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

Banking - between mirrors and piglets

Although I have never worked in the banking sector, I do remember, during the latter part of the seventies, being proud about the development of Venezuelan banks. I thoroughly enjoyed listening to anecdotes such as the fact that the most popular software application (i.e. SAFE) for the management of on-line banking operations had been developed in Venezuela. 

I was also aware of the fact that on-line banking in the country was being applied to a much greater degree than in the United States. I loved to read in the press about the participation of Venezuelan financial institutions in international loan syndications, although while doing so I pondered about the sanity of this participation and had the same ambiguous love-hate feeling as when I flew overseas with VIASA, our flagship airline. 

Finally, the fact that Venezuelan banks routinely appeared in “The Banker” magazine’s listing of largest banks, made reading this publication in London waiting rooms quite agreeable.

Twenty years later, I cannot but feel somewhat humiliated when I am asked to feel respectful and thankful that we are now to be the beneficiaries of new banking technology that in my humble opinion for the moment merely seems to imply substituting the small mirrors used by the Conquistadores to seduce the continent’s Indians with little plastic piglets.

Let me make it clear that my possible observations as a Patriot about the strategies established by financial Neo-Royalists are certainly not based on the rejection of the presence of foreign banks in general, much less of Spanish financial institutions, which due to their high profile will undoubtedly bear the brunt of humoristic expressions so proper of the Venezuelan populace. 

On the contrary, I am certain that there is an important place for foreign banks in Venezuela, although I would have liked to see an early aperture of the financial system aimed more at strengthening than at the reconstruction, in the style of the mythical Phoenix, of a system in ruins.

What motivates me is that an excessive praise heaped on the newly arrived foreign bankers, in addition to possibly causing unnecessary damage to the egos of our local bankers (that famous patriotic cry, “Vuelvan Caras”, is already audible in banking circles), clearly tends to confuse the issues and principal causes of the collapse of our financial system.

History can be written in a few words. A series of devaluations, the breach of exchange guarantee contracts, restrictions on offshore positions, obligatory preferential treatment for certain sectors of the economy, minimized participation in the financing of petroleum industry projects and surprising macroeconomic policy decisions such as the application of exorbitantly high real interest rates. 

All these factors caused a drastic decline in the quality of bank loan portfolios and an erosion of their respective net worth values to a minimum. Responsibility for all these ills lies principally with the Central Government and their main cause is again the fundamental failing of our society, i.e. the excessive concentration of national wealth in the hands of the State.

Each case must by analyzed separately but in general terms, I’m certain that should the United States, the United Kingdom and even Spain have had to suffer through similar catastrophes, the mortality rate would have been the same or higher. Likewise, I’m sure that the future productivity of Venezuelan banks will depend more on the rectification of the State’s actions than on the masterly lessons in banking we may receive from, with all due respect, the Casa Cándido strategists (Casa Cándido is a restaurant in Segovia famous for its servings of roasted piglet).

A better supervision of the banking sector by a professional Superintendency; reasonable norms that regulate the banking activities without strangling it; development of management capabilities that would insure the proper handling of banking crises without multiplying their initial cost; and responsible, professional bankers. 

All the above certainly must exist in order to head off another financial tragedy in the future, but they are certainly not enough to avoid such disasters.

As long as the size of Venezuelan State is not reduced in proportion to the private sector and the State continues to impose its omnipresent influence over all aspects of national life, the possibility of creating and environment of economic rationality is remote. Without economic rationality there is no way to avoid another financial crisis. Today’s generation of local bankers hopefully has already learned its lesson and I sincerely hope our newly arrived visitors will not have to do so as well.

A lean, not so mean, vote counting machine

Last week I read somewhere that the automatizations of 70% of the electoral process would cost the Nation some US$ 134 million without including the telecommunications network and the education of the voting age population. This brought back memories of the last election, when I left the “school” in which I exercised my obligation and right to vote, feeling depressed that it had been decided to use the shell, the mere physical installations of a school, without incorporating what would in essence be the perfect administration machinery for an electoral process, its student body.

When we look at the high levels of abstention registered in recent elections in Venezuela, it would not be rash to assume that the origins of our democracy’s real problems lie much deeper, and that the latter cannot be rectified simply by the implementation of a sophisticated electronic vote counting system. While the tendency of increasing abstention is not reverted, I find it difficult to accept that the current system has earned the right to receive such a considerable infusion of resources. Projections of voter turnout in future elections would indicate that a blackboard and a piece of chalk would suffice for the vote count.

It is necessary to put the magnitude of the funds being proposed in perspective. These resources would be sufficient to equip 250,000 Venezuelan students with up-to-date computers that would allow them to face the next century, better prepared and with considerably more confidence.

I feel intuitively that should we delegate the control and tabulation of vote results in our children, we would obtain, at a fraction of the cost, much quicker and reliable results than those produced today by our dilapidated electoral system. This would additionally insure the incorporation of our youngsters into our democratic system at an early age.

The implementation of this idea could take various tacks. Personally, I believe that universities and institutions such as IESA would be more than pleased to collaborate. Since the Church has always highlighted the importance of the family that prays together, and since this concept can easily be applied to democracy as well, it would be logical to incorporate the clergy in conjunction with parent associations as well. By the way, I would love to see a united effort by our armed forces and our youth to organize all that is relative to our elections. I suspect, however, that our politicians would not dare promote such an important joint deployment of forces.

What I really have no doubts about is whom we should be maintaining as far away from the process as possible. I am referring to those that consider, as is occurring with the reform of our judicial system, that all democratic reform must necessarily begin with the negotiation of new credit facilities with the World Bank.

It is very possible that there are people out there that will object to this proposal, basing their objections on arguments that our children are not sufficiently prepared or that unscrupulous political agents would simply corrupt them. I would simply counter that these detractors simply do not know our youth. “De que vuelan, vuelan”. Not only are they much too astute to be taken for a ride (a weakness that seems to be acquired by adults precisely at voting age), but they also seem to have a much better sense of democracy than we adults do. (We refer, obviously, to those children that are currently being educated and not those that regretfully have been abandoned by society, a faithful reflection of our own incapacity).

It could be that these young members of society will be too sharp, and as a consequence would play dirty and impose their own “agenda” on us. I don’t think this would occur, but should it indeed happen, I’m convinced it would not be at all bad. Remember that they must live much longer with the consequences of our electoral choices. A sixty-year-old who elects inept representatives to office will suffer the consequences for twenty years, his children for forty years and his grandchildren for a whopping sixty. And, while we are speaking of playing dirty, how about all this foreign debt we have passed on as a legacy to our children and grandchildren.

Today, our electoral system is totally discredited. Maybe an injection of enthusiasm and youthful idealism is exactly what it needs.

A father of three prospective Electoral Officials

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?

Here a translation to spanish