About bad trust and good distrust

About bad trust and good distrust 

Once again, the international financial classification agencies are speaking out about Venezuela and everyone is trembling. Its results constitute for many foreigners and, unfortunately, also for some Venezuelans, a primary source of information about the country. The debate on concepts, such as trust and international capital mobility, begins again. I take this opportunity to present again some evidence, reflections and conclusions in this regard.

Evidence 1: There is no doubt that the vast majority of actors in the short-term speculative capital market respond, to all types of events, like a stampeding herd of buffaloes, entering or leaving a country. The above causes high volatility in these funds, which are correctly called swallow capitals.

Reflection 1: As in so many other fields, in finance, the rule also governs that errors committed by many of the participants and therefore shared, are forgiven, while those, committed alone, are punished. As a result of this, the professionals who manage these funds and who wish to save their own professional prestige will be prone to go with the flow, that is, their actions will obey more to fashionable financial criteria and not to what may be indicated. your own experience or instinct.

Conclusion 1: According to the above, it is perfectly irrelevant that professionals are “geniuses”, since other reasons guide their actions.

Evidence 2: The global debt crisis of 1982 caught many bankers with their pants down, indecently exposing huge amounts of bad loans. More recently, we can name the obvious errors contained in the reports on Asia 18 months ago.

Reflection 2: I remember my astonishment at the reverence with which, in 1983, the “qualified” opinions of those same bankers, who had so recently demonstrated the limitations of their genius, were heard. The same thing happens today. Could it be that the human need to seek order in the world drives us to attribute magical knowledge to a group, which they brazenly exploit?

Conclusion 2: The truth is that the world is very naive when it places a good part of its economic destiny in the hands of people with “such a good resume” but such a “bad track record.”

Evidence 3: The volumes of swallow capital present in the market are gigantic, when compared with the economic magnitudes of many countries, which is why they can cause great havoc.

Reflection 3: Given the magnitude and volatility of these funds, it is expected that the main damage will occur at the entrance and exit doors, where it would be logical to anticipate a certain crowding.

Conclusion 3: Knowing the existence of quite successful methods (Chile), to manage, in a somewhat more orderly manner, the entry and exit of these funds to the country, the fact that nothing similar has been developed in Venezuela, It is another evidence of the government's apathy that punishes us.

Evidence 4: Economic decisions made by long-term investors, both foreign and domestic, take time to execute. For example, the decision to open a factory or to build a hotel or to plant a forest is not made overnight. On the contrary, swallow capitals react in seconds, via purchase and sale orders and electronic transfers. Its economic impact is, therefore, much more immediate and explosive.

Reflection 4: I believe that the most important economic signals for a country emanate from long-term actors, such as the hotelier from Cumaná, the rice farmer from Calabozo and the industrialist from Guacara. However, the urgency and immediacy represented by the pressures of the swallow capitals probably means that the latter manage to attract too much of the attention of the economic authorities.

Conclusion 4: As long as the economy (and politics) obeys, to a greater degree, the young man with gelled hair and suspenders who rules the short term, ignoring long-term signals, the path to economic disaster will remain clear of obstacles

Evidence 5: Venezuela has received an extraordinary amount of resources over the last 25 years, in the short and long term, and they have been of no use. Venezuela, in recent years, has received important long-term funds and they have not been of much use either.

Reflection 5: If we do not know how to manage the resources granted in the long term, what are we doing trying to attract short-term resources?

Conclusion 5: As long as a viable economic development model and a government system that inspires confidence have not been established, the country should not be interested in swallow capital at all, even if it has an efficient gatekeeper to regulate the entry and exit.

Evidence 6: “Credit rating” agencies, despite being used by many diverse actors, such as banking and insurance regulatory entities, with long-term interests, in reality, work mainly for bankers and investors who wish to take liquid positions at short term.

Reflection 6: For someone interested in the long term, for example, a young citizen, the opinions of a “credit rating” agency can be quite irrelevant. Also, know that not every expression of distrust produces bad results.

Consolation 1: Venezuela, in recent years, has not been subject to an invasion of swallow capital as large as it could have been. Imagine the chaos that would occur if some $20 billion of hot money had entered the country and today they were anxiously seeking its way out. The interest rates needed to contain such a herd would have to exceed four digits.

Consolation 2: Do you remember the story of the anguished debtor who finds sleep when with “I can't pay you” he transfers his insomnia to the banker? In our case, something similar happens. When the Venezuelan score goes down, personally, I sleep better, safe in the knowledge that they will not be giving so many resources, on behalf of myself, my daughters and future descendants, to governments that insist on wasting them.

Conclusion 6: The day our governments (during non-electoral times) pay more attention to the opinion of their humble subjects, instead of the opinion of the glamorous international agencies, that day we will have a greater chance of getting out of this situation of ours , which I can only classify and, forgive my English, as a “standard moody and poor”.

https://unsustainabledebtsustainability.blogspot.com/1998/10/about-bad-trust-and-good-distrust.html

https://radicaldelmedio.blogspot.com/1998/10/sobre-confianza-mala-y-desconfianza.html

Orimulsion vs. tower of terror

This week's television reported on a small incident in one of the Florida amusement park attractions (Tower of Terror) whose causes are being investigated. Some users apparently suffered minor injuries, however, we doubt that this will reduce the public attracted to this type of recreation.

Imagine the existence in Venezuela of some amusement park owners who, upset by the competition from Florida and with the aim of forming a support movement, recruit and seduce a group of mothers who all suffer from pathological anxiety. Imagine this aggressive and vociferous Opinion Group demanding that the authorities of the Federal District prohibit children from traveling to Florida parks.

The absurdity and smallness of the accident, the Florida protests, the children's protests, everything would make it impossible to think that the Prohibition Decree would be approved.

However, if we are allowed to assume that: a.- there are other parks as good as those in Florida, "Mommy, we can go to Disney in France!", b.- that the administrators of the Florida parks do not care. It matters a lot, "with fewer visitors we work more comfortably"; and c.- the support of the citizens of Florida is neither requested nor received, then suddenly the possibilities of the Decree do not seem so remote.

"Guys, even though I have family in Florida and it could cause harm to them, since no one cares about this, let's pass Prohibition, at least this way we can get these screaming crazy people off our backs."

In a somewhat similar way, the state of Florida banned the use of Orimulsion. The Orimulsión that has so much meaning for Venezuela. For a Venezuela that today needs any help it can receive. But, for a Venezuela where this, apparently he doesn't give a damn. For a Venezuela where we drink orange juice from Florida and read that simultaneously “currency transfers to Florida grew 400%.

This week a trade mission from Florida visits us in Caracas. Its purpose is to sell us products and investment opportunities. Neither a candidate or member of the government, nor a business or union organization, nor a director, executive or employee of PDVSA, nor a parliamentarian, nor a university student, no one, probably no one will use the occasion to at least indicate that we are harmed and upset. for the decision on Orimulsion.

We should all be ashamed. If in Venezuela we had to choose a popular saying that was known and applied by all our people, it would probably be "he who doesn't cry doesn't suck." Apparently we don't use it outside our borders.

For a long time I have maintained that one of the main problems that Venezuela has in correctly adapting fashionable economic policies, such as trade liberalization, is that the vast majority of our economic leaders, in the public and private sectors, are very recent converts. . Since originally they held other points of view and today they are terrified that someone will recognize them in their new clothes, they maintain and apply their dogmas with the fervor that we can occasionally detect in a nouveau riche, eager for recognition from the "establishment." or in a believer recently subjected to an inspiring call.

The truth is that globalization and trade openness do not diminish in any way the need to group around the concept of nation to meditate and negotiate the economic strategies convenient for the country. Quite the opposite. Before with closed borders, with tariffs and general import bans, this did not matter much. Today, with open borders, we really need intelligence, will and cunning to prevent the “world from eating us alive.”

I am not and have never been a protectionist. However, my pulse or intellectual conscience would not tremble if when negotiating on behalf of Venezuela I had to resort a little more to hypocrisy. To that hypocrisy that all countries apply with mastery but that Venezuela apparently considers in bad taste.

What would be difficult or almost impossible for me would be to negotiate on behalf of our country without being able, in a concrete way and as support, to refer to a will, a clamor and a true national demand. In other words without the support of a good and exportable collective cry. Let's globalize the plantain!

Talking about amusement parks reminded me of a full page I saw in a newspaper less than a week ago. It described a country that, unlike the red deficit suffered by Venezuela, was illuminated by a “blue; color of the surplus.” A country with resources to generate microenterprises (granted through “more expeditious channels than those of Corpoindustria”), a country with resources to take care of the environment, develop hospitals. A beautiful country where “it seeks to promote a new relationship with society” establishing in a splendid way

From Economía Hoy

Translated by Google

Hit in the head by the SENECA sale

On Tuesday, September 14th, the power system of the State of Nueva Esparta, SENECA, was finally privatized. The Venezuelan Investment Fund (FIV) and Cadafe, both representing the Nation in this case, had established a base price for the sale of US$ 35 million. The price finally paid by the winning bidder was US$ 90 million, awarding the sellers a premium of US$ 55 million.

There is no doubt that this is a great achievement and it would be very selfish not to congratulate those involved in this transaction for a job well done. Evidently, this privatization bodes well for the supply of electricity for the State and in this sense its population can celebrate the happening.

I have, however, postulated time after time the thesis that the privatization of a public service company should be aimed at improving the service while minimizing the cost of the same for its users, and not at maximizing the central government’s income. It is in this sense, then, that I express the following reservations with regards to this particular transaction. I am not criticizing the privatization SENECA per se, but am raising the flag with regards to the ‘morning after’.

Evidently, should the SENECA have been sold for US$1, the tariffs for electricity required in order to amortize the investment would have been much lower.

Today’s financial community has awarded Republic of Venezuela long term debt a tax and project risk free return of over 20% per annum. In this sense, it would not be exaggerated to say that SENECA’s buyers will expect a return of at least 20% on their own investment.

This implies that Margarita will have to come up with US$ 18 million (i.e. 20% of US$ 90 million) every year and that this flow must come from the tariffs paid by the end users of the service. In tourism terms, this is like paying for a small brand new five star hotel every year. 

To this amount, we must also add the outlays represented by salaries, new investment, purchase of electricity and taxes.

It could very well be that this annual toll of US$ 18 million for the right to liberate itself from Cadafe’s management is actually a great deal for Margarita. However, since Cadafe and the FIV obtained US$ 90 million for the privatized entity while projecting tariffs on a base price of US$ 35 million, there is room for the following questions:

First: Who, if anyone, went overboard when promising potential investors what future tariff levels were to be paid by Margarita’s population? Who calculated these tariffs? Did they make a mistake? If so, was it made on purpose or was it simply incompetence? It is obvious that if the tariffs offered in the bid documents had been lower, the investors would not have put a premium of US$ 55 million on the table.

It bothers me to no end to be treated as a moron by public officials. When they maintain that they obtained this premium simply due to the excellence of their management of the transaction, I feel they are sticking their tongues out at all of us. Why then didn’t they establish a base price of US$ 25 million? The premium would then have been US$ 65 million instead of US$ 55 million. Why didn’t they offer an even higher tariff structure and obtain, say, US$ 120 million instead of US$ 90 million?

We obviously understand the laughter and back slapping by State officials. We can almost hear them say “Marvelous. We have gotten rid of the responsibility of the supply of power to the island. 

On top of this, we have received a front-end tax payment of US$ 90 million on top of all the other taxes we will be able to charge in the future! Nobody was the wiser for it! What a deal! Let’s do the next one!”

Second: If Cadafe and FIV say they would have been happy with the base price of US$ 35 million, why then, will the take the US$ 55 million premium away from the island? We must remember that the entire US$ 90 million, and specially the premium of US$ 55 million, will be ultimately footed by Margarita’s population.

Immediately after the sale, one official celebrated the event by saying he felt like Sammy Sosa of the baseball Chicago Cubs when he hit home run No. 61. As a user of the electrical system in Margarita, I felt more like I had been hit in the head by the very same baseball.

I suggest we analyze the possibility that the US$ 55 million premium by retained by the island. This would at least assuage some of the pain caused to my head by the falling baseball. Some direct benefit for the island could then be gleaned from the affair, for example, another pipeline for potable water. Evidently, if the entire US$ 90 million were left on the island, so much the better.

In summary, there is no doubt that as Venezuelan’s we should all be applauding the success of the privatization of SENE in the face of tough times. However, as an assimilated Margariteño, I find it difficult to celebrate since its cost, a mortgage of US$ 90 million, has been placed directly on the island’s shoulders.

Su ombudsman electrico

What is it we really need in Venezuela?

We are being confronted on a daily basis with an endless litany of proposals, some fanatical and others just irrelevant and misguided compliance with a perceived social obligation. Both types are bad and make it harder for us to focus on how to really solve our problems.

The fanatics, who all share the wish of looking good on CNN's "Crossfire", cover the extreme sides of the advisory rainbow. 

On one side we find those who want us to foster nationalism and patriotism through isolation in true Robinson Crusoe style while casting old Fidel as young Friday. 

On the other are those who hype the benefits of economic opening and globalization to such a degree that we begin to feel that the only ones with the real right to be called Venezuelans are our compatriots in Miami.

Some twenty years ago, I used to vehemently oppose excessive use of protectionism, considering then that this was causing us to slowly degenerate into an inefficient and lazy nation. Additionally, having studied in Sweden and therefore carrying the social democratic values of that society on my back, I found the pockets of political patronage and power this protectionism created very disagreeable.

Today, however, I consider that in many ways Venezuela has opened itself up to the world excessively. In our effort to be part of every economic fad the world developed, we have actually become poorer and run the risk of slowly being wiped out as a nation. 

In spite of this switch, I am convinced that I have not changed my way of analyzing economic problems one bit since at all times my only goal has been to search for what is best for the nation, at a given moment and under a specific set of circumstances. 

I honestly think that a majority of my colleagues, all advisors and consultants, some formally assigned to this role, and others, volunteers, self-empowered and nosey, have been, albeit not on purpose, basing their recommendations more on how they fit a specific model of thought than on what the country really needs to get ahead. This is tragic.

The second category of proposals are those generated by all the individuals and organizations who seem to live by the motto “if we don’t have a Web Page on the Internet we don’t exist” or in this case, "if we are not able to develop a ‘do-it-in-20-easy-steps’ proposal on how to save Venezuela we have not fulfilled our social duty".

Most of the proposals that fall under this category, some more relevant than others, are basically harmless. 

Even I recently published a humble proposal about what I would do if I were to become President (obviously in an allegorical sense) which had to be published in two articles in order to satisfy its boundless degree of ambition.

Other organizations, given their importance in the development of public opinion due to their ample presence in the national scene and in the media, simply do not have the right to treat the process of the generation of proposals lightly. Among these entities we can mention Fedecámaras.

I know there is a wealth of material on the politics of oil and it could very well be that the last Fedecámaras General Assembly generated some others I do not know of. 

However, what you can find in the document known as the Assembly’s Central Document, all 36 pages of which can be downloaded off the Internet, and that is certified as Copyright© Fedecámaras, seems to me to be a relatively poor proposal. The document includes a list or mix of 63 vital proposals. Obviously, he who has 63 vital issues on his mind, really has none.

In addition the Fedecamaras document does not grasp the realities. It barely touches the issue of how to reactivate the internal economy and it ignores the need to improve the distribution of wealth while urging increased use of the General Sales Tax rather than the Income Tax. 

The issue of reducing government spending is treated with kid’s gloves; trivial matters such as privatization of jails and the approval of the Code of Ethics of Public Servants are addressed; the creation of the Macroeconomic Stabilization Fund is belatedly discussed; and even further confusion is created when the reform of the Judicial Sector is mentioned by saying that “Maybe it would be convenient to hand over all responsibility to the Supreme Court of Justice”.

In a moment such as this, when there is hunger and unemployment in Venezuela, when the economic crisis becomes worse every day and when the world is full of uncertainties, an organization such as Fedecámaras must either present a well developed and thought out proposal or simply keep quiet. The duty of those members of the private sector that feel they are or should be represented by Fedecámaras is to express their opinions.

Of oil, income and the Constituent Assembly

Absolutely incredible, there is no anthropologist who can understand it. In a country so given to celebrations of holidays, national, religious, pagan and others, there is not one, not even a parish festival, whose purpose is to celebrate what from every point of view is something of the most important for Venezuela, its oil.

A few months ago, the IESA Debates magazine published a brief essay of mine and in which, in order to provoke a debate, I suggested the possibility that the entire national custom of presenting oil as something bad and unpleasant, going so far as to describe it as "excrement of the devil" to something that in any other civilization would be considered a gift from God, is derived from an intelligent compromise to prevent the national country from being more severe when demanding accountability.

As long as oil revenues are "dirty" and have not gone through our pockets (as they say so as not to corrupt us), there will be little importance that we give to the function of supervising the performance produced by those who have graciously offered to manage them on our behalf.

If at Sunday Mass, the oil income was worthy of a few simple thanks. If in primary school children were taught the need to thank God by correctly assuming responsibility for this income. If souvenirs alluding to oil were sold at the airport. If when traveling to Florida we proudly displayed t-shirts selling the benefits of Orimulsion. If from time to time and together with some virtuous maiden we sacrificed some Minister of Energy and Mines to try to ensure a season of good prices for oil. If all of the above were true, then as they say: "another rooster would crow!"

The most important thing to develop a solution to a problem is to clearly identify the resources available. In Venezuela it seems that this does not apply. Here colleagues, social planners, notables and other well-intentioned opinion leaders insist on proclaiming that the optimal development model for Venezuela must try to ignore oil revenues. Something like assuming that we leave the oil buried and then pray a hundred "ceteris paribus" to compensate for continuing to exploit it.

The oil income is still there and the opening efforts are aimed at increasing it. In view of this, I expressed in my article the thesis that perhaps the model that Venezuela should adopt is that of rentierism. Of course, not that of easy-going and lazy rentism but that of responsible rentism, which requires the formation of a solid character that responsibly assumes the management of wealth for the benefit of future generations.

If one were the owner of a company where the manager is useless, fails and continually squanders resources, the simplest rentier model would indicate that before ensuring a true reorganization of the company, the owner should not contribute new capital or allow the manager to continue putting the company into debt.

Consider the lack that we have of the simple previous wisdom in order to better be able to face the current demands of the IMF experts and the politicians eager for resources and who prescribe to the country, based on strange models that I believe are more sadomasochistic than of a cutting nature. macroeconomic, that the disastrous administrative experience of the State should be ignored and continue giving more and more resources to the treasury.

There is much talk today about a Constituent Assembly. I am not an expert but I am sure that somewhere in that Constituent Assembly there is a need to include matters related to how Civil Society can monitor, supervise and influence the management of its oil industry.

When the previous Constitution was drafted, the country, although it enjoyed income derived from oil, was not in charge of managing the industry. Today, when witnessing programs of all kinds by PDVSA and related companies, when contemplating how PDVSA is called to collaborate in government management and when simply measuring its economic significance, it is clear that there is a significant power, whose performance and form of expression can that is not properly regulated.

Nor sufficiently regulated to ensure that the Government of the day does not squeeze PDVSA for the necessary resources it needs to ensure its own development and survival. Nor sufficiently regulated to ensure that a technocracy does not take root in it and implements its own agenda behind the country's back. Nor regulated enough to ensure that the Government and the Petrocracy do not collude against the rest of the country.

When discussing the separation of powers, for example that of the judiciary, let us not forget the need to also separate the monetary powers, PDVSA the generator of resources and the FISCO the spender of these. A truly independent NATIONAL OIL BOARD

From Economía Hoy

Translated by Google

 

A code for our ‘public servants’

I have in my hands a copy of the Official Gazette of the 15th of July 1998. Published in this gazette and entitled “Instructivo No. 1”, we can find the Code of Conduct for Public Servants. I have this document because someone threw it into my lap a few days ago and asked me what I thought of it. I have been at a loss for words since then. Maybe I am at a loss for words because this is one of those circumstances in which keeping quiet is exactly what is called for when having noble sentiments or simply a good code of conduct.

On Father’s Day, when my daughters come up with presents of gigantic multicolored key rings with looks on their faces that say “use it or you don’t love me”, I don’t merely hide my reservations but even am able to produce evidence of infinite enthusiasm. 

When a friend who has recently discovered his hidden talent for painting shows me his first works, I also hide my reservations with words such as “how interesting”, albeit distorted just a wee bit by a mild cough. 

When a person I don’t know commits the type of faux pas that most of us commit at one time or another, I also hide my reservations with total silence. If such a silence simply aggravates the embarrassment of that person I even, educated as I am, tend to create some diversion to ease the pain.

No way am I going to hold my tongue on this one! This “Code of Conduct” was signed, based on a 40-year-old Constitution, by an outgoing President and 23 Ministers, professionals, neighbors and of age. I don’t see why I have to hide my reservations.

I am not saying that it is wrong to require that a Public Servant be “honest, fair, polite, loyal, disciplined, efficient, responsible, punctual, transparent and clean and that he have a calling to serve”. 

As standards, these are so logical that they should be required even to simply aspire to a post as Public Servant.

I am also not saying it is wrong to try to define each and every one of these traits, even though I think the place and time to do this is during primary school.

What I am saying, however, is that it is a bit disquieting to see the publication of a ‘manual’ like this one in a formal vehicle such as the Official Gazette. Specially when the fact that we are going through a moment of such emotional import as is the transition to a new millenium while facing one of Venezuela’s worst crises, both structural and temporary, should merit a ‘real’ effort to push the country towards a new path or model of development.

It is disquieting because it reflects the traditional attitude of our governments that think that all our ills are a result of human frailties and cultural faults that can simply be rectified by decree.

Disquieting because it reflects the degree of shamelessness that our governments have achieved. They have thrown the first stone and preach of truth, trying thereby to tell us that those in the driver’s seat have been, are, and always will be, over and above the flagrant violations of each and every article in the new code.

It must be due to all of this that it is so difficult to remain silently discreet. For example, should the government simply have offered its excuses for the difficult market conditions in which the Brady Bond swap was executed and the recent dollar issue of 20 year bonds at 14% was floated instead of sandbagging us by selling both as great achievements, the adverse reactions would have been minimized. Luckily, this will not happen again. Paragraph (a) of Article 26 of the Norms states that “Every person is entitled to know the truth. The Public Servant must not omit or falsify .........”.

All publications in the Official Gazette are subject to occasional typographical errors. Unfortunately this must be the case in Article 17:1 in which we read: “Those persons who have occupied public office must not use information obtained during this time against the interests of the Republic for at least one year”. The statute of limitations of the prohibition to use anything at all as a tool to attack the best interests of the Nation should definitely not prescribe!

The Code frequently repeats that its contents must be made public (could this actually acquire the status of Mao’s Little Red Book?); calls for the creation of a National Board of Public Ethics; and allows Public Offices to issue complementary norms as long as these are kept “within the framework of the spirit of the Code”. We evidently have not heard the last word.

As an incentive, the Code specifies in one of its articles that the Public Servants must comply with the former in order to be eligible for “condecorations awarded on the Day of the Public Servant”. Unfortunately, the Code does not include one article, one paragraph, one letter, nor one comma with regards to what would happen should a public official not comply with the letter of the decree. This evidently renders the entire effort less credible and efficient.

However, all is not lost. This Code, published in a leather hardcover and placed in the drawers of the night tables of local hotels, could indeed become a precious souvenir for foreign tourists. Additionally, Paragraph (c) of Article 19 states that the “Public should be treated with the formal “Usted” and familiarities should be avoided ....”. 

Could we finally be close to getting rid of the familiar “mi amor” and “mi vida”?

 

How can we all keep quiet?

Last week Venezuela issued 20-year bonds for a total of U.S.$500 million at an interest rate of close to 14 percent per annum. This implies service outlays of U.S.$70 million. The United States would pay only 6 percent for a similar issue. This means Venezuela must annually pay U.S.$40 million more than the United States. In spite of this, government officials qualify the issue as successful. Who are we kidding?

Although I am sure these Venezuelan officials were formally authorized to contract this debt, I am certain that they were not authorized morally.

I say this based on the certainty that capable, responsible and patriotic administrators would not have rested in their efforts to develop a healthier alternative for the country. An alternative different than simply paying more, so much more, in fact, that people queued up to purchase these instruments.

I also maintain that there should be limits to the cost at which the country is allowed to subscribe new debt. There should be a limit to the cost at which we, as a failed generation, have the right to saddle future generations with. I consider we have reached that limit. What’s is our government’s limit? Is it 25 percent, 100 percent, or is there no limit at all?

What other alternatives do we have? If there were a real political will to fight for the future of our country, the alternatives are infinite. Cut costs, use reserves, achieve the consensus necessary in order to use the vast real guarantees the country possesses in order to contract debt at lower interest rates, or simply contract debt at shorter maturities. Any which way, anything other than what was actually done.

For example, if the interest rate for Venezuela’s debt drops within one year to the levels Mexico’s debt is currently traded at (9.8 percent), then, considering that there would be 19 years left to maturity and that the paper carries a fixed 14 percent interest rate, the country would have to pay U.S.$675 million to retire this particular debt issue. In other words, in one year the country would have incurred losses of U.S.175 million.

Someone could object and say that the situation could become worse and the 14 percent could actually become a bargain. I don’t believe however, that any government has the right to impose its pessimism for future decades. Should the country now actually implement some of the alternatives being discussed today, such as the partial sale of PDVSA in order to cancel existing debt, the rates the country could command would fall to the same levels as those of the United States.

In this case, the losses incurred with our most recent issue would be stratospheric (hypothetically, if this were to occur within one year from now, the losses would reach U.S.$450 million).

Some may argue that the political conditions that would allow the development of an alternative that was not of least resistance do not exist. I can’t accept this since it is the responsibility of leadership to create these political conditions or, if it fails, to resign. The governability of a country must mean more than simply being able to avoid a coup d’état. The damage caused is not limited to the fact that we must now pay higher interest rates for the U.S.$500 million.

The fact that we forced the issue upon a market with low receptivity by simply raising the interest rate, means that this will be used to measure future opportunities in Venezuela.

It is enough to note that this increase in interest rates will be reflected immediately in an increase in financing costs for the private sector and in a reduction in the income we could receive from future privatizations.

The interest rates fixed for Venezuela are approximately 3 percent higher than those applicable to Mexico and Argentina today. This means a difference of U.S.$15 million per annum.

Our official spokesman explained that the international markets unfortunately perceive a higher credit risk in Venezuela since the latter is an oil producing country. I am truly amazed by the sharpness and realism of this analysis.

As if they were rubbing salt into the wound, the announcement of the bond issue was published simultaneously with an ample, and probably costly, campaign launched by Fogade in which they exhort failed Banco La Guaira’s debtors to “comply with the payment of their obligations.”

This exhortation comes a full four years after the day this institution was intervened by the government. The tranquility with which the government went about the collection of these debts doesn’t seem compatible with the urgency reflected by the high interest rate accepted in the latest bond issue.

I have three beautiful, intelligent and talented daughters. Thank God they have had opportunity to visit various parts of the world and enjoy them immensely. Their good knowledge of languages and computers, as well as their open-minded thinking about the new realities make them ideally suited for a globalized world. 

My eldest daughter recently told me that, in spite of all this experience, the place she likes the most and in which she wants to live is Venezuela. How can I keep quiet?

Of bolivars and time-sharing

The oft-mentioned Law for the Safeguarding of Public Patrimony (Ley de Salvaguarda del Patrimonio Público) imposes controls over the sale or liquidation of public assets. 

It is interesting to note that this law is completely and utterly ignored when it comes to the sale, day after day, hour after hour, of what should be classified as the country’s main public assets, i.e. its reserve of dollars.

At this point in time, I doubt there is one economist that, upon having analyzed the evolution of relative prices and the forecasts for the country’s income levels (basically oil), doesn’t consider that the Bolívar is overvalued to the tune of at least 20%. That means the Dollar should be worth at least Bs. 670.

Why, then, don’t we devalue? I don’t know the proper answer for this question, but if you asked me to speculate, I would probably infer that it was due to factors such as ignorance or stubbornness. 

I still remember back in 1982, when I called for a modest devaluation of the Bolivar so as to correctly reflect circumstances that resemble the ones we have present today. The absurd argument against this devaluation I received from professionals of fame and reputation was that this was impossible since we were due to celebrate the bicentennial of our Liberator Simon Bolivar in 1983, and that a devaluation was tantamount to denigrating the latter.

These references to the dishonor of Bolivar’s memory, were totally confusing for someone like myself. I was educated under the influence of a system of competitive economies for whom the real heroes were those authorities that managed to devalue the currencies of their countries just a tad more that their neighbors, furthering economic development even if this came at the expense of others. I consider it is patriotic to generate opportunities of internal employment by way of increasing exports and minimizing imports. 

It is possible that we still have public servants that equate a downwards readjustment of the exchange rate with national weakness and an upwards readjustment with strength. If these people have invested a high amount of ego in this argument, God save us if they find that they could theoretically return to the days of Bs. 4.30/US$ by increasing bank reserve requirements and increasing interest rates.

One of the more ridiculous arguments arising from this debate is that the government is not promoting a fiscally motivated devaluation thereby showing that there is great seriousness in the managing of the country’s finances. Devaluations are the consequence of irresponsible fiscal management, not the cause of it.

The only truly fiscally motivated devaluation that occurs is when, due to a lack of confidence in the future of the country, the market decides to pay an exaggerated premium for foreign currency. We could call this a tax on nervousness. 

When we analyze recent Venezuelan history, there is no doubt that our governments have been very efficient in their collection of this tax. “The budget doesn’t balance. Let’s spook the markets and get more Bolivars for every Dollar”.

The least we should expect out of a government in its dying days is that they don’t leave a wide gap in the valuation of our currency based exclusively on artifices such as disproportionately high interest rates or the simple burning of international reserves.

The next government’s job, whoever it is, will be sufficiently complicated without having to tackle this type of problem.

The use of mini-devaluations fixed within a band is a reasonable policy when one is trying to manage market expectations on inflation and devaluation into the future. The use of the band system and mini-devaluations to hide facts that already exist (inflation and falling oil prices) is an insult to our country and our intelligence.

If, in the face of all of its mistakes, the Government really wishes to make an act of penitence, I suggest they go about seriously and effectively reducing the unproductive public payroll. I say seriously and effectively since our governors have in the past demonstrated their dexterity in applying the techniques used by the sales persons hawking time-sharing units.

These sales persons normally increase the sales price by US$ 15,000 in order to then generously award potential purchasers a discount of US$ 12,000. The same goes for our politicians, who first increase the public payroll in order to then propose a reduction.

By the way, it is being said that, although the government has not been able to reduce the payroll, it has at least designed the restructuring plans that will allow the next government to achieve this goal “with ease”. 

I believe that, as far as shamelessness is concerned, our politicians are head and shoulders above sellers of time-sharing units.

There is no time for games

John Kenneth Galbraith wrote about the evolution of economic nomenclature in the context of describing the efforts of economists and politicians to soften over the impact of economic disasters. He describes how, throughout the period between 1907 until the Nixon years, the word ‘panic’ evolved into crisis, depression, recession, sideways movement and rolling readjustment. At the end of this period, the panic of 1893 would have been called a simple “growth correction”.

In Venezuela we have perfected the habit of exaggeration, and I therefore think we have never linguistically sub-estimated our economic crises. Our problem is that we have never managed to act in accordance with the gravity of our problems. We are eight months away from the swearing in of a new government, but the majority of the proposals put before us seem to be related more with actually making it there rather than with finding ways of facing the emergency situation we are in today.

In today’s economic context, we have a basic problem. The country blithely jumped onto the global wave of commercial aperture without having identified a strategy beforehand that would guarantee an acceptable level of employment. We trusted too much in the sheer power of market forces while totally ignoring the fact that sometimes these forces can work only if there is a total destruction of the existing economic structure in the country. Nobody was willing or prepared to accept such destruction, nor did anyone have much reason to accept one of such magnitude.

Unemployment grew hand in hand with the opening of the economy to global markets that implied prices at international levels, for example, for fertilizers. Instead of allowing the market in all its cruelty (supposedly temporarily), to indicate the way forward, politicians, either because their hands trembled or simply because they wished to take advantage of the added resources, let the public sector employment grow as never before.

We are at the crossroads of a new century (indeed, millennium). We know that the marginal economic value of our public expenditure is zero, zilch, zippo. We also know that we should, without much contemplation, sack almost 500,000 public employees, since these, also without contemplation, are the most probable cause of the poverty of another 5 million. What we do not know is how to go about it, especially in an electoral year.

The result is that we continue to be captives of the illusion that this massive reduction can be made only when the private sector (who’s taxes and interest rates we want increased) has supplied us with jobs to offset it. My God! We certainly seemed to have made up our mind on this particular chicken and egg situation.

The current state of the oil sector makes this structural problem even worse. If it was difficult to maintain the system with oil at US$ 15 per barrel, it must be impossible at US$ 11. The drop in oil prices, however, now gives us the excuse to review our current policies. If I were to sit down with a panel of experts and was allowed the traditional 30 seconds that is allowed an expert to solve problems, I would say:

Our priority is to generate real employment in Venezuela. If we don’t, we will never recapture the confidence of the Venezuelans, and without the latter the confidence of the international community is a moot point and may even be damaging. 

The lowering of interest rates is essential in order to kick-start this policy. In this sense, we must devalue the Bolivar now, accepting that it has already been devalued about 20% and 30%, a fact that has been hidden behind high interest rates. We should also study the possibility of changing banking regulations to allow for a system of financing based on indexed units that would allow real repayment terms for those who wish to invest in long term projects.

In order to insure that the above has real significance and does not worsen the situation even more, we must among other things: immediately reduce public payroll by 500,000 people; reactivate the construction sector; impose (without being bashful) protectionist import duties of 15-20% on all imports (except those from Colombia [Edited out: the only trading partner were we bilaterally seem to be promoting jobs and who we should invite to join us in the increase of tariffs]; and finally, reduce or even eliminate the value added tax. The reduction of the value-added tax, even though it flies in the face of fiscal balance, is a sacrifice the politicians must go through in order to make their promise of the reduction of the public sector in favor of the private one credible.

People may say that this is a Messianic proposal. In many ways they may be right. I think, however, that this alternative is based on sounder fundamentals than, say, those of the desperate Messianism which argues for the sale of PDVSA in order to balance the accounts.

The day a constitutional prohibition on new debt is put into place and the government has been limited and complies with its duties, I will be at ease with the plan to sell PDVSA in order to service our debt. In the meantime, the only patriotic thing to do is to avoid fanning the fires of waste, such as we did with the resources obtained from the oil opening.

The demands of university professors simply serve to make a point for drastic action. The professors brazenly maintain that they are 40,000 strong in 17 public universities. This translates into 2,350 per institution and they are asking for the equivalent of US$ 115,000 per head in compensation.

This is not a time for fun and games. Towards the end of June I read a statement issued by a representative of the World Bank who contemplates the possibility of a real depression in Asia. This is the first time I’ve read something like that, and knowing how discreet these officials usually are, it is frightening.

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

Let's, all whakapohane!

I remember having read a few years back about one particular method used by the Maori of New Zealand to protest about something that bothered them. This method consists of lining up a group of Maori tribesmen, turning their backs towards the person or persons that are the target of the protest, dropping their trousers and showing them their naked backsides. This rite is named Whakapohane. 

Without delving further into this tradition, and in spite of the fact that it seems primitive and is most certainly an ugly spectacle, I think it could be also classified as a civilized and most efficient way to protest. Civilized because it does no damage to anyone or anything (except to those people with a well-developed sense of esthetics) and efficient because it manages to consolidate into one single act and gesture all the sense we could possibly assign to a real social sanction.

There is no doubt that we are often frustrated at not being able to find a way to vehemently protest about the stupid, naive and criminal behavior that negatively affects our country on a daily basis.

The idea of putting together a group of citizens, family men, professionals and white-collar workers with briefcases and ties and heading out to the street to shamelessly whakapohane any deserving person is appealing. Consider the following:

What has been demonstrated without doubt over the past decades in Venezuela is an utter incapacity by government to manage its resources. The International Monetary Fund, for example, predicates that the solution to Venezuela's problems can be found by giving government even more resources to squander by way of increased taxes (as if our oil income wasn't enough taxation).

Clearly, the IMF deserves an act of Whakapohane from our citizens. 

Banking charters are usually awarded in order for them to participate actively in the development of the country's economy.

It is not enough for them to simply return the funds they have received on deposit, since if this were so, it would be better to simply buy a good mattress and put it into a large safe.

There are still many who think it is best to be puritan and to simply continue to tighten the screws on financial solvency of banks without paying attention to the real purpose of banking institutions These people deserve a solid Whakapohane.

There are many national authorities that evidently are aware of the damage to economies that short-term capital flows can cause, and also know that other countries have put workable legislation into place to limit these damages.

They cannot be bothered to take the 48 hours required to simply copy this legislation and enact it in Venezuela. There is no doubt that these authorities deserve to be Whakapohaned.

Those people related to the oil sector that have not been able to either see or warn the country about the possibility of a fall in world oil prices, who, in spite of arguing in favor of conquering new markets, run for cover behind OPEC's skirts when confronted with adverse situations, and who continue to invest scarce resources in projects of low significance such as the expansion of our gasoline stations' capacity to sell snacks, should certainly be offered a great Whakapohane.

Many illustrious representatives of the private sector applauded the privatization of CANTV, without realizing that it was all an elaborate trick perpetrated by the government to collect taxes in advance which we now have to cover through exaggerated service charges. These guys are due a good Whakapohane.

Those die-hard defenders of free trade who simply do not understand that in a globalized world economy each country must, when the chips are down, defend itself and guarantee a minimum internal level of employment should be urgently Whakapohaned.

The entire political and economic system is based on centralized income and decentralized personal apparatchiks.

Members of this system have not been able to come up with a real solution to our problems and should be considered traitors.

They should all be paraded to La Carlota Airport and given the Mother of all Whakapohanes .

We have heard that one of the people most clearly and widely questioned in our recent history is due to return to Venezuela after statutes of limitations have expired.

Just imagine what a marvelous message a small delegation of our "notables" dispatched down to Maiquetía to receive that person with a mini-Whakapohane would send. 

We should definitely not lightly discard the possibility of introducing an ancestral aboriginal custom from New Zealand in to the Venezuelan political scheme . 

Whakapohaners of the world, unite! The alternative are much worse.

Spanish translation

The first version was a blue one

Then, I don't know when... some applied the original concept