Oil, Citgo, and gov't policies
An interview by Daily Journal’s Leopoldo Taylhardat
I'm a former [short-term] Executive Director of the World Bank (2002-2004) for Costa Rica, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Spain and Venezuela. I write this blog to echo my voice and my noise. Though I know many will only be able to read it in yellow or blue, I do make an effort to write it in green. The Radical Middle or the Extreme Center is not any wishy-washy place to be, in a world where swimming to any of the ideological shores provides for a much calmer shelter.
An interview by Daily Journal’s Leopoldo Taylhardat
Protectionism, without a doubt, creates economic distortions, which means that its implementation must be continually subjected to an intelligent, creative and disciplined effort in order to reduce such distortions.
In Venezuela, an immense part of the professional elites have become “the Buddha” of protectionism; Hence today, when we find ourselves in a state of economic emergency, which requires a certain protectionism, there is a risk that it will be implemented by the least experienced.
Protectionism, whether we like it or not, managed to generate an important industrial base in the country through the import substitution policy. However, as it came to present a large accumulation of inefficiencies, the rulers in power, instead of making the corrections that, although not easy, were necessary, succumbed to the siren song of commercial opening and proceeded to burn the bridges. or to sell the sofa, destroying the little institutional capacity that existed to administer protectionism.
I have frequently argued that Venezuela seems to suffer many times from the same complex of an insecure teenager, who when he enters a party with mud on his nose, breaks down emotionally due to the certainty that everyone is watching him – when, as we well know, that never happens since everyone is busy with their own muds.
Only the existence of a complex like the one described could justify both the excessive desire to seek applause and international acceptance, as well as the presence of several of the true phenomena of misinterpreted economic orthodoxy, which have led us to the regrettable economic situation that we live currently. Below, I would like to comment on some of those orthodox phenomena that I have detected:
Commercial opening. The process of trade opening itself was carried out with all zeal and fanaticism, however, no effort was made to ensure that the country's efforts were duly rewarded; Evidence of this was that while Venezuela lowered its tariffs, the world increased those applied in a discriminatory manner to petroleum derivatives. On the other hand, it should be noted that this process began without taking into account the reality of the country, to such a degree. that the economic sectors were almost never consulted, nor informed regarding the transition or adjustment periods to be implemented. Perhaps part of the blame lay with the economic sectors themselves by ignoring the ongoing process and letting Fedecámaras represent them, knowing that Fedecámaras does not represent anyone, except its own leaders.
Fiscal policy. At the most inopportune moment of all, in the midst of the initial phase of an economic recession, the country decided to satisfy the demands of multilateral entities for fiscal balance and launched the introduction of VAT (or its substitutes, whatever they were called), with the aggravating factor, furthermore, of abandoning the function of seeking a better distribution of income, via the income tax.
Financial regulations. Banking, in addition to promoting savings, offering reasonable returns and certainty of recovery, must fulfill the functions of supporting economic growth and democratizing access to capital. In terms of banking regulation, it would seem that the country has forgotten these last two functions, accepting, without blinking, the Basel regulations, much more appropriate for the banking of an already developed country than for ours. There is nothing wrong with being a developing country, what is wrong is believing that by simply adopting different positions, you can reach another level of maturity – like a little girl who borrows her mother's lipstick to feel grown up.
Exchange policy. Without going into discussing it in detail, the truth is that in exchange matters, during the last four years, rates have been allowed to evolve in a way that threatens local productive economic activity to such a degree that its justification can only be attributable to mental health problems. Sometimes, I even think I hear our central bankers addressing their colleagues saying, "whatever it is, we will kill inflation in Venezuela, even if we have to kill the Venezuelan."
Foreign investment. In few cases is the complex, to which I referred initially, as clearly drawn as in that of foreign investments. The ones that make the most noise in this globalized world are, above all, those investment funds that represent short-term capital – swallow capital – that fly through the skies in search of opportunities to speculate. In the face of such investors, the country has bowed, offering them restrictive monetary policies with absurd differentials, to the point of having ignored the needs of our national investors or our true foreign investors, which are those companies that ensure employment with their physical presence in Venezuela.
I would not hesitate to decree strong protection measures – such as immediately closing the border to imported vehicles – of course, such a measure should be done in accordance with Colombia, given that it is currently our only and true business partner. By the way, on occasions I have suggested applying to the import of vehicles a tariff equivalent to that applied to gasoline in their countries of origin and that would mean, for example, in the case of the Mercedes Benz from Germany, a tariff of more than 400%.
I, on the other hand, would tremble at the thought of implementing protectionist measures, without counting on the knowledge of many of those who do know about the dangers of protection. To them, I beg you, even temporarily, to abandon your doubts and/or intellectual complexes and lend your shoulder to a country that needs it. (I promise you that I am not going to tell anyone, especially those multilateral entities – where perhaps in the future you will apply for a job – for whom protectionism and everything that smacks of that, is fo, fo and fo.)
PetropolitanFact No. 1: In 1980 the nominal price of oil (Arabian Light) was US$ 36 per barrel. In constant dollar prices calculated using the GDP deflator with 1998 as base, this was equivalent to US$ 67. By the end of 1998 the price of oil was US$ 12.20. In real terms it means that if the price index of oil in 1980 was 100% then in 1998 it was only 18%.
My partner was on the phone to his bank. From the tone of his voice, I realized that the matter discussed was delicate. He explained to the person on the other end of the line that some of the withdrawals made from his account through an ATM machine were not his, and that they were therefore fraudulent.
Initially, things did not go well. An anonymous voice responded that unfortunately, in the bank’s opinion, the withdrawals seemed to be in line with the regular movement registered for the account and there seemed to be no indication of irregular activity that could be evidence of fraud. The sad implication of this is that the answer implied that the perpetrator of the fraud was my partner himself.
The next few weeks were a nightmare for my partner. Finally, having established that the amounts withdrawn exceeded the amounts that he himself as account holder was allowed to withdraw in the same period of time, the bank finally decided things were not quite so normal and an investigation was initiated. The matter has still not been resolved, two months later.
The misfortune was about as traumatic for me. The mere thought that some vagabond could randomly identify my account, blithely initiate a series of ‘normal’ fraudulent withdrawals, have me lose days and maybe weeks of my life and lots of money on overdraft interest payments and phone bills while trying to sound honest over the phone in order to convince an anonymous voice on the other end makes me shudder.
During the ordeal I remember thinking "thank God we still have several banks to work with". Imagine if we would have had to discuss the issue with an official of the One and Only World Bank (OOWB). Without a doubt this would present us with a future full of horrendous Kafkaesque possibilities.
This leads me to think about the consolidation currently going on among banks. With every day that passes we have fewer and fewer banking institutions worldwide with which to work.
This trend has been marketed as one of the seven wonders of globalization. In addition to the above-mentioned problem, which puts defenseless users on the spot, I believe the trend introduces other risks which have either not been sufficiently commented on or which have simply been ignored. Among these I can identify the following:
A diminished diversification of risk. No matter what bank regulators can invent to guarantee the diversification of risks in each individual bank, there is no doubt in my mind that less institutions means less baskets in which to put one’s eggs. One often reads that during the first four years of the 1930’s decade in the U.S.A., a total of 9,000 banks went under. One can easily ask what would have happened to the U.S.A. if there had been only one big bank at that time.
The risk of regulation. In the past there were many countries and many forms of regulation. Today, norms and regulation are haughtily put into place that transcend borders and are applicable worldwide without considering that the after effects of any mistake could be explosive.
Excessive similitude. By trying to insure that all banks adopt the same rules and norms as established in Basle, we are also pushing them into coming ever closer and closer to each other in their way of conducting business. Unfortunately, however, nor are all countries the same, nor are all economies alike. This means that some countries and economies necessarily will end up with banking systems that do not adapt to their individual needs.
I remember that John K. Galbraith once wrote that the economic development of the west of USA was helped by the fact that in the eastern part of the United States, banks were big and solid but that in the west, banks tended to work with much greater flexibility. The fact that some of these banks went bankrupt from time to time was simply taken as a normal cost inherent in development. Today, Venezuela's economy might be in dire need of some Wild West banks.
The cost of global assistance. When Venezuela’s banking system went down the drain, there is no doubt that the cost of the crisis was paid integrally by the country itself. In today’s world, when we see that a series of international banks are investing in our country’s institutions, I often wonder what will happen when one of these behemoths runs into serious trouble in its own country. Will we have to pay for our part of the crisis, less than our part of the crisis or more than our part of the crisis?
As bank mergers and acquisitions increase and stock exchanges worldwide call for more, I analyze what happened to my partner and have my own doubts. I ask myself if we should not be imposing the creation of special reserves for especially large banks. The larger they are, the harder they fall, and the greater the need to avoid disaster.
https://subprimeregulations.blogspot.com/2000/02/kafka-and-global-banking.html