A devaluationist sends a message

Due to my work as a financial advisor, I have been able to see the damage being done to our economy by the overvaluation of the Bolivar firsthand. I therefore reiterate with urgency my call for a readjustment in the exchange rate of between 30% and 40%.

I am a bit disconcerted by the fact that by calling for this adjustment, for some strange reason that I don’t understand, I know I will be branded as a member of a group named “the devaluationists”. This group apparently has been attributed characteristics similar to those of a gang of hoodlums or even worse, of some type of malevolent sect. It is said that “the devaluationists” operate in the name of, and to the benefit of, evil speculators.

Jesting aside, the truth is that during the past weeks we have seen the birth in Venezuela of a campaign against the use of the devaluation as a normal and legitimate economic policy tool. Before the credo of “No Devaluation” acquires religious status, I wish to say the following: I wish for a devaluation now! This does not make me a “devaluationist”. Not any more so than a doctor who diagnoses the onset of gangrene and immediately orders the amputation of the affected limb cannot be labeled an “amputationist”.

For a long time now Venezuela has suffered through a period of inflation which is far and above the devaluation of it currency. The latter, therefore, has slowly but surely been revalued. A devaluation today would simply serve to bring the past up to date.

In order to sustain the actual overvaluation of the Bolivar, the government has had to resort to a policy of exorbitant interest rates which have only succeeded in shrinking our economy even further. The fact that Government officials maintain that the stability of our currency is the result of their excellent handling of the economy while they have to resort to high interest rates in order to support the same, would be funny if it were not for its tragic implications.

To blame inflation and other such diseases on devaluation is similar to believing that a fever causes illness, to the punishing a messenger because he delivers bad news. And as if that were not enough, the poor behavior of oil prices should cause enough to implement an immediate and anticipated devaluation without having to wait for our foreign reserves to be depleted.

Surely a devaluation will benefit some speculators. However, all speculation has two sides to it. Should we not devalue, speculators who dedicate their time to taking advantage of the high real interest rates offered by the financial system in Venezuela will benefit.

I recently read some illustrative declarations issued by Dr. Bradford DeLong of the University of California about the debate between those that propose a fluctuating exchange rate, represented in this case by Dr. Milton Friedman of Stanford University and those that favor a fixed exchange rate, represented by Dr. Robert Mundell of Columbia University.

DeLong explained the debate as follows. According to Dr. Friedman, the exchange rate is a price. To fix it, therefore, would be to violate human freedom. On the other hand, Dr. Mundell maintains that an exchange rate implies a promise. Therefore, to change it would be to default on an obligation. The concept of a solemn “promise” must be what inspires today’s fervor in Venezuela.

Evidently, should someone in Venezuela have issued a promise such as that mentioned by Dr. Mundell and should this promise have been accompanied by economic policies that at least gave us some hope that it would have been kept, I would be able to join, at least hypothetically, the group that defends a fixed exchange rate. To embrace the credo of a fixed exchange rate in the Venezuela of today, in which economic chaos reigns and without having received a formal and credible “promise” simply seems foolish.

I entreat my colleagues to go to the interior of the country. I will undoubtedly horrify them to see the number of jobs that are disappearing, some of them for ever, simply due to the overvaluation of the bolivar or the recession caused by the sky-high interest rates. The jobs I am talking about are not those created by illusions of the past such as the production of apples. No Sir, I am talking about real jobs in developed sectors in which we are solidly competitive. In the face of global recession that depresses prices and promotes dumping, these sectors deserve support, not punishment.

Those that say today that we should not devalue, simply have not analyzed the realities of the Venezuelan economy. Due to the lack of internal and external demand, most people are simply working in order to satisfy, precariously, their cash flow needs. In this sense, we also have a considerable repressed inflation which must be reflected somehow before we reach an equilibrium.

The lost jobs are civil fatalities caused by the war against the use of devaluation as the government’s fiscal tool. In this war, we are not taking the proper precautions in order to correctly identify the weapons to be used as well as to avoid aiming at civilians. Many of my colleagues simply are closing their eyes, or worse, are clamoring for the use of more napalm.

Excited about the Constituent Assembly 2000

Like many Venezuelans, I have reflected on the Constituent Assembly. At first, I was one of those who believed that although it was true that it seemed necessary to make some changes to our Constitution, these, in any case, could be made through reforms, without the need to resort to what would undoubtedly be a process cumbersome.

Today, when the Constituent Assembly, due to its reception, is almost an accomplished fact, my approach becomes one of "if we are going to do it, let's do it well." Analyzed from this point of view, shaken off the fear of the process and embraced the hope of its potential, I must admit that I have become a fervent and enthusiastic defender of the Constituent Assembly.

My enthusiasm multiplied when I discovered that Venezuela has, at this moment, the unique opportunity to create, for the world, the first Constitution of the next millennium. To be able to live up to these circumstances, I believe it is essential to apply the Chinese proverb, which asks us to aim high for the stars because, even when we do not reach them, we will reach much higher than if we aim for something closer.

I do not downplay the importance of history and I believe that we can and should extract a lot of knowledge from it, when drafting a constitution. However, giving excessive importance to constitutional experts could make us lose an opportunity to thoroughly modernize our constitutional reality.

I accept that there are necessary reforms, which are situated within the context of a traditional constituent debate, such as those that concern the judicial power and the tax capacity of states and municipalities.

Likewise, we require reforms that arise from our own realities. Among these and given our disastrous experience, is that of limiting the State's debt. Because I am absolutely certain that, from time to time, we will have governments incapable of resisting the siren songs, ending up, at no cost, by mortgaging the future of other generations of Venezuelans, I believe that the limitation on the State debt must be have constitutional rank. If Venezuela had not incurred its external public debt, because there is a constitutional provision that prohibits it, I swear to you and I bet you my entire professional career, that thanks to that Constitution, Venezuelans today, "would go better to the supermarket."

Another reform, one of those originating in our own reality and that I consider necessary, is one that establishes the obligation that in the administration of State companies, there is effective representation of civil society. For example, I believe that a PDVSA Board of Directors, whose members were elected by popular vote, rotating a certain percentage of them in each national election, could be an excellent option, to ensure that there is no undue pressure from the political sector or of the oil technocrats.

Notwithstanding all of the above, at this time, what I most wish to highlight is the fact that, as a result of the great changes that have occurred in the world, there is an urgency to introduce constitutional considerations on aspects that have never been contemplated. , in their Magna Cartas, for any country. Allowing me, for these purposes, to suggest the following:

• The information revolution. If it can be stated that "a Democracy with hunger is not Democracy", it must be more valid to say that "a Democracy without information is not Democracy either." Is it not a citizen's right to be able to know the public payroll, the amount of the country's external debt, the “real” recoveries of Fogade, etc.?

There is no doubt that the technology that exists today, to collect and disseminate information, allows a society to have the right to demand from its rulers a level of information, dramatically different, than what could be contemplated when the constitutions currently in force were drafted. I believe that in our 2000 Constitution, the right of the citizen to be informed about government management, in a valid, detailed and real-time manner, should be enshrined.

• The power of advertising. Had they known, in their time, the impact that advertising media have today, I am sure that the drafters of the current constitutions would have introduced limitations to official advertising. The Nation, states, municipalities, government entities and/or state companies should be prohibited from spending a single cent on paying for advertising, clearly aimed at promoting the personal and political image of any public official on duty.

• The globalization. Without a doubt, just trying to redefine the concept of Nation, within what is a world, where global relations intensify, second by second, is a challenge whose importance is lost from sight. How proud it would be for Venezuela to be able to rediscover itself, in a way that guides and illuminates other countries that are lost, which is probably all of them.

Let us enthusiastically face the challenge of showing the world that Venezuela is capable of producing a Constitution that will be an example for the next millennium. Otherwise, not only will we have wasted a historic opportunity, but, to make matters worse, soon after, we would surely have to convene another Constituent Assembly...

Economía Hoy January 12, 1999

My Constitutional wish list

As do many Venezuelans these days, I have dedicated some time to reflection about the Infamous Constituent Assembly (La Constituyente). 

At the beginning I was among those that believed that, although it is true that our Constitution requires some changes, these changes could be made without having to go through what seemed to be an unnecessarily complicated process.

Today, this assembly, due to its enormous public appeal, is basically a done deal. My outlook, therefore, is now more in the realm of “if we are going to do it, let’s do it properly”. Having analyzed this point of view, having expunged my fear of the process and having embraced the hope in its potential, I must admit I have now become a fervid supporter of the Constituent Assembly.

My enthusiasm is based on the fact that Venezuela now has the opportunity to create the first new Constitution of the next millennium in the world. It is our challenge and our responsibility to ensure that this Constitution is in line with the requirements of this next millennium. To achieve this, we must follow that ancient Chinese proverb that states something like: aim for the stars, and although you may not reach them, you will surely reach higher than if you had aimed at something within easy reach.

I certainly don’t wish to minimize the importance of history. Certainly, we must take heed and learn from the past if we wish to come up with a good Constitution. 

However, if we allot excessive importance to the gaggle of “constitutional experts” that surround us today, we will most surely miss the opportunity to truly modernize our Constitutional reality.

I accept the fact that there are various reforms that are based on traditional constitutional debate. Among these are, for example, those that correspond to reforms in the judicial system and in the fiscal capacity of decentralized entities such as the States and the Municipalities to create and collect taxes.

Likewise, there are other reforms that are born out of our own particular realities. Among these, I have given special attention to the following two reforms.

The first is a strict constitutional restriction on public indebtedness, specially in light of our disastrous experience in the past. This is vital for our country, since we know with absolute certainty that every now and then, the government of turn will not be able to resist the bankers’ siren song, incurring in debt and mortgaging the futures of several generations of Venezuelans without producing tangible results. These limitations on indebtedness should be established in our Constitution.

The second reform born out of our own realities, is one that inserts an effective representative of civil society between the political and technocratic sectors. I personally consider that the Petroleum sector as well as other productive activities undertaken by the State (Sidor, CVG and Pequiven) should be governed by a Board of Directors whose members are elected by popular vote, rotating a percentage of them at every national election.

Notwithstanding the above, what I really wish to address is the fact that as a result of the profound changes that have occurred worldwide, it is urgent that we introduce aspects based on today’s realities that were never taken into account by any country in the world when drafting previous Constitutions, simply because similar problems never existed before. Among these I can highlight the following:

The information revolution: If we can say that a democracy with hunger is not democracy, we can also safely state that a democracy without information is also not democracy. 

Without a doubt, new technological advancements that make the collection and dissemination of information quick and easy also give societies the right to demand of its governments a level of information that dramatically exceeds the level present at the moment the world’s existing Constitutions were drafted. 

In this sense, Venezuela’s next Constitution must include the citizens’ right to be informed as to the government’s management of the Nation’s affairs. This information must be valid, truthful, detailed and in real-time.

The power of publicity: Should the drafters of previous Constitutions have been aware of the immense power that the public media can wield, I am absolutely sure that they would have included an article that limits the amount of publicity that governmental entities can undertake. 

To begin with, they would have put a stop to the spending often undertaken by a Nation, a State, a Municipality or a governmental agency or company on behalf of, and to promote the name of, a particular public official.

Globalization: Without a doubt, to try to redefine the concept of a “Nation” within a world in which global relationships intensify second by second is a challenge of incredible importance. 

What a source of pride it would be for Venezuela if we could find our way forward in a way that would guide and illuminate the other countries around the world (probably all of them) that have lost their way. 

Let us face this challenge with enthusiasm and show the world that Venezuela is capable of producing a Constitution that is an example for the world of the coming millennium. 

If we don’t achieve this, we will have wasted a golden historic opportunity. Worse still, we will soon have to call for another Constituent Assembly.

PS. 2023 I asked ChatGPT and in 2025 Grok: Can you visualize Artificial Intelligence being used to measure the effectiveness of governments? They both say YES!

https://perkurowski.blogspot.com/2023/08/ai-chatgpt-openai-can-you-visualize.html

https://perkurowski.blogspot.com/2025/03/grok-can-you-visualize-artificial.html

 

Municipal governance ranking

An election, where there is the possibility of re-election, becomes, indisputably, an evaluation of results. We have witnessed elections in which the number of re-elected governors was truly impressive. Does this mean that the management of the Governments, in general, was good? Maybe yes, maybe not. For an ordinary voter, it is very difficult to determine, objectively, whether a Governor's management was good or bad.

Next year, with our votes, we have to evaluate the management of the municipalities. The challenge is important. If with our vote we reward those who deserve it and punish those who do not, the country will undoubtedly benefit. Similarly, if we are wrong in our assessment, this could erode many achievements at the Central or State Government level.

Today, in the case of a normal voter, who has other occupations and concerns, I ask myself: How should he know if the results of the management of a municipality, which at first glance may seem poor, are not located within a very good management, aimed at achieving sustainable improvements? How should management be measured to establish, when considering available resources, whether there is excellence or waste?

Imagine the confusion of parents if the educational society suddenly decides to eliminate the school report/the grades. How would they go about evaluating their children's academic ability, especially in subjects that were not even part of the parents' curriculum? The above is similar to the confusion that a voter may feel when having to choose their municipal authorities.

We have just heard expressions such as: "Democracy with hunger is not Democracy." In our current world, we could also say that “Democracy without correct and accessible information is not Democracy.”

When I recently had the opportunity to travel through a Central American country, I was surprised by the certainty with which many professionals, both from public and private, national and international entities, held consistent opinions regarding which municipalities were well governed and which not. This gave me to understand that in the field of municipal administration, there are certain variables that, objectively evaluated, can allow giving a reasonable opinion on the quality of its management.

If true, it occurs to me that a measure that could help strengthen the efficiency of our democracy would be to create a municipal “ranking” for the more than 300 Municipalities that exist in Venezuela. Said "ranking" could indicate to us, as voters, whether, in general terms, our municipality is among the good or among the bad.

I am sure that if in a country, a performance index were used, even if imperfect, in the election to renew its more than 300 municipal authorities, this would allow the people to keep the best and dismiss the worst, leading them towards a different and better future. Another would be the future of a country where the voters' decision criteria is based only on the sympathy of the Mayor or on the quality of the promotional spots.

Of course, I do not believe that a measurement, no matter how objective, can guarantee an analytically correct result. Much less, do I claim that a “ranking” can replace the value of the sum of the votes individually cast. However, I consider that a reasonable “ranking” can at its extremes (the best and the worst) function like the information regarding its ingredients, such as fats, calories, proteins and vitamins, that appears on the food packaging. This nutritional information does not constitute a prohibition on eating food, but it is an indication that allows us to rationalize the diet.

At this time, it would give the impression that the country is betting on decentralization. In such circumstances, I believe that one of the most important contributions that civil society could make would be to establish a committee to evaluate municipal efficiency, whose main product is, precisely, the Municipal “Ranking”.

In ranking design, there is no need for excess precision. I am sure that the 50 municipalities that are “ranked” as the best will truly be among the 150 best. Likewise, the 50 municipalities that are “ranked” as the worst must surely be among the 150 that truly make up the worst.

The suggestion I make is not intended to reduce our rights as voters. By declaring that I am not in the capacity to analyze whether things are good or bad in my municipality (in terms of what can and should be done), what I am requesting is some external help, I am not qualifying myself as electorally illiterate. . I just wish they would provide me with glasses that allow me to see better.

Translated by Google from a 1998 Op-Ed in Venezuela

Burning the bridges in Europe

In just a few weeks, on the 1st of January 1999, eleven European countries will forsake the right to issue their own currency and accept the circulation within their boundaries of a common currency, the Euro. 

Monetary policy related to the Euro will be set by a European Central Bank. One fact that struck me as curious is that in all the abundant legislation that regulates this process, there is no mention whatsoever of how to manage the withdrawal or future regret of any of the union’s members.

The absence of alternatives in this case evidently represents a burning of the bridges, but this may be necessary to achieve credibility. There is no turning back and there is no doubt that this is a truly historical moment. As participants in a globalized world in which Europe has an important role, we must naturally wish all members luck, no matter what worries we might secretly harbor.

Until 1971, all money used throughout the history of humanity was backed in one way or another by something physical to which a real value was attributed. Sometimes the backing was direct, pearls for example, while in other cases it was indirect such as the right to exchange bills for a certain quantity of gold.

This physical backing in itself did not necessarily mean it consisted of something of fixed value. The value of a pearl, for example, is in itself subjective. 

The promise to exchange bills for gold did not guarantee anything either, since this promise could easily be voided by fraud. Whatever the backing was, however, it did at least offer the holder of the money the illusion that it was supported by something concrete.

In 1971, the United States formally abandoned the gold standard and the direct backing, however imaginary, disappeared. Since the Dollar is a legal currency, it could always be used to repay Dollar denominated debt. 

Today, however, in spite of the fact that the Dollars may have lost some of their purchasing power, a holder of excess Dollars can only hope that the Government of the United States will exchange his old bills for new ones of the same tenor.

This apparently precarious situation must be the raison d’etre of the motto printed clearly on the bills which states “In God We Trust”.

Since 1971, the real value of the Dollar as an element of exchange, has lost some of its value due to inflation. 

Today, we would need many more Dollars to buy the same houses, cars, movie tickets and gold than we would have needed in 1971. In spite of the above, with few exceptions such as the end of the ‘70s during which inflation increased dramatically, few would dare qualify the United States’ elimination of the gold standard as a failure.

The world’s economies have managed to increase international commerce drastically and with it, sustain a healthy growth rate. Many analysts would explain this phenomenon by saying that the discipline exacted by the gold standard represented a brake on international commerce. The growth rate registered in commerce after 1971 was the result of the release of this brake. 

Other more critical analysts sustain the thesis that, due to the fact that we have abandoned the discipline required by the gold standard, the world has accumulated gigantic accounts payable, which we may be coming due very soon.

I personally swing back and forth between amazement of the fact that the world has accepted such a fragile system and satisfaction that it actually has done so.

The Euro has one characteristic that differentiates it from the Dollar. This characteristic makes me feel less optimistic as to its chances of success. 

The Dollar is backed by a solidly unified political entity, i.e. the United States of America. The Euro, on the other hand, seems to be aimed at creating unity and cohesion. It is not the result of these.

The possibility that the European countries will subordinate their political desires to the whims of a common Central Bank that may be theirs but really isn’t, is not a certainty. 

Exchange rates, while not perfect, are escape valves. By eliminating this valve, European [Eurozone] nations must make their economic adjustments in real terms. 

This makes these adjustments much more explosive. High unemployment will not be confronted with a devaluation of the currency which reduces the real value of salaries in an indirect manner, but rather with a direct and open reduction of salaries or with an increase of emigration to areas offering better possibilities.

What worries me most is the timing. The world is facing the possibility of a global recession. This will require very flexible economic and monetary policies. 

The fact that the search for initial credibility for the Euro is based on trying to assure markets around the world that the new currency will be guided by a philosophy closer to that of Bonn (soon to be Berlin) than that of Rome, probably goes against the best interests of the world.

Published in Daily Journal, Caracas, November 19, 1998

20 years later: Let’s face it. Americans dream they are American. Few if no Europeans, dream they are Europeans.

PS. A new English Language Empire?

PS. What I did not know when I wrote this article was that EU authorities (EC), for the purpose of their (crazy) risk weighted capital requirements for banks decided, in a “good-will” gesture to, even though none of these could print Euros, assign a sovereign debt privilege of a 0% risk weight to all European sovereigns like Greece. That of course, by removing market credit constraints, would make the Euro challenges so much more explosive especially considering that the Euro is de facto not a domestic (printable) currency of any Eurozone nation. Shamefully EU authorities responsible for that have not acknowledge their mistake, and made Greece have to walk the plank for it.

IT IS NOW A TICKING BOMB!

Please - less global clowning

Please - less global clowning 

I have frequently questioned both the way Venezuela has tried to implement so-called “market policies” and the way we have faced the challenges posed by globalization. The innocence with which many of our public and private leaders have accepted a series of dogmas, I can only describe, at best, as childish.

Recently, in the same week, when reading the statements of a humble Venezuelan textile technician and those of Henry Kissinger, I felt accompanied in my concern. The first, in an opinion that seemed to me full of wisdom, accused our country of being a "clown of globalization"; while the renowned Kissinger, in the Washington Post, warned about the risks of indiscriminate globalization.

The recent debate between industrialists and importers allows me to reiterate some observations. The purpose of these is, mainly, to induce an academic debate.

To begin, I maintain that it should be prohibited, on the basis of constituting absolute intellectual dishonesty, to issue any concept regarding the economic development of Venezuela, without first clarifying what oil premise is used.

I explain. Either oil is a valuable non-renewable natural resource or it is just any resource. The first case imposes on us a very high fiduciary responsibility towards future generations, while the second, in principle, only obliges us to conjunctural management, that is, to exploit it quickly, as long as the simple conditions are given that its price exceeds operating costs.

Any analyst can realize that the answer given to the previous question must underpin any proposal to be developed, with the purpose of charting a coherent course for our country. The fact that it is so often ignored is the main cause of the current lack of guidance that we all feel.

I begin then by clarifying that, personally, I belong to that, each day, smaller group, which still declares that oil is a non-renewable natural resource and of real value (in the long term), with complete certainty, much higher than the value currently decreed by a money-hungry and poorly informed market. Notwithstanding the above, I want to make it perfectly clear that I do not belong to those who would paralyze the current expansion of the oil industry's capacity.

On the contrary, I believe that by expanding our production capacity to six million barrels per day or more, we would be in better conditions to obtain, via the fight for markets or strategic negotiations, based on security of supplies, a much more consistent price. with the true value of oil. The ideal would be to have such an immense installed capacity that we would need to produce a very small quantity.

Of course, if the reason for the current expansion is only to generate greater income possibilities, so that wasteful politicians can satisfy the material desires of generations of freeloaders, I simply cannot agree with this.

But, let's return to the purpose of this article, which is to comment on Venezuela in a global world.

Having established my criteria regarding oil, as a valuable non-renewable resource, I have the right to argue that the vast majority of Venezuela's income, which today is recorded in our trade balance, does not come from a productive activity, but from a liquidation of assets.

In other words, the role of oil in our trade balance is much more similar to the role traditionally played by gold bullion. These were delivered by one Central Bank to another, to compensate for a trade deficit, and not as a direct commercial counterpart for the goods that were imported.

The above means today that Venezuela, instead of presenting a positive balance in our trade balance (something our more intelligent and less innocent competitors have led us to believe), presents a gigantic trade deficit. This not only justifies, but also forces us to reconsider our entire trade policy.

Among the initial instructions that should be given to our trade negotiators, responsible for defending our country, in a world where, despite being classified as one of globalization and openness, is still a world where a global trade war prevails, with knives, find the following:

First: Aspire and negotiate the balance of our trade balance, in terms of jobs generated and not, as to date, in simple terms of dollars traded.

Second: No longer accept that Venezuela cooperates with the world economy, lowering tariffs and reinvesting (cheerfully and without discrimination) all its purchasing capacity, while many countries, which proclaim trade openness, impose direct taxes on gasoline consumption that , in one way or another, prevents "oil liquidators" from obtaining the best price for each "liquidated" oil barrel.

Third: Learn the importance of, at the time of negotiation, showing solid support from public opinion. Venezuela has just suffered a very important setback in its trade policy, with the recent ban on the use of Orimulsion, by a supposed friend, Florida. When comparing the total absence of a protest reaction for this with the commotion over blue jeans, we know that Venezuela is not prepared to defend itself.

Finally, I wish to clarify that, even though my comments may, and even rightly, place me in the protectionist camp, this does not imply, in any way, a defense of the commercial aspirations, which are currently being debated in the country, everything contrary. Precisely, because I believe that intelligent protectionism can be a very important weapon for the comprehensive development of a country, I am one of those who most protests when it is used, lightly, for the sole development of individual interests.

Bashing the consumer

Once again we are in the midst of a debate about the allocation of a concession for a cellular telephone operation. One part of this debate is relative to whether the law to be applied in this case is the Telecommunications Law of 1941 or the Concessions Law of 1994.

As usual, most of the arguments are a direct function of the commercial interest involved. In this particular case, however, it is even more surprising to find that the General Director of the National Telecommunications Commission (CONATEL) is of the opinion that neither of the two apply, holding the singular view instead that cellular communications are not to be classified a public service.

Again, as is tradition, the debate does not cover the entire communicational spectrum. Once again, the end user of the service is conspicuously absent.

In 1991 Israel bid and allocated a cellular telephone concession to the investor that offered the most amount of lines and agreed to charge the lowest tariff. In Venezuela, however, concessions and privatizations are designed to maximize the income for the State. Results come fast and hard. Recent calculations support the fact that one minute of cellular communications in Venezuela costs ten times what it costs in Israel.

Quality and low tariffs for public services such as electricity, water, communications and transportation are some of the critical elements that must be present in order to maintain the country’s competitiveness. This fact should be taken into consideration by entities such as Fedecamaras and other influential groups that, like any court jester, have in the past applauded a privatization process that must, for all intents and purposes, be classified as fiscally oriented.

The Telecommunications Law, as no other, is evidence of this trend. There is absolutely no mention whatsoever of any obligation or duty of an operator or carrier to provide a good public service at a reasonable tariff. What’s more, when the moment comes to address the regulation of tariffs, apart from the fact that the Law calls for respect for existing agreements, it establishes with utmost clarity that any regulation must consider the “interests of the National fiscal system”.

Don’t think that the Concessions Law is much different. While it logically states that “the concessionaire must be allowed to obtain sufficient income to cover costs and that is fair and equitable”, there is no mention about the need, or even the intent, to structure the concession in such as was so as to minimize the cost to the end user of the service to be offered.

It is high time that we begin to differentiate in a more rational manner between sane economic policies and those that, simply because they are being applied to what has been loosely classified as a “market”, are believed to be the quick road to an economic miracle and are consequently implemented indiscriminately. Much care must be taken when a “market” simply does not exist. This is specially true in the case of public services, which are mostly structured as monopolies, public or private.

Public service companies traditionally offer workers employment stability and therefore also pay salaries that are below the average. Recently, faced with the threat of a national strike, a representative of the national monopoly identified by the initials CANTV, expressed surprise, arguing that the latter was paying salaries over and above the national average. Without wishing to belittle the individual aspirations of its workforce, I remember asking myself who had authorized CANTV to pay its employees salaries above the national average, probably at the expense of a higher tariff for the service offered.

The government, as well as many of the Presidential hopefulls, has announced a new wave of privatizations, specifically in the energy sector. As a result, it is of utmost importance that they remember that a high price obtained for the sale of a publicly owned company like SIDOR is beneficial for everyone, while a high price obtained from the sale or concession of a public service is simply a tax paid in advance to the State, which all of us must then repay via unnecessarily high tariffs for per secula seculorum.

I have read about the supposed “advantage” of tendering and allocating a few megahertz (50 to be exact) at which any investor must then throw an additional US$ 200 million in project development funding. First of all, Conatel hopes to land a US$ 180 million windfall. Then the State wishes to obtain US$ 325 million in income taxes and US$ 470 million in sales taxes between now and the year 2009.

In other words, the tariff structure needed to award the investor a “fair and equitable” income must contemplate not only the US$ 200 million development cost, but also the payment to the State of US$ 975 million. Where the dickens does this leave the end user?

Daily Journal, Caracas, November 11, 1998

The index of perceived Corruption

Transparency International (TI) has developed an index by means of which it ranks countries around the world according to their perceived levels of internal corruption. I have a Danish friend who recently came to me for the umpteenth time with this list clutched firmly in his fist, proudly crowing over the fact that Denmark once again tops the list as the least corrupt country while Venezuela once again comes in toward the bottom, beaten out for the basement spot by only seven countries among which we find Colombia and Nigeria.

As a Venezuelan, I immediately went into a defensive mode. I argued that since the index is based on the perception of corruption, it could be that the results merely indicate a serious problem of exactly that, the perception, not the reality. Additionally, should this actually be true (evidently not the case), I told him that although I did lament the fact that Venezuela was not mentioned in the top half of the list, I was at least satisfied that we were definitely not occupying any “not too human” first place.

My good friend, observing my discomfort, realizing that I have some Swedish blood in my veins, and in a sincere effort to console me, blurted out that in reality he also did not understand why Denmark had been ranked first while Sweden was ranked third. My immediate reply was “Chico, Denmark must simply have paid more for it.” 

Jest aside, the index is the result of a serious effort on the part of professionals of diverse backgrounds who, using the few tools available, have managed to develop a system of evaluation which is useful and of great support for every citizen wishing to combat this age-old plague. 

Its importance is of even greater significance when we hear that Transparency International suggests that we don’t attribute more accuracy than necessary to its index. Venezuela’s ranking on this list of 85 countries is such that it is evident, to say the least, that the country’s level of corruption is far greater than average. This is bad enough!

Any debate over whether Venezuela should be ranked higher could be perceived simply as a strategy aimed at discrediting the index. Only the beneficiaries of corruption could possibly have an interest in doing this. A true patriot would not waste one single second of his or her valuable time in debating why people speak poorly of our country. On the contrary, he would dedicate all his time and energy to correct the reality instead of objecting to the perception.

This debate on corruption is truly difficult and complicated. Even though we should be pleased that such an index exists, I am worried that the mere fact that we are trying to reduce corruption to terms of a measurable dimension may lead us to oversimplify the problem dangerously.

The index, in principle, only measures the perception of corruption in general terms. This is defined in ample terms as “the abuse of public office for private gain.” In this sense, and because of the nature of the problem, I am sure that when using the term “gain” we are referring mostly to a monetary benefit. This avoids measuring other aspects of corruption that could be just as important or more.

For instance, I believe that the appointment of someone to public office for reasons other than his or her capacity or professional integrity is a corruption that is even more pernicious and costly to the country than the sum of all monetary corruption put together.

An example of this is our recent banking-sector crisis. The costs caused by the poor administration of this crisis are far and above the costs attributable directly to the bankers involved. It’s not that the bankers are free of guilt. They did undoubtedly start the fire. But whose fault is it that the financial firemen were caught napping and did not hear the alarms, and that once they finally got to the scene of the disaster they tried to douse the flames with gasoline instead of water? 

I make these comments to remind all that the monster of corruption has a thousand heads. I would be sad if all the result of the efforts to slay this monster would simply be the elimination of the traditional offers of discounts for prompt payment, right then and there, and that we frequently receive when fined for a traffic violation.

Let me make one last comment on this quite tortuous subject. In Venezuela, perhaps more than in any other countries, there is more than sufficient evidence of the total administrative ineptitude of the state, and all of our governments have absolutely no results to show, considering all of their income. Nonetheless multilateral agencies, such as the International Monetary Fund, frequently come to the country and recommend an action (sales taxes) that could only mean allowing the state to squander even more resources. For whom then is the IMF working? For the politicians? Could we then be staring at another unknown dimension of this monster called Corruption?

As edited for Voice and Noise, 2006

Originally published The Daily Journal, Caracas, November 4 1998

PS. “Our recent banking sector crisis” I here refer to in 1998, was a Venezuelan one that happened in 1994. Reflect on how much of that comment also applies to the bank crisis suffered by developed nations in 2008. 

PS. The world needs more than a theme park of anti-corruption efforts

Traducción:

El Indice de Percepción de la Corrupción 

Hay un índice, desarrollado por Transparencia Internacional (TI), relativo a la percepción que existe sobre la corrupción en distintos países. Tengo un amigo danés que por enésima vez este año me ha suministrado la copia del ranking, donde Dinamarca aparece como el país menos corrupto y Venezuela, en corrupción, solo es superada por siete países entre los cuales esta Colombia y Nigeria.

Como venezolano, en obligada defensa, le expuse que por cuanto el índice lo que mide es la percepción que se tiene sobre la corrupción, puede que los resultados solo indiquen serias dificultades de apreciación. Además y para el caso (negado) de que fuese cierto, le comente que si bien lamentaba que Venezuela no estuviese en la parte superior de la tabla, por lo menos me satisfacía el que no ocupasen un "inhumano" primer lugar.

Mi amigo, a sabiendas que también soy de procedencia sueca y en un esfuerzo por consolarme, expreso, de forma generosa, de que en verdad no entendía sobre que bases se había determinado que Dinamarca ocupase el primer lugar y Suecia el tercero. Mi replica fue inmediata; "Chico, Dinamarca debe haber pagado mas!"

Apartemos la broma. El índice es el resultado del esfuerzo por parte de un grupo de profesionales diversos que, con base a las muy pocas herramientas disponibles, han logrado desarrollar un sistema de evaluación útil y de mucho apoyo para todo ciudadano deseoso de combatir esta plaga de vieja data.

Su importancia se hace aun más significativa cuando, siguiendo las propias sugerencias de TI, no le atribuimos mas exactitud que la necesaria. La posición de Venezuela en esta lista de 85 países es tal que sin lugar a duda podemos decir que en nuestro país tiene una corrupción mayor que el promedio. Lo anterior resulta suficientemente malo.

El debatir sobre si Venezuela debe estar en un puesto mejor, simplemente seria una estrategia para tratar de desacreditar el índice y en esto solo podrían tener interés los beneficiarios de la corrupción. El patriota no dedicaría ni un segundo al debatir el porqué se habla mal del país sino daría todo su empeño en corregir la situación.

Qué difícil resulta todo el debate relativo a la corrupción. Aun cuando reconozco que, en el papel de motivador, debemos agradecer la existencia del índice, me preocupa de que el solo hecho de tratar de medir la corrupción, al tener que reducirlo a una dimensión que permita su medición, puede conducirnos a una peligrosa simplificación del problema.

El índice, en principio, solo mide la percepción que se tiene como una corrupción general, definida esta de forma amplia como "el abuso de cargo publico en beneficio propio". En tal sentido y por la sola naturaleza del problema, estoy seguro que el termino de "beneficio propio" implica principalmente un beneficio monetario, obviando medir aspectos de corrupción que pudiesen ser tanto o mas importantes.

Creo que la corrupción presente cuando se nombra a quien habrá de ejercer un cargo público, por razones distintas a su capacidad e integridad profesional, es más perniciosa y costosa para el país que la suma de todas las corrupciones monetarias.

Como ejemplo de lo anterior, los costos derivados de la mala administración de la crisis bancaria supera, por largo rato, los costos que de forma directa son atribuibles a los banqueros. No es que los banqueros sean inocentes, sin duda prendieron el fuego, pero; ¿quién es el responsable de que el cuerpo de bomberos financieros, estuviesen dormidos sin oír la alarma y luego utilizaran gasolina para apagar las llamas?

Hago esta observaciones para recordar que el monstruo de la corrupción tiene mil caras. Seria lastimoso que el resultado de los esfuerzos que se haga para combatirla, solo culmine en que cuando se imponga una multa por violación de transito, no se ofrezca la tradicional alternativa, del descuento por pronto pago.

Por ultimo un comentario sobre este escabroso tema. En Venezuela mas que en cualquier otro país ha quedado evidenciado la total ineptitud administrativa del Estado. Todos los ingresos del mundo y nada de resultados. Cuando entonces un organismo, como el Fondo Monetario Internacional viene acá y nos receta, como única vía para salir de nuestros problemas, el que proveamos al Estado con mas ingresos aún, pagando mas impuestos, para el beneficio no individual sino colectivo de la secta política; ¿estaremos enfrentando una faceta desconocida de la corrupción?

Corruption: The fight against it seems to be going on!

Corruption: The fight against it seems to be going on!

On November 21, 1997, the OECD, an economic organization that covers developed countries, approved the "Convention to Combat Bribery of Public Officials in International Business." By the end of 1998, it is expected that the majority of subscribing countries will have ratified its validity and that it will enter into force in early 1999.

The normal reaction to this type of decree is usually to question its sincerity or its applicability. That is, consider it as "another hypocritical manipulation aimed at calming the conscience of the developed world" or, simply, "another useless legaloid effort to alter the realities of the world."

When we read, in the comments that have been made on the aforementioned Convention, that the prohibited bribes do not include "small "facilitating" payments..., which in some countries are made to induce public officials to fulfill their functions", and it is argues that these "small payments" must be fought by each individual Nation, since criminalization by other countries does not seem like an effective action; It is logical that we feel a certain hopelessness.

However, as citizens interested in fighting corruption, I believe that we should not ignore this Convention. In fact, if we read it carefully, we can observe the existence of some elements that, well handled, could be very relevant. These are: accounting for bribery expenditure and its deductibility for tax purposes.

Regarding accounting, the Convention establishes that "extra-book accounting, ... the recording of non-existent expenses, the recording of liabilities without correct identification of their object, and the use of false documentation, ... for the purpose of of bribing foreign public officials or concealing such bribes.” The signatory countries, for their part, undertake to effectively establish civil, administrative and criminal penalties that, in a rational and proportional manner, help deter such activities.

From the above, we could deduce that, in a certain way, accountants and auditors are being constituted as guarantors of the fight against corruption. If this is so, and if the belief is true that public accountants, in general, are not distinguished by being risk-friendly, then and since, by failing to comply with the rules, they could be considered as accomplices to bribery, it is expect that this measure, well implemented, will have a significant effect.

The other aspect refers to the deductibility of the bribery expense. It is surprising that it is necessary to regulate the matter, but it turns out that in many countries, even among those that beat their chests and are considered examples of neatness, bribes paid to foreign public officials are deductible expenses from Income Tax. The OECD reports that in a European country, between 1988 and 1992, the Treasury received 109 applications requesting the deductibility of bribes.

It is also indicated that, sometimes, deductibility is subject to the payment of the bribe being recognized, as a common practice in the country of payment, that is, as a normal and necessary expense. Transparency International is the name of a foundation dedicated to the development of elements that can be useful to combat corruption and one of its products is the well-known Corruption Perception Index. The above makes us think about the horrible possibility that someone is using the aforementioned Index to justify the "normality" of their spending and thus achieve tax deductibility of the bribe.

The OECD convention includes an agreement to prohibit the tax deductibility of bribery. By implementing this, not only will the cost of bribery increase, but it will also establish a direct relationship between Tax Legislation and the payment of bribes. Both facts will discourage both the commission of the crime and its concealment.

In conclusion, I believe that, by declaring bribery of a public official as a crime and expanding the necessary network of accomplices, by including accountants and auditors and, in addition, implying that the factual assumption that constitutes a bribe could also have consequences. legal provisions of a fiscal nature, gives us hope that a certain possibility of dealing a strong blow to corruption is emerging. We hope it is.

Maybe I'm delusional. The truth is that before, many businessmen could come to a country and bribe its officials and if they were discovered, nothing would happen to the businessman in his country. Tomorrow, in 1999, he can go to jail. As a citizen I must, at the very least, thank the OECD for this gesture of respect.

Venezuela must provide all its support to this Agreement and I would say, to the point of considering it mandatory for those countries that wish to do business with the Venezuelan State. At a minimum, we should also sign the Convention, as Argentina, Brazil and Chile have already done, despite not being members of the OECD.

https://legalinstruments.oecd.org/en/instruments/OECD-LEGAL-0293