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.