice. The outcome is the one expected, even if it is remarkable that no measure has been announced, not even moving the Bs. 6.3 per US$ rate to the Sicad 1 rate of Bs. 11, the only measure I expected. (I also expect some very symbolic increase in gas prices).

So, what now?

Well, I am not in the camp of those that think there will be a default. But I think nobody knows if there will be a default. With Ramirez out of the Economic Cabinet, the probability of default is higher. He understood some of the consequences, particularly for PDVSA.

But think about it, Venezuela has to pay US$ 6.3 billion in the last three months of the year between two maturing bonds (PDVSA 14 and Venezuela 14) and interest on all bonds. Thus, don’t you think that in a world with falling oil prices some “cabeza caliente” (There are many!) in the Maduro entourage has not suggested defaulting? This is, after all, a revolution…

Did anyone think they would fire 20,000 PDVSA workers? Did anyone think they would expropriate and not pay? Did anyone think they would allow corruption at the levels they have? Do you know when and of what of Chávez died? Scruples is not a common word among revolutionaries.

People talk about default as if it would have catastrophic consequences on Venezuela. Defaults come in many flavors, look at the latest one from Argentina. Countries default regularly and few of them have catastrophic consequences, particularly if you have an oil spigot that will provide you with cash day after day, as well as trade partners that will support your default and who happen to be the ones that are sending the most food to Venezuela.

But I digress.

By now you have all heard or read the Haussman-Santos paper on default and Venezuela. They forgot to mention one detail: Venezuela already stopped paying the Sidetur bonds and it had absolutely no effect. Of course, a wider default would. But it could be selective too. Say you are willing to pay, but can’t. Keep paying interest in all bonds. Pay maturities on only some. The creativity of investment banks is unlimited. You just need a good one.

But for now, we face the adjustment that never was or will be. A sort of: what will happen now type of scenario? They will keep pushing their survival as far as they can. People die, sick patients can’t get their medicines, and there are food shortages. But the revolution is alive and well.

And they will try to keep it that way. Subsidies to the Caribbean can be removed. Even subsidies to Cuba can be stopped, if things get bad enough. But you can bet the choice is clear: Cuba comes before Wall St.

Defaulting is a political decision. If economic policy continues this way, it is inevitable. But for now, it can likely be pushed to 2017. Maybe oil prices will rebound by then.

As I have said before, Venezuelan bonds are not paying enough, given the risk you are taking. Maybe, just maybe, they will get there soon. But you don’t want to play Russian roulette, no?

Meanwhile, I continue on vacation…

There IS Too Much Money To Be Made In THe Bolivarian Revolution Part II: The Cadivi Rackets

The Cadivi rackets are much harder to quantify. It has a long history of schemes and variety, but each one of them has its peculiarities and details that make it difficult to quantify. There is, of course, the statement made by both former Minister Giordani and the former President of the Venezuelan Central Bank Edmee Betancourt, that in 2012 alone, “briefcase companies” (Compañías de Maletín) had received US$ 20 billion for imports that never materialized in what is in the end the ultimate corruption scam: Get foreign currency at Bs. 6.3 to import stuff that you will not even attempt to bring into the country. Sell enough of the foreign currency at the parallel rate, which is about ten times larger to pay the Bolívars and you keep the rest in foreign currency.

Nice work if you can get it.

But let’s look a little bit at the history of rackets within Cadivi. There are many stages in them. Like so many of the rackets of the Bolivarian revolution, they started small and grew and became even more daring:

-The bring the empty container racket.

This is the earliest racket I remember hearing about. You would get some foreign currency to import something, say barrels of some expensive chemical compound use in some industrial process. Bring a few hundred barrels of the stuff with invoices and bills of lading and the like, but the containers only have water. Or bring containers of empty computer boxes. Something that has value added, so the profit is maximized.

This particular racket required little or no participation of Government authorities at CADIVI. You brought bona fide import permits; you maybe even brought a small fraction of the stuff. You just needed to pay the National Guards and the custom employees when the stuff arrived so that it would no be checked thoroughly (A couple of times mistakes were made, empty containers were discovered).

My favorite anecdote of this was overheard in a business class commercial aircraft leaving Hong Kong by a Venezuelan flying next to some pro-Government importers who had no inkling there was another Venezuelan nearby. One guy explained to the other one how he had imported 400,000 key chains made in China with a Chavez’ figurine, for which he got from Cadivi two dollars a piece. The key chain actually cost only 10 or 15 cents, giving the loudmouth a huge profit. On top of that, he boasted, he gave the key chains to the same military official that helped him get the foreign currency for the racket, to use in Chavez’ 2006 Presidential campaign.

You see, in these earlier rackets, those involved had to basically fake the imports, because the difference between the official rate of exchange and the parallel arte was not huge, thus leaving little room for charging commissions and the like.

These type of racket is very hard to quantify but at some point the Government claim to be investigating some of them in the 100-200 million dollar range. How many were there? Hard to tell. Let’s say only a few, five to six in the US$ 100 million range. Total, less than a billion. Let’s round it off at a billion.

-The pay to get your dollars racket.

This was the second stage racket, when Government officials got involved. It started small time, when differences between the Cadivi rate and the parallel arte were small, but then it grew and grew. By the time that the exchange rate was increased to Bs. 4.3 per US$ and the parallel rate was Bs. 6+, Cadivi officials were asking for Bs. 1 to “ease” your way. Once the swap market disappeared in 2010, Bs.1 or 2 was the norm. Once companies fell in for it and started paying, it was the only way to get their Cadivi dollars.

During the last two years, as the parallel rate soared from around Bs. 10 per US$ to Bs. 80 and counting, the number of Bs. Charged for Cadivi dollars by officials or intermediaries “gestores” simply grew.

It is tough to quantify how big this racket has been. The commissions charged were only a fraction of the parallel dollar, but the dollars affected were in the billions. My guess is that at least US$ 10 billion of the US$ 40 to 60 billion a year in imports from 2009 to 2013 was flowing only if it was grease appropriately. Assume a 10% commission (of the parallel dollar, which set the pace of the size of the commissions) and you are talking at least US$ 1 billion per year from about 2007 to 2013. US$ 6 billion more.

And there were 7 billion…

-The Briefcase companies rip-off (Empresas de maletin)

Note that as CADIVI grew, more and more military officials were sent there. At all levels. Soon, they got more and more involved with it.

As El Nacional has reported in its investigative reporting on Cadivi, soon retired military “friends” with active military starting founding companies to import stuff. Flight by night operations began springing up all over the place. There were two types: a) Those that were created to import stuff for real b) Those that were created to apply for the foreign currency and never bring anything to the country.

In between these two, there were other side business, such as the purchase and sale of companies already registered in RUSAD, a prerequisite for obtaining Cadivi, Sitme and now Sicad 1 dollars. The same with the sale of certificates of no local production, another prerequisite to receiving Cadivi dollars. Just trading these generated a lot of wealth for those involved.

But it was not until Giordani suggested that the fake imports were about US$ 20 billion in 2013 that we got an inkling of the magnitude of the rip-off. (Can´t call it racket, it is so huge). In fact, the only reason one could have thought that something like that was going on at the time, was the fact that despite close to US$ 60 billion in imports, there were shortages of many products. If traditional importers were not getting dollars for say, toilet paper, then someone was getting the foreign currency and not bringing the stuff.

In order to quantify it, is tough to know exactly when it started or the magnitude. Let’s first estimate how long it went on for. My assumption is that this rip-off started when or around the time when Chávez got sick. It built up and had its crowning glory the year Giordani referred to as having US$ 20 billion in fake imports. Thus, this appears to have built up over a year and half. I will assume then that whatever estimate I reach for the year Giordani said was US$ 20 billion, there was about half as much the year before. Half, because Chávez got sick in May 2011 and I imagine they got bolder as time went on.

Well, pro-Government economist Manuel Sutherland has looked at the import numbers and his conclusion is as follows: Up to the beginning of exchange controls, the average price per kilo imported was roughly one dollar, year after year. It never deviated from this empirically. Never mind that the mixture of cars, paper products, automobiles or whatever was, this never changed.

Well, he argues, it started changing in 2005 and by 2013, 17 billion kilos of “stuff” were imported, but instead of costing the canonical US$ 17 billion of the ten years prior to 2004, the cost went up by almost a factor of three to US$ 47 billion. Sutherland (or someone else during his talk) says that there is no justification for the change. The mix of imports has changed little and the prices tend to scale anyway. At most, only 50% of the increase can be attributed to a possible change in the mix, or in the type of things being imported.

Thus, if 50% of the price increase can be attribute to over prices, inflation and the change in the mix, then each kilo would cost at most US$ 1.5. But each kilo cost US$ 2.76. This means that of the US$ 47 billion, around US$ 23 billion could not be justified. (Curiously, Edmee Betancourt’s number was US$ 22 billion). A large fraction of this went “empresas de maletin”.

Thus, if you are generous, want to be conservative in the estimates, if this is all empresas de maletin, we are talking about some US$ 33 billion in the rip-off in 2011 and 2012.

In the interest of underestimating things, I will only add a couple of billion before that, from 2004 to 2011 to fake imports.

Which means that very quickly, we are up to US$ 42 billion.

There are many other rackets around imports that I cannot quantify. Overprices is one. Government imports is another, just from 2003 to 2013, the Government went from importing US$ 3.5 billion to importing US$ 34 billion. This is a factor of ten. Nobody knows in what. There are rackets in there, we do not even understand or imagine. But if I can not assign a number to it, I will just ignore it for our purpose.

US$ 42 billion…US$ 23 billion in 2012 alone, do you think those controlling that want to give up that type of racket?

Think again…

There Is Too Much Money To Be Made In The Bolivarian Revolution I: The Gasoline Racket.

“You will never win this war when there is so much money to be made. Never”

Jhon Popeye Velasquez alias “Marino” in an interview before he was released.

To those that watched Escobar, El Patron del Mal, the character Marino is one of the worst guys in the book and series. It turns out that this week he was freed from jail after serving twenty eyars and has been in the press quite a bit. The sentence above hit me, because that is one of the things that I fear may happen in Venezuela: there is so much money to be made, that those trying to change the Government may never be able to. While “Marino” was referring to the drug war, I am referring to all of the corrupt businesses allowed and nurtured by the revolution. Everything in the rveolution has been turned into some form of business or arbitrage. From drugs, to Cadivi, to Fonden, to gas. Thus, do you really think those in control are going to give up these rackets so easily?

I don’t.

The basic question I want to answer is: How much money or profit are we talking about?

In this post I make a very rough estimate of one the biggest businesses (Billion dollar plus) where the boliburgoise and Government officials, civilians or not,  have gotten rich, filthy rich. I make many assumptions, attempting in the best case to be under the correct amount, rather than over. I will try to make a series out of this. Today, gasoline

1) The gasoline racket.

When did it become such a big business to take gasoline out of Venezuela? Since Chavez became President in 1998, the price has been frozen. When he got to power, a liter of gas was about Bs. 90 (0.09 of today’s Bolivars) and a dollar was about Bs. 600 (Bs. 0.6 of Bolivares Fuerte). Even at that level it was a good deal to send gas to Colombia. But it did not become such an organized activity until the difference was so large, that the cost of gas was irrelevant. Let’s say a factor of 50, that is, when the parallel market rate became Bs. 5. I am going to assume that this is when the racket began to become massive. We are talking around 2007. And I assume it reached the current massification when the factor became 100. This happened in 2012.

The first question is what is the current number for barrels of gasoline extracted per day. Ramirez says 100,000 barrels a day. Colombia says 55,000 alone to that country. I will assume, the latter and add 10,000 a day to Brazil and 10,000 a day each to Guyana and Caribbean islands. Total today 75,000 barrels a day. I will also assume that when it all began in 2007, about 10,000 barrels a day was being smuggled and from 2007-2011, take the slope between 10,000 and 75,000 reached in Jan. 2012 This is all very conservative.

Now, the next question is: When they say so many barrels a day, are they talking about barrels of crude? Because you only get about 19 gallons of gasoline from a barrel of crude which holds 44 gallons of crude. I am also assuming this interpretation is correct. it’s “only” a factor of almost 2.

So, here I am holding one barrel which was free, given the approximations I already made. The middleman in Colombia, Guyana, the Caribbean islands and Brazil have to make something. So, I will assume that each gallon is sold cheap for about $3, so that my barrel is worth US$ 57. Nice profit. Before we discuss who gets it, let’s calculate what this means in one year for 75,000 barrels.

It is US$ 1.56 billion per year.  Or from 2007 to 2013 US$ 8.426 billion in profit.

Now, I would bet the “bachaqueros” do a significant fraction of this business. But they have to pay the military. The question is how much is the more “formal” business. the one that takes full trucks of gasoline to Colombia. My guess is this is about half the business. Thus, assume the “bachaqueros” have to spend one third of their profits in bribes and that “you know who” takes about 80% of the profits from the other half and you are saying the ones that control the gasoline racket have pocketed about US$ 4.67 billion.

Double it if they are talking about barrels of gasoline…

Nice racket! But there are bigger ones! More, as I have time (but going on vacation)…Cadivi, Bonds, Drugs, Foreign Exchange

Government Paralysis Even At The Simplest Levels In Venezuela

That ideology screws up the implementation of the Venezuelan Government’s plans is obvious. What is incredible is how the belief that the anyone can do anything (Chávez was President, Maduro follows…) has led to the total destruction of the Government. There is no longer institutionality. As people have been put in charge of institutions they had no clue about, the decision making process has ground to a halt. We are not talking about rocket science here, we are talking about simple things like printing currency, for example. A function the Venezuelan Central Bank used to cover rather efficiently. As inflation increases and monetary liquidity goes up, you have to print bills in higher denominations. It’s sort of obvious and as long as there were some technical people left at the Venezuelan Central Bank, it was routinely done.

Then the revolution and with it some military officers, arrived…

And a friendly reader who has some some form of contact or works at the Central Bank, sent me some slides of a report that has been circulating at the Central Bank for apparently quite a while.

The report enunciates the problem rather simply: From 2008 to 2011 bills in circulation in Venezuela increased in value by 210%. The report, which apparently was done in 2012, predicted similar growth in 2011 to 2014 of 192%, coming up short, but that is in the end a minor detail.

In 2011, according to the report, there were 1.6 billion Bills in Venezuela, that is 55 bills per citizen. Of these, 40% were in Bs. 50 and Bs. 100 bills. But, these two denominations represented 82% of the Bills in Venezuela by value. Thus, the report predicted, without really expecting it, that these bills would become 95% of the bills by value by 2016 if nothing was done. (Nothing has…)

This was the prediction:

Now, Venezuela has the Casa de la Moneda in Maracay, run by the Central Bank. The problem is that it has a finite capacity on terms of how many bills it can print a year (800 million). As the Government has failed to create higher denomination bills, then the result is that more and more bills have to be imported (Another imported item in Venezuela), rather than be made in Venezuela. In fact, the source tells me that today the Maracay factory is running four shifts a day, but they are still not able to keep up and about 40% of all bills are now imported. And growing…

In fact, the report says that if a higher denomination bill is introduced in 2013 (which was not done), the number of new bills will increase to 1.1 billion by 2015, before it decreases.

But nothing was done, so the numbers are much higher.

In fact, the conclusions of the report are:

-A Bs. 200 bill (or even Bs. 500) is needed before 2014., as by 2014 the Bs. 100 bill would be 70% of all bills by value. (This was not done, of course)

-The Bs. 2 bill should be replaced by coins (This was not done)

-The 12.5 cent the “locha”, reintroduced by Chávez’ whim, should be withdrawn (No idea if this was done, it is worthless as a coin)

-The 1 cent coin should be eliminated. Ditto.

In fact, the report suggests that with the creation of the Bs. 200 bill, this would be the percentage of bills up to 2016:

Of course, the Bs. 200 bill does not exist yet, M2 increased faster than projected in this report and the current authorities of the Venezuelan Central Bank have done little about something that should be pretty simple to decide and implement. Don’t even think about sophisticated things like how to invest and manage international reserves or sterilize liquidity to reduce inflation.

According to the anonymous reader, nothing has been decided, nothing has been considered, no one decides, it has all fallen in the Government aralysis even at the simplest levels in Venezuela.

Such are the ways of the incompetent and improvised Bolivarian revolution…

Is There A Government In Venezuela?

The question posed by the title of this post is not rhetorical. You have to wonder if there is a Government in a country where decisions appear to be random, if and when they are made and when incoherence seems to be the norm, rather than the exception.

Take, for example, Rafael Ramirez. This guy is supposed to be in charge of like half the Government. He is President of PDVSA, Minister of Energy and Oil and also holds a position with the over the top name of “Vice-President for Economic Affairs”.

Now, for months, Mr. Ramirez has been proposing a unified exchange rate to remove distortions and in his own words: “It is very difficult to manage three exchange rates”. Separately, Mr. Ramirez has been the main proponent of a gasoline price increase, calling the current level of subsidies “absurd”.

You would think that with all his titles Minister Ramirez has some pull in Venezuela’s Government. I mean, he made all of these proposals at the PSUV Congress (Where nothing was voted, in the best Stalinist tradition). The people even stood up and cheered for most things he said.

Despite this, not only has nothing been decided, but Ramirez has changed his tune. He now talks about “convergence” of the exchange rate, which should be read as “more than one”, maybe two or even three. But the timing is quite fuzzy too. He now says that additional measures have to be taken first, mostly monetary measures. Funny thing is, M2 not only keeps growing at the same unstoppable rate, but Treasury Bill auctions were recently declared null for the first time in years and the rates were really stupidly low.

Thus, it does not appear as this very powerful man has any power in Venezuela, as he has been preaching at least “reasonable” measures for months, but no decisions are made and his proposals change over time.

Of course, Ramirez has a boss, President Maduro. Thus, in the end it is your boss that decides things, no? But at the same time, you don’t go out publicly with anything without running it by your boss first, no? That is what organizations do, from the Girl Scouts, to companies, to Governments. They discuss, talk about it and run with the conclusions. Sure, sometimes in politics you float balloons to see how the public reacts, but these balloons don’t last six months.

But Maduro behaves much the same way. He says one thing one thing one day, only to promote the opposite later.

Take the whole issue of using fingerprint machines at supermarkets to control smuggling. The whole thing is absurd. Are you going to impose a system on the “people” you always cry you care about, given that it is hundreds of Tons of stuff that gets smuggled out of the country all the time? How much does this system cost? Who will run it? Who sells it? Who maintains it? Who profits from it? How do you implement it?

Even worse, just last week, one of Maduro’s powerful underlings, the Head of Sundde, declared the”war” on lines at supermarkets. Do you really think that implementing a fingerprint system with restrictions to boot, will help ease them.

Imagine the dialogue:

Cashier: “Sra. please move your finger. Ok, Ok, dry your finger before you place it on the scanner. Great, finally. Well, sorry you are limited to two bags of Harina Pan, two cans of powdered milk and one kilo of sugar, so we have to take it our of your cart.”

Sra: “But please, I have four kids, I need the milk. Even if I come tomorrow you will not give me any additional milk. Etc., etc., etc.”

Meanwhile the line backs up even more. People get upset, start complaining and who is going to come calm them down. The Sundee? Sure.  Most likely the National Guard.

But the worst part is that Maduro said a year ago that he was against this type of system. In fact, he ordered that Governor Arias Cardenas of Zulia State stop any form of rationing, arguing that producing stuff was the only way to go.

A year later, Maduro is the king of rationing and the surely corrupt biometric systems. As I tweeted, it would be much cheaper to put a voice transmitter on every military officer in the country, in order to stop them from charging commissions at every step, including all the flow through the borders.

Just watch this video from  this blog, and even if it is in German, you understand the guy is bribing the Guards to get thru and make a lot of money smuggling. So, are you going to check the cars or the Guards? Same idea applies to foodstuffs.

I mean, if as Ramirez says 100,000 barrels of gasoline get smuggled out of Venezuela, does Maduro believe it is one barrel per car? Or maybe it is like 500 barrels (80,000 liters) per truck and a few national Guardsmen helping out. And “colaborando”, wink, wink.

But going back to the title of the post, who then runs Venezuela?

I am starting to think nobody. This is a collection of individuals with no apparent command or direction, led by an indecisive man. I don’t think Maduro went to Cuba to receive orders. I believe he went to Cuba to ask Fidel which of the many proposals he should follow. And Fidel likely told him to just hold tight, try to sell Citgo, see how long they can last. And if they can’t sell Citgo, you can make very tough decisions, like hold payment on debt, borrow somewhere and try to ride it out. But Nicolas, Fidel likely told him: You are not Hugo.

And so the country drifts into som sort of economic black hole. Today it is fingerprint scanners, tomorrow it will be some different imaginary battle. But it will always be about attacking the consequences, not the causes. Those, they will not touch. Maybe a small adjustment in the price of gas. Maybe move the Bs. 6.3 per US$ rate to the Sicad 1 rate. But that’s it. In the absence of Government, there will be no decisions. No real policy changes until 2016

At the earliest.

Venezuela Should Increase Gasoline Prices Sharply

I am behind on writing about Venezuela. There are so many things to write about and I do have many opinions on them. And there is little time. But the subject of the gasoline price increase is at the top today. In this supposed “adjustment” that Chavismo has claimed it will do for the last eight months, the discussion began after the regional elections in December with precisely the price of gas. But then, much like the so called “unification” of the exchange rate (now called the “convergence”), there was a lot of internal opposition within Chavismo to the increase of gasoline prices.

Now things have been turned around, there is a lot of opposition to the convergence of exchange rates internally, so all of a sudden Minister Ramirez revives the subject of a gasoline price increase. It seems Ramirez only wants to find a way to have PDVSA improve its finances, rather than improve the country’s fiscal balance.

Let me state first, that I am absolutely and totally in favor of the gasoline price increase. I find it appalling that people oppose it, condition it, question it and dilute it it in an absurd discussion of what they want or don’t want the Government to have or do.

The gasoline subsidy in Venezuela is a disgrace, it is wasteful, it is absurd, it is bad for the environment, it generates contraband, it is regressive, it is unfair, it is unjust for future generations, it generates traffic, it distorts policy making and it is simply irresponsible.

In fact, I find it amazing not only that the opposition has so many reasons to object to it, but that the Government is thinking of a small adjustment like to Bs. 2 per liter, if not half of that.

Gas is so cheap (free really) in Venezuela, that it is difficult to talk about how much a liter costs. So, we go back to a picture I posted in May 2011:

I filled up my tank down in Caracas with 43 liters of gasoline and paid Bs. 4.2 for he whole thing. Bs. 4.2 for 11.43 gallons of gas, which at the Sicad 2 rate happens to be 0.082 dollars for a tank of gas. All of 8.2 cents of a US$.

I use the Sicad 2 rate, because it is the highest accepted by the Government and the only one “real” people have a small chance of having access to it.

So, currently in Venezuela, filling a tank of gas up costs 8.2 US$ cents, let’s round up to ten cents for the sake of the discussion.

Now, as you can see in the picture above on the right, I used gas that cost 0.097 Bs. per liter. The Government wants to increase it to either Bs. 1 or Bs. 2, depending on who you believe. This means that the Government wants to increase it to around one or two dollars a tank of gas.

Ridiculous.

To me, that is the same as leaving it is where it is today. It will have no impact on contraband, waste, PDVSA, fiscal accounts, etc, etc., etc…

Furthermore, with 70% inflation the effort of convincing the population that the increase is good, doing it and implementing would be wasted very fast.

Thus I think the Government should target an increase that is large. Say to US$ 20-40 per gas tank. (50 cents to one dollar a liter, still cheap. Or FOB export price, which is the most rational to do) and maybe do it over a year. Similarly, they should schedule further adjustments whenever they devalue, so as to maintain the price at the same relative level to international prices as the adjustment.

All of the other arguments are simply irrational and spurious. That you don’t trust the Government and what it will do with the money? Nobody trusts any Government and what they do with your money. It is the same arguments why people don’t like or want to pay taxes. But the bills have to be paid and in the end it is a vicious circle. The same with the argument that the public transportation is terrible. It is a chicken and egg problem.

Finally, there is the Cuba and Petrocaribe argument. They are valid, but you can’t tie one to the other. The opposition should raise a stink and point out that we give Cuba and those countries very cheap gasoline. In the case of Cuba, the Government of that island sells it at international prices and makes money. But that should not stop us from supporting the price increase. In fact, if anything, the oppsoition should attack the increase because it is not large enough.

Until policy is not discussed seriously, Venezuela will never advance. Chávez introduced the absurdity of an overly subsidized gasoline prices, if this Government wants to take a small step into some semblance of sanity in its policy making, it is absurd in my opinion to oppose it. Otherwise you are promoting the same type of irresponsible Government you object so much too.

I know this will not be a popular post, but I do believe that in politics, one should have certain essential beliefs and principles and that one should stand by them and not turn them around and debase the nature of the discussion just for politics sake.

 

Venezuela Drifting Further Away From The World

I was in Caracas last week. Almost did not go for the simple reason that it is quite difficult, besides expensive, to find an airline ticket out of Caracas. Venezuela is simply drifting away, further and further apart from the world.

In my case, my trip, more like a saga, began when I found a ticket Caracas-Aruba in Aserca to make a connection to a US airline in Aruba. Plenty of time between the two, Aserca was leaving at 11:30 AM, the other flight leaving at 3:35 PM. Given that the flight to Aruba is 35 to 40 minutes, there should be no problem. On top of that, I had only hand luggage.

Chop half an hour from the time between flights, thanks to now banned Chavista genius Navarro, as I did not take into account (my fault) the half an hour difference between the two countries. I did show up at the airport a three full hours before flight time. Seemed like a good precaution, as Aserca has no line for those without luggage.

Well, when I showed up, there was a huge line for the full flight and all but four passengers were in line in front of me. Fortunately (or maybe I should have worried about it) there was a sign that check-in would close at 9:30 a full two hours before the flight. That meant, that the line would only last one hour.

And it did. With about three minutes to spare.

In the line, I learned a number of things from the ladies ahead of me. For one, they bring their food to Aruba, you know, they told me, food is so much more expensive there. Thus, they bring their food, hiding it under the clothes, so that Aruba customs does not take it away. That happened to me, said a different lady. They also discussed how bringing lots of food is good, more space to bring back the stuff they buy in Aruba, which turns out to be paper products (toilet paper and diapers are favorites), food (not fancy ones, those you can get in Caracas. It’s all the stuff he government controls or imports that they bring back) and cosmetics. Cosmetics, like soap, shampoo and similar things, lest you think that they bring back expensive things like perfume. I also learned you have to stay a full week in Aruba in order to get the full US$ 700 from Cadivi. Better to go to Aruba than Miami, said a third lady, the ticket is cheaper and you get the same amount of money. Besides, I bring my kids, they don’t cost as much and I can ask for US$ 700 for each.

I trust I am not passing bad information, I haven’t checked it. But on how to squeeze the Chavista foreign exchange/travel system, these ladies seemed like true experts.

To my surprise, right before check-in there was a guy that would actually ask you if you were connecting to another flight. I thought I was the only one. How wrong I was. There were people connecting to my flight and to at least four other ones. In fact, looking over his writings on the reservation list (the only thing that was respected all day) about half the flight, including many kids, were making connections to the US and/or Europe. There were twelve connecting to my flight. I should have gotten worried when the agent told me that Aserca was not responsible for any of my expenses if I did not make the connection. I actually expressed confidence that there was plenty of time between flights, to which he answered: “Well, yesterday one passenger did not show up and it took an hour and a half for the National Guard to allow the removal of the baggage belonging to that passenger. The plane left with a three and a half hour delay.”

But I am a lucky devil, no pun intended, so I went to immigration confident that  there would be no problem.

Think again!

We were told to be at the gate at 10:30 AM, so I drifted towards Gate 22 at 10:15 AM not that I expected the flight to leave without me. Gate 22 must be the gate from hell. It is a combination of Venezuelan organizational planning, combined with Venezuelan military organizational planning (A true oxymoron).

You see, when you approach Gate 22, there are two signs: Gate 22 in the back and gate 17 in the front. If you are dumb enough to follow the Gate 22 sign, you reach a corridor, blocked by cardboard. Thus, you have to go back to gate 17. That is Gate 22. Obvious no?

There are no signs in gate 17 ( or 22). Just an escalator going down and stairs coming up. Given that there were four flights waiting to use Gate 22, the upstairs lounge was completely full, since it did not even have capacity for a  small commercial jet. Downstairs is different. It is empty, there are seats. But even though you have just passed security once, the chairs in the waiting lounge are blocked and you have to go through the National Guard security in order to get to the lounge and eventually on to the buses to the plane.

A not so pleasant looking Guardsman comes up to me and tells me to go back up until my flight is called. Up the stairs I go, not before he gives me the explanation: Your gate number could be changed (I should have paid more attention at this point), for example, and you would be down here.

Sounds perfectly logical, but I still don’t understand why flights that required a bus, need double security.

I go back up. During the time I was there, I saw some two dozen people go downstairs and then trek back up, including a pregnant lady with two kids.

Order (ha! ha!) was restored when the Aserca people showed up, roughly at the same time as the La Venezolana staff (different flight). This happened about ten minutes after the time we were supposed to be at the gate. Then began the placebo explanations of the Aserca staff. The plane is being filled with gasoline. Next customer up, the plane is in the national terminal. Next customer, if the plane is brought here we will leave from a different gate. (Told you I should have listened!)

As I am getting impatient, a passenger says: “We have to be very patient, this is Venezuela”. I feel like telling her why I don’t want to be patient, but I shut up. About an hour later, we are told the plane is full of gas (Cheers!), but it will be brought over now to the international terminal (Booo!). This means we have to go to Gate 28. (Which is actually Gate 28)

A real gate! No second National Guard check up of our hand luggage. Makes sense, no? Just kidding!

At the gate I meet a lot of fellow “conectees” worried about time. I meet a guy who is connecting to my flight. I tell him I only have hand luggage and have my boarding pass printed. I explain that the airline closes the flight 45 minutes ahead of time, thus, if we are further delayed, he will not make it. He does the check in in his phone. (He is the only other person that made the connection: “Thanks Devil” this guy should say. You are welcome!). There is a family going to San Francisco, a girl to meet her Spanish fiancee in Scotland. A guy who is moving to the US. Another getting his visa soon. Another bought a fish business. And finally, an Arubian/Venezuelan (Doctor, builder, grandfather and tool smuggler into Aruba) who clearly has done this many times and explains at the gate and on board exactly what obstacles you will have in Aruba to make the connection. (Thanks buddy!)

We finally board. A little disorganized, but hey, Germanic compared to everything what went  on before. We might yet make it.

As we are sitting on the plane, the Captain apologizes for the delay and says…we will have another delay, because the truck to start the engines is in the National terminal and has to be brought over. (Why did they move the plane then?)

It looks tough now. Very tough.

As we wait, the stewardess asks me to check if my seat has a life saver underneath. It does. Two mechanics come on board and start checking for life savers around my area. They are all there, but there is a report that one was missing. Finally it is determined, that it was the seat of the girl going to Scotland, sitting behind me, that did not have one, it was an empty bag under her seat. How would she know. She is given a life saver to put in the pocket ahead.

To my surprise the two mechanics that boarded the plane to check the life savers, stay on board. I don’t even want to ask why. They are seated in front of me, this must be the safe area of the plane, I tell myself…

We finally move at 1:45 PM Caracas time, which is 2:15 PM Aruba time, my flight is at 3:35 PM. Looks bad.

Flight goes well. I am seated close to the front. I leave the plane and start running. I get to Aruba immigration and the lines are huge, like 50 people deep. The not so considerate gentleman organizing the line tells me to get in any line, he can’t do anything for me. My new friend follows. We ask the people in the next line if we can go ahead of them. they say sure, they are vacationers going to Aruba, we look stressed. We bypass a bunch of people and when I am called, the immigration lady  I got is given a pack of eight passports to process ahead of me. “You can stay here, she says”

I smile.

And then I run. Remembering the instructions by the Aruban/Venezuelan guy on the plane, I exit the terminal, take a left. Then another left to departures. I keep running, O.J. Simpson style  (dated joke, last time I did this was in 1977, still recall the analogy). Then I do Aruba immigration and security. I keep running. Then I do US immigration and security. No lines, thanks God. Nice agent.

Then I run more, My plane is at the last gate at the airport. gate 8. I show my boarding pass. Lady says: “Mr. Octavio, I thought you were already on board”. I run, get in the plane, sweating by now, sit down and the stewardess offers me a glass of water and some paper towels (Thanks Veronica!) . She then turns around and closes the door to the plane.

I made it, but I realize that Venezuela is slowly drifting apart form the world. It is further and further away every day in all possible senses: Physically, intellectually and cronologically. And this increasing remoteness is true for both those abroad like me and for those who still live there.

What a tragedy!

 

 

And One More Thing…On The Carvajal Affair

So, The Netherlands invoked an article nobody had referred to in the whole affair, to release Hugo Carvajal on Sunday evening. Basically what the Netherlands said was that Art. 13 of the Vienna Convention allows for a Consul named but not accepted to temporarily assume his or her duties. Thus, according to this, Carvajal’s arrest was valid and his release was valid.

However…

It was somewhat sneaky of the Dutch to release Carvajal on a Sunday, without going to the Judge that originally said Carvajal did not have immunity. You would have thought that in a country with Law and Order, the proper procedure and place would have been to go to Court on Monday and request Carvajal’s release.

Most likely, the Dutch Government did not want the US to show up in Court on Monday with the extradition papers, creating a conflict. The Prosecutor in Aruba had said that the extradition was now just a formality and the US just had to provide the required documentation for it to take place.

Clearly, everyone applied pressure, but the weak link did not turn out to be Aruba as I suggested on my first post, but rather The Netherlands, as reportedly even Russia played a role, exchanging concessions on the Ucraine plane for helping release Carvajal. No matter what anyone says or how this is interpreted, it was a severe blow to the US, who would have loved to get Carvajal onshore. The indictments are a doozy, they are sealed indictments in Miami and New York, accusing Carvajal in Miami of helping drug dealers and in the Carvajal Indictment Southern District of NY of :

This is not aiding or helping, this is coordinating the transportation of “only” 5.6 Tons of cocaine to the US, quite a strong accusation, charged by the Grand Jury, no?

Meanwhile, Carvajal is welcomed in Venezuela as a hero and there are few mentions of the fact that The Netherlands declared him persona non grata. What is true according to reports is that Carvajal had been going to Aruba for months and unlikely that he was going to act as a Consul. We will never know what he was doing there, but one can suspect.

The most likely threat by Maduro on the Dutch? That Venezuela would withdraw from the Isla refinery in Aruba. The Netherlands already spends more money that it wants on the ABC islands to have to spend even more.

This story likely ends here for now. Carvajal and his buddies will likely stay away from jurisdictions with a US extradition treaty for quite a long time.

And, of course, no more Disney for you, high ranking Chavistas!

US Initiates A New Stage In Its Relations With Venezuela

Image from Semana magazine

One of the puzzles over the last decade, has been the timid attitude of the US Government towards corrupt Venezuelan officials, who roam around the US enjoying their ill-gotten gains. In fact, it is known that some of them, have turned evidence in exchange for being allowed to stay in the US or not prosecuted. Despite this, it just seems as if over the years, it was all an intelligence gathering operation with no follow up.

That may have changed this week.

After an effort was apparently rebuffed by the Obama administration to impose sanctions on Venezuelan Government officials, the US Government has clearly and quietly gone on the offensive this week.

First, it was former Judge Benni Palmeri Bacchi, who arrived in Miami in a private plane (like so many current and former Chavista officials like to fly) with his family to enjoy two weeks of supposedly a pre-paid vacation in Disney World, Orlando. Instead, Palmeri was charged with protecting Colombian drug traffickers by allowing them to fly cocaine shipments to the US.

But the big fish, not to say the big chicken, was General Hugo “Pollo” Carvajal, who was detained in Aruba when he arrived, also in a private plane, purportedly owned by a relative, and tried to use one of at least two, if not four Venezuelans passports he was carrying (As well as US$ 20,000 in cash, that he obtained via no official source in Venezuela). You see Carvajal was nominated to be the Venezuelan Consul in that Caribbean island, but the Government of The Netherlands had yet to approve it, making his diplomatic  immunity non-existent. And adding to his problems the US started including Carvajal in its drugpin list in 2008, as you can read here.

And if Carvajal is ever extradited to the US, he is in serious trouble. While the news concentrates on his relations to drug groups, Carvajal was involved with drug/terrorist organization FARC and in the infamous Reyes computers Carvajal is said to have offered the FARC terrorist weapons, as well as lists of prominent Venezuelans to kidnap.

And if Carvajal is ever extradited, that is where his problems begin. Once he is in US soil, the charges could quickly shift from the drug angle to the terrorism one and Carvajal could be taken away from the DEA’s hand and Guantanamoed for the rest of his life. He could be jailed in a maximum security prison for more years than his life expectancy will allow.

And I say “if”, because many things  could happen to Carvajal. Maduro has already say that he fully backs Carvajal, who was “kidnapped” by Aruba’s authorities, threatening the tiny island with economic, energetic and commercial sanctions.

So, you can bet that right now there is a many front effort by Venezuela to get Carvajal freed, just the same way there is a full court press by the US and the Dutch Government to get him extradited ASAP.

The only question is who gets to or finds the weakest link first. The weakest link could be an official that can be bought, a Judge that can be influenced and voilà Carvajal could show up in La Carlota, Miami International or Schipol.

The US is likely to be applying lots of pressure to get Carvajal off Aruba as fast as possible. The island likely has the weakest links in the process, the question is whether it can pull the required strings fast enough.

It will be a very entertaining movie to watch the next few days. But no matter what happens, it is clear that the US has initiated a new era in its relations with Chavista Venezuela and that many a Chavista official or beneficiary of Chavista corruption must be trembling today facing the impossibility of enjoying their ill-gotten gains in Disney World. Their impunity in traveling around and moving funds around is over. From now on, each step has to be watched and considered.

Or else..

Maduro’s Empty And Bizarre “Sacudón”

When I first began this blog, I overused hyperlinks. My reasoning was simple: Some of the things going on were so bizarre and difficult to believe, that my credibility was at stake if I did not indicate the source of what I was saying was happening.

This is no longer the case.

The way Venezuela is run, the things the country’s leaders say or implement, from the Ozone tax, to President’s that talk to birds to 20 billion dollars rip-offs (twice), by now people have become accustomed to the bizarreness of the revolution.

But somehow, the Bolivarians never cease in amazing and surprising us. It would be entertaining, if were not so painful. Which it is.

I mean, when a President announces that he will make important announcements the next day, which involve the Sacudón (Big shake up?) of the structure of the State, the “misiones” and the economic and social offensive, you expect something. You expect even more, given the current state of the economy, with inflation running at 60-plus percent per year, 5,5% per month, shortages, airlines leaving, international reserves depleted, daily protests, Government losing popularity and fiscal and monetary distortions killing economy activity.

I did have my expectations down. I know the various factions in Government differ on how to solve problems. I know there are no economists in or near the Cabinet. I know the Government worries more about losing popularity (and power) that about making things better. But I expected at least some form of vaporous announcements, half defined measures, watered down policies.

But I really did not expect a rambling Maduro announcing essentially nothing. Zip. Zilch. Nada. Niente.

First we had the nth. eulogy to our Comandante (“Our biggest difficulty is to have lost Him”), followed by a love fest. Love for all, but more particularly and more importantly, love for and to the military. Particularly, loveless Gen. Lopez Padrino, who apparently did not receive much love after his July 5th. speech, where he pledged allegiance to Chavismo above all. Lopez Padrino, according to Maduro, is supposed to represent the “new” Venezuelan military “thinking”. It does not get more oxymoronic than that.

Subconsciously Maduro also said how much the country misses Hugo, because he has no clue, I guess, he really wishes Hugo was here. Or there.

We then got the usual blast on the capitalists, opposition, speculators, who are responsible for inflation, shortages and all of the ills of the economy. Next sentence: But the Venezuelan economy is healthy (Never mind we have the highest credit risk in the world)

So, is there a problem or not Nico?

He seems to be in no rush to fix anything.

Next, the only “announcement”, we are ready for the fiscal revolution. Except the way it sounds is that they will control fiscal spending. Except that “fiscal” in Spanish, also refers to taxes. Thus, what it means is that they after impoverishing the productive sector, they will now try to tax it to death, so that “they” can keep spending.

Get it?

At this point it was important for Maduro to clarify: “We will make announcements”. No idea of the timeline at this point.

Then we saw the clueless Maduro: We now have to check what imports we can substitute. How Cepalese can he get? Does he understand any of it? (I don’t miss Chávez, how could he leave us with Maduro in charge?)

Again: we will make some announcements…

In between he had a guy who has been Chavista like three times and opposition twice in the last fifteen years, tell us how wonderful agriculture is doing and the VP, Chávez’ son in law, tell us how the Government will be turned inside out or outside in, don’t recall the order.

We were also told at some point and at length how wonderful and “democratic” the World Soccer Cup was. (Democratic my foot, the best team won, the rest suck!)

We then heard a blast against those that stole the US$ 20 billion via Cadivi/Cencoex.  Except that those that asked for $3,000 have been asked to prove their spending in the thousands, while not a single one of those that got the US$ 20 billion for imports has yet to be called. The Prosecutor says she does not want to interfere with the investigations, I say, she does not know who she will find behind each rip off, so she wants to be careful.

Then we come to the highlight of the day:

Maduro: “We worked really hard yesterday…like four or five hours”

He thus insulted , 95% of the working population of Venezuela, which I don’t want to guess how many Maduristas/Chavistas/Bolivarianos it includes, but it can’t be many.

By then, it was clear, there would not even be vaporous announcements like I predicted:

right after betting there would be no announcements relating to gas prices:

But I was very wrong. There no announcements, other than:

“We will make the announcements on August 11th.”

Yes, in the end, that was the only announcement of the “announcements”

And the we were shown a video of the one year anniversary of Nicolas’ marriage to Cilia. In another Fruedian slip, he said she was the real boss. As if we did not know…

It does not get more bizarre than that…but I will not listen on August 11th, I will be on vacation in September, when he will likely make some announcement.

Or maybe not…