I privatize you, I privatize you not

The sad truth is that for a very long time now - decades really - the country simply has not had anything even remotely close to a coherent economic policy. Without one, it will be very difficult to drag the country out of its current emergency, the bottom line of which is serious unemployment and poverty. I still have fresh in my mind that infamous cocktail of eighty “urgent” measures presented to the previous administration by Fedecámaras.

It is even more difficult to find a good direction due to the fact that our dilemma as a country is situated within the context of globalization process that seems to threaten national identities even further.

In these circumstances, it is no wonder that magic, instant solutions, and quick fixes seem to be coming from everywhere. Among these, none is more beautiful and tempting than the privatization of PDVSA. It seems to be to the economy what the Constituent Assembly is to politics.

Before I continue on this track, I wish to make the point that by referring to a state- run oil industry I refer only to activities in exploration, extraction, refining and distribution to basic markets. All other downstream business such as the petrochemical field, among others, is subject to such intense competition that the cruel efficiencies of the private sector are required for it to be successful. Any intervention by the State in this secondary business, can only result in the loss of part of the riches initially created by the basic activities mentioned above. There is not doubt that downstream business must be privatized.

We return, then, to the beautiful siren song (the sirens themselves are not so beautiful): The sale of PDVSA and oil reserves, Nirvana, Shangri-La and immediate gratification.

Evidently, it is not logical for a country as potentially rich as Venezuela to be in the state it is in. The sale of PDVSA could mean, among other things, that we could cancel all of our public debt. If we were able to resist taking on new debt, there is no doubt that the country would have a rather promising future, at least in the short and medium term.

Evidently, any industry that is not subjected to the critical and continuous surveillance by a greedy owner, can easily be led astray and would produce unsatisfactory results.

Evidently, it would not seem to make any difference who really owns PDVSA’s assets. The source of business would remain in Venezuela and the country would continue to benefit from royalties and income tax.

Why is it then, that like Ulysses, I would want to be strapped to the main mast in order to resist the siren song? My reasons are partly intellectual and partly from the heart.

On the intellectual side, the most important reason is that I am not convinced that the country can maximize the value of its oil without OPEC. The privatization of PDVSA would in essence mean our disincorporation from OPEC. This does not mean I am expressing satisfaction with the management of OPEC, which leaves much room for criticism.

The interests of the current players, management and the government, may be in conflict with those of the Nation. Additionally, there is no effective way to evaluate management of the industry. The sirens affirm that the privatization of PDVSA would solve this problem since its valuation in the open market would be a measure of management’s success, and would indicate the way forward. Personally, I believe one way to solve the problem is to require the transparency of information and to create the Office of the Oil Ombudsman. This would allow for the introduction of some national and long-term variables, which are frequently ignored in an increasingly globalized, and short term oriented marketplace.

Notwithstanding, I do admit that in these times, irrational reasons driven by the heart may be weightier by far. To begin with, I am not among those that disqualify the government as a manager.

Defense of oil requires decisive protest against those that prohibit the use of Orimulsion without reason, and against those that impose confiscatory taxes on oil derivatives, meaning that we receive only a fraction of its value. I still have not lost hope that this need for defensive action could rally us to unite as a nation and not simply as greedy individual shareholders.

I do not believe that as a generation that has failed in its management of oil resources we have the moral right to continue to anticipate even more cash flow. 

Should PDVSA actually be privatized and should there be a surplus that can be distributed, I hope it will be distributed among Venezuelans under 21. This opinion will most likely be contrary to that of those people that preach privatization of PDVSA in the same way children try to get to the end-of-party gifts in order to get away early from a boring piñata.

On the other hand, I recognize the value of all the arguments against centralization of fiscal income. Quickly, please... tie me to the mast!

A nation guilty of innocence

In a European country (it does not really matter which, since in this sense they are pretty much alike), out of every U.S.$100 that a motorist spends on gasoline, $85 goes towards taxes, $5 to cover the cost of distribution and $10 or less to pay for the refined product itself. In other words, the amount that a country will be paid in order to extract this non-renewable resource is actually peanuts.

The 85% that goes to the European taxman is just a simple duty. In normal markets, a fall in oil prices of about 55% should technically result in an increase in consumption. In Europe, however, gasoline prices remain basically the same. 

This means that the tax authorities simply took advantage of the above-mentioned fall in prices to simply increase their collections.

I am among those that believe that the solutions to Venezuela’s current financial crisis will require much more than a simple increase in oil prices. Among other things, I feel it is necessary to develop a real national conscience which will allows us to properly defend our own interests. Ironically, I don’t see any other place to begin but with our own oil.

Had Venezuela properly invested the resources obtained during the oil boom, it would definitely been in a better financial position. There is no doubt that Venezuela’s crime was to spend and give away excessively. An example of this excess is that the overspending did not only include oil income but indebtedness as well.

However, neither the excess generosity described above, even if it borders on stupidity, nor the country’s masochistic streak (nobody can deny that our problems are self-inflicted) should result in the loss of fair and respectful treatment from the rest of the world.

Because of this, it angers me no end that in spite of the fact that Venezuela is suffering due to low oil prices, the country is not being offered other alternatives to restructure its debt than that of suicide by way of the ingestion of 20-year credits at 20 percent interest per annum available in the marginal emerging market.

The taxes imposed by Europe on gasoline, the prohibition on Orimulsion imposed by Florida, and finally, the usurious demands made by the financial markets are sufficient evidence to prove that, even if it seems like a contradiction in terms and even when globalization continues to steam along, it is up to every man to look out for himself.

When we also note that the developed world spends huge amount of resources to co-opt those that ‘misbehave’, logic would seem to imply that one simply has to play hardball.

It would seem to me that something like a suspension of landing rights in Venezuela for flights from Florida as a response to that state’s continued imposition of its ban on Orimulsion simply in order to favor some particular local interests would be a fairly civilized level of roughness, specially when compared to what is going on in, for example, Kosovo. 

It would seem to me that something like a special duty imposed by Venezuela (preferably backed by OPEC) on all products coming from countries that locally apply a direct tax on oil products is neither worse nor different than all the conflicts being debated today in the international commercial system.

It seem to me that we would not be asking too much from the United States if we propose to restructure all of our external debt on 30-year terms at an interest rate of 0.5% over Treasury Rates to be repaid in advance if and when the price of oil goes over US$ 30 per barrel, especially if we consider the expense the USA undertakes in order to build its strategic oil reserves by burying them in underground deposits or in militarily guaranteeing access to other strategically important areas, and if we consider that after such a restructure, Venezuela, with a fairly small debt, would immediately merit a much better credit rating than many of the other countries, currently favored by the markets.

Hunger is a violation of human rights. In my country innocent people are suffering from hunger, most of them as a direct result of populism. The battle against internal populism, however, often results in falling into the trap of innocently accepting imposed external economic populism, more often than not resulting in more hunger. It is high time Venezuela defends its own interests by not consistently bending over backwards.

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.

Mickey Mouse, please help us!

If we look at it objectively, there seem to be few things that are as important for the future of the oil industry of Venezuela as is the development of Orimulsion. Likewise, there are few places in the world with which Venezuela has closer ties than to Florida. On the 24th of June 1998, the State of Florida, without valid fundamental reasons, ratified its prohibition on the use of Orimulsion for its power generation.

We have thereby received an insolent and costly slap in the face. Venezuelans, however, continue to pack their bags to go spend their money on vacations in Florida as if nothing had happened. In my opinion, this simply proves that there is a total absence of the only ingredient necessary to confront and solve the difficult situation our country is in, that is, a sense of patriotism.

As a youngster, I participated in parades in honor of national holidays which promoted the concept of a nation by singing hymns and waving flags. I don’t complain about this, on the contrary, I’m proud and grateful for it. Times change, however, and I’m not sure we want to exaggerate with the parade issue if we wish to give our children the best of all gifts, the pride of belonging to a country, of being a Venezuelan.

Orimulsion is a product invented and produced in Venezuela, and it can be attributed both mythical as well as real elements and characteristics. I therefore believe it is possible to develop a campaign of national identity around it. In this sense (although technically incorrect) it should be enough to visualize images of energy and power bubbling up from the turbulent waters of the Orinoco to the sound of Enya's "Orinoco Flow".

I realize that I am running the risk of being accused of patriotic mumbling and many would ask me what we would do with national pride anyhow. The answer is obvious. We would be able to show the world that Venezuela, more than a simple geographical presence, represents a community of wills and desires that should be respected as such.

I am absolutely sure that Venezuela would be a country with a bright future should all of our youngsters react against Florida’s decision by threatening to cancel trips to Disney World and asking their parents to take their “cheap, give me two” shopping sprees elsewhere.

What worries me even more is the fact that this national apathy towards Florida’s prohibition on Orimulsion comes in the face of a widespread cry for declaring a national emergency due to the drastic fall in world oil prices. As an example of this silence, it is enough to note that the discreet protests emanating from the Venezuelan American Chamber of Commerce (VenAmCham), the only entity that would conceivably have the right to a pained silence, surpass those of the Congress, Fedecamaras, the CTV, universities and presidential candidates.

In today’s world, it has become evident that public opinion is a strong weapon that can be effectively used to obtain favorable results from international commercial negotiations. For good or bad, we are generally not amazed, for example, by the exaggerated advantages awarded agriculture in Europe because we recognize the power of public opinion wielded by this sector.

We have given Bitor and its management (a black box to most) the responsibility of negotiating an issue of utmost importance to the country without giving them either the support of powerful groups that could conceivably promote a strong lobby nor the support of solid public opinion to which they could make reference. This is infantile, and what happened was simply bound to happen.

When I broached the subject to my young daughters, specially the part of not going to Disney World, there seemed to be an immediate backlash since they thought I was insinuating that Mickey was responsible for our troubles. Harmony returned when I explained, however, that what we should really be doing is writing to Mickey to ask him to help us, since without Orimulsion there is no money and without money we cannot continue to visit him.

Harmony could also return to Venezuela if we manage to unite everyone around sacrifices that make real sense such as: defending Orimulsion at all costs; imposing emergency duties to avoid total atrophy of our possibilities of creating internal jobs markets and; prioritizing investments within the country.

If on the contrary we: a) ignore Florida’s slap in the face; b) continue to permit the contraband in our ports, thereby guaranteeing job places in other countries; c) keep building (mostly with public funds) gasoline stations in the face of a lack of schools; d) continue to base emergency plans on the collection of additional taxes in order to finance the indolence of others; and e) take on additional debt which will have to be repaid by our grandchildren, there will be no country left to harmonize.

Unfortunately, should this occur, I will have no other choice but to suggest to my children that they should quit seeing Mickey as a source of recreation and look at him as a future boss, as many compatriots who have had to leave the country actually consider him already. Let’s take advantage of Orimulsion and consolidate ourselves as a nation.

http://petropolitan.blogspot.com/1998/07/mickey-mouse-please-help-us.html