An Unsustainable Sustainability

An Unsustainable Sustainability 

The latest fashion in the academic world of international finance is to calculate what is known as the Sustainable Debt Level (SDL). As you may have guessed, it has to do with the level of public debt a country can sustain without entering into a crisis. Normally the SDL is calculated based on the size of the economy (GNP) or on a country’s exports.

Whatever scientific approach is given to the SDL issue, it sure seems somewhat obscene to the citizenry of countries where it is evident that public debt engenders low or even no productivity.

If a credit is granted properly, the credit is repaid and then debt levels never become a problem. It is only the bad or mediocre loans that accumulate—those that do not generate their own repayment. So it could be said that what is really being calculated with the SDL is the level of bad debt that a country can get saddled with. Quite frankly, a developing country with real needs cannot afford the luxury of canceling even one cent in interest on a debt level arising from a series of credits that are nonproductive on the average.

From this perspective and since what we really mean is sustaining something that is unsustainable, this question remains: wouldn’t it be better to skip calculating this debt level and try to free ourselves once and for all from these mortgages, instead of condemning future generations to live forever under the weight of an SDL that has been perfectly calculated? How much torture can the torture victim take before passing out?

And who encouraged these countries to go into debt? Ask those who are well-acquainted with the temptation that credits pose to politicians. In China, they say that you wish for your enemies to live in interesting times. In Argentina, because of the suffering provoked by excessive debt, it would seem that what their enemies could have wished upon them was the trust and confidence of international markets.

On the day that our country Venezuela firmly and irrevocably sets upon the path of totally canceling its debt, on this day an enormous opportunity will open for all those private and collective initiatives that need financial oxygen. Unfortunately it will not be easy, since our politicians, while condemning past debts, have mastered the magic of simultaneously preaching the benefits of new credits.

From El Universal, Caracas, June 5, 2003
As translated in my "Voice and Noise" of 2006

http://unsustainabledebtsustainability.blogspot.com/2003/06/unsustainable-sustainability.html

And this article lead me here:

The financial handicap

The financial handicap

In horse racing, to try to equalize the chances of victory among the competitors, the handicap system is frequently used, which implies putting a greater weight on the horses, which have shown a greater ability to win. The world of finance is not so benevolent, there more weight is imposed on those who, according to the market, have fewer prospects... present greater risk.

Every morning when a Venezuelan goes out to build his future and that of his Homeland, whether he is a public or private servant, he carries on his shoulders the weight of the country risk (CR) that the financial markets have set that day. That CR, which in principle is calculated based on how much more interest the market requires for Venezuela's external public debt, compared to a similar one in the United States, is currently located at 11% - 14%.

CR affects not only the public sector, but permeates the entire economy. Effectively, we see, for example, a private person who wishes to contract external debt and if he does not have external guarantees to offer, he must pay his normal interest rate, plus the CR. In terms of public service rates, the models indicate the need to reward the investor with a normal profit margin, plus the CR.

A high CR is economic contamination, which covers everything and prevents breathing normally. If Venezuela wants to recover from this economic emphysema, there is no better way than to reduce the CR fast and considerably.

Obviously, CR has many causes and many origins, but the main one is generally related to the ability to service the country's public debt.

In this sense, I guarantee you that if we only manage to spread the amortization of our public debt over a much longer term and guarantee to the market that this is not done to increase it later, due to its relatively modest size, we could quickly achieve that our debt was classified as investment grade, which would reduce the CR considerably.

All it takes is a little will and drive. If the discordant parties insist on preferring to fight suffocated and short of breath, then so be it. However, I am convinced that the oxygen that reducing the CR would produce would benefit both the Government and the opposition, not to mention the rest of our country, which needs and deserves it so much.

Translated from El Universal
http://unsustainabledebtsustainability.blogspot.com/2023/02/the-financial-handicap.html

I was a very early anti-fragilist!

In April 2003 this is what I argued in a formal written statement delivered as an Executive Director of the World Bank:

"A mixture of thousand solutions, many of them inadequate, may lead to a flexible world that can bend with the storms. A world obsessed with Best Practices may calcify its structure and break with any small wind. Who could really defend the value of diversity, if not The World Bank?"

Out of the box tourism: Lessons from Florence

THE CONTEST!

My apologies to the Florentines, but their beautiful city is like the Magic Kingdom of the Renaissance. The inexhaustible flow of tourists, hotels, prices, and lines for attractions, fast or slow meals, and souvenirs, all makes one question, between Medici and Disney, just who copied the model of whom. In my opinion, not only are the gelatos of Florence richer, but also, with the possible exception of Goofy, Michelangelo’s David and the frescos of Fra Angélico are far superior to Mickey, Pluto, and the rest. 

What an inheritance the Medicis left to their city! The Florentine economy will always be easy to manage, since the only thing that their Paperon de Paperoni (Scrooge McDuck) has to do is fix admissions prices. The one little cloud on the horizon could be the quantity of English, Venezuelan, German, and other immigrants who try to take advantage of the infrastructure. What would Machiavelli have thought about entering the European Union?

We know that despite all its possibilities, Venezuela, in a local saying, still has not managed to connect the foot to the ball when it comes to developing its tourism industry. This will never be resolved by naming ministers who spend their time conducting publicity campaigns, or visiting Orlando and Florence. We are not proposing that other Medicis substitute for those who govern us—we can discuss this on another day. But in the meantime, we could emulate the experts.

In Florence 500 years ago, the contest system was used to assure that the best artistic proposals were utilized to adorn the city. So let’s organize a grand contest.

It will be a grand contest to choose a grand team and a grand plan for the strategic development and management of the tourism sector for the next 30 years, with an estimate of costs and results.

A qualified panel of judges should choose the best three proposals, and the proposals should be publicly debated on television. The losers will receive an important prize, and the winners will be commissioned to execute their proposal during thirty years, with a significant fixed, indexed and guaranteed annual budget.

Since televised public contests enjoy high ratings, this contest could also be a way to build pontes novos, new bridges, in our divided society.

The Santa María del Fiore Cathedral took more than 100 years to construct, and for a long time everyone thought its dome would be impossible to build. And so, friends, let’s not lose the hope of finding a local genius like Brunelleschi for our Helicoide (a local 45-year-old monstrous white elephant). 

From El Universal, Caracas, April 10, 2003

Extracted from "Voice and Noise" 2006

Fingerprints of Venezuela

I needed a new passport, so when the DIEX official told me “nai nai, I'm sorry, we couldn't find your alphabetical file, the one that has all your data”, I felt… well, you know how. So when, after a while, that same officer told me "don't worry... we'll get it" and proceeded to take my ten fingerprints, I almost pouted... convinced that I would never get out of that Kafkaesque swamp.

Imagine then my astonishment when, in less than an hour, my potential enemy, today my friend, comes back smiling saying- “we got you… hey, in Táchira, in 1957… who would have thought?”. If he was surprised with the place and date of my ID, I was amazed that they "had gotten me" and curious I asked - "Show me how"... Harry Potter apprentice!

He took me to the Central File and Fingerprinting Directorate, a few gloomy rooms, full of dusty files… set for a wizard movie. There, between books and card holders, his boss, the Director and his assistants kindly showed me everything that happens when you get your first ID, how your fingerprints are analyzed and classified under a Galtonian magnifying glass, producing a unique morphology for each Venezuelan citizen. . With my new fingerprints (somewhat thicker/fatter...), they re-established a chain of 14 numbers, thanks to which they found in the digital archive the card with my smaller fingerprints, taken 45 years ago!, with which the DIEX was able to verify that the citizen Per Kurowski exists, that he is Venezuelan and that he deserves a passport. What an impression those impressions caused me!

In the act I remembered that five years ago I had protested a plan to modernize the identification system, because it seemed like an expensive robbery, 500 million dollars! Shutting up about such a sin, I sat down to talk with my new friends about "modernization." With modesty, they indicated to me the urgent need for new magnifying glasses, a better light to see the fingerprints better and yes, if possible, to digitize the files to speed up the identification work. They ended by saying, “we have heard that they will install a new system soon”-“What system?”- “We don't know, but they say it will cost a good money”.

AHA! I said to myself, since I also know about fingerprints, I have just identified the footprint of the public administration of Venezuela. Instead of allowing these obviously dedicated and capable officials continuous access to the few resources they would need to accomplish wonders and stay modern, for which a small portion of the annual interest would surely suffice, which would cost a $500 plan millions of dollars, there, in some ministry, there is a know-it-all politician who wants it all, generating his own solution... a real hit!

Governors of Venezuela, the day you want to modernize the DIEX, I beg you not to abuse the public servants who work there, better use them... they are true magicians!

Translated from El Universal, November 7, 2002

.

Not one more case of financial engineering

Not one more case of financial engineering

 'In June 2000, when AES was buying Electricidad de Caracas (EdC), I wrote an article titled “The EdC that I want”, where I said; “From my local electrical distributor, what I am interested in seeing are some good engineers with colorful helmets, accompanied by competent accountants with simple calculators that only serve to add and subtract. Observing the presence of lawyers, financiers, brokers, publicists and other professionals unrelated to bringing light home, frankly, I don't like it." 

No sooner said than done. Today, just over two years later, the EoC is already having difficulties making the necessary investments. Its new foreign shareholders milked the company's equity accounts for 900 million dollars, when probably any national owner, much less versed in financial engineering, would surely have allocated a large part of such resources to reduce the immense foreign debt, which currently weighs on the company. company. 

I think the same with respect to public finances. Given the total mess that Venezuela's public debt presents, largely inherited, there is pressure to professionalize its management, but, if it is already difficult for us to evaluate what is happening, imagine what it will be like when such refined "artists" come performing " puts”, “calls” etc. and etc. 

No! As far as Venezuela's public liabilities are concerned, if I can't have access to a property administrator, like Juan Vicente Gómez, who can simply cancelled it and forgot about that nonsense, I would prefer a grocery store a thousand times. Suppose that the rulers of Venezuela were only allowed to issue debt up to a fixed percentage of the GNP and that this had to be contracted exclusively through the issuance of 15-year bonds, with 15 equal and consecutive annual amortizations. 

Such a measure would put an end to the pernicious tendency of “expensive credit card” type financing, which by pushing the wrinkle has led us to the current situation, where although as a country we do not owe much, however due to the large accumulation of maturities in the short term, the markets demand us and can charge us an arm and a leg. A flat amortization profile, with our modest level of debt, would surely earn us an infinitely better credit risk rating than the current one.

Furthermore, the use of a single type of instrument would give wonderful depth and liquidity to the Venezuelan debt market. Regarding the demand for different placement terms, this could be met by the market itself, with its mechanisms that assign different maturities to the different holders.

Finally, the best, TRANSPARENCY. The country would always know for sure what the real cost of any State project is, without having to resort to the financial calculator or experts, who always represent a high direct cost, as well as a very high indirect cost, for all the nonsense they invent.

PS. At that time I had really not understood how regulators (the Basel Committee) had wrestled banks out of the hands of loan officers, and placed these into the hands of dangerously creative financial engineers. Which was why our friend George Banks had to go and fly a kite.

The riskiness of country risk

How horrible it must be to work as an air-traffic controller! Any slight error can provoke an unimaginable human tragedy. No wonder these professionals burn out so rapidly. I “suppose” the same must happen with the country-risk assessors, those people who carefully pass judgment as to what the country risk is for any given nation.

The all-important mission of these risk evaluators is twofold. The first that for which they are actually paid consists of analyzing whether or not the debtor nation will ultimately be able to honor its obligations. This determines whether or not pension funds, banks, and insurance companies will be willing, or even allowed, to invest in that country’s sovereign debt instruments. The second, even more important than the first, is to send subtle signals to the governments of these nations in order to help them improve their performance.

What a difficult job this is! If they overdo it and underestimate the risk of a given country, the latter will most assuredly be inundated with fresh loans and will be leveraged to the hilt. The result will be a serious wave of adjustments sometime down the line. If on the contrary, they exaggerate the country’s risk level, it can only result in a reduction in the market value of the national debt, increasing interest expense and making access to international financial markets difficult. The initial mistake will unfortunately turn out to be true, a self-fulfilling prophecy. Any which way, either extreme will cause hunger and human misery.

What a nightmare it must be to be risk evaluator! Imagine trying to get some shuteye while lying awake in bed thinking that any moment one of those judges, those with the global reach that have a say in anything and everything, determinates that a country has become essentially bankrupt due to your mistake, and then drags you kicking and screaming before an International Court, accused of violating human rights. If I were to be in the position of evaluating country risk, I would insure that the process is totally transparent, even though this takes away some of the shine of the profession and obligates me to sacrifice some of my personal market value.

How lucky we are that we are neither air-traffic controllers nor sovereign-risk evaluators! However, since we can easily become victims of their missteps, it behooves us, if only because of our survival instinct, to make sure that both do their jobs correctly.

We have seen in recent Country Reports how, after having introduced a myriad of information into the black box of methodology, as if by magic, a credit qualification is produced. Many of these reports seem to me like the pronouncements of film critics. It would seem that, more often than not, the individual evaluator is determining more how much he likes the ways or forms the Directors of a nation try to honor its obligations than on producing an honest and profound financial analysis of the country’s capacity for servicing its debt correctly.

In his book The Future of Ideas: The Fate of the Commons in a Connected World (New York: Random House, 2001), Lawrence Lessig maintains that an era is identified not so much by what is debated, but by what is actually accepted as true and so is not debated at all. In this sense, given the risk that the perceived country risk actually becomes the real country risk, it is best not to assign an AAA rating blithely to the risk qualifiers—perhaps not even a two-thumbs-up.

El Universal, Caracas, September 26, 2002

Daily Journal, Caracas, September 27, 2002

Included in "Voice and Noise" May 2006.'

Hardships

Hardships

HOW MUCH easier it is to give recommendations to companies about what to do during an economic crisis, than, as I have been asked, to people of flesh, blood and unseasoned hearts!

What's more, I think it would even be disrespectful to try to give her information on how to find a solution or how to make more money, like an ingenious housewife. Everyone knows what is within their reach and I can only wish them the best. Much less would I dare to give any recommendation to a desperate father, who does not have the resources for the medicines his sick son needs, other than praying to God, if he is a believer.

What I would dare to talk about is how to face the emotional pressure, which naturally arises in a crisis like the current one. Ah...Kurowski became a psychologist! They will say... Noooo, what's up! My recommendations have no other foundation than my intuition and if someone has the audacity to publish them, it's just my luck.

Perhaps, because I am a financial consultant, I get the image of the overwhelmed debtor, who tosses and turns in bed unable to sleep, until he opens the window and yells at his neighbor, the banker, "Friend, I can't pay you!" thus shedding an immense weight after having screwed his friend over. The above shows that it is not advisable to swallow our anxieties, but that we should share them openly with our wife, children and friends and not just with our pillows.

Perhaps, because you are an economist, you understand that individual shame should not cause any shame, since unemployment of the magnitude that exists in Venezuela suggests a state of war and, in war, no one has to feel ashamed that a crazy missile Just reach your house.

Perhaps, because you are a father, you see the urgent need to seek to learn from difficulties, that we must learn to enjoy the little things in life as much as possible, which are also free.

However, as a Venezuelan, overcome by deep anger at the ridiculous and unjustified situation in which we find ourselves, I am sure that the solution is in our hands and not in that of imported healers. Colleagues, let's stop looking for an escape door. That's depressing! Let's dedicate ourselves to finding the gateway to a better Venezuela, through which we can all pass.

P.S. To my compatriots who are not fighting, I remind them of the superhuman challenge of being human and avoiding ostentation.

https://radicaldelmedio.blogspot.com/2002/07/pelando.html

Translated by Google

Tourist Mementos

Just taking flight to Porlamar triggers reflections. Flying over Cubagua, what a good place!... to set up the mother of all "Surviving" episodes, placing 10,000 ultra pro and 10,000 ultra against Chavistas and letting them, unarmed, negotiate an islet project.

I landed at the Porlamar International Airport and speculated on the impact that a photo would have for Joe W. from Texas, a fan of adventure tourism, where “Er Arcarde” [the local mayor] gave him, for his personal use, a latest model Cavim bulletproof vest.

At the airport I confirm that the “duty free” type stores, which in the whole world mean high prices, are camouflaged and do not stand out in a “duty free” area and I remember having proposed to tax “L'Aisla” with very high taxes, to then encourage tax evasion tourism, thus reclaiming its venerable smuggling tradition. For Hans from Hamburg, there should be no antelope head that can compete with a tax evasion certificate issued by the Chamber of Commerce.

And following the same vein, imagine the shy and obedient Lisa from Birmingham, taking a photo “negotiating with the authorities”, with that fat traffic guy who always stopped me at the intersection of Rómulo Gallegos and Los Ruices.

Hans and Helga, the environmentalists from Amsterdam, will remember their protests in front of the power plants that burn oil, because of the geniuses who prefer to cross the Gran Sabana with a power line, to sell our hydroelectricity to Brazil, cheaper than the one we bought to Colombia.

Frank from Boston will be able to visit the Miss Venezuela museum, that should be built; and Moníque from Cannes, could rebuild her ego in Playa El Agua, noting that there are still those who are not indifferent to her uncovered parts.

Finally, and as a great departure gift, everyone will find in their hotel, bound in leather, a copy of the Official Gazette of July 15, 1998, which contains Instruction No. 1 for the Public Servant, which among others, in Article 19 forces the use of “You”, prohibiting familiarities, such as “my love”.

Some time ago I read the label of a soft drink, which proudly proclaimed “Guaranteed 100% artificial” and learned about the importance of mental attitude. Frankly, Margarita is too much of an Island to follow the same route as the others in the Caribbean, where, even on the souvenir flannels we can read, “Different Island...same shit....”

http://alborotandoturismo.blogspot.com/2001/08/momentos-turisticos.html

Hugo, me and the Revolution

Hugo, me and the Revolution

When I see our industrial cemeteries, where the hopes of so many Venezuelans lie due to a very poorly implemented trade liberalization and a stupid exchange rate policy, I know that Hugo and I want a revolution.

When I see the United States apply a 60% tariff on the import of orange concentrate and only allow the best quality to be imported, while Venezuela only applies 20% and allows the entry of any garbage, condemning our orange groves to die, I know that Hugo and I want a revolution.

When I observe the very unfair distribution of income in my country, the inefficiency of fiscal spending and I notice how efforts to collect an income tax are abandoned for the ease of VAT and other direct taxes, I know that Hugo and I want a revolution .

When we reflect on the decades of silence in the face of a terrible education system and the obscene and violent programming with which our television stations indoctrinate our youth, I know that Hugo and I want a revolution.

When I see my Venezuela immersed in anarchy, without an authority capable of controlling that small percentage of abusers, who exist everywhere, I know that Hugo and I want a revolution.

But, when Hugo says that his revolution is the daughter of the Chinese or Cuban revolution, I also know that Hugo and I are not talking about the same revolution.

My revolution only pursues the humble goal of achieving a good Venezuelan government for Venezuelans and that, if we ever make a mistake along the way, at least it will be in favor of Venezuela. My revolution welcomes the foreign investor happily, but it is only happy when it manages to retain the Venezuelan investor. In my revolution, except for the strengthening of OPEC (including gas and incorporating new members), a pragmatic Great-Colombianism and a rational environmental solidarity, there are no resources or time for other geopolitical considerations.

Although I consider that selling about 53 thousand barrels of oil to Cuba under overly generous conditions is a minor sin, compared to the still not so distant proposal of selling 5 million barrels to the world at a price of only 7 dollars; The fact is that as long as some Venezuelan is dying of hunger, does not receive a good education or decent health care, my revolution does not contemplate giving anything to anyone – except, a Christian solidarity in emergencies.

Hugo has an amazing ability to communicate, in a pedagogical way, Venezuelan messages to the Nation and in this sense, for those of us who know that the future requires building bridges of understanding, he represents a very valuable asset for the country. For this reason, whoever has access to Hugo, please ask him to stop wasting his talent with this invention of speaking to the Sovereign, in Chinese with a Cuban accent.

Translated by Google from an Op-Ed in Venezuela April 26, 2001

https://radicaldelmedio.blogspot.com/2001/04/hugo-yo-y-la-revolucion.html

Beware of bank consolidation

Beware of bank consolidation

Every day there are fewer banks in the world. For those of us who have heard horror stories about those who, in order to solve problems with fraudulent withdrawals from their cards, must talk on the phone with anonymous voices and try to sound innocent, thinking about the possibility that one day we will only have one bank left, reminds us of Kafka .

But, apart from experiences worthy of a Stephen King, banking consolidation, an evolution that has been sold to us as a marvel, may contain other risks not sufficiently commented on – or happily ignored. Among these the following:

Less risk diversification. Whatever the authorities do to guarantee the diversification of banks, there is no doubt that fewer banks mean fewer baskets in which to put the eggs. When I read that during the first four years of the 1930s in the United States a total of 9,000 banks failed – I wonder what would have happened to that country if there had been just one bank.

Regulatory risk. Before, there were many countries and many ways of regulating banking. Today, when rules of global application are arrogantly dictated in Basel, the effects of any mistake can be explosive.

Excessive similarity. Encouraging banks to adopt common rules and regulations is ignoring the differences between economies, which is why some countries will end up with banking systems that are poorly adapted to their needs. Certainly, regulations whose main objective appears to be to safeguard capital come into conflict with other functions of banking, such as promoting economic growth and democratizing access to capital.

Less diversity of criteria. The smaller the number of participants, the lower the diversity of opinions and, with this, the greater the risk of misconceptions prevailing. Anyone who doubts this should read the one-dimensional analyzes published by the risk rating agencies.

Violent reaction. The development of decision-making processes has benefits but also risks. Thus we see that the speed of information itself, which promotes a rapid and immediate response, can aggravate the problems. Before, between those who took the problem home to study it and those who found out about it late, the market was provided with a buffer, which often saved it from untimely and poorly thought-out decisions.

Unclear benefits. To date we have not seen a foreign bank grant, for example, mortgage loans with globalized term terms and interests. In this sense, the benefits of a global bank are not clear, when it operates replacing local banking.

Cost of global aid. When banking in Venezuela had its last crisis, among other reasons due to buying banks at excessive prices, it was sad but logical that the cost was paid by our country. Today, with globalized banks, which are not immune to committing scams, as well as buying other banks at whatever price, who will pay the bill?

Nowadays, when the world calls for bank mergers or consolidations, I wonder if, on the contrary, the creation of special reserves based on size should not be imposed on banks. The larger the bank, the worse the fall and the greater the need to avoid it.

http://subprimeregulations.blogspot.com/2001/03/beware-of-bank-consolidation-early.html

 

Here is the energy family

Here is [my] the energy family

Dad Oil, a tough and hard-working guy, who brings the bread to the house. He is quite lonely since the family, even though they like him to earn well, ignores him, considering that marketing the devil's excrement does not have enough social status. In his work, when facing difficulties such as consumption taxes, he seeks the company of the OPEC guys, even when they also seem somewhat lacking in desire.

The Hydro breast, always present with its clean and pure energy. As long as there is good communication, he does not need praise and fulfills his duties by sowing renewable warmth in the family.

The eldest son, Carbon, [coal] a solid and conservative boy, even if somewhat boring. He doesn't complain much but, by searching for his language, we can hear him commenting on how unfair it is that he is ignored at home, while in countries like Germany and Spain, his peers enjoy such extraordinary subsidies that they even go by the same name as his father Petroleum.

The second, Heavy Oil, a man who, although he looks like his father, does not even remotely have his father's personality. He is a slow and heavy guy, but if someone only gave him some technical clinics, who knows if in the future he couldn't become a real cleanup hitter. Recently he tried to do something, putting on the Orimulsion flannel but, even in Florida, supposedly a friendly state, they wouldn't let him play.

The little boy Gas – who everyone knows as the genius of the family – but nothing he can start. Although he is a good associate of Dad Oil, helping him fill the empty spaces he leaves, he fails to assert himself when he is alone and free. However, one day he will be a star

The Aeolian female and her alternative cousins ​​are still too young to know how they will behave, but they look good.

Finally, there is a nuclear guy who, because he lives outside the country, almost no one knows him.

What's the point? It occurred to me that describing our energy family in this way could help me explain what a few of us consider to be possible errors in our energy policy as a country. Let's see.

The little Gas boy, instead of preparing him to exploit all his talents in the future and assist him in forming his own OPEG, we want to launch him onto the streets alone, because we have read that he is fashionable in other countries. We don't even realize that one of the reasons for its popularity is that since it is not organized, it is a perfect strikebreaker to be used against its father Oil. Furthermore, and even if it is not bad to generate electricity, when considering its true potential, burning it in this task is like being satisfied with it washing dishes, as long as it is in New York.

Regarding Heavy Oil, if in the Orinoco Belt we sold cheaply, for about 30 years, to various national and foreign groups the bitumen they need and in return developed on-site technologies for generating plants, we could make the boy a champion. How much better than to make him pass off today's global punishment as fat, dirty and flabby!

Finally, Carbon [coal] is not without reason. If they can use it in other parts of the world and if its value is not really seen to rise explosively in the future, why don't we allow it to be useful, generating electricity?

Obviously, all of these are only matters that a united family understands and considers.

PS. Translated by Google from  an Op-Ed in Venezuela, March 1, 2001

 

 

No, thanks

 No, thanks

The following paragraph is extracted verbatim from the UK Energy Report 1999, published by the Department of Trade and Industry of England.

“The retail price of products is largely determined by taxes, especially for fuel. The attached figures ... illustrate the increasing proportion of the price of gasoline attributable to taxes. The incidence of taxes, ...explains around 85 percent of the final price of unleaded gasoline..." Prices are expected to continue growing, given the commitment of the English Government to increase taxes on petroleum by an average of 6 % annual, above inflation.

The report's figures indicate that the price of petrol before tax fell from 15 to 10 pence per liter between 1980 and 1999, a decrease of 33%. However, for the same period in England, the consumer price went from 26 to 68 pence per liter, increasing 162%. The explanation for this phenomenon is found in the various taxes on gasoline, which rose from 11 pence in 1980 to 58 pence per liter in 1999, an increase of 427%.

Taxes, applied in a discriminatory manner to oil, which favor coal, for example, affect both the volume and the sales price of our main export product and therefore directly harm our country. All of Europe applies taxes of the same order and the other consuming economies, except the United States, are evolving in the same direction.

It was only a few months ago that the magnitude of these taxes was understood and the consequences, at least in Europe, were serious protests by consumers. It will be necessary to observe whether in 2001, countries like England and Germany, even when stripped, continue with their pre-programmed increases.

The relative silence of Venezuela and other oil-producing countries, the truly aggrieved ones, is surprising. Sometimes I wonder if such passivity has its origin in the fact that in this globalized world, everyone is still dying for the possibility that one day The Queen will invite them to have tea in her palace.

In November 2000, the president of the European Energy Foundation of the European Union, with great cynicism, announced that in the dialogue between oil consumers and producers, everything could be discussed, except taxes, since these did not significantly affect consumption.

In December 2000, the European Union announced a donation of 55 million euros for the reconstruction of Vargas, to be disbursed over two years.

In a world that preaches free trade, oil taxes are hypocrisy. I, being a Venezuelan of European descent, may react in particular, but I am convinced that we have to place our protest in its correct dimension. In this sense, and even if I had never rejected the help offered by the United States during the tragedy in Vargas, today I would not hesitate to respond to Europe: No thanks, we do not want your donation, that amount is equivalent to what Venezuela would obtain each week if You, on the basis of false environmentalism and real fiscal voracity, do not apply taxes that discriminate against oil. We will not help calm their institutional conscience by accepting some insolent barter with begging mirrors.

(Translated by Google from an Op-Ed published in Venezuela February 1, 2001)

The Oil Curse

My Plan Colombia

My Plan Colombia

In times of disagreement, it is important to draw the conveniences, which is why I firmly believe that with the people and land of Venezuela and Colombia we could build a Nation capable of competing, face to face, with the other superpowers of the world. However, given the many mental and real barriers that exist, you will probably ask me: what lumpia [eggroll) did I smoke?

Paraphrasing Carlos Zubillaga, I consider that one of the obstacles to the integration of interests of the two countries is due to the fact that Colombia seems to have developed under the influence of a ruling class, which only sought to dominate, while in Venezuela, our course was marked by a ruling class that refused to dominate.

Another impediment is the loss of self-confidence, caused first and foremost by the gospel of globalization. Normally, our geographical conditions, between north and south, east and west, would represent for a glass-half-full philosopher a cluster of fortresses, but unfortunately, for our glass-half-empty philosophers, they only constitute weak flanks to protect.

To make matters worse, even Bolívar's life cycle, his birth and death, which could unite us so much, instead of constituting a platform to launch us into a greater future, only seems to anchor us in the past.

Given these difficulties, it is understandable that prudence suggests deferring an integration effort until when more favorable conditions exist. However, the reality is that our Colombia, said with the same right and respect with which I hope they can refer to their Venezuela, faces something very close to a civil war, which we simply cannot ignore.

Of course, if we want to preserve the ambitions of achieving a future and twinned greatness, we cannot participate directly in this conflict, but I believe that this should not mean that our only alternative for action is to equip our border and avoid the splash of a Colombia Plan.

On the contrary, the moment is historically opportune to relaunch an aggressive economic integration plan that helps us, both them and us, to understand that the true obstacles to a better future are very, very far from the causes of a fratricidal conflict.

In this sense, I propose that we immediately seek to reaffirm the Andean Pact, at least as it relates to Colombia and Venezuela. To begin, we must seek to align our currencies in order to maximize Colombian-Venezuelan commercial exchange and impose significant external and common trade barriers, which will allow us to create an important internal market.

The above, like a successful angioplasty, could unblock the commercial arteries and oxygenate the economies to such an extent that both Colombia and Venezuela can observe new and better horizons and perhaps even a bonanza that allows generating new and peaceful solutions.

In so many places in the world we observe the presence of wars caused by passions that are absolutely inexplicable to a normal being. For God's sake, whatever happens, I beg you not to leave as an inheritance to our children that absolute, eternal and corrosive hatred between brother peoples, which eats away at a newborn life.

(Translated by Google from an Op-Ed published in El Universal January 4, 2001)

 

Oil, Citgo, and gov't policies

An interview by Daily Journal’s Leopoldo Taylhardat 

The DJ recently interviewed columnist Per Kurowski on his views regarding the Venezuelan and international oil industry. We caught up with him with his foot virtually on the plane's steps for a flight to Guatemala. He was committed to a week's work there for the Inter-American Development Bank (IADB).

As usual with him, his statements were clear and frank. Per has been writing well-balanced opinion articles for the DJ for several years now.

PK: "The OPEC Summit Conference results? In general, very good. Results will depend on the unity of OPEC and its decision to defend its interests in very specific areas such as the fiscal and environmental discrimination against oil.

“I hope I'm not seen as ungrateful, but it looks to me as a poor beginning when we give so much publicity to the donation by the European Union of 250 million euros, almost one year after the Vargas disaster, because we all should know that even the least discrimination against our oil will, in the mid-term, easily save the EU that amount - through volumes and prices - in one-month additional revenue. 

“The good future results for Venezuela we may get from OPEC depend mainly on how we push the organization's lazy bureaucrats, normally afraid of the risks involved in any change. Let's not forget that the high-taxes problem has been affecting us for several years. Why didn't they point it out before? 

"About the San José Pact I can't say much. I'm not familiar with the subject but-and it seems to be an international procedure -any country has, I thinkthe right to use any strength it may haveto defend its interests in any way it feelsreasonable. At least it seems politicallyproper when it's done by the world's superpowers. The New York candidate to Congress, J. Lazio said, during a debate with Hillary Clinton: ... ask our allies and those who went to bat in the Desert Storm War, to think about our needs ...'- or words to that effect. So, if someone can send some of his own people to fight and die for the oil, what's wrong with giving out some oil, out of good will or, as some people claim, because of foolishness? 

"The volume of oil involved in the San José Pact is very small, so selling it at discount to other poorer countries may be a minor sin, if anything. Except when it is used for purely political reasons - now that would be a major sin.”

"On the other hand, Venezuela need not feel guilty for the difficulties other poorer countries may experience due to increasing oil prices. We are innocent infants compared to those countries selling renewable products such as medicines at prices thousands of times their cost, including raw materials and production. Let's stop sucking our fingers ... 

“Let me elaborate some more on this subject that, after all, is in fashion. The discussion over "fair prices" is, in my opinion, irrelevant. As long as oil is needed and scarce, its price will be high. If it becomes abundant and could be replaced by some other energy source, its price will go down. Any reference or comparison to the prices of other products is irrelevant, because regularly and naturally, the prices of any product or group of them can go up while others fall.

“Fairness is, to me, a matter of participation: the products obtained from a barrel of crude oil are sold in Europe for the equivalent of $200. Laborers housewives, teachers, and so on must pull out of their pockets that $ 200 and pay in cash. So it is evident that this is the market price for it. In other words, oil has never before been so valuable.

"On the other hand, we the oil owners and producers, we do not get much for a barrel of oil. Our share is only about $30 - or 15 percent - out of the $200. The rest is shared by refiners, transporters and distributors, who get $25, and the ever-hungry European government that grabs up to $160 - 80 percent.So it's unfair for the country selling that non-renewable resource to get only percent of the market value. It's like selling our house and being obliged to pay the real estate office over 80 percent of the price." 

Will the current Venezuelan government's oil politics contribute to change the world oil panorama? 

"I'm not sure. It depends on the government's capacity to strengthen the country and to encourage the nation to defend our interests. All our interests, not only the oil. Since consumer countries do know how to defend their interests, including oil, we must be continuously defending ours. Not just spasmodically. Results will depend on the strength of will displayed by all of us. What cannot be denied is that the oil politics promoted by our current government were not only necessary, they were taken just in time, at the eleventh hour." 

Shouldn't we emphasize conservation over production? 

"We must either preserve or sell our oil. It's up to us. What we must not do is fall into the death trap of producing while the price stays above the cost of extraction and shipping – that is, accepting as valid the idea that we must be satisfied as long as the oil pays for its production and transportation. 

"I am definitely against that. The nation must obtain a higher level of added value. And that's what we have OPEC for. If we get only 15 percent on the selling price of our product, then we are such poor users of our buried-for millions-of-years-wealth that we deserve having the wells locked up so future generations can benefit from oil. That also applies to the use of oil revenues. If we continue being as inefficient as in the past, we don't deserve to benefit from the nation's oil.” 

The appointment of a Venezuelan as " Citgo president is it convenient or not? 

"A Venezuelan as president of Citgo? Why not? Of course, it depends on who that Venezuelan is. Personally, I believe the Venezuelan state must control 100 percent of the exploration, extraction and basic refining operations. This is the only way it can have the possibility for using it as a weapon for geopolitical negotiations or ensure its value via, for example, OPEC. Until someone convinces me of something different, I insist that anything else the Venezuelan state tries to do with oil means a loss or a net reduction of the benefits brought by the first phases of the operation

"Because of that and the fact that I have seen the corporation's reports, I still can't understand the economic reasons for having bought and kept Citgo. There is evidence in the reports that it's being subsidized by PDVSA. 

“And, for those who argue so much in favor of privatizing PDVSA, I challenge them to make an IPO for Citgo, subject to their obligation to purchase oil products at market prices."

PS. I am still for Venezuela getting rid of Citgo

Overprotected or not?

Overprotected or not? 

Coming from the United States, I received a small bottle of water and a bag of peanuts from the flight attendant. On the bottle, as usual, there was the comforting information that its calorie content was zero, it would be very worrying if that were not the case. However, the legend of the bag drove me crazy, when I read that to obtain its nutritional information, I had to write to the address indicated there. What was I doing at 35,000 feet, eating it or not? This made me reflect on the incredible number of regulations designed to protect the consumer.

We read that in Japan there is great concern because its people have adopted excessively exaggerated hygiene customs, which could reduce their resistance to microbes. Would a possible Darwinian evolution, forcing the Japanese to live in air bubbles, also apply to the overprotection of the American consumer?

I went to my sister, who because she was a doctor, I considered her to be the great guru of this epidemic of crazy rules and other stupidities of the gringos, being married to one of them, to ask her confidentially, without my brother-in-law finding out: What kind of society could require protecting its citizens in such a way? Are they so gross? Her answers were enlightening, so I'll tell you what I deduced from them.

In international trade, the United States is considered an open country, with the lowest tariffs in the world. Which is not necessarily true, if we consider that their average tariffs are made up of some of 0%, applied to products of little commercial significance, such as a nuclear reactor, and others very high, of 60%, applied to products, which for protect their own, they want to scare away, like orange concentrate.

Just as in commerce, reality does not coincide with common belief, in terms of regulations on quality, content and form of use, the United States does not have all the overprotection that we believe, suffering sometimes from absolute lack of protection.

In my sister's opinion, it is not that Americans are brutes (for my family history records, my brother-in-law has never seemed that way to me) the fact is that all the regulations that we observe in that country only constitute a weak line of defense, in the face of the legal uncertainty that has been created by the addiction of its judicial system to lawsuits. She tells me that the terror is so great that even in baby strollers there are instructions that recommend taking the baby out before folding him. In ironing, they insist on not ironing the clothes while they are on.

The lawsuits and their damages are not fictions. You can demonstrate this by asking any shareholder of a tobacco company in the United States what they think about legal uncertainty. You will surely get very interesting answers, in terms of monetary damages per capita. Likewise, we see that the insurance premiums, which doctors must pay to defend themselves, exceed the annual salary of many Venezuelan doctors. We know how difficult it can be for us to find a trustworthy doctor, but for American doctors, it is probably even more difficult to find a trustworthy patient.

We see in the news that in Florida they want to sue for the annulment of the electoral result, alleging that 20,000 voters were supposedly confused. Because of the difficulty they have in agreeing on who should be their next president, faced with a vote divided 50-50, I believe that those who are truly confused are many more, they are all the voters. Maybe they should outsource their government. Disney?

Speaking of legal security and trade openness, these were recently evaluated in the 2001 Economic Freedom Index of the Heritage Foundation, where Venezuela has once again earned being in the basement, with number 115 and the United States with 5. That is why, as a Venezuelan trying to get the point across, today I am spitting somewhat towards the north, instead of just straight up.

Translated by Google (and me) from an OpEd in Venezuela

The OPEC that I want to see

Towards the end of 1980, oil of optimum grade such as Arabian Light was being sold at US$ 36 per barrel. By the end of 1998, its price had fallen to US$ 12.20. The latter is equivalent to US$ 6.50 in 1980 US dollar terms, and represents only 18% of its value in 1980. This would seem to imply that whatever the strategy was that OPEC used to defend its oil was simply dead wrong.

This situation was so disastrous that at the end of 1998 the only alternatives that were ventilated publicly were either to violently increase production capacity or to simply sell or privatize the entire industry.

To limit oneself to the simple increase in production capacity would be to repeat the same errors that were committed with the other raw materials and natural non-renewable resources. It would mean to resign oneself to receiving the marginal contribution that results from being the sector’s low cost producer. It is sad that a country that has been so blessed with a valuable resource such as oil has to adopt a model that, at the end of the day, would let it to sell it at the variable cost of production. Something like receiving a valuable family inheritance and then turning around and selling it for what it costs to wrap it and ship it to the buyer.

In the same vein, the outright privatization of the oil sector would eliminate all possibility of geopolitic negotiation and the only thing we would receive as a going away present would be the resources to solve the existential problems of an entire generation of Venezuelans that have, for the last 20 years, not been able to decide if they were coming or going and that lived in a sort of Limbo State in the duty free zone of our international airport.

Today, when OPEC, for well know reasons (albeit not well recognized reasons) has received a new lease on life, it would be naughty not to wish it success in taking advantage of this second wind to build itself into a solid organization capable of facing the new challenges. If it fails, this will surely be its last breath. This is why I wish to share with you what I would consider the OPEC I want.

The OPEC I want would be able to win the confidence of all of its members in order to consolidate in one single block all the resources necessary to really defend it oil. These resources go far and beyond the simple turning of the tap.

The OPEC I want would be one that, upon observing how consumer nations have usurped the value of oil by increasing taxes (the UK, for example, increased taxes from 85% in 1980 to 456% ad valorem in 1998), would humbly accept the fact that they have lost the battle to an able opponent, but is now regrouping in order to win the war.

The OPEC I want would train the world’s100 best environmentalists in order to insure that, even though it shares the conviction and responsibility of taking care of our fragile world, the costs of defending the latter would not be laid squarely and unjustly on oil’s shoulders and that the environmentalist’s arguments will not be used for other hypocritical ends.

The OPEC I want would train the world’s 100 best experts in international commerce who would help avoid measures like direct subsidies for carbon as well as taxes that are aimed directly at oil and not at other sources of energy and that are evidently discriminatory and therefore not permitted under the norms established by the World Trade Organization.

The OPEC I want would train the world’s 1000 best scientists who would work in the world’s best laboratories and study, research and develop new uses for oil in order to minimize pollution or maximize added value as well as alternate sources of energy that could be used in the future.

The OPEC I want would not recognize the rights to intellectual property, brands and patents that, like a rabbit pulled out of a hat, generate income for the countries that own these rights which are definitely renewable, while the income obtained from the sale of a non-renewable natural resource such as oil is simultaneously being treated in a discriminatory fashion.

The OPEC I want simply would not allow a company to abscond with a hefty portion of the value of oil because it has formulated an additive that (supposedly) permits gasoline to be less polluting and based on a process that has dubiously been patented.

The OPEC I want would train the best image and marketing advisors in order to insure that the world’s public opinion does not continuously receive distorted information about OPEC and its members.

The OPEC I want would be staffed with the best team of diplomats and negotiators that would insure adequate representation at all international forums.

The OPEC I want would not allow gas and other sources of energy who’s values are not set under the OPEC umbrella to be introduced into the market like Trojan horses in order to compete with oil.

The OPEC I want knows that it counts with other resources other than oil to defend itself. The mere addition of all its international purchasing power would allow it to receive better treatment by imposing uniform special duties on all those who discriminate against oil.

The OPEC I want would not be formed by managers that think that their only objective is to perform comfortable bureaucratic tasks, but rather by soldiers that know and accept that they are on a mission aimed at improving the lot of their nations and that borders on being sacred.

The OPEC I want knows that it is not totally unimportant and is able to rally the solid support of its members and above all, of the population of its member countries.

The citizens of countries belonging to the OPEC I want know that even though their happiness and well being does not depend only on oil, it does depend on being able to defend what is theirs.

In the OPEC I want everyone prays to his respective God to give them strength to take full advantage of the meeting in Caracas.

Caracas, Venezuela, Daily Journal, September 2000

Originally published in Spanish in El Universal, Caracas, Venezuela August 26, 2000