A worthy election volunteer

By Per and M.C. Kurowski

Chapter One: I recently had the opportunity to travel to a country in Central America with widespread poverty. The airplane I was on carried at least 30 young Americans, all of them between 16 and 18 years old. They belonged to one of the Peace Corp´s programs I did not even know still existed. Upon arriving at the local airport, I watched them load their gear onto a truck and head off, facing two years of hard labor in the interior of the country. Without delving into matters of cost-benefit ratios of this enterprise, I must confess that this evidently well-intentioned and healthy volunteer effort moved me deeply.

Chapter Two: I returned home from my trip to Central America and was promptly hit by press reports about the costs involved in our election process. Most of these costs were to related to services that, should democracy really mean something, could easily be supplied by well-intentioned and healthy volunteers. This should be one of the principal priorities for the newly appointed members of our electoral organization.

Chapter Three: I spent the recent Carnival vacations in Margarita. My eldest daughter came to me with a comment about something she had seen on the beach. I enjoyed the story and asked her to put it into writing. The following is the transcription of her notes.

“Adventure on Playa Guacuco by Mercedes Christina – Age 15:

There we were, on the beach, full of family spirit, without a care in the world; a healthy environment to be admired and yearned for; never perturbed but for the few moments when the eventual topless European appeared on the horizon.

The beach is a wonderful place. One is always learning about the latest rumors while the children (a classification awarded to all those younger than I) play with their surf boards or ask for money to buy ice cream or empanadas from the local vendors who, because you are their “favorite client”, generously charge triple the going sales price. Your family keeps smiling, Mom reads a good book, and I, being the well educated daughter I am, comply with my usual duty of making sure Dad receives his daily exercise by playing racket ball.

Just as we began competing to see who would replace Pete Sampras, the ball got away from me and I ran to retrieve it. As I bent down to pick it up, I noticed out of the corner of my eye the presence of a pair of black boots. I straightened up with the intention of asking the owner where he had acquired them since they would definitely have been a great addition to my own collection of footwear. Upon raising my head, I was treated to the fright of my life. The owner of the boots was a longhaired Rambo who was in turn flanked by two lieutenants.

The three soldiers were dressed in camouflage and the only possible reason for their being there in that particular outfit must have been to blend into the palm trees. Given the fact that it was Carnival, their bulletproof vests should probably have been more like egg proof vests. Each one of them was armed to the teeth, and since I am far from an expert in ballistics and armor, their rifles seem more like large cannons.

All this impelled me to reflect on the time and effort our politicians spend supposedly drafting plans to insure the safety of our borders. Apure is the state normally mentioned when adults discuss these problems. My sense of orientation may be poor, but from what I understand, Margarita is not a candidate for surveillance due to border problems. There is quite a distance between Trinidad and Margarita.

Or could it be something else (something my father often talks to me about); that the idea of what adventure tourism should be as perceived by our government is not quite what it should be. They not only scared the wits out of the Europeans, but out of the Venezuelans as well. I believe that instead of attracting foreigners, they are driving them away. For the moment, they should send Rambo and his pals to Apure, where their work will be far more productive.”

Conclusion: Obviously, I am a proud father. I am proud of Mercedes as well as of her sisters. Since I cannot find a sufficiently viable and coherent political proposal out there which will insure improvement of the lamentable situation our country is in, I believe my children form part of a generation of Venezuelans that must necessarily take charge of their own destinies.

However, before they send us packing, I would really like to instill in them a real love for democracy. In this sense, I ask the new officials of our electoral council to forget about teachers and professors when planning the execution of our next presidential elections and give our 15 to 18 year olds a chance to really participate. They are the principal source of generous volunteer service well as the primary victims of our electoral mistakes.

The taxes we have to pay

It is time for payment of income taxes and I have just complied with my duty as a citizen. I must admit that compared to what I would have paid elsewhere, I personally did not have to pay an exaggerated amount of tax. Why is it then, that I am not satisfied? Could it be that it is because I am being eaten away inside by a suspicion, already bordering on certainty, that my country would be better off had I not paid taxes at all?

On the same day I finished struggling through my tax forms, I read in the press about PDVSA´s fiscal contribution for 1997. This contribution amounted to all the Bolivares in the world. Upon cranking the numbers on my calculator which went into an exponential mode, I found that this boils down to a contribution per capita of Bs. 200,000 for every Venezuelan citizen, rich and poor, young and old.

I imagine that in the international world of taxation, these Bs. 200,000, which translate to US$ 400 per year, don’t qualify for a position at the top of the list. If, however, they are expressed in terms of some of the public services offered, these figures are numbing.

Every retired Venezuelan, those we hold dear to our hearts and affectionately refer to as “los viejitos”, is due to receive Bs. 50,000 per month in retirement pay. Using the technology provided for by modern accounting, i.e. re-expression, we can affirm that every Venezuelan, rich and poor, young and old have contributed, via the cession of his or her portion of oil income, an equivalent of 4 months of retirement pay to the nation’s coffers. These figures would undoubtedly qualify us, as taxpayers, for mention in the Guinness World Book of Records.

All of this is before we even get into what we all pay in sales tax, (VAT) which by law must not be specified in the final sales price of any product. This only hides even further the magnitude of the buyer’s contribution to the above mentioned coffers. Is this restriction due simply to bad conscience or to outright hooliganism? I will let others decide.

And all of this before we include the other hidden taxes such as the sky high telephone rates we must pay because the nation has sold concessions at elevated prices in order to raise fresh resources. Authorities (in this case Conatel) have already gone on record as stating that during the next bid for a concession of a cellular phone system, we “must not commit the same mistake of selling it cheaply, in obvious detriment of the interests of the State. We must try to get more than US$ 100 million for it”. Obviously, those US$ 100 million must be repaid by the end user, by way of higher tariffs. Obviously, nobody has considered the right of the common citizen to be able to communicate economically. One of these days it will occur to someone to announce the letting of a concession for pure air.

And all of this before we include the hidden taxes represented by the abominable public services we receive.

And all of this before we include the immense contribution of a healthy portion of the physicians, professors, teachers and other professionals that work and comply with their obligations, earning pay that is well below what it should be.

And all of this before the contribution of companies in the form of taxes on assets, which must be paid whether the company is in the black or in the red and which ultimately find their way to the final consumer.

And all this before we consider the astronomic taxes incurred due to a string of devaluations, the impact of which is proven when we see that never, before or after Columbus, has the public sector been so large in comparison to the private sector. The essence of any neo-liberal model is the reduction of the influence of the public sector on the economy. The tropicalized interpretation of this model by our government officials has allowed them to get rid of all that has become obsolete, that is causing them problems or even worse, that requires investment. It seems that their dream is to keep all fiscal income but without any of the corresponding obligations.

This series of inexhaustible fiscal contributions, voluntary and involuntary, evident and occult, is justified by the threat that, should we not pay up, we will have a monster deficit, inflation will eat us alive, and along with these two specters the big bad wolf will get us as well. Ladies and Gentlemen, inflation has been around for many years and the wolf has been here for some time. It seems to me he is dressed up as the taxman.

Venezuela’s problem cannot be found on the fiscal contribution side of the coin. Venezuela’s problem is found, with crystal clarity, on the fiscal spending side. This is why, by paying my income tax, I could be causing damage to my country. Something like giving drugs to an addict. Something like giving an alcoholic a bottle of rum. Something like treason.

The next time you see a dirty, tattered and hungry child abandoned in the streets without hope, remember that he has also contributed Bs. 200,000 to the Venezuelan State in 1997

PS. Fast forward: My tax paradise (nothing as powerful against tax havens than tax heavens)

Should we abandon OPEC?

Alternative 1: Continue in OPEC, produce little oil and sell it at reasonably high prices. Alternative 2: Abandon OPEC, expand production capacity and sell oil at relatively low prices, while conquering new markets in the process.

Venezuela’s future oil policy should lie somewhere on the axis formed by these extremes. We, as citizens, should supposedly form our own opinion as to where this ideal point should lie.

Over the last 20 years, I have consistently questioned the logic of a policy under which the members of a cartel have turned a blind eye to the diminishing strength of the latter, almost as if on purpose. This is the case of OPEC, which has, year after year, lost market share. In this sense, the only plausible response to the proposal of going out and aggressively conquering new markets should be “let’s go for it”.

Unfortunately, it is not quite like that. Even though I support this proposal on technical terms, I can’t quite seem to drum up enthusiasm. Neither because of the possibility of revindicating myself with an egoistic but savory “I told you so”, nor because of the possible inherent promise of the plan itself. The cause of my indifference is none other than my conviction that such a decision is in itself of little importance for the future of the country.

It does not suffice to follow a coherent oil sector policy. What really matters to the country is its final result. A decision that is technically wrong but produces satisfactory results is clearly better than the opposite. As far as the future of my country is concerned, I am not interested in applying the medical phrase that certifies that “the operation was a success, but the patient unfortunately has died”. 

In its initial phases, OPEC generated large volumes of resources for Venezuela; more than sufficient to set the country on the road to development. This did not occur and there is no reason to believe that the country will manage to reap the non-perishable fruits of this development even if the next oil policy is successful.

Even though I realize that it is not popular today, and feeling a bit like a prehistoric hippie predicating “Love is all we need”, I will risk whispering the statement “oil is a valuable natural, non-renewable resource”.

Since oil is indeed valuable and because it is not renewable, prices have once upon a time been pushed up to nearly $ 40 per barrel and projected prices should probably be around $300 today. Since oil is valuable and non-renewable, it was also said that before liquidating it at low prices it would be better to leave it in the ground (for the benefit of our grandchildren).

If we were not all, myself included, simple egoists itching to get our hands on resources that would allow us to once again live an easy and happy life, we should really be leaving the oil in the ground today, thereby insuring the future of our country and our children. Not until the price is right (the current market price of US$ 12 may indeed be the right price), but until we can find prudent, reasonable and responsible destinies for the income our oil sales generate.

When oil prices skyrocketed in the 1970’s, the country went the route of mega-projects; duties to protect against imports, subsidies and all of the other ingredients which eventually proved to be wrong. At least, however, these were the result of a plan and a vision. Today, there isn’t one coherent statement, not even an incoherent one, with respect to a development model applicable to Venezuela.

These comments are not aimed at paralyzing the oil industry’s current plans. On the contrary. We have read in this week’s press about the need to isolate the country’s fiscal accounts from the ups and downs of oil prices. In my humble and probably validated opinion, we should probably be doing just the opposite in order to give our industry an even chance to fight for its markets. We should be isolating our oil industry from our fiscal appetite.

The previous strategy of reducing production and selling at lower prices represents, in addition to minimizing investment requirements, the milking of our cash cow, PDVSA. Today’s strategy implies that we must cover increasing needs for investment in the face of falling prices with drastic reductions in fiscal spending. We still have a long way to go before we can be convinced that the political will to reduce spending is really out there. To begin with, the US$ 2 billion the country reaped from the oil opening, which should have been earmarked for PDVSA’s own investments and expansion, have already been spent. As usual, there is nothing left!

Speaking about trust and distrust

International financial risk rating entities are once again issuing their results for Venezuela. And once again, everyone begins to tremble. There is confidence! Ooops, there is no confidence! The debate is once again on the table and I take advantage of this to share some of my reflections on this issue with the readers.

It could be that I am not exact in my appreciation, but then again, when dealing with something as subjective as confidence, it shouldn’t really make much difference. In 1982, the then Minister of Finance decided that the country should be paying interest rates well below those being required by the international banking community in order to renegotiate part of Venezuela’s foreign debt. This decision blocked the restructuring of our foreign debt and together with the crisis in Mexico and other indebted nations combined to unleash the events which resulted in the devaluation of Black Friday of February 1983.

Obviously, the Minister was severely criticized. I considered this criticism to be unjust since, as far as I was concerned, the Minister was in reality a hero of the nation; almost enough so as to merit a statue in some important plaza. In my opinion, his actions, which generated international distrust, saved the country from billions of dollars in debt, which would have bloated the amounts actually accounted for after the disaster. Few heroes can be proven to have undertaken such important deeds for the good of the nation.

In reality, to inspire confidence in others should be of no concern for the country, while it has not been able to find or generate an economic and administrative model which inspires the confidence of its own people. Trying to do so simply confuses the search for in depth solutions. 

In addition, the persons for whom instruments of measurement are designed do not include those foreigners whose confidence we really seek. Rating agencies rank a country’s measure, principally the latter’s ability to service its debt. As such, their market is comprised of bankers and investors who simply wish to make a short-term financial investment. Nothing of special importance to the country.

Those foreigners who could really interest us are the ones who come to the country with resources, the ones with the intention of remaining here for the long-term, to put up factories, cultivate the land, generate employment and maybe even raise a Venezuelan family. That is to say, the one whose objectives are one and the same as those of the nation. The opinions and confidence of these people are not measured at all.

In addition, both the methods and measuring instruments as well as the professionals actually doing the measuring, probably continue to be the same. They are the same ones that not very long ago argued that it was impossible for a country to be bankrupt, thereby justifying stratospheric limits for indebtedness with such enthusiasm that both bankers (who by the way proved to be unprofessional in most cases) and the common Venezuelan, upon hearing this siren song, joined forces and created the mix-up of the century.

For those of you who may have any doubts about this, I suggest you look at the ranking of six months ago. In those listings, the majority of the Asian countries looked like nothing short of marvel of creation. Haven’t you recently heard all of the crying over the Asian financial crisis?

We must evidently listen to the opinions of the credit agencies. Their measurements reflect many variables of great importance for the well being of the country. Unfortunately they also are the principal source of information about the country for many foreigners. In other words, to lie awake at night worrying about ranking doesn’t make sense.

You may remember the story about the anguished debtor who could not sleep, but found a way of finally getting a night’s rest by transferring his insomnia to his banker with the simple words “I can’t pay you”. In this case, something similar occurs. I personally sleep better when Venezuela’s ranking goes down, since I am then sure that lenders will not be making additional resources available (in my name as well as in the name of my children, grandchildren, great-grandchildren and other future debtors) to governments that insist on misspending them.

The day the government, during electoral period, pays more attention to the opinions of its humble subjects than to those of the glamorous international agencies, we will finally stand a chance of making it out of our standard situation. The latter, according to all international norms I know of, can be objectively classified simply as “poor and moody”

Electricity supply for Brazil

There comes a moment in life when one has to confront so many different problems that one doesn’t quite know where to start. The result is often that one begins by tackling a minor chore such as putting your bedside table drawer in order.

We have been reading during the past few months about the development of a project which will supply electricity to Brazil and which involves construction of extensive distribution systems. We don’t have many details about this project and it could indeed be an excellent one; we certainly hope so! However, we feel that it is of low priority, something like your bedside table drawer, and that it raises certain questions which could diminish its validity as a project.

I have no intention of joining the group of critics of the “I told you so” ilk who must now be gloating over the news of the negative effects El Niño will have on Venezuela’s hydroelectric generation capacity. Evidently, things like El Niño must completely alter any bases on which the project was developed, but since I consider the former to be an external and fortuitous event, I also feel it is an extremely poor foundation for criticism.

I must admit that my first reaction upon hearing about the project was sheer envy. This sentiment basically comes from my conviction that if we are to invest in transmission lines, the Island of Margarita for one, is probably more deserving than Brazil. I simply don’t understand how and why an important pole of development for the country such as Margarita is being forced into more expensive generation systems such as, for example, the time-worn idea of a gas pipeline from the mainline to the island, while we are simultaneously developing mega-projects in order to export power to Brazil.

You don’t have to be an expert in environmental affairs to suspect that a 217 Km. suspended power line which must be supported by 512 towers, each of them 36 meters high, spread out through environmentally sensitive areas such as the Canaima National Park, the Imataca Forest Reserve and the Southern Protection Zone of the State of Bolívar, must have serious implications. It is not enough to assert that there will be special care taken to camouflage the towers in order to reduce contrast with the horizon.

I propose that we study the possibility of a swap. A new power distribution system for Margarita, via suspended lines and submarine cables, in exchange for a gas pipeline (underground) to Brazil. The latter can then build it’s own power plants wherever and whenever it sees fit.

I may be accused of being Brazil’s enemy; I certainly am not! Venezuela has serious border problems for which it has not been able to develop a coherent policy. A power line aimed at developing an area in which we still do not have effective representation seems more like a humanitarian aid shipment of medicine, blankets and food parachuted into unknown neighboring foreign territory, thereby strengthening the latter’s hand without ensuring that our own side of the border is equally populated, developed and supplied.

How can a simple columnist dare comment on matters completely outside his direct scope of expertise? I believe the answer lies in the fact that it is not necessary to have technical know-how when the objective is to try to put projects into social perspective in such a way as to be able to analyze their priority for the country. We obtain proof on a daily basis that the country lacks a central entity who’s responsibility is the adequate allocation of priorities to projects in the pipeline. In this sense, it could be that the Brazilian project is valid, but would it not behoove us to analyze whether it is better and more important than others? A citizen that doesn’t raise questions is a citizen that will eventually end up with his photograph pasted on identity cards (cédulas) which would have cost us US$ 500 million.

One last comment. Frequent mention is made about an environmental impact study undertaken by a “specialized firm”. In cases such as the above, of such environmental importance for future generations, I would probably wish to know that the studies were entrusted to serious professionals with names and surnames rather than to an anonymous company. If we had the backup of names, cédula and telephone numbers and addresses, we could conceivably exact accountability from them; if anything, for the honor or shame of their descendants.

By the way, forty years ago, this responsibility would have been assumed by politicians personally. They would not be hiding behind the skirts of a political organization. If dictatorship in any way is superior to democracy it is because, at least in our country, dictators are held historically and directly more responsible for both good and bad; much more so than today’s executives of Political Party, C.A.

How good or bad is your municipality?

I recently had the opportunity to travel to a Central American country. I was impressed by the fact that many professionals, both from the public as well as the private sector, both local and foreign, were basically in agreement as to which municipalities were well governed and which were not.

Evidently, there are a great number of subjective factors that may influence or “color” opinions from municipality to municipality. Some of these we have seen before, such as the mayor’s looks and/or congeniality or how big a share of the nation’s global resources it has been awarded. Certain variables can, however, be objectively evaluated in order to allow a reasonable ranking of municipalities as far as effective government is concerned.

In many parts of the world, including Venezuela, we have seen that expectations of improvements in public services are based on decentralization of power. As a result, it would seem positive to be able to develop a methodology which would help the population measure the results and efficiency of its government(s).

Bad results are immediately evident; their causes are not. An inefficient municipality can easily justify its unsatisfactory performance by alluding to a lack of resources. On the other hand, a below par result can also be hidden behind a surplus of resources. Having to take care of his day to day duties, how is a simple voter to know which is which?

The absence of knowledge or of access to information based on very certain and objective data about municipal government as well as an accompanying aversion to the unknown, attempts against a healthy renovation of the latter’s authorities. This lack of benchmarks and standards of measurement may also mean that results which may seem poor in the short run but that are designed by provide meaningful long-term improvements are not suitably rewarded.

Just imagine the chaos and confusion if our system of education all of a sudden decides to do away with the report card. How would parents evaluate the scholastic capacity of their children, especially when many of them haven’t even heard about the existence of the subjects currently being taught. This is very similar to the confusion of most voters when the time comes to choose their authorities for the next period.

We have about 300 municipalities that hold official elections in Venezuela. Few voters, so much so that I personally don’t know of one, have even the remotest idea whether their municipal government is better or worse that his neighbor’s. A ranking such as that mentioned above would help us comply with our obligations as voters.

Evidently, nobody can say that the measurement of results, however objective, will result in the correct analysis of any particular administration. However, a reasonable ranking could at least go a long way toward becoming a valuable tool to identify extreme situations. It would certainly identify those governments which one should hang on to for dear life and flag those that should go as quickly as possible. For example, the list of ingredients printed on packaged foods such as levels of calories, proteins, vitamins and chemicals is not meant to prohibit ingestion of the food but to inform and allow you to control your diet.

At a time when the country is betting the farm on decentralization, even in the face of certain risks such as runaway federalism, I am under the impression that one of the best possible investments we could make would be the creation of an evaluation committee whose task it would be to review efficiency at municipal levels. This committee or group, in addition to having solid methodological knowledge and ample resources with which to ensure that the job is done, must be totally independent of all political movement and of all people who could aspire to posts in municipal governments.

Perfection is the enemy of good. We don’t have to be overly precise. I don’t doubt for one minute that the 50 municipalities that are ranked at the top of the list would realistically belong at least in the top 150 and that the bottom 50 would really belong in the bottom 150.

A country of this composition that manages through elections to keep 50 good ones and trash 50 bad ones is certainly on the road to a better future than a country that bases its choice primarily on election period jingles. This means taking firm command of our future based on realistic information.

By saying all this, I’m not saying that I want our rights to vote reduced. By having declared myself incapable of saying with reasonable certainty whether things in my municipality are going well or not (in terms of what can be done and what can’t), I don’t wish to disqualify myself as an electoral illiterate. I simply wish someone would give me some spectacles with which to see better. And while you’re at it, throw the state governments in the pot as well.

PDVSA’s shadow budget

Once again we read that PDVSA has been given instructions to purchase goods and services it requires to operate from sources outside national borders, limiting thereby local purchases. The reason for this policy is purported to be the fight against inflationary pressures. Although we have continuously heard declarations issued by Government sources to this effect, the official petroleum sector vehemently denies it.

Evidently, it did not take long for local suppliers of goods and services to raise the roof with severe criticism. The latter is obviously based on the outright injustice brought on them and the local economy by an evident preference given foreign suppliers. The brief observations that follow address other aspects of this initiative.

Above all, it is important to note that there is no direct link between local purchases and inflation, specially in the case of PDVSA. Should the oil industry purchase goods locally instead of importing them, the State always has the option of selling hard currency against Bolívares, thereby soaking up the possible excess liquidity caused by these transactions. By the way, in order not to be disqualified from the roster of possible suppliers of services to the oil industry, I am willing to invoice any services they could possibly require in US$ and from the location they prefer. The only thing left for me then is to make my peace with the tax man.

Evidently, it is necessary to import should PDVSA’s demand of local goods and services eventually result in such strain on supplies that prices go through the roof. In this case, imports would not be the result of the application of economic policy (hare-brained or not) but of a simple and usual business common sense that dictates that you buy where it is least expensive.

These observations bring us around to the real question about the real scope of the oil industry’s operative independence or, if we look at the other side of the coin, the scope of the direct influence exerted by the National Executive on PDVSA and its operations.

If it is true that the Government has the power to instruct PDVSA to direct it’s purchases towards one source or another, when to pay its bills, etc., etc., without being subjected to legal norms and regulations such as the Law of Safeguarding of Public Patrimony (Ley de Salvaguarda del Patrimonio Público) and running circles around the Central Bank’s independence without so much as a polite salute, then I’m afraid we are in the presence of a parallel government of some import.

I am not a public servant, but I feel that should I be one and be appointed to sit on the Finance Committee of Congress, I would definitely consider my job belittled. Should I be called on to collaborate with the development of the national budget, which is evidently based on the use of a few small printed bills, it is possible that the game of Monopoly would have immediately come to mind. In addition, I would surely be intensely jealous of those who, being directly in charge of budgeting the use of real resources such as PDVSA’s, have much more to say in the future of our country.

By saying this, I am not inferring that Congress should be the entity in charge of PDVSA’s budget. A democracy is based on the existence of a system of checks and balances. Therefore, if the National Executive, with or without reason, insists on intervening directly in the oil industry’s activities, it is clear that it is necessary to regulate the limits of this interference.

A few months ago for similar ends, I suggested the creation of the figure of the “Oil Ombudsman”. Initially this was aimed at simply informing the common citizen, objectively and truthfully, about the state of the national oil industry. In Swedish, the word “Ombudsman” means something like the spokesman and representative of public interest. It is a figure used in many countries in areas that are infinitely less important than the oil industry is to Venezuela.

Today, we are all trying to evaluate the consequences of the recent reorganization of PDVSA and would all like to clear up the issue of the instructions supposedly issued as far as PDVSA’s purchases are concerned. We all must feel the need to go talk to someone credible who could clearly answer our questions about matters related to the efficiency of the industry as well as about possible consequences of Government intervention in the same. If accusations of intervention are false, would it not be comforting to hear this from a neutral source as well?

It is probable that neither the National Executive nor the petroleum industry is keen about the possibility of having an external observer hanging around the halls. However, due to the all-important nature of the oil industry for Venezuela as a whole, it is our responsibility to request the existence of one.

The merry-go-round of aluminum prices

Any time now, either the privatization of the aluminum industry goes forward or the process is delayed indefinitely, rather, definitely delayed until after the upcoming presidential elections.

One of the most debated issues during the run-up to privatization has been that of the establishment of the price at which the privatized entity will supply primary aluminum to the local market. The opinions of the parties involved normally reflect directly their particular interests. While on one hand, the potential bidders interested in acquiring the aluminum concerns don’t want to see any limitations imposed, the local buyers of primary aluminum naturally wish to be awarded the right to purchase unlimited volumes and minimum prices.

At the risk of sticking my nose where it doesn’t belong, I would dare say that the final price the Venezuelan state would receive for the privatization of the industry’s components would be higher should no limitations on future sales be imposed than if obligations to sell to the national market at specially favorable prices were built in from the onset. Accordingly, it is obvious that as a tax payer and party, however theoretically, to a minuscule portion of the national fiscal wealth, I retain a certain right, as co-underwriter, to make my opinions known.

I will begin by establishing certain parameters. Aluminum is a metal for which the global markets establish reference prices on a daily basis (through the London Metal Exchange), that is, it is a commodity. Supposing that today’s quotes are based on the cost of aluminum of US$ 1,500 per ton fob at a European port and that the cost of transportation to Venezuela is US$ 60 per ton, this means that anyone wishing to import primary aluminum to Venezuela must pay US$ 1,560 per ton plus the cost of the internal freight to its final destination. On the other hand, if someone wishes to export aluminum to Europe from Venezuela, he will must foot the bill for the freight in order to meet the reference price of US$ 1,500 per ton. This means he will receive US$ 1,440 (i.e. the reference price less freight charges of US$ 60 per ton to Europe) less local transportation costs.

Under normal conditions, it could be expected that prices for primary aluminum in the local market with cash terms and reasonable volume purchases would be set within the abovementioned band (that is, between US$ 1,560 and US$ 1,440). Should prices be set higher than the maximum, this is certainly due to other aspects such as the existence of protectionary measures aimed at blocking aluminum imports.

Should the opposite occur, that is that the resulting price is set below the lower level of the band, this is probably due to special regulations such as price controls and the accumulation of incentives to import. For example, the exporter may prefer to sell aluminum locally at lower prices in order to be able to offset sales taxes immediately rather than sell overseas at higher prices and waiting patiently in line for the tax authorities to reimburse him for this sales tax.

Evidently, as a loyal Venezuelan I am interested in insuring that any primary industry such as the aluminum sector can develop and invest in downstream processing facilities which will produce added value, generate employment and participate in the general well being of the country.

However, I do believe that the best method available to the State in order to insure the coherent development of internal markets is the outright elimination of artificial barriers, not the creation of new ones.

Should the National Executive, in the case of the privatization of the Venezuelan aluminum sector, concede advantages to local buyers of primary aluminum and as a result reduce the price potential investors are willing to put on the table, this reduction in price could be construed as being a subsidy paid in advance to the local market without exacting anything in return. Doesn’t seem logical to me!

It would seem logical, however, to obligate the Executive to intelligently study the future development of the market in order to manage prices within reasonable limits. Any efforts to block winning bidders from taking undue advantage of their local strengths are merely partial justifications for this study. It is much more important to identify any artificial tendencies that are normally created by the Government itself and that are usually the principal causes of these abnormal situations in the first place.

Having decided to capitalize on some of the advantages offered by privatization, let us, for God’s sake, not turn around and forsake these by nationalizing free market rules and regulations.

Accessing www.Venezuela.com

Many columnists writing about the Internet maintain that due to the type of information it makes available, it will some day allow less developed countries not only catch up with developed nations, but actually surpass them. This theory is based on the idea that the former would be able to enjoy the benefits of new inventions and discoveries without being tied down by previous ones. We don’t wish to exaggerate the importance of the net, but the fact is that it exists, that with every day that passes there are more users, and that huge amounts of resources are being invested in its development. The following are some comments related to the above.

1. Orphaned Pages: Individuals and organizations of all kinds are dedicated to the dissemination of information via the Internet by means of the creation of web pages. Many of these pages are immensely valuable and are continually consulted by thousands of users. Other have less success. Just like ships lost in space, there are many abandoned pages floating around in cyberspace as silent witnesses to those immense efforts in development that have fallen by the wayside.

These orphaned pages contaminate. Sometimes they only cause minor irritation to the net’s users, they frequently turn into instruments that are contrary to the reasons and interests for which they were created. For example: in early 1996 someone interested in Venezuela could access, via the Venezuelan Embassy in Washington, a special web page where he could find the most recent information regarding the privatization process carried out by the Venezuelan Investment Fund. The page was never brought up to date and since then, it still proudly touts the objectives of privatization of entities such as Alucasa and the Electricidad de Nueva Esparta for the fourth quarter of 1996. Evidently, the impression is totally negative.

Obviously this fact is not exclusive to Venezuela. It occurs in all parts of the globe and with may types of organizations. In our experience it has been increasingly difficult to eliminate a page since, due to this dizzying growth, service companies maintaining these pages cannot keep up with the demand and don’t have the time or the interest necessary for those who wish to retire their pages.

Every user is responsible for his own page, but as far as the official pages produced by government entities, we believe a central entity should a) supervise their creation, b) maintain a registry of existing pages, c) watch over them while they are active, and finally d) give them a proper burial when they become obsolete.

2. Venezuela’s Page: With frequency we see a duplicity of efforts when organizations, both private and public, include information relative to diverse and general aspects of Venezuelan life such as geography, economics and law in an effort to make their pages more attractive. This effort is not restricted to the development of the pages but extends into their maintenance.

It is extremely important for the country to be able to capitalize on the possibilities for advancement offered by the Internet. Some of these include the education of new generations and the direct promotion of the nation’s economic growth and development. We therefore believe it would be beneficial to set up a central super-data base about Venezuela and allow all interested users to access it for free. In order to insure the success of such a page, it must comply with certain minimum requirements.

It must avoid subjective or biased data. For example, any data that a government presents in order to defend its administration automatically produces a counter-reaction, inviting “opposition” pages, detracting from the perceived validity of the information and creating the duplicity of efforts described previously. In this sense, the first basic prerequisite must be to allow only data bases that present information that is objective and real.

Evidently any organization can create its own page and include the information it wishes. The idea, however, is that, as far as a formal Venezuelan Page is concerned, everyone should be in agreement with the information presented. This is the only way we can guarantee that everyone will want to use it for their own development and that all will be interested in keeping it alive and up to date. It will also insure that it will not quickly turn into the type of floating space garbage we mentioned before and that it could, just maybe, turn into the “best web page in the world”.

Information is power, for good or for bad. All those who may have an interest in the development of this project must participate if it is to be successful. Today, the information about our country can only be qualified as pathetic. Its correct development should be of vital importance to the country and it is surprising to see the little attention this is receiving in Venezuela.

It is high time the government, the opposition, private and official organizations, universities, states and municipalities, ..... (the list can go on for ever), take a break from their individualistic efforts and dedicate a bit of their time to the development of our www.venezuela.com web site.

Unhinged economic planning

We have often heard about the lack of resources available to fund institutions such as the National Exchange Commission. The latter, by the way, would be much better off reviewing and stamping prospectus’ of new issues with stamps such as “Danger - Opportunities and Risks - Issue Not Controlled” than creating the illusion of exercising effective control. We vividly remember the Bank Superintendency during the recent bank crisis.

However, some new government initiatives such as the new Banco de Comercio Exterior (Export Bank), are receiving ample budgetary support via capitalization (this should not be construed as being a criticism or as trying to belittle the importance of Bancoex). No one can dispute the fact that economic planning seems to be a bit disjointed.

Additionally, we all have heard about the ambitious investment programs being implemented by sectors such as Petrochemicals. However, when we read in the local press about the strict orders issued to firms such as Cadafe and Hidroven, both of utmost importance for the development of the country, to drastically reduce their investments supposedly in order to fight inflation (by reducing “excess” liquidity), there is no doubt that national economic development seems to lack a backbone.

We must remember that one of the main justifications for the Reactivation of Marginal Oil Fields program was that a great number of the wells were shut down, not for lack of productivity, but because it would have required large amounts of resources and investment, and that PDVSA, lacking these resources, preferred to invest in areas that held more promise and higher returns.

Now, PDVSA is being asked to cut back on its expenditure in 1998 in order to join the attack on inflation. For the third time, we dare put forward the thesis that there is total dyslexia in our national economic planning. A more extreme interpretation of this seems to imply that investment in marginal fields under the oil opening program may go ahead while development of the high yield wells operated by PDVSA must by scaled back.

Additionally, without trying to discuss the reason why, the country has been suffering though high inflation without the corresponding devaluation of the national currency. This real appreciation of the currency flies directly into the face of the efforts of those businesses trying to compete in the international arena via exports of goods or services such as tourism.

The cutback order by the national executive in the investment programs of the above-mentioned entities specifically and unbelievably excludes the purchases of imported goods and services, paid in hard currency all under the assumption that these disbursements do not adversely affect monetary liquidity in the country. We come back again to the thesis that national economic planning is basically brain-dead. Another extreme interpretation is that it is forbidden to buy locally produced goods (no compre Venezolano) while the purchase of imported goods are encouraged.

The dramatic reduction in the economic activity of the country over the past few years has created unemployment and hunger in a great part of its population. It cannot be disputed that we urgently need to develop a plan to reactivate the economy. This plan must go much further than simply stimulating an increase in the demand for consumer goods, which is usually a simple hedge against inflation and not the result of a coherent plan.

However, when we observe that our planning teams, lacking the courage to confront inefficient public spending, the main cause of all most of our ills, continue to raise smoke screens such as the argument of excessive liquidity, we can only add another attribute to our national economic planning, lack of heart.

I’ve mentioned this before in a previous article and I repeat it now. The omnipresent preoccupation with excess liquidity is like a physician who worries about possible leftovers of food when a patient refuses nourishment and begins to fade away. The problem is not the food, it is the appetite. The problem is not excess liquidity, it is the lack of a healthy economic plan aimed a generating production and productivity.

A way to assess the bond swap

The calculation of present value is a valuable tool of analysis in today's financial world. When managed by rookies or people with wrong intentions it can be very dangerous, as all tools are. This is good to keep in mind when issuing judgment on Venezuela's 1997 Brady Bond swap. The concept of present value can be clearly illustrated by using the classic example of inheritance. In this example, someone asks a grandchild for the amount he is willing to trade today for a future inheritance of $1 million, which will be willed him by his grandmother. The answer to this question will be a function of three factors.

The first factor involved is time. If the grandchild considers that the grandmother is still healthy and that she therefore may live for quite a few more years (say 20 years), then he will obviously be willing to apply a greater discount and accept a lower present value. On the other hand, should the grandmother be rather ill, and death apparently just around the corner, then this discount will be smaller and the amount of the inheritance will be greater.

The second relevant factor is risk. This is based on the philosophy that it is better to have one bird in hand than a hundred in the bush. Should the grandchild think that his grandmother may actually change her mind and leave him penniless, he will again be willing to apply a greater discount and therefore accept a lower value today.

The third factor that must be mentioned is opportunity cost - in other words, the alternative use that maybe made of the funds. If the grandchild urgently needs the funds to pay off a gambling debt before someone breaks his kneecaps, it is obvious that he gill accept a greater discount and again accept a lower sum as present value of his inheritance . If, on the contrary, he expects to invest the funds in long term 30-year United States Treasury bonds, the discount he will offer will not defer too drastically from the yield produced by these instruments.

The risk factor and the opportunity cost factor come together in what we know as the discount rate. The mathematical process whereby present values are calculated consists in discounting (at the discount rate) the amount being analyzed (the inheritance) over an established period (time).

At this point, we have only come to the conclusion that even when we hide this calculation under the mantle of sophisticated financial techniques, there is a fundamental logic to the same. The value of something in the future is lower than it is today.

Having herewith complied with the initial objective of this article – to transmit as concisely as possible the concept of present value - let's now examine how this can be abused. The recent case of the Brady Bond swap was based on the analysis of supposed benefits found in two arguments: first, the fact that financial experts loudly praised the operation; and second, the analysis of the present value of the operation.

As far as the source of the praise, I do not wish to go into detail. But initially it seems that $28 million in commissions plus information of great income generating potential should be enough to justify the creation of a good Swap Fan Club.

As a result of the swap, Venezuela obtained $1.3 billion. The present value of this evidently is the same $1 .3 billion. In exchange, Venezuela had to undertake additional payments. These payments are: additional annual interest of $70 million over-- a 23-year period until 2020 as well as $370 million to be paid for seven years between the years 2021 and 2027. A final payment of $4 billion is due in the year 2027.

The classification of this operation as "financially sound" depends on whether or not the present value of the additional payments described in the previous paragraph is lower than the $1 .3 billion received initially. It all depends on the infamous discount rate applied. With a discount rate of 8.8 percent, the operation is neutral (Blah Matos). With a higher rate, the operation could be rated as marvelous (Viva Matos!). Finally, with a lower discount rate, the operation is an unmitigated disaster (Down with Matos!).

We will not issue opinions about who is right. I would like though to alert readers about the vicious circle caused by the erroneous use of the present value principle which, in the hands of the wrong people (politicians maybe?) could generate catastrophic results.

Because it has implemented shortsighted policies, Venezuela has problems of high indebtedness. When the country runs into problems, the discount rate applied by international markets is normally increased. When the rate is increased the value of the present value of future payments is reduced. When the value of the future payments is reduced, additional indebtedness is stimulated. And the vicious circle continues to turn!

A necessary change of optics

The fact that the Venezuelan currency was named the Bolívar and the misguided sense of that a devaluation of the same would be disrespectful to the memory of our Liberator, supported the refusal to devalue the currency during 1982 even in the face of economic reality. As a consequence, the devaluation in February 1983 was much more drastic than necessary and hastened the country’s dive over the precipice of economic chaos. We still have not managed to stop this dive.

Our sense of direction was lost basically due to inflation. Today, the private sector must follow strict accounting rules which call for re-expression of accounts. The Income Tax Law has also introduced the concept of adjustment for inflation as well as the application of tax units (unidades tributarias). In spite of this, we note a curious lack of activity aimed at requesting that the public sector establish more links with reality.

When we analyze the problems inherent in the Venezuelan economy, either we are blind, or we don’t want to see, or someone simply doesn’t want us to see. I will detail some of our economic variables in United States Dollar terms in order to allow our readers to form their own criteria as to which alternative applies. We have expressed dollar terms in real 1982 values.

1) In December 1982 the total of all deposits in the Venezuelan financial system (normally known as M2) were the equivalent of US$ 31.3 billion. In July 1997, this figure had dropped to US$ 7.8 billion, that is to say, only 25% of the 1982 total. Even if we consider possible changes in the multiplier, this indicates and incredible drop in the real economic activity in the country.

Not a day goes by without some “expert” in economics expressing preoccupation about excess liquidity. This attitude could be compared to when a physician begins to worry about left-overs when the patient is in a serious state of inanition. The real problem that has traumatized the country is not the excess liquidity (food) but the lack of economic growth (appetite).

2) In 1982, Venezuela’s international reserves had reached US$ 10 billion and were equivalent to 32% of M2 as described above. In July 1997, these reserves totaled US$ 10.1 billion (in 1982 terms) and represented 130% of M2.

It is important to note that in 1982, the country did not have sufficient dollars to satisfy the demand should all deposit holders in the nation wish to purchase dollars. As it were, the Bolívar had to be devalued in 1983. In July 1997, the situation was just the opposite; all the deposit holders in the country put together do not have enough Bolívares to purchase the dollars held by the Central Bank.

If we apply a broad analytical brush to the before mentioned figures and note that the international reserves belong to the state while M2 belongs mostly to the private sector, it is evident that the latter has become much poorer in comparison to the former. When we see that in spite of these results there is still support for maintaining and even increasing tributary pressures, the reigning economic philosophy seems to have a lot in common with a Gulag-style Soviet purge.

3. In December 1982, the Venezuelan financial system had a credit portfolio totaling US$ 16 billion while in July 1997 this amount had shrunk to US$ 4 billion, again, in 1982 terms.

We have frequently heard and read that an increase in credit activity could put the country’s banking system in jeopardy. Since lending is the essence of banking by definition, and when we take into account the low volume of credit activity mentioned above, it can only mean the opposite. If lending doesn’t increase, banking slowly dies.

If we wish to recuperate an economic orientation that makes sense for the country, it is imperative that we begin to express public finance figures in terms of real figures. By this I don’t imply that we should use the US dollar as denomination to express our national accounts. I do propose, however, that we find an element that reflects reality so that we at least liberate Bolívar from having his name associated with creative or even fraudulent accounting.

A Big Foot watches over Sabas Nieves

Sabas Nieves is one of the most popular trails up the Avila. Over the last few years, it has also been the target of frequent controversy, mainly related to how to take make correct use of it without causing undue grief to the area’s residents.

I am a frequent visitor to Sabas Nieves; during certain periods, I have become almost an addict. Having now made evident the origin of the probable subjective nature of my comments, I’ll refrain from excusing myself.

The atmosphere between neighbors and mountain climbers has boiled over frequently. It has recently come to the point where the neighbors were close to putting up barriers to limit access to the area. On top of this, having taken to heart the application of theoretical models which call for the imposing of tariffs by the state for all types of public services and rights of access, they almost started collecting toll charges.

A solid protest by users of the trails, based basically on the menacing reality of numbers (i.e. votes), handed neighbors an initial defeat. Licking their wounds, they had to retreat to their lairs and try to hatch new strategies.

Having done so, they have now renewed their attack. This time around, they have developed a plan whereby they offer the mountain climbers the alternative of parking their vehicles under the Plaza Francia (still Altamira to some of us old-timers) and be transported in modern, comfortable buses up to the base of the mountain, enjoying ecological videos and expected to sing merry praises about the advantages of such a generous solution. But, lo and behold, the initial cost of this solution is estimated to be in the order of Bs. 20 million!!

The mountaineers, on the other hand, having discovered that there are resources at hand for a “solution”, a currently analyzing the possibility of requesting the expropriation of the property of some of the neighbors in order to expand parking facilities around the entrance to Sabas Nieves.

Evidently, among the users of the trails, there are all kinds of poorly educated, disrespectful people that create all types of grief for the neighbors. However, there are shameless creatures present in all types of associations, in the best of families and even among the neighbors of Sabas Nieves.

The solution to this type of problem should normally be developed in an environment of better education and with the creation of social pressure that, through a system of punishment and stimulus, generate corrective measures. The type of solution that the Venezuelan society is bandying around in the case of Sabas Nieves, i.e., throwing money at anything that moves, must be rejected totally and absolutely it we are to have any chance of nudging the country towards a better future.

On the mountain, there are signs indicating that it is forbidden to travel the paths without a shirt and other appropriate items of dress on. As far as the shirt is concerned, this regulation seems evident since it reduces the possibility of getting sweat rubbed on you by some gasping co-mountaineer. It is also esthetically more appeasing in many cases.

Many mountaineering colleagues ignore these prohibitions and do not wear shirts. In a misguided show of solidarity, the majority of us don’t protest vehemently enough. I am sure that if Venezuelans in general begin exacting better behavior of our brethren, we would find immediate solutions to a great many of our ills. Among those, the ones festering at Sabas Nieves.

Mountaineers and Friends, it behooves us to avoid that other colleagues park badly and bother the neighbors Sabas Nieves. Maybe, then, the neighbors of Sabas Nieves can in turn keep some few exaggerated and overly sensitized neighbors from promoting extreme solutions. Maybe then, copeyanos, masistas and other such creatures will avoid and censure acts of corruption by adecos, copeyanos, masistas and other such creatures.

In the meantime, please save yourselves the buses. When I go up the Avila through Sabas Nieves early in the morning, I do so a bit for the physical exercise and mostly for the spiritual tranquility if offers that in turn helps me struggle through the daily hassles of a large city. Under no circumstances am I going to undergo the torture of an ecological bus with a suicidal driver careening from Altamira to Sabas Nieves, return trip!

Roping in the herd

We have frequently seen examples of how economies that permit total liberty for foreign investment flows, especially those that are in essence short-term investments, often must confront more difficulties than those that impose certain restrictions.

As so many things in life do, problems often have their roots in exaggeration. It is possible that on the one hand confidence and the magnitudes of the resulting flows become so great that they can actually hide problems or diminish the pressure brought to bear on local authorities to take corrective measures. On the other hand, absolute mass panic may set in, creating the medium for the type of accidents normally attributed to such a response (for example, the Mexican debacle and resulting “Tequila Effect”).

Since it is very difficult in most cases to identify a special event such as war, earthquakes, or the sudden death of an important leader as the trigger for a change in sentiment, and as we supposedly live in a world of virtual and perfect information, what could be the possible origin of the overly exaggerated reactions of fund managers?

Above all, I suspect that the financial roller-coaster rides we are subjected to have their origins in the traditional search for the type of security usually found in herds. This instinct predominates in most decision making. I refer specifically to the attitude “it doesn’t matter if things go well or not, as long as I’m in good company.”

As an example, I can go back to the period just after Venezuela abandoned exchange stability (February 1983). I watched with surprise as the treasurers of large multinational companies blithely signed contracts that insured future exchange rates at such incredible costs that they seemed outright irrational. The premium paid easily surpassed the possible exchange losses that would be caused by reasonably predictable devaluations.

When I tried to get to the bottom of this madness (frequently assisted in my investigation by offering a shot of whisky), I invariably would receive the following explanation: “We actually have two accounting registries. In the first we register the exchange earnings or losses per se. In the second we register the cost of the insurance premiums to cover exchange risks. Our head office has become so sensitive to exchange risk that it doesn’t combine both accounts to analyze the total net results. On the contrary, even if I save the company a fortune by not contracting this coverage, but incur in so much as one cent in exchange losses, I would be handed my pink slip in a flash.”

What, then, does this observation aim at? Simply that even when an individual or company is perfectly amicable, capable and basically worthy of an invitation to invest in our country, if his inclination as manager of funds is to follow the herd in stampede, the nation can simply not afford to allow him and his company to enter.

In this sense, we must ask why our monetary authorities have not managed to develop a coherent set of regulations to limit the inflow of international investment when this is obviously intended to be for irrationally short periods of time, in grossly large amounts, or both, instead of wasting time and money exchanging bonds and restructuring debt that matures in 20 years.

Countries like Chile, which have earned the confidence of international markets, limit the inflow of short-term investments. This limitation has definitely not resulted in damage. On the contrary, it has helped increase the confidence of exactly those foreign investors whom the country actually wishes to attract. They are not those that come on a 30-day visa, but rather those that come to invest for the long term.

It is important to remember that when a foreign investor risks his funds in a country in the long run, installing factories, developing projects, creating employment, and in general acquiring a real presence in the country, his interest in the future of the country becomes much more sincere and similar to that of the nation’s own population. Much more so than the interest of some fund manager sitting in New York or London.

When we speak of gaining the confidence of foreign investors, we must learn to discriminate among them.

PS. As you would want to know if those courting your daughters have serious intentions.

PS. 1998. Speaking about trust and distrust.

Published in Daily Journal, Caracas, December 4, 1997 and in "Voice and Noise" 2006.