Burning the bridges in Europe

In just a few weeks, on the 1st of January 1999, eleven European countries will forsake the right to issue their own currency and accept the circulation within their boundaries of a common currency, the Euro. Monetary policy related to the Euro will be set by a European Central Bank. One fact that struck me as curious is that in all the abundant legislation that regulates this process, there is no mention whatsoever of how to manage the withdrawal or future regret of any of the union’s members.

The absence of alternatives in this case evidently represents a burning of the bridges, but this may be necessary to achieve credibility. There is no turning back and there is no doubt that this is a truly historical moment. As participants in a globalized world in which Europe has an important role, we must naturally wish all members luck, no matter what worries we might secretly harbor.

Until 1971, all money used throughout the history of humanity was backed in one way or another by something physical to which a real value was attributed. Sometimes the backing was direct, pearls for example, while in other cases it was indirect such as the right to exchange bills for a certain quantity of gold.

This physical backing in itself did not necessarily mean it consisted of something of fixed value. The value of a pearl, for example, is in itself subjective. The promise to exchange bills for gold did not guarantee anything either, since this promise could easily be voided by fraud. Whatever the backing was, however, it did at least offer the holder of the money the illusion that it was supported by something concrete.

In 1971, the United States formally abandoned the gold standard and the direct backing, however imaginary, disappeared. Since the Dollar is a legal currency, it could always be used to repay Dollar denominated debt. Today, however, in spite of the fact that the Dollars may have lost some of their purchasing power, a holder of excess Dollars can only hope that the Government of the United States will exchange his old bills for new ones of the same tenor.

This apparently precarious situation must be the raison d’etre of the motto printed clearly on the bills which states “In God We Trust”.

Since 1971, the real value of the Dollar as an element of exchange, has lost some of its value due to inflation. Today, we would need many more Dollars to buy the same houses, cars, movie tickets and gold than we would have needed in 1971. In spite of the above, with few exceptions such as the end of the ‘70s during which inflation increased dramatically, few would dare qualify the United States’ elimination of the gold standard as a failure.

The world’s economies have managed to increase international commerce drastically and with it, sustain a healthy growth rate. Many analysts would explain this phenomenon by saying that the discipline exacted by the gold standard represented a brake on international commerce. The growth rate registered in commerce after 1971 was the result of the release of this brake. Other more critical analysts sustain the thesis that, due to the fact that we have abandoned the discipline required by the gold standard, the world has accumulated gigantic accounts payable, which we may be coming due very soon.

I personally swing back and forth between amazement of the fact that the world has accepted such a fragile system and satisfaction that it actually has done so.

The Euro has one characteristic that differentiates it from the Dollar. This characteristic makes me feel less optimistic as to its chances of success. The Dollar is backed by a solidly unified political entity, i.e. the United States of America. The Euro, on the other hand, seems to be aimed at creating unity and cohesion. It is not the result of these.

The possibility that the European countries will subordinate their political desires to the whims of a common Central Bank that may be theirs but really isn’t, is not a certainty. Exchange rates, while not perfect, are escape valves. By eliminating this valve, European [Eurozone] nations must make their economic adjustments in real terms. This makes these adjustments much more explosive. High unemployment will not be confronted with a devaluation of the currency which reduces the real value of salaries in an indirect manner, but rather with a direct and open reduction of salaries or with an increase of emigration to areas offering better possibilities.

What worries me most is the timing. The world is facing the possibility of a global recession. This will require very flexible economic and monetary policies. The fact that the search for initial credibility for the Euro is based on trying to assure markets around the world that the new currency will be guided by a philosophy closer to that of Bonn than that of Rome, probably goes against the best interests of the world.

Published in Daily Journal, Caracas, November 19, 1998

20 years later: Let’s face it. Americans dream they are American. Few if no Europeans, dream they are Europeans.

PS. A new English Language Empire?

PS. What I did not know when I wrote this article was that EU authorities (EC), for the purpose of their (crazy) risk weighted capital requirements for banks decided, in a “good-will” gesture, to assign a sovereign debt privilege of a 0% risk weight to all European sovereigns like Greece. That of course, by removing market credit constraints, would make the Euro challenges so much more explosive especially considering that the Euro is de facto not a domestic (printable) currency of any Eurozone nation. Shamefully EU authorities responsible for that have not acknowledge their mistake, and made Greece have to walk the plank for it.

IT IS NOW A TICKING BOMB!

Please - less global clowning

Please - less global clowning 

I have frequently questioned both the way Venezuela has tried to implement so-called “market policies” and the way we have faced the challenges posed by globalization. The innocence with which many of our public and private leaders have accepted a series of dogmas, I can only describe, at best, as childish.

Recently, in the same week, when reading the statements of a humble Venezuelan textile technician and those of Henry Kissinger, I felt accompanied in my concern. The first, in an opinion that seemed to me full of wisdom, accused our country of being a "clown of globalization"; while the renowned Kissinger, in the Washington Post, warned about the risks of indiscriminate globalization.

The recent debate between industrialists and importers allows me to reiterate some observations. The purpose of these is, mainly, to induce an academic debate.

To begin, I maintain that it should be prohibited, on the basis of constituting absolute intellectual dishonesty, to issue any concept regarding the economic development of Venezuela, without first clarifying what oil premise is used.

I explain. Either oil is a valuable non-renewable natural resource or it is just any resource. The first case imposes on us a very high fiduciary responsibility towards future generations, while the second, in principle, only obliges us to conjunctural management, that is, to exploit it quickly, as long as the simple conditions are given that its price exceeds operating costs.

Any analyst can realize that the answer given to the previous question must underpin any proposal to be developed, with the purpose of charting a coherent course for our country. The fact that it is so often ignored is the main cause of the current lack of guidance that we all feel.

I begin then by clarifying that, personally, I belong to that, each day, smaller group, which still declares that oil is a non-renewable natural resource and of real value (in the long term), with complete certainty, much higher than the value currently decreed by a money-hungry and poorly informed market. Notwithstanding the above, I want to make it perfectly clear that I do not belong to those who would paralyze the current expansion of the oil industry's capacity.

On the contrary, I believe that by expanding our production capacity to six million barrels per day or more, we would be in better conditions to obtain, via the fight for markets or strategic negotiations, based on security of supplies, a much more consistent price. with the true value of oil. The ideal would be to have such an immense installed capacity that we would need to produce a very small quantity.

Of course, if the reason for the current expansion is only to generate greater income possibilities, so that wasteful politicians can satisfy the material desires of generations of freeloaders, I simply cannot agree with this.

But, let's return to the purpose of this article, which is to comment on Venezuela in a global world.

Having established my criteria regarding oil, as a valuable non-renewable resource, I have the right to argue that the vast majority of Venezuela's income, which today is recorded in our trade balance, does not come from a productive activity, but from a liquidation of assets.

In other words, the role of oil in our trade balance is much more similar to the role traditionally played by gold bullion. These were delivered by one Central Bank to another, to compensate for a trade deficit, and not as a direct commercial counterpart for the goods that were imported.

The above means today that Venezuela, instead of presenting a positive balance in our trade balance (something our more intelligent and less innocent competitors have led us to believe), presents a gigantic trade deficit. This not only justifies, but also forces us to reconsider our entire trade policy.

Among the initial instructions that should be given to our trade negotiators, responsible for defending our country, in a world where, despite being classified as one of globalization and openness, is still a world where a global trade war prevails, with knives, find the following:

First: Aspire and negotiate the balance of our trade balance, in terms of jobs generated and not, as to date, in simple terms of dollars traded.

Second: No longer accept that Venezuela cooperates with the world economy, lowering tariffs and reinvesting (cheerfully and without discrimination) all its purchasing capacity, while many countries, which proclaim trade openness, impose direct taxes on gasoline consumption that , in one way or another, prevents "oil liquidators" from obtaining the best price for each "liquidated" oil barrel.

Third: Learn the importance of, at the time of negotiation, showing solid support from public opinion. Venezuela has just suffered a very important setback in its trade policy, with the recent ban on the use of Orimulsion, by a supposed friend, Florida. When comparing the total absence of a protest reaction for this with the commotion over blue jeans, we know that Venezuela is not prepared to defend itself.

Finally, I wish to clarify that, even though my comments may, and even rightly, place me in the protectionist camp, this does not imply, in any way, a defense of the commercial aspirations, which are currently being debated in the country, everything contrary. Precisely, because I believe that intelligent protectionism can be a very important weapon for the comprehensive development of a country, I am one of those who most protests when it is used, lightly, for the sole development of individual interests.

Bashing the consumer

Once again we are in the midst of a debate about the allocation of a concession for a cellular telephone operation. One part of this debate is relative to whether the law to be applied in this case is the Telecommunications Law of 1941 or the Concessions Law of 1994.

As usual, most of the arguments are a direct function of the commercial interest involved. In this particular case, however, it is even more surprising to find that the General Director of the National Telecommunications Commission (CONATEL) is of the opinion that neither of the two apply, holding the singular view instead that cellular communications are not to be classified a public service.

Again, as is tradition, the debate does not cover the entire communicational spectrum. Once again, the end user of the service is conspicuously absent.

In 1991 Israel bid and allocated a cellular telephone concession to the investor that offered the most amount of lines and agreed to charge the lowest tariff. In Venezuela, however, concessions and privatizations are designed to maximize the income for the State. Results come fast and hard. Recent calculations support the fact that one minute of cellular communications in Venezuela costs ten times what it costs in Israel.

Quality and low tariffs for public services such as electricity, water, communications and transportation are some of the critical elements that must be present in order to maintain the country’s competitiveness. This fact should be taken into consideration by entities such as Fedecamaras and other influential groups that, like any court jester, have in the past applauded a privatization process that must, for all intents and purposes, be classified as fiscally oriented.

The Telecommunications Law, as no other, is evidence of this trend. There is absolutely no mention whatsoever of any obligation or duty of an operator or carrier to provide a good public service at a reasonable tariff. What’s more, when the moment comes to address the regulation of tariffs, apart from the fact that the Law calls for respect for existing agreements, it establishes with utmost clarity that any regulation must consider the “interests of the National fiscal system”.

Don’t think that the Concessions Law is much different. While it logically states that “the concessionaire must be allowed to obtain sufficient income to cover costs and that is fair and equitable”, there is no mention about the need, or even the intent, to structure the concession in such as was so as to minimize the cost to the end user of the service to be offered.

It is high time that we begin to differentiate in a more rational manner between sane economic policies and those that, simply because they are being applied to what has been loosely classified as a “market”, are believed to be the quick road to an economic miracle and are consequently implemented indiscriminately. Much care must be taken when a “market” simply does not exist. This is specially true in the case of public services, which are mostly structured as monopolies, public or private.

Public service companies traditionally offer workers employment stability and therefore also pay salaries that are below the average. Recently, faced with the threat of a national strike, a representative of the national monopoly identified by the initials CANTV, expressed surprise, arguing that the latter was paying salaries over and above the national average. Without wishing to belittle the individual aspirations of its workforce, I remember asking myself who had authorized CANTV to pay its employees salaries above the national average, probably at the expense of a higher tariff for the service offered.

The government, as well as many of the Presidential hopefulls, has announced a new wave of privatizations, specifically in the energy sector. As a result, it is of utmost importance that they remember that a high price obtained for the sale of a publicly owned company like SIDOR is beneficial for everyone, while a high price obtained from the sale or concession of a public service is simply a tax paid in advance to the State, which all of us must then repay via unnecessarily high tariffs for per secula seculorum.

I have read about the supposed “advantage” of tendering and allocating a few megahertz (50 to be exact) at which any investor must then throw an additional US$ 200 million in project development funding. First of all, Conatel hopes to land a US$ 180 million windfall. Then the State wishes to obtain US$ 325 million in income taxes and US$ 470 million in sales taxes between now and the year 2009.

In other words, the tariff structure needed to award the investor a “fair and equitable” income must contemplate not only the US$ 200 million development cost, but also the payment to the State of US$ 975 million. Where the dickens does this leave the end user?

Daily Journal, Caracas, November 11, 1998

The index of perceived Corruption

Transparency International (TI) has developed an index by means of which it ranks countries around the world according to their perceived levels of internal corruption. I have a Danish friend who recently came to me for the umpteenth time with this list clutched firmly in his fist, proudly crowing over the fact that Denmark once again tops the list as the least corrupt country while Venezuela once again comes in toward the bottom, beaten out for the basement spot by only seven countries among which we find Colombia and Nigeria.

As a Venezuelan, I immediately went into a defensive mode. I argued that since the index is based on the perception of corruption, it could be that the results merely indicate a serious problem of exactly that, the perception, not the reality. Additionally, should this actually be true (evidently not the case), I told him that although I did lament the fact that Venezuela was not mentioned in the top half of the list, I was at least satisfied that we were definitely not occupying any “not too human” first place.

My good friend, observing my discomfort, realizing that I have some Swedish blood in my veins, and in a sincere effort to console me, blurted out that in reality he also did not understand why Denmark had been ranked first while Sweden was ranked third. My immediate reply was “Chico, Denmark must simply have paid more for it.” 

Jest aside, the index is the result of a serious effort on the part of professionals of diverse backgrounds who, using the few tools available, have managed to develop a system of evaluation which is useful and of great support for every citizen wishing to combat this age-old plague. 

Its importance is of even greater significance when we hear that Transparency International suggests that we don’t attribute more accuracy than necessary to its index. Venezuela’s ranking on this list of 85 countries is such that it is evident, to say the least, that the country’s level of corruption is far greater than average. This is bad enough!

Any debate over whether Venezuela should be ranked higher could be perceived simply as a strategy aimed at discrediting the index. Only the beneficiaries of corruption could possibly have an interest in doing this. A true patriot would not waste one single second of his or her valuable time in debating why people speak poorly of our country. On the contrary, he would dedicate all his time and energy to correct the reality instead of objecting to the perception.

This debate on corruption is truly difficult and complicated. Even though we should be pleased that such an index exists, I am worried that the mere fact that we are trying to reduce corruption to terms of a measurable dimension may lead us to oversimplify the problem dangerously.

The index, in principle, only measures the perception of corruption in general terms. This is defined in ample terms as “the abuse of public office for private gain.” In this sense, and because of the nature of the problem, I am sure that when using the term “gain” we are referring mostly to a monetary benefit. This avoids measuring other aspects of corruption that could be just as important or more.

For instance, I believe that the appointment of someone to public office for reasons other than his or her capacity or professional integrity is a corruption that is even more pernicious and costly to the country than the sum of all monetary corruption put together.

An example of this is our recent banking-sector crisis. The costs caused by the poor administration of this crisis are far and above the costs attributable directly to the bankers involved. It’s not that the bankers are free of guilt. They did undoubtedly start the fire. But whose fault is it that the financial firemen were caught napping and did not hear the alarms, and that once they finally got to the scene of the disaster they tried to douse the flames with gasoline instead of water? 

I make these comments to remind all that the monster of corruption has a thousand heads. I would be sad if all the result of the efforts to slay this monster would simply be the elimination of the traditional offers of discounts for prompt payment, right then and there, and that we frequently receive when fined for a traffic violation.

Let me make one last comment on this quite tortuous subject. In Venezuela, perhaps more than in any other countries, there is more than sufficient evidence of the total administrative ineptitude of the state, and all of our governments have absolutely no results to show, considering all of their income. Nonetheless multilateral agencies, such as the International Monetary Fund, frequently come to the country and recommend an action (sales taxes) that could only mean allowing the state to squander even more resources. For whom then is the IMF working? For the politicians? Could we then be staring at another unknown dimension of this monster called Corruption?

As edited for Voice and Noise, 2006

Originally published The Daily Journal, Caracas, November 4 1998

PS. “Our recent banking sector crisis” I here refer to in 1998, was a Venezuelan one that happened in 1994. Reflect on how much of that comment also applies to the bank crisis suffered by developed nations in 2008. 

PS. The world needs more than a theme park of anti-corruption efforts

Traducción:

El Indice de Percepción de la Corrupción 

Hay un índice, desarrollado por Transparencia Internacional (TI), relativo a la percepción que existe sobre la corrupción en distintos países. Tengo un amigo danés que por enésima vez este año me ha suministrado la copia del ranking, donde Dinamarca aparece como el país menos corrupto y Venezuela, en corrupción, solo es superada por siete países entre los cuales esta Colombia y Nigeria.

Como venezolano, en obligada defensa, le expuse que por cuanto el índice lo que mide es la percepción que se tiene sobre la corrupción, puede que los resultados solo indiquen serias dificultades de apreciación. Además y para el caso (negado) de que fuese cierto, le comente que si bien lamentaba que Venezuela no estuviese en la parte superior de la tabla, por lo menos me satisfacía el que no ocupasen un "inhumano" primer lugar.

Mi amigo, a sabiendas que también soy de procedencia sueca y en un esfuerzo por consolarme, expreso, de forma generosa, de que en verdad no entendía sobre que bases se había determinado que Dinamarca ocupase el primer lugar y Suecia el tercero. Mi replica fue inmediata; "Chico, Dinamarca debe haber pagado mas!"

Apartemos la broma. El índice es el resultado del esfuerzo por parte de un grupo de profesionales diversos que, con base a las muy pocas herramientas disponibles, han logrado desarrollar un sistema de evaluación útil y de mucho apoyo para todo ciudadano deseoso de combatir esta plaga de vieja data.

Su importancia se hace aun más significativa cuando, siguiendo las propias sugerencias de TI, no le atribuimos mas exactitud que la necesaria. La posición de Venezuela en esta lista de 85 países es tal que sin lugar a duda podemos decir que en nuestro país tiene una corrupción mayor que el promedio. Lo anterior resulta suficientemente malo.

El debatir sobre si Venezuela debe estar en un puesto mejor, simplemente seria una estrategia para tratar de desacreditar el índice y en esto solo podrían tener interés los beneficiarios de la corrupción. El patriota no dedicaría ni un segundo al debatir el porqué se habla mal del país sino daría todo su empeño en corregir la situación.

Qué difícil resulta todo el debate relativo a la corrupción. Aun cuando reconozco que, en el papel de motivador, debemos agradecer la existencia del índice, me preocupa de que el solo hecho de tratar de medir la corrupción, al tener que reducirlo a una dimensión que permita su medición, puede conducirnos a una peligrosa simplificación del problema.

El índice, en principio, solo mide la percepción que se tiene como una corrupción general, definida esta de forma amplia como "el abuso de cargo publico en beneficio propio". En tal sentido y por la sola naturaleza del problema, estoy seguro que el termino de "beneficio propio" implica principalmente un beneficio monetario, obviando medir aspectos de corrupción que pudiesen ser tanto o mas importantes.

Creo que la corrupción presente cuando se nombra a quien habrá de ejercer un cargo público, por razones distintas a su capacidad e integridad profesional, es más perniciosa y costosa para el país que la suma de todas las corrupciones monetarias.

Como ejemplo de lo anterior, los costos derivados de la mala administración de la crisis bancaria supera, por largo rato, los costos que de forma directa son atribuibles a los banqueros. No es que los banqueros sean inocentes, sin duda prendieron el fuego, pero; ¿quién es el responsable de que el cuerpo de bomberos financieros, estuviesen dormidos sin oír la alarma y luego utilizaran gasolina para apagar las llamas?

Hago esta observaciones para recordar que el monstruo de la corrupción tiene mil caras. Seria lastimoso que el resultado de los esfuerzos que se haga para combatirla, solo culmine en que cuando se imponga una multa por violación de transito, no se ofrezca la tradicional alternativa, del descuento por pronto pago.

Por ultimo un comentario sobre este escabroso tema. En Venezuela mas que en cualquier otro país ha quedado evidenciado la total ineptitud administrativa del Estado. Todos los ingresos del mundo y nada de resultados. Cuando entonces un organismo, como el Fondo Monetario Internacional viene acá y nos receta, como única vía para salir de nuestros problemas, el que proveamos al Estado con mas ingresos aún, pagando mas impuestos, para el beneficio no individual sino colectivo de la secta política; ¿estaremos enfrentando una faceta desconocida de la corrupción?

Corruption: The fight against it seems to be going on!

Corruption: The fight against it seems to be going on!

On November 21, 1997, the OECD, an economic organization that covers developed countries, approved the "Convention to Combat Bribery of Public Officials in International Business." By the end of 1998, it is expected that the majority of subscribing countries will have ratified its validity and that it will enter into force in early 1999.

The normal reaction to this type of decree is usually to question its sincerity or its applicability. That is, consider it as "another hypocritical manipulation aimed at calming the conscience of the developed world" or, simply, "another useless legaloid effort to alter the realities of the world."

When we read, in the comments that have been made on the aforementioned Convention, that the prohibited bribes do not include "small "facilitating" payments..., which in some countries are made to induce public officials to fulfill their functions", and it is argues that these "small payments" must be fought by each individual Nation, since criminalization by other countries does not seem like an effective action; It is logical that we feel a certain hopelessness.

However, as citizens interested in fighting corruption, I believe that we should not ignore this Convention. In fact, if we read it carefully, we can observe the existence of some elements that, well handled, could be very relevant. These are: accounting for bribery expenditure and its deductibility for tax purposes.

Regarding accounting, the Convention establishes that "extra-book accounting, ... the recording of non-existent expenses, the recording of liabilities without correct identification of their object, and the use of false documentation, ... for the purpose of of bribing foreign public officials or concealing such bribes.” The signatory countries, for their part, undertake to effectively establish civil, administrative and criminal penalties that, in a rational and proportional manner, help deter such activities.

From the above, we could deduce that, in a certain way, accountants and auditors are being constituted as guarantors of the fight against corruption. If this is so, and if the belief is true that public accountants, in general, are not distinguished by being risk-friendly, then and since, by failing to comply with the rules, they could be considered as accomplices to bribery, it is expect that this measure, well implemented, will have a significant effect.

The other aspect refers to the deductibility of the bribery expense. It is surprising that it is necessary to regulate the matter, but it turns out that in many countries, even among those that beat their chests and are considered examples of neatness, bribes paid to foreign public officials are deductible expenses from Income Tax. The OECD reports that in a European country, between 1988 and 1992, the Treasury received 109 applications requesting the deductibility of bribes.

It is also indicated that, sometimes, deductibility is subject to the payment of the bribe being recognized, as a common practice in the country of payment, that is, as a normal and necessary expense. Transparency International is the name of a foundation dedicated to the development of elements that can be useful to combat corruption and one of its products is the well-known Corruption Perception Index. The above makes us think about the horrible possibility that someone is using the aforementioned Index to justify the "normality" of their spending and thus achieve tax deductibility of the bribe.

The OECD convention includes an agreement to prohibit the tax deductibility of bribery. By implementing this, not only will the cost of bribery increase, but it will also establish a direct relationship between Tax Legislation and the payment of bribes. Both facts will discourage both the commission of the crime and its concealment.

In conclusion, I believe that, by declaring bribery of a public official as a crime and expanding the necessary network of accomplices, by including accountants and auditors and, in addition, implying that the factual assumption that constitutes a bribe could also have consequences. legal provisions of a fiscal nature, gives us hope that a certain possibility of dealing a strong blow to corruption is emerging. We hope it is.

Maybe I'm delusional. The truth is that before, many businessmen could come to a country and bribe its officials and if they were discovered, nothing would happen to the businessman in his country. Tomorrow, in 1999, he can go to jail. As a citizen I must, at the very least, thank the OECD for this gesture of respect.

Venezuela must provide all its support to this Agreement and I would say, to the point of considering it mandatory for those countries that wish to do business with the Venezuelan State. At a minimum, we should also sign the Convention, as Argentina, Brazil and Chile have already done, despite not being members of the OECD.

https://legalinstruments.oecd.org/en/instruments/OECD-LEGAL-0293