Thursday, December 04, 1997

Roping in the herd

We have frequently seen examples of how economies that permit total liberty for foreign investment flows, especially those that are in essence short-term investments, often must confront more difficulties than those that impose certain restrictions.

As so many things in life do, problems often have their roots in exaggeration. It is possible that on the one hand confidence and the magnitudes of the resulting flows become so great that they can actually hide problems or diminish the pressure brought to bear on local authorities to take corrective measures. On the other hand, absolute mass panic may set in, creating the medium for the type of accidents normally attributed to such a response (for example, the Mexican debacle and resulting “Tequila Effect”).

Since it is very difficult in most cases to identify a special event such as war, earthquakes, or the sudden death of an important leader as the trigger for a change in sentiment, and as we supposedly live in a world of virtual and perfect information, what could be the possible origin of the overly exaggerated reactions of fund managers?

Above all, I suspect that the financial roller-coaster rides we are subjected to have their origins in the traditional search for the type of security usually found in herds. This instinct predominates in most decision making. I refer specifically to the attitude “it doesn’t matter if things go well or not, as long as I’m in good company.”

As an example, I can go back to the period just after Venezuela abandoned exchange stability (February 1983). I watched with surprise as the treasurers of large multinational companies blithely signed contracts that insured future exchange rates at such incredible costs that they seemed outright irrational. The premium paid easily surpassed the possible exchange losses that would be caused by reasonably predictable devaluations.

When I tried to get to the bottom of this madness (frequently assisted in my investigation by offering a shot of whisky), I invariably would receive the following explanation: “We actually have two accounting registries. In the first we register the exchange earnings or losses per se. In the second we register the cost of the insurance premiums to cover exchange risks. Our head office has become so sensitive to exchange risk that it doesn’t combine both accounts to analyze the total net results. On the contrary, even if I save the company a fortune by not contracting this coverage, but incur in so much as one cent in exchange losses, I would be handed my pink slip in a flash.”

What, then, does this observation aim at? Simply that even when an individual or company is perfectly amicable, capable and basically worthy of an invitation to invest in our country, if his inclination as manager of funds is to follow the herd in stampede, the nation can simply not afford to allow him and his company to enter.

In this sense, we must ask why our monetary authorities have not managed to develop a coherent set of regulations to limit the inflow of international investment when this is obviously intended to be for irrationally short periods of time, in grossly large amounts, or both, instead of wasting time and money exchanging bonds and restructuring debt that matures in 20 years.

Countries like Chile, which have earned the confidence of international markets, limit the inflow of short-term investments. This limitation has definitely not resulted in damage. On the contrary, it has helped increase the confidence of exactly those foreign investors whom the country actually wishes to attract. They are not those that come on a 30-day visa, but rather those that come to invest for the long term.

It is important to remember that when a foreign investor risks his funds in a country in the long run, installing factories, developing projects, creating employment, and in general acquiring a real presence in the country, his interest in the future of the country becomes much more sincere and similar to that of the nation’s own population. Much more so than the interest of some fund manager sitting in New York or London.

When we speak of gaining the confidence of foreign investors, we must learn to discriminate among them.

PS. As you would want to know if those courting your daughters have serious intentions.

Published in Daily Journal, Caracas, December 4, 1997 and in "Voice and Noise" 2006.

Thursday, November 20, 1997

Recadi rises from the dead

In a country in which the Government proudly announces in 1997 the completion of a highway on which work was initiated back in 1973, the belated results of administrative and legal initiatives should not be surprising. Nevertheless, we have indeed been surprised once again upon hearing rumors about the summons being issued, applications for reimbursement being submitted, fines being imposed, appeals being declared null and void and other such fine aromatic herbs. The clincher is that all of these are related to Recadi. Yes, ladies and gentlemen, Recadi - not OTAC - Recadi!

I remind my younger readers, who could be under the false impression that the follies of exchange control systems originated exclusively during this Government’s tenure, that in the early eighties a system of controls was implemented as an answer to new exchange rate realities during which the devaluation of the Bolívar was discovered. This system was known by the initials Recadi.

The Recadi system sent the wrong economic signals, stimulated unnecessary imports and allowed for blatant corruption though the misuse of the exchange benefits it offered. It was the most costly economic experiment in Venezuelan history. All of the accumulated losses racked up during the recent financial crisis don’t even come close to the cost incurred during the Recadi years. Only the fact that the Recadi debacle was spread out over several years diluted its effect and made it less visible as a disaster than the bank crisis.

Even though there was some opposition, the Recadi system so totally enveloped the national economy that it resulted in the creation of a kind of society of accomplices or accessories which then made it extremely difficult to correct as well as to punish the abuses that were committed under the system’s umbrella. We can still remember the comments relative to the infamous Chinaman of Recadi, the only person who, as an exception that validates the law, underwent judicial punishment.

Recadi, as does all official bureaucratic process, implied the elaboration and use of an incredible amount of documentation. This put to task the internal administrative capabilities of industry and commerce in Venezuela not used to working with government entities at certain levels. Local banks were brought into the game by the government, and against their best judgment were forced to dedicate several years and immense resources to documentation and issuing of bonds to cover incomprehensible obligations.

When Recadi finally disappeared, there was general relief all around. As a natural reaction, all parties actually involved in this involuntary process immediately began filing, stashing, hiding and losing all types of documents which could possibly remind them of their participation in this horrid chapter in economic history. New actors also surfaced to help purge filing cabinets of this damning material. New upcoming generations which never had to live through Recadi (50% of the country’s population), foreign investors and bankers. All, however, have something in common. When they see a file labeled “Recadi”, they rifle through it, define it as the product of a historic comedy and then send it to the trash bin with the efficiency, energy and arrogance of a newcomer.

Once this happened, however, official entities of all types and colors began spewing forth their edicts; the Central Bank of Venezuela, the Ministry of Finance, the banks and the different Administrative Courts.

“The Court XXX, in relation to the recourse ........... declares null and void the administrative appeal submitted by YYY against the decision issued by the External Private Debt Registration Commission in its resolution of February 1985”

“We are pleased to notify you that the Central Bank of Venezuela has requested the reimbursement of US$ XXX in advance payments for the following imports due to the fact that the corresponding documentation required to justify said advance payments was apparently not submitted on time.”

The questions that still remain to be answered are several. What strange power can manage to reactivate, almost fantasmagorically, files that up to now have been classified as “dead”? Is this the new Venezuela in which justice arrives late but does finally arrive? Could this merely be an example of “I’ll get you sooner or later”? Or could this simply be the result of the privatization of official business?

At least some conclusions seem clear: Save even your toll receipt! Watch out, OTAC is coming, maybe not this century, but certainly the next!

Daily Journal, Caracas, November, 1998

Thursday, August 28, 1997

Dreams and visions for Venezuela´s year 2000

To only think of the possibility that my three pretty, intelligent daughters must, together with their other Venezuelan companions, cross the threshold of the next century holding hands with any of the current options we have for the next presidential election, creates a lump in my throat. By saying this I do not wish to imply that none of these options are based on efficient and well meaning people. It’s just that until now, none of them have managed to present an inspiring vision or dream.

This country is in dire need of dreams and visions of the future. Without them, we will not be able to stimulate neither the efforts nor the sacrifices required to elevate Venezuela into the ranks of the truly developed nations. Evidently, there are no perfect prescriptions to achieve this development, but I do remember that an old Chinese proverb recommends that we aim for the sky, since even if we don’t reach it, we will surely have achieved more that if we had aimed at a lower target.

Let’s analyze an example of a dream. In Malaysia, a country with a population of 20 million living in an area one third the size of Venezuela, authorities recently launched an initiative to create an information technology park at an estimated cost of US$ 20 billion. This park, located somewhere between the capital city of Kuala Lumpur and the international airport on a plot of land of about 50 square kilometers, will consist of two new cities, the installation of fiber optic communications networks of immense capacity and the promise to develop both government as well as a series of laws designed for the management of this cybernetic reality - basically a cybernetic bubble.

Some of the main technological firms of the world have been invited to occupy this park and will be incentivated to participate in a series of futuristic projects such as the creation of “intelligent schools”, teledirected medicine and the design of electronic procedures that will eliminate the use of paper in government.

Until now, based on benefits such as fiscal incentives, protection of intellectual property and guaranteed freedom from censure (something extremely important in the world of Internet), a number of important firms have shown serious interest in joining this project.

Without making judgment as to the validity or not of this Malaysian plan, Venezuela definitely has nothing even similar. If we were to analyze the current local supply of dreams and visions, we would find that we have a depressingly poor selection, headed by the possibility of an intelligent identification system with cédulas with 4K memory chips.

Even in the case of the much heralded and promised train to Cúa, the latter’s recent rebirth is based on publicity calling it a “solution to Caracas’ problems” rather than the initiation of development and progress. In dreams of previous times, when trains criss-crossed the entire country, plans for a train station in Cúa probably didn’t even exist.

Audacious plans, for example the use of the resources obtained during the recent bids in the oil patch to equip four million students with modern computers, offering them total access to information and opening the possibility of a real educational and social revolution, are schemes that are not even being considered as possibilities.

On the contrary, these resources from the oil aperture, obtained by sacking the future flows that really belong to our children and grandchildren, will most probably be used to satisfy and cover the labor costs of a bloated bureaucracy, which, maybe anticipating the Malaysian experiment, seems to have also eliminated the use of paper, even when not by design but by sheer logistical incapacity. What egghead could be happy when confronted by the fact that the international reserves of the Central Bank have now reached US$ 18 billion when the country’s real reserves, its youth, is deprived and undernourished, both physically as well as mentally.

As a nation, I consider that we all have the immediate responsibility to develop plans and visions for the future that would provide not only a sense of direction but that would also satisfy the need for illusion and dream so proper of youth. We must expect and more importantly, require, from our leaders the capacity to understand these plans and visions, to assimilate them and to convert them to reality.

I hope to God that when December 31st, 1999 rolls around, I will not have to announce to my daughters that we will be moving to a successful park in Malaysia. I hope to God that the illusions twinkling in their eyes will include Venezuela.

Friday, August 01, 1997

A million-dollar cédula

I realize that the dance of billions of Bolívares (millardos in Venezuela-speak) can often make it difficult to determine if we are talking of important amounts of money or not. When we speak in terms of dollars, it is usually clearer. During the past few weeks, we have been subjected to the debate swirling around the government’s decision to acquire a new national identification system valued at US$ 500 million.

US$ 500 million is a truly large sum of money! It is equivalent, for example, to the cost of 600,000 good computers or 35,000 middle range automobiles. It is superior by a long shot to estimates of the investment required to renew the entire metropolitan aqueduct of Caracas. Measured in day-to-day matters, this sum amounts to approximately 2.1 billion subway tickets. The financial cost of this investment, at a modest 10% interest rate, would be US$ 50 million per annum, which allocated to an estimated 2 million cédulas issued per year would result in a unit cost (interest only) of US$ 25 per document produced.

What is truly surprising, is that the debate this decision has raised is centered on whether or not formal steps corresponding to the award process, either by formal bid or through direct negotiation, have been complied with. There has been little mention of analysis, nor have many questions been raised, as to how the use of the nation’s resources is being prioritized. Suppose, strictly for argument’s sake, that a 10% commission will go towards fattening a corrupt official’s bank account. Suppose, as well, that the investment per se is really not necessary and that the objectives established could be reasonably covered with an investment of, say, US$ 100 million. The cost to the nation of the crime represented by the commission paid would be US$ 50 million. The cost of a flawed decision, even if taken by Mother Teresa herself, would be US$ 400 million.

A country often must undertake considerable institutional investments even when basic primary needs have not been met, but in this case, the cost-benefit ratio used by the National Government to support this huge outlay is difficult to fathom. Although it would obviously be nice to have a cutting-edge national identification system, the country has many profound needs that are far too important to allow us the luxury of trying to resolve a basic organizational problem by simply throwing money at it.

When we contemplate the dilapidated state of our health and education systems, it is difficult to understand the decision to dedicate such an important amount of resources towards resolving a problem which seems to be secondary in nature. Even developed countries such as the United States and the UK don’t even have identification systems.

In Venezuela today, we have severe problems related to the lack of basic equipment, material and even passports. These problems undoubtedly are caused by an absence of administrative capacity and this could mean that even if we invest in a new national identification system, we would very quickly be suffering the impact of this very same indolence.

It has been suggested that, should we not accept the proposed system, the one that contains a 4K memory chip, our only other alternative would be a student ID card. I don’t quite understand what is so wrong with our traditional laminated cedulas; if only they were ordered and issued on time.

If the political will to avoid fraud and to severely punish officials perpetrating the same does not exist, the system, no matter how much we invest in it, will not work. The only probable result would be that the tariff charged for corresponding illegal transactions would simply be increased.

As a pacifier, we are told that there is no reason to worry since this will essentially be a government to government transaction. Maybe we should be asking for a citizen-to-citizen conversation instead. I’m almost certain that the German citizens, should they be shown photographs of the operating rooms in the Hospital Pérez Carreño, would not see the ethical value of sending us a US$ 500 million personal identification system.

Finally, as an intellectual exercise, I asked several of my friends to come up with some of the bad things one can do with a false cedula. None of the suggestions they came up with come even close to the horrifying things someone can perpetrate with, for example, a false driver’s license. Except, perhaps, the role false cedulas may have had in electing our governments. For this to be avoided, 4K of memory might not be enough.


Reconozco que en el baile de los millardos de bolivares puede a veces resultar dificil determinar si se esta hablando de un monto importante o no. Cuando se expresa en dólares no. Durante las últimas semanas se le ha indicado al pais la voluntad del gobierno de adquirir un nuevo sistema de cedulación en 500 Millones de dólares.

500 Millones de dólares es un monto realmente grande. Equivale por ejemplo al costo de 600.000 buenas computadoras o a 35.000 carros tipo mediano. Es bastante superior a las estimaciones de costo requeridas para renovar todo el sistema del acueducto metropolitano. En elementos del dia a dia significa de tikets de metro A una modesta tasa del 10% representa unos intereses anuales de 50 Millones de dólares y los cuales repartidos sobre un nivel de 2 millones de cédulas al año resultaría en un costo, solo por intereses de 25 dólares por cédula.

El tema ha generado un debate en el pais. Lo sorprendente de éste es que se ha centrado en determinar si se han cumplido o no con los pasos formales referentes a un proceso de adjudicación, sea por via de licitación o negociación directa, y menos en analizar o cuestionar los procesos de como se esta prioritizando el uso de los recursos del pais. Supongamos exclusivamente para fines de una discusión de que existiese una comisión del 10% y que fuera a engrosar la cuenta de algún funcionario corrupto. Supongamos además que la inversión en sí no fuese necesaria y que los objetivos previstos pudiesen razonablemente cumplirse con una inversión de 100 millones de dólares. El costo para el pais del crimen de la comisión es de 50 Millones. El costo para el pais de haber tomado la decisión equivocada y aún cuando así lo hubiese hecho la propia Madre Teresa, sería de 400 Millones de dólares.

A veces un pais puede tener la necesidad de efectuar inversiones institucionales aún cuando existan necesidades primarias insatisfechas pero en este caso resulta dificil entender la relación costo beneficio que pueda haberle sugerido al Gobierno Nacional este cuantioso gasto. Por supuesto que sería agradable poseer un sistema de identificación de vanguardia pero el país tiene necesidades mucho más importantes como para permitirse el lujo de tratar de resolver a realazos un problema básicamente de orígen organizativo.

Es dificil en Venezuela cuando contemplamos el lastimoso estado de la salud y de la educación entender que alguien sugiera dedicar tan importantes recursos a resolver un problema que pareceria hasta ser secundario por cuanto paises desarrollados como Estados Unidos e Inglaterra ni siquiera poseen sistemas de identificación.

Si en Venezuela tenemos un problema actual debido a la falta de equipos básicos, láminas y hasta de pasaporte es indiscutible que dicho problema se origina ante nada en una falta de capacidad administrativa y lo cual podría significar que aún cuando se efectúe la inversión en poco tiempo nuevamente suframos los impactos de la desidia.

Se nos ha dicho que de no aceptar la propuesta desarrollada, la del chip de los 4k, nuestra única alternativa sería la de un carnet estudiantil. No entiendo que de malo tiene nuestra actual cédula de identidad laminada, si la pidiesen y emitiesen a tiempo.

Si no existe la voluntad política de evitar los fraudes y de castigar severamente a los funcionarios incursos en los fraudes de identificación, el sistema y por mucho que se invierta, no funcionará. Probablemente el único resultado sería el de elevar la tarifa que se cobra por la ilegalidad.

Como un pacificador se le indica a la nación venezolana que no hay de que temer por cuanto esta operación se efectuara de gobierno a gobierno. Quizas debamos recurrir a una conversación de pueblo a pueblo. Estoy seguro de que el pueblo alemán, de mostrarles una fotos de la sala quirurgica del Hospital Pérez, estarían poco de acuerdo con el valor ético de vendernos un sistema de identificación en 500 Millones de dólares.

Finalmente y como un ejercicio intelectual le pregunté a varios de mis amigos sobre que cosas malas se puede hacer con una cédula falsa. Ninguna de las sugerencias llegaba ni cerca de los horrores que puedan producirse con por ejemplo una falsa licencia de conducir. Excepto quizás la de poder elegir nuestros gobiernos y para evitar tales desgracias quizas 4 k no sean suficientes.

Thursday, July 24, 1997

Pension funds - not yet!

For over ten years I have been enthusiastic about the implementation of pension funds such as those developed in Chile. I have assisted numerous related seminars, both in Chile as well as in Venezuela. We have finally come to the point where there is general acceptance in the country of the basic concepts involved and legal and political blessing seems just around the corner. Why, then, do I not feel satisfied? 

We have often seen the elderly treated in a very humane and civilized manner in poor and underdeveloped societies. We have also seen horrifying situations in countries with immense wealth and development. There seems to be, then, no real direct link between the wealth of a country and the quality of care it supplies for its elders. Obviously, the existence of economic resources facilitates care while the absence of the same can render even the best of intentions totally useless. 

In Chile, Peru and other countries in which pension funds have been established, these are only part of a series of measures and instruments aimed at returning economic rationality to their respective economies. In each of them, the fact that they have achieved strong and healthy growth, thereby allowing pension funds to obtain excellent returns, has undoubtedly contributed to the latter’s popularity. I doubt that any pension fund, no matter how well regulated, managed with utmost responsibility and subjected to the most efficient supervision, would have had the slightest chance of surviving and becoming an example for other countries should they have been developed in an economy managed by Salvador Allende or Alan Garcia. 

In order to guarantee the future of young, adults and elders alike in Venezuela, it is more important to achieve the reforms that insure that oil income such as that we have garnered in the last twenty years does not continue to go down the drain, than it is to simply introduce pension fund schemes. On the contrary, the development of pension funds in actual circumstances before the country has had the chance to find its way forward, could simply result in the disparaging of an excellent idea. 

This must necessarily be taken into account by all those that, in their search for business opportunities, are falling all over each other to assert their rights to administer the funds. The day a new generation of elderly accuses a fund administrator of bad management, it will be useless for the latter to argue that the State (synonym for politicians thirsty for fiscal resources required to complement reduced oil income) obliged them to invest in public securities. It will also be useless to look for absolution using the argument that they are not at fault that new devaluations have severely eroded the value of their patrimony. 

To assume responsibility of a pension fund is serious business. Even though I am certain that the private sector would be more efficient than the public sector, I believe that under present circumstances results would not be sufficiently satisfactory. If the country’s thinking population is satisfied with the mere introduction of pension funds, they are simply supplying politicians with the next generation of scapegoats. 

I would be ready to sacrifice for all time to come, the existence of pension funds managed by the private sector and even to accept the creation of a new Seguro Social in the hands of CorpoMercadeo professionals in exchange for fundamental reforms. I would even be ready to do so against a simple constitutional reform that would prohibit future contracting of external and internal debt by the public sector. I’m certain this trade off would be of great value to our future population of retirees. 

Finally, let us not forget that living in a society implies the continuous allocation and reallocation of resources. Should all our elders (myself included) become millionaires (in real terms) as a result of their investments in pension funds while the rest of the country lags behind and is not able to participate in this well being, let me assure you that future generations, in all their right, will certainly not allow us to peacefully enjoy our old age. 

For God’s sake, until when will we have to listen to siren songs about possible real returns in an unreal country.

Published in The Daily Journal of Caracas

Thursday, July 03, 1997

A child's question about the economy

During the last few years economic policy in Venezuela has given rise to some basic questions and issues that often go unnoticed or unanswered since many of them are so simple that they border on the infantile. When addressed, the answers frequently offered to these questions are similar to those we often give in desperation to our children when they overdo the question bit, that is, “because that’s the way it is” or “because I say so”!

I honestly believe that the future of our country depends to a high degree on the answers to some of these basic questions. Although I have studied in various countries, hold a post-graduate degree, and am a professional with lengthy experience in many areas related to the national economic scene, I will let my inner child roam and assume the role of that questioning boy for a brief moment.

There is firm consensus, both inside Venezuela as well as internationally, that our public administration has been basically inept, or more precisely, has been incredibly incapable of managing our resources. How can it be possible, then, that the Agenda Venezuela includes, as a fundamental element, a considerable increase in the income generated for the public sector, and more so, how can it be possible that the International Monetary Fund has recommended such increases?

Why, if the country had a positive trade balance which should have resulted in a stable currency, did we have to suffer through a mega-devaluation (which impoverishes the private sector and enriches the public sector) and how can it occur to anyone to call this “orthodox”?

In general terms, the last thing the economists would have recommended for a country submerged in a deep recession would be an increase in taxation. Why, then, have fiscal charges been increased in Venezuela, resulting in an even deeper recession and how can it occur to anyone to call this “orthodox”?

If there is a firm consensus, both inside Venezuela as well as internationally, that the future of the country is based fundamentally on a drastic reduction in the size of the public sector and that such policies have been applied by our self-proclaimed neoliberal planning ministers to whom they have become almost a religion, then why has the public sector grown in relation to the private sector, year after year after year?

Oil is, as is a Picasso painting, an easily liquidated asset. Why should we be so enchanted with the income created by the oil aperture if we have not yet been told what will be done with it and where it will be spent. A bit like selling your home without knowing beforehand where you will move to or what the cost of a new house will be.

For years we have accused the international banking community of deceiving us and having smothered us in devilish foreign debt. Why, then, are we now supposed to be pleased as punch that the foreign banks are again showing confidence in Venezuela and are going to increase lending in the country?

If after a few months of Agenda Venezuela, during which recession has deepened, the public sector has grown and no major inroads have been made on reforms corresponding to vital sectors such as the judiciary, health and education, then who does the International Monetary Fund work for when they congratulate the authorities on their performance and, in the same breath, insist on increasing gasoline prices?

We have always known that we are a society of rentiers based on our oil income, that while petroleum reserves last we will basically always be a society of rentiers and that most of our problems stem from the fact that we are simply inefficient rentiers. Why, then, do we insist on the search for an economic model based on the elimination of this society of rentiers instead of finding one that will insure that we become competent rentiers?

We know that the oil industry is not by itself a great employment generator. We also know that due to the overvalued exchange parity caused by this oil income it will always be difficult for labor intensive economic activities to remain competitive. Why do we insist on being so purist in the application of neoliberal policies, for example, in the establishment of toll charges for access to public parks, while we come close to fainting at the thought of offering a bit of support and protection to the greatest of our national parks called “agriculture”?

It would be easy for Dad to answer his children’s queries with a simple “go ask the economists” but then, what else can I, as an economist Dad, do?

Thursday, June 26, 1997

Chaos in the accounting world

The way in which accounting information is raised, processed and presented is of unquestionable relevance as an important part of the commercial and economic development of the country. There is a direct relationship between the quality of this information (how it is presented and interpreted) and how the diverse economic agents will act in the interests of the Nation as a whole. A few years ago, the Venezuelan Institute of Certified Public Accountants published their Statement of Accounting Standards No. 10 in which it established “Norms for the inflationary adjustment of financial statements” better known as “reexpresion”. The application of these regulations is obligatory as of the 31st of December 1995 and, in effect, calls for the elimination of the traditional financial information based on historical data.

The object of the following commentary is to call attention to the serious problems created by the application of these standards. In no way is the implied criticism motivated by a blind defense of traditional regulations and the presentation of economic information based on historical data. In the same vein, it is not an effort to establish responsibilities for the chaos caused by the application of the norms, which must evidently be amply shared.

The principal problem is that the immense majority of the players, may they be accountants, managers, directors, shareholders, investment advisors, credit analysts, politicians, lawyers, professors or members of the Securities and Exchange Commission and the Bank Superintendency, don’t have the slightest idea of what this is all about, and more significantly, of what the reexpressed financial statements mean. In essence, the blind leading the blind.

All financial statements are applied using “generally accepted principles”. This implies a certain level of awareness and understanding and if these do not exist, there is an evident contradiction and inherent falseness to this assertion. The most extreme example of this is evident in the public accountants, upon who the accountancy board has imposed an obligatory practice without previously insuring that they have previously acquired the necessary knowledge to apply the standards. The most frightening fact is, however, that those few who have managed to gain some understanding of the standards, are in effect those that most seriously criticize them. A minimum amount of caution would call for the simultaneous publication of both reexpressed and historical financial figures, since the latter, although not devoid of problems, still constitute the base upon which the country has developed its analytical capacity.

Another problems is the lack of coordination between the accounting principles and other traditional legal norms. What implication does this have with regards to the Commercial Code (Código de Comercio)? On what basis will dividends be paid out? What financial statements must be presented to public registrars? The answer from the legal establishment for these questions is often “consult your auditors”. Auditors will in turn often say “those are matters to be settled by your shareholders and legal council”. In reality, all these questions should be directed at those who drafted this legislation and, in this sense, we should be asking the Finance Committee of Congress to initiate an investigation and come up with some answers, quickly.

In order to understand the possible implications, it is enough to state as an example that the new accounting principles often result in the reexpression of financial figures to such an extent that a firm posting losses is turned into a firm with positive results and vice-versa. By saying this, I am not implying that the reexpression in these cases is not based on real facts. However, due to the importance and delicate nature of the same, the process should occur under the hands-on supervision of qualified experts and all parties must understand how it works and what it means. As most often happens, however, the reexpression is executed through the use of costly computerized methods, “black boxes” that perform these intricate multiplications and divisions at pentium-level velocities, spitting out the final results, unfathomable to most mortals, and therefore basically useless as decision making tools. 

Perhaps we should be developing simpler alternatives for reexpression based on the saying “lo perfecto es enemigo de lo bueno” and that would allow the survival of accounting methods that don’t require massive computers, software or auditing Swat teams.

Where responsibilities lie if and when fraud is committed through the improper use of reexpression must be closely analyzed. Accountants have previously been limited to simply registering historical facts. Today, prodded by their own accountancy board to interpret figures, they have seen their own quotas of responsibility sky-rocket.

We urgently need to solve the inconsistencies and avoid the dangers of this Pandora’s Box. I realize these comments may seem exaggerated to some, but unfortunately they are true. All that is required to understand the possible implications for the country of this accounting chaos, is a bit of that elusive resource named intellectual honesty. For the benefit of all, lets apply it.

Thursday, June 19, 1997

Hidden Taxation Through Privatization

In moments of light headedness I often tell my friends of my recent nightmare during which my father-in-law, in a gesture of love, gave his daughter and three grand-daughters important packages of shares in CANTV. As a result of this gift, my wife and three daughters, obviously utilizing my already diminished cash flow, dedicate immense amounts of time and effort to the making of phone calls with the firm hope of receiving a dividend from the company. The conflict of interest exemplified by this nightmare, that is to say, the opposite expectations harbored by the consumer of a public service who wants an inexpensive service and the investor who wishes for increased returns, has been ignored in debates over privatization by a State avid for extraordinary income.

In 1991, when Israel awarded concessions to cellular telephone companies, the criteria for these tender awards was the selection of the operator that offered the best and most inexpensive service to the consumer. In Venezuela, however, the sale of public service companies or the letting of concessions for public service operations are based on the maximization of income for the State by means of a kind of tax, payable in advance, and which will be repaid by the consumer year after year through increased tariffs. The results are there for all to see. In Venezuela, the cost per minute of the cellular telephone service is over ten times that in Israel.

Nobody can or should oppose the theory that the State, through privatization, must transfer to the private sector the relative responsibility for its public services. However, when this transfer is made by maximizing the sales price with the principal intention of filling the State’s coffers, we are effectively confronted by a new and strange version of tropical neoliberalization, invented not to serve the needs of the population, but merely to satisfy the insatiable appetite of the state public sector for income” …(or in this case the short-sighted appetite of creditors)

Personally I would not be undergoing monthly taxation by means of excessively high telephone tariffs should the politicians and policy makers have shown less greed during the run-up to the privatization of the CANTV. On top of this, my payments are not classified as “taxes” (and as such they are hidden), allowing politicians to happily continue maintaining the absurd thesis that Venezuela is a country with low taxation. 

In the future it may be interesting to study the management by politicians of the tremendous conflict of interest they have created for themselves. This conflict arises from the fact that on one hand they must comply with promises made to their electorate with respect to low tariffs while on the other hand they have ably served as marketing agents for the sale of CANTV shares, trying convincing whomever would listen of the immense advantages and characteristics of these shares as profitable investments. 

Being a firm believer in the saying that “music paid for in advance cannot not be heard” (musica paga no suena), I cannot but worry about the future prospects of the investment made by the shareholders.

I sincerely hope that some of the concepts relative to the privatization of public services will be revised. For example, I would consider it totally unjust if the Island of Margarita ended up paying the highest tariffs in the world for its energy just to satisfy the need to offer an acceptable return to an investor who would not only be required to invest serious amounts of resources in an expansion and investment plan, but also to maximize the income for CADAFE, FIV or any other state entity by paying an excessive price for his incursion into the local energetic sector. It would not be logical for the state of Zulia to have access to relatively cheap energy just because it happened to be the beneficiary of investments in truncal transmission facilities, while the “poor” Island of Margarita, having been previously abandoned to is fate, must now pay tariffs in accordance to today’s replacement cost of its infrastructure (or worse). We should be looking for certain social-regional justice when it comes to public services and utilities.

To avoid any confusion, I must make emphasis of the fact that my comments are aimed specifically at the privatization of entities that provide public services, i.e. communication, electricity, water, etc.. In cases such as Sidor, for example, it is logical for the State to strive towards the maximization of its income. In the same breath, however, I would also say that it is equally or more important for this income not be misspent.

It is important to note that this article has been written now for a few months. Due to the cowardice of its author, who did not wish to be branded as a party-poop during the collective euphoria of the CANTV days, its publication has been deliberately delayed. I remind all my friends at the Stock Exchange, whom in effect I am indirectly labeling as employees of SENIAT, of the fact that, while the human qualities of Robin Hood are still being debated on, there is no doubt left by history with regards to those of his contemporary, that famous tax collector, the Sheriff of Nottingham.

Daily Journal, Caracas, June 19, 1997

Economía Hoy, 28 de Julio de 1998

A mis amigos, en broma y en serio, les comento sobre una reciente pesadilla en la cual el abuelo cariñosamente le regaló a sus nietas, mis hijas, unas acciones de la CANTV, con el resultado de que ellas, utilizando mi menguado flujo de caja, ahora se dedican durante todo el día a efectuar llamadas con la firme esperanza de cobrar un dividendo. El conflicto de interés al cual apunto, es decir, por un lado el consumidor de un servicio público que desea un servicio eficiente y barato y por el otro lado el inversionista que requiere un rendimiento, ha sido muy ignorado en Venezuela.

Cuando en 1991 se otorgaron las concesiones a las empresas de telefonía celular en Israel, el criterio de adjudicación consistía en seleccionar la empresa que ofrecía el mejor y mas barato servicio al consumidor. En Venezuela las ventas de empresas de servicios públicos o de concesiones similares se fundamentan en la maximización del ingreso del Estado, logrado mediante una especie de cobro de impuestos por adelantado, el cual será repagado por el consumidor año tras año por la vía de tarifas altas. Los resultados están a la vista, en Venezuela el costo por minuto de la telefonía celular supera en mas de diez veces el costo prevaleciente en Israel.

No hay razón para oponerse a que el Estado, por vía de la privatización, transfiera al sector privado la responsabilidad relativa a la prestación de un servicio público. No obstante, cuando la anterior transferencia se efectúa para enriquecer al Estado, al maximizar el precio de venta, nos enfrentamos a una nueva y extraña versión de un neoliberalismo tropical, inventado no para servir las necesidades de los ciudadanos, sino para satisfacer los inagotables requerimientos de ingresos de un sector político estatal.

Hoy, como consecuencia de la venta de CANTV, estamos cancelando mensualmente altos impuestos al pagar tarifas telefónicas superiores a las necesarias de no existir los políticos o el fisco demostrado tanta avaricia en el momento de la privatización. Para colmo, nuestros pagos ni siquiera aparecen registrados como impuestos que son, permitiéndole así a los políticos seguir sosteniendo la absurda tesis de que Venezuela es un país con una baja presión tributaria.

En estos momentos se acaba de anunciar la próxima privatización del Sistema Eléctrico de Margarita (SENE). Entre los anuncios se menciona un incremento de tarifa del 20% para 1999 y una "tarifa especial" para los temporadistas. Por cuanto soy temporadista y sospecho que una "tarifa especial" no se trata de algo bueno sino de algo muy costoso (los políticos han aprendido mucho de los vendedores de tiempo compartido), protesto este nuevo impuesto.

Supuestamente el 29 de este mes anunciaran el Precio Base del SENE, precio mínimo al cual habrán de otorgar la concesión eléctrica de Margarita por 50 años. A los que tienen un interés en Margarita les conviene recordar que por cada dólar que indique tal precio habrá por parte del inversionista la exigencia de un rendimiento y para el usuario la consecuencia de una mayor tarifa. La relación es muy sencilla. Si suponemos que no se hubiese incluido la promesa de un aumento del 20% para 1998 es muy posible que un inversionista pudiese seguir interesado en acometer las inversiones necesarias para que Margarita tenga un buen servicio de luz pero por supuesto tendría que ofrecer un menor precio al Estado.

Alguien puede protestar que el Estado no tiene derecho de vender estos activos por nada. No estoy seguro. La verdad es que los activos eléctricos de Margarita fueron financiados por los ingresos del Estado (principalmente los petroleros) por voluntad propia del Estado y como resultado de la gestión política de distribución de ingresos que se había aceptado. En estos momentos en que el Estado de hecho se esta librando de la responsabilidad de darle servicio eléctrico a Margarita, el que además trate de cobrar por esto me parece mas que exagerado.

Es mas, para el caso de Margarita, antes de que la Isla acepte que el Estado se desentienda de su futuro eléctrico (lo cual de todas formas le habrá de convenir a la Isla) debería exigirle a éste que asuma la responsabilidad de construir un nuevo cable submarino para así asegurar que la Isla también pueda usar energía hidroeléctrica a un precio razonable, tal como se le permite a lugares mas distantes como el Zulia o se le quiere permitir a Brasil.

Muchos de los problemas aquí mencionados surgen de haber encargado de las privatizaciones de los servicios públicos a un ente como el Fondo de Inversiones de Venezuela cuyo objetivo natural debe ser el de maximizar los ingresos. Lástima que el FIV termine logrando sus objetivos en los casos equivocados.
Finalmente desearía comentar sobre la incomoda situación en que se ha colocado el Estado cuando por un lado existe la obligación política de ofrecer tarifas razonables a los electores y por el otro se ha dejado rastros de publicidad que han pregonado a los cuatro vientos (no necesariamente con permiso de la Comisión Nacional de Valores) las inmensas bondades de estas inversiones. De ser cierto el dicho "música paga no suena" o lo que es igual, "impuesto cobrado y gastado no rinde", no le auguro las mejores posibilidades a los inversionistas.

Para evitar cualquier malentendido debo precisar que estos comentarios se refieren a la privatización de empresas proveedoras de servicios públicos. Para el caso de empresas como Sidor, es lógico que el Estado haya buscado maximizar sus ingresos.