Forget the market for a while

The financial markets are continually boasting about having the best information available. They are right, but this continuous improvement in their capability to disseminate information comes at the cost of too much data too quickly. This results in an increased sense of the short term and no long-term vision.

It is only this that could possibly explain why today’s financial markets would impose interest rates on a country’s foreign debt that are so high that they can only be justified by the premise that the corresponding debt is to be repaid immediately and all at once. This is the case of Venezuela, a country with relatively little external debt.

This particular problem of dis-information in an era of information has resulted in an increasing volatility of the short-term capital market. This in turn has caused financial crises in many of the emerging markets and is being closely studied by many of the world’s monetary authorities.

In an article titled The Reform of International Financial Architecture published in Madrid’s newspaper ABC, Robert Rubin, former Secretary of the Treasury of the United States, recognizes the market’s basic responsibility, declaring that he is convinced about the need for government intervention in order to insure a better-market performance.

Mr. Rubin states that it continues to be necessary to solve the shortfalls in the risk valuation that have contributed to the worsening of the recent crisis and suggests that intervention should be made in the form of better international directives (i.e., the Basel Committee) which would increase dependency on long term loans instead of short-term financing. This type of intervention seems to me to be rather timid.

As a citizen of a country that due to internal and external causes finds itself in a bit of a mess, I wish to take advantage of the appointment of Mr. Lawrence Summers as new Secretary of the Treasury to ask him be more proactive.

For example, we would advance in leaps and bounds towards Mr. Rubin’s objectives should the United States guarantee the underwriting of a Venezuelan debt issue for US$ 25 billion with 30 year maturities with which Venezuela would repay all current debt that carries shorter maturities, which would make Venezuela one of the most solvent debtors in the world, which would make its debt instruments among the most attractive in international markets, which would insure that these could be placed at reasonable rates, which would allow the United States to free itself of any and all obligations thus obtained in a matter of minutes or hours.

Impossible, you say? Today, a firm that sells books, with no major asset base, and without immediate prospects of turning a profit is valued by the capital markets at US$ 30 billion, based primarily on its presence on the glamorous Internet. I simply cannot believe that the United States and Venezuela together cannot jointly put together an operation and negotiate the appropriate guarantees so that all parties come out smelling like roses.

I think that the majority of the authorities, government officials, professionals and individuals like Rubin, Summers and, modestly, myself, respect the free-market forces and system but also believe that it is sometimes necessary to promote government intervention. Where we may differ is in how this intervention should be enacted and how these two agents, market and government, should interact.

For example, over the last decades, the perception has been that a country like Venezuela should be very attuned to the requirements of a sophisticated financial international market. Attaining this markets approval would theoretically ensure that this country is on the right road to development and prosperity.

I believe this has been exaggerated. A country like Venezuela, which banks basically on one exportable product, has certain internal advantages and strategic strengths. There is no reason why this country should bow to market forces. It has the right, and even the duty, to develop other options to ensure development that don’t necessarily include the markets.

Perhaps our problem today is not Venezuela’s external debt per se, perhaps our problem is the market. Faced with this reality, let us go out and negotiate options, government to government. This does not have to include subsidies or hand-outs. These options can very well be developed in an economically more reasonable atmosphere than that present in today’s market.