Odious Credit

I recently wrote about odious foreign public debt, that debt about which there is a current debate in the world as to whether it can be legally repudiated if it is taken on by illegitimate governments or for illegitimate ends.

The other side of the coin is odious credit. Please don’t think I’m against banks—quite the opposite. But I respect the role of the financial middlemen too highly to keep quiet when they are not doing their job right. In 1981, the representative of a foreign bank in Venezuela showed me a letter in which his boss instructed him to “give credit to the INAVI, Venezuela’s National Housing Institute. It’s the worst public institution, which means that it pays us the highest rate and, as you know, in the end it’s just as public as the best of them and Venezuela will have to pay up just the same.” Odious credit, isn’t it?

The first thing a good banker should ask a client applying for a loan is what is it for and if the answer is not satisfactory he should reject the application, regardless of the guarantees offered. Simple plain-vanilla fraud of the Parmalat kind will always exist, but the asinine way all their creditors fell into the trap makes one suspect that this is only the first case of systemic risk in the banking system: tempted by the regulators in Basel, banks subordinate their own criteria to those dictated by auditors and credit raters. This development, bad in itself, is even more serious in the case of public credit, where the what it’s for is being replaced by how much can be carried, perversely derived by calculating the level of sustainable public debt.

When I call for the total elimination of foreign public debt (which is feasible and would not require huge sacrifices in an oil rich land like Venezuela) my colleagues often argue that a certain level of debt is good and necessary for the country. This does not convince me, since it makes debt sound like electricity that must be kept at a certain voltage. Because public debt must always be paid back, regardless of whether anybody ever knew what or whom it was for, I’m fighting for the day when the private sector in Venezuela can return to the markets, freely, without having to carry that huge monkey—foreign public debt—on its back.

In my opinion, the Benemérito (the dictator Juan Vicente Gómez (1864–1935) who ruled the country between 1908 and 1935) deserved great credit for ridding Venezuela of her foreign debts He certainly knew that to shake off that vice more than patches or pieces of chewing gum are needed.

From El Universal, Caracas, April 22, 2004

Odious Debt

One of my recent articles, which focused on the need to protect the environment, concluded by recalling the ancient proverb, “We have not inherited the world from our parents; we have borrowed it from our children.” On that occasion, as always, I thought about Venezuela and I knew that, as borrowers from our children, we have acted like veritable pigs. Not only have we extracted our country’s oil without putting it to much good use, we have even mortgaged its future in the process.

Some countries may be in need of foreign loans to get on their feet, but here in Venezuela we ought to know by now that our foreign public debt, be it the debt of yesterday, today, or tomorrow, only serves to fasten us all the more securely to a sinking ship. Foreign public debt is a monstrous obstacle. It keeps our citizens from getting loans (or at least makes loans much more expensive) that could indeed lead to growth in the country and allow the government to satisfy social needs through taxation.

Our only salvation is to learn how to resist the lure of the eternal sirens’ song, which goes “foreign debt taken on by the previous administrations is evil and good for nothing, but rest assured, with us, everything’s going to be different.” How do we—like the ancient Odysseus—tie ourselves to the mast?

There are those, in similar desperation, who argue that since our creditors were accomplices of those administrations, we shouldn’t pay our debts to them. I accept the theory of complicity, at least on the part of the intermediaries, but I think we should punish them much more harshly, by canceling the entire debt and never again taking out another loan.

What can ordinary citizens do who want to and have to go about their daily lives and can’t be continually overseeing the government? The same as any company: they can refuse to provide their management with authorization for contracting debts. Along these lines, a doctrine is now being discussed in the world according to which, if the debt was contracted by an illegitimate government, or for uses that were clearly of no benefit to the country said debt could be declared odious and, as such, its collection would not be legally enforceable.

Dear friends, if we are going to do right by our children, our grandchildren, and our great grandchildren, and return the country we borrowed from them in good shape, maybe we should take advantage of such a possibility and declare our foreign public debt eternally odious. Given that threat: Would creditors dare provide us with loans? What would the credit-rating agencies say? 

Or let us be even more clear about the message and amend our constitution to say that the government of Venezuela has no authority to borrow from foreign sources, that any attempt to do so is illegal, and hence that all such illegal debts will not be repaid. That should stop foreigners from lending us money!

Translated from El Universal, Caracas, March 25, 2004

About prisoners, the old and the sick

About prisoners, the old and the sick

WE READ THAT IN THE United States there are approximately 2.2 million people dedicated to capturing and keeping 2 million prisoners behind bars. Imagine what it can mean for any country to capture even 1% of that market.

Other buoyant markets are those of the elderly care industry, whose demand in developed countries grows as the ratio of the number of young to old decreases. So are those in the long-term care industry, where continuous advances in medicine seem to generate almost infinite demand. 

It is strange then the insufficient attention that developing countries give to these services when negotiating their trade agreements, considering their current and competitive salaries, and that, on the other hand, it does force them to open up to the services sector via banking, insurance, auditing, etc. 

As an example, the economic impact to a poor country of a school that annually graduates a few thousand excellent bilingual nurses, to work around the world or in their own country, could exceed the benefits that a trade agreement would have on its agriculture and manufacturing industry combined. By the way, nurses would cancel their educational credits, perhaps even more easily than economists like me.

Furthermore, given the tensions that occur when millions of people seek to emigrate in any way to the labor markets of developed countries, in order to produce family remittances, it is surprising not to hear that the best way to avoid this illegal immigration, which is often destined in one way or another to care for prisoners, the sick and the elderly, it would be sending this same clientele to developing countries to be cared for. 

A real opening in services would allow poor countries to access sources of sustainable economic growth, while at the same time it would alleviate the pressures that the costs of caring for prisoners, the elderly and the sick exert on the finances of developed countries, to such a degree that They even threaten to make their own economies unsustainable. 

New ideas? No way! Papillon was sent prisoner to Guyana and Australia was founded with exported convicts. There are already European governments that pay in one way or another for the stay of their elderly in places like the Canary Islands, and history is full of examples of those who had to go to other places due to diseases such as tuberculosis.

Translated by Google from El Universal

What’s Chinese (as in inexplicable) in China

Travel to China and be fascinated. I assure you that for a tourist trip, if you get a special ticket, there is nothing that beats it. To go to the Great Wall, I got on a bus with only Chinese, who sang in Chinese with the help of a video where the ball jumped over Chinese characters. But, much more than that, was Chinese to me.

In today's China, most families have only one child. What will this mean for society? Could Latinos, for example, continue to be Latinos with one-child families? 

It is precisely when a country comes out of poverty and seeks to be at an intermediate level where any progress, such as going from bicycle to motorcycle and from motorcycle to car, demands a lot of energy. Is there energy and oil in the world to satisfy Chinese growth? 

The current model of economic growth in China would seem to take it in a very short time from being a rural country to a country where its citizens end up living like sardines in huge cities, and we intuit that such a destination is neither good nor sustainable. Observing how recent technological advances in the world already almost allow the most remote villagers to be present, almost live, in the very center of the capital of their empire, we have to ask ourselves: Are there really no new and better options? 

The current growth rate in China is brutal and from what we know that immense inequalities will arise between those who manage to climb into today's developed consumerism and those who are far from even entering the current millennium. All progress involves risks and may even require leaving victims in your obituary, but, if the injustices become too great, the past can claim. Will China, in a few decades, be able to do what used to take centuries and still remain China? 

Forgive the political indiscretion but, when at dawn, when the red flags were raised in Tiananmen Square, I saw how the human waves moved and kept a certain order only when they were instructed by the guards at the top of their lungs, I had to wonder if in the long run it would be possible to manage China with one of the current democracies of the “Viva la Pepa” (meaning, “let’s do what we want”) type. 

Finally, when I found myself on The Great Wall of China, to which I ended up riding in a yellow cart that looked like as one retired from a Disney Park and as I walked slowly through an incredible crowd, I asked myself, again and again: Will it hold? 

Translated from El Universal

Note: Written while being an Executive Director at the World Bank.

PS. “Also, we should never forget that historically, through all economic cycles, there is nothing so valuable in terms of personal social security as having many well-educated loving children to take care of you, and that you can’t, in real terms, beat that with any social security reform.”

The curse

  The curse

Lately, articles that analyze the supposed curse that weighs on countries rich in oil resources have been published like rice. At first glance it would seem that there is a certain basis of support for these theories of obscurantism, however, for proper reading, it is important to clarify one or another detail.

First of all, and judging by the immense number of existing offers to free ourselves from this cursed burden, it is obvious that we are not talking about a common curse. There are even those who generously offer to assume their risks, even paying us for the right to such sacrifice.

A suggested exorcism is to leave OPEC to sell oil at its marginal extraction cost, thus guaranteeing that we avoid earning the dirty rent for oil. Another way is to privatize it, against a tasty and tempting initial payment, to cancel the current public debt... and get into debt again? As you can see, both methods have a strange similarity with selling the sofa.

Finally, considering that the European treasury earns about 100 dollars net per barrel, while those who sacrifice the resource only get 25 dollars, gross, it is not very obvious who is the cursed one.

The indisputable thing is that oil revenues have not been used well, but as you can understand, this has less to do with the abundance of resources and more to do with the damn system used to distribute them. Currently, the entire oil revenue enters the government's coffers alone and effortlessly, thus unbalancing the democratic system, since we all know that the happy holder of a full oil checkbook has little incentive to pay attention to the citizen.

How do we get out of this? To begin with and due to the obvious and incurable lack of talents of our rulers, we must apply the parable of the talents in reverse and bypass them, delegating a greater part of the administration of oil revenues directly to the citizens.

However, since we civil society members are not very different from our politicians, like-minded, like-minded, perhaps we should, just in case, pay the oil dividends with educational tickets.

Chances of it? Few, due to that true curse, the one that leads our leaders to believe that everything bad in the past is miraculously cured with their arrival in power (with the checkbook) and, us, to believe them.

Translated by Google

https://petropolitan.blogspot.com/2003/11/la-maldicion.html

https://theoilcurse.blogspot.com/2003/11/the-curse.html

Together or at odds

If you look at Venezuela and Colombia on a map, reaching from the Atlantic to the Pacific, you see that in the end it will be impossible to avoid the many opportunities that integration would offer. It is clear that either the two countries will join, or one will take hold of the other, or someone else will stick them together… by force and according to their own geopolitical interests. Which would you prefer?

Consider the countries of Europe today: with all their differences - linguistic ones being the least - less than sixty years after the war, they have submitted to a political-economic community and are drawing up a common constitution for the humble purpose of trying to maintain their level of development. Their example contrasts with the pettiness of our political leadership in Colombia and Venezuela, yesterday’s and today’s.

There is no doubt that both our countries are in very bad shape, but instead of trying to capitalize on the possibilities of a true union of markets, which could help us at last find that lost course never found, our leaders – if they can be called that – spend their time feeding and fanning tensions, hiding their own ineptitude.

In today’s world it is not easy to come up with a plan that can simultaneously satisfy the urgent needs of our people of dreams, while providing the credibility that the markets demand. A strong commitment to total integration, beginning with establishing a harmonized monetary, exchange and trade policy, must be one of the main components of any such plan capable of offering us a better future.

How do we accomplish this? I wish I knew, but I confess I have no idea… except that it requires leadership capable of subordinating today’s pettiness to tomorrow’s grandeur, though this appears very difficult in a world in which the increasing demand of our people for instant gratification is surpassed by that of most of our politicians.

Nevertheless, since it is true that every crisis brings opportunity… if we consider the magnitude of the crisis in our countries, who knows if suddenly, when so many material needs meet up with so many spiritual needs, conditions will finally be there for us to awake from our lethargy and fulfill the historical mandate for a Great Union.

El Universal, Caracas November 6, 2003

Of course, there is always a fourth alternative – the worst between brothers: a new bipolar world with a great Colombo-Venezuelan wall as a border.

Together or mixed up

Together or mixed up

If you look at Venezuela and Colombia on a map, you will know that in the long run, it will be impossible to avoid the multiple opportunities that their integration would offer, so it is clear that either the two countries unite, or one of the two grabs the other, or Someone will bring them together... in a macho way, under the umbrella of their own geopolitical interests. What do you prefer?

Contemplate how European countries, with all their differences, linguistic ones being the least, today, less than sixty years after the war, subordinate themselves to a political-economic community and are drafting a common constitution, with the humble purpose of trying to maintain its level of development, serves to highlight the smallness of our political leaders in Colombia and Venezuela, yesterday and today

Both countries are doing badly, very badly indeed, but instead of seeking to capitalize on the possibilities of a true union of markets, which would allow us to recover that lost direction that has never been found, our leaders, if they can be classified as such, are rather dedicated to feed and fuel tensions, hiding their own inadequacies.

It is not easy to design a plan in today's world that simultaneously feeds a people hungry for dreams and inspires the credibility that the markets demand. Committing ourselves fully to integration and beginning it by establishing a consistent monetary, exchange and trade policy must be one of the main components of any plan capable of offering us a better future.

How do we do it? I wish I knew, but I confess that I have no idea... except to know that it requires leadership capable of subordinating the little things of today to the greatness of tomorrow, which would seem very difficult to achieve in a world where the growing demands of our peoples for immediate gratification, are surpassed by those of the majority of our politicians.

However, and because every crisis means an opportunity...if we think about the size of the crisis that our countries are experiencing, who knows if suddenly, when so many material needs have been combined with so many spiritual needs, the conditions will finally be met. so that we can wake up from our lethargy and fulfill that historic mandate of achieving a Great Union.

Of course, there is always the fourth alternative, the worst between brothers, that a new bipolar world emerges with a great Colombian-Venezuelan wall as a border.

https://perkurowski.blogspot.com/2001/01/my-colombia-plan.html

Translated by Google.

Time to scratch each other’s backs

Do you remember the ‘no-driving day’ in Venezuela? Somebody’s brilliant idea to ease congestion! Depending on your license plate number, there was one day a week when you couldn’t drive your car. Even if the idea had worked, I still would never have liked it because, as traffic kept growing, logic would lead us towards a blind alley as—inevitably—the next step would be two no-driving days, then three, all the way up to seven, when everything comes to a complete standstill. It’s rather like applauding the fact that a patient’s breathing problems have ceased—because the patient died. 

There’s a hint of all coming to a standstill in the theory about how globalization will optimize the world economy, by ensuring that merchandise will always be produced at the lowest marginal cost. What good does it do us to have products where the cost of the labor component gets smaller by the minute, if workers can’t buy the very products they produce?

What could be waiting for us at the end of that tunnel is a world of desperate wage earners, willing to work for pennies, who might never be able to afford even a reasonable part of the fruit of their efforts. Doesn’t it seem as if we’re getting nowhere?

This wouldn’t be as much of a problem if there were more jobs than workers, but unfortunately, that isn’t the case. Just ask the millions of professionals competing for jobs as taxi drivers in the world’s capital cities! Not even the United States has managed to escape unharmed from the pangs of globalization. In fact, over the past few months, for the first time, we have seen economic growth in the United States coupled with an increase in unemployment. As it turns out, over the past three years, the United States has “exported” 2.5 million jobs to low-wage countries like China.

I don’t have a solution. How can we increase profits, create jobs, increase wages, put an end to poverty, and make everybody happy? Nonetheless, sometimes I’ve toyed with the idea of a macro global fiscal reform aimed at creating jobs. The principle behind it would be that whoever requires the most services ends up creating the most jobs, and so should end up paying the least taxes. Under such a system, you’d pay double sales taxes on a frozen pizza you eat at home; standard sales tax on a pizza you order over the phone for home delivery, while a pizza eaten at a restaurant wouldn’t just be tax free; it would automatically be credited on your income-tax return. 

Friends, let’s give one another jobs, scratching each other’s backs—paying each other good salaries of course.

From El Universal, Caracas, August, 2003

Family Remittances

In recent publications of the World Bank and other multilateral organizations, there has been emphasis on the significance of family remittances for many developing countries, such as El Salvador, where these remittances reached $1,900 million dollars in 2001. This phenomenon has many bankers scrambled, trying to find out ways to attract part of the financial gains that such an influx represents, ranging from transfer services to the issuance of bonds backed by the projections of future remittances.

Likewise, they are studying the impact on a poor country when hundreds of thousands of its workers could be sent to developed countries on a temporary visa, where they could have access to greater remunerations which could even have a greater economic potential than the long-promised agricultural openness and liberalization.

After allowing their markets to be captured by external suppliers, after allowing free flow of resources, after forcing themselves to respect foreign income sources, such as intellectual property rights and patents, and finally, after many of its educated professionals have been captured by better economic gains somewhere else, poor countries, it would seem, have all the reasons to request greater access to global markets for their unskilled workforce.

Nevertheless, during our technical discussions, we should not forget the human aspect of migration, with the enormous incurred sacrifices and the generosity with which immigrants share their income with family members who were left behind. It has been more than 150 years since big groups of Europeans had to emigrate due to famine in their countries, among other reasons. They left their homes knowing that they would not see their parents, siblings, and everything they had known and cherished in their life. Even though today’s emigrants have in general greater possibilities of returning to their home countries, their vicissitudes are not necessarily negligible, since they are frequently victims of rejection and marginalization.

In this sense, all that is left to do is to stand in awe while observing the significant amount of transfers that Salvadorian emigrants, among many others, send to their homes nowadays. These are only one example of family values, traditions, and solidarity that our countries still possess. They might be poor in monetary terms, but thank God these countries are rich in human, family values.

From El Universal, Caracas, August 2003 

http://theamericanunion.blogspot.com/2003/08/family-remittances.html

Place us next to something profitable …

I recently visited a country here in the Americas where I flew over a valley that appeared very fertile—a vast, thick green carpet beautifully woven by plantations of African palm trees. I was enthusiastic, thinking that at last I had discovered development in action—that is, until I landed.

The contrast between the wonderful view from above and the misery below screamed out that the African palm, far from being a motor of development, could be the mother of all poverty traps. By contrast, take, for example, a coffee bean. It may be worth very little in the field, but at least it lets us dream of the chance of capturing a bit more of the value suggested by the fact that some people pay four dollars or more for a cup of it at Starbucks. But in the case of the African palm, no dreams seem possible. Just for a starter, its saturated fats are considered undesirable.

In this sense, the difficult cultivation of the African palm would seem to be doomed to mark the borderline of lowest overall marginal cost, that is, where the least is paid to farmers for their labor. Palm farming now has such a small margin of profit that it does not even cover the costs of registering a union, and so, Mr. Planner, just in case, don’t place us next to the palms, please place us next to something profitable.

When analyzing agricultural margins of profit, we must not forget that in most cases in which farmers’ margins allow them to maintain a decent standard of living, this is due to some kind of subsidy, protection, or market interference. So, of course, if we’re offered the chance to grow African palms in France, we might just consider it. 

It is one thing to be a marginal agricultural producer and it is another very different thing to be an agricultural margin capturer. In a supermarket in the United States I came across 11 kinds of eggs, ranging in price from 95 cents a dozen for caged, industrial production to $3.99 a dozen for eggs certified as coming from organically-fed free-range hens.

For countries whose hopes focus on Cancun and on agricultural opening, I hope that the above leads them to stop, think, and realize that opening in itself does not work miracles if farmers do not also receive other kinds of aid, such as those offered in many developed countries.

Friends, as I have said many times before, if we let globalization simply pursue the lowest marginal cost of labor, then Great Bad Deflation will inevitably come.

From El Universal, Caracas, July 2003

And as published in Voice and Noise of 2006

The Clause

“As of this date, the Bolivarian Republic of Venezuela agrees not increase its current level of public debt, nor to contract public debt with payment due in less than ten years. In the case of failure to comply with the above, all current public loans will be considered due and payable immediately. In order to guarantee that any future government does not employ subterfuge to evade the spirit of this Law, the Nation agrees to abide by international arbitrage.” …Just this simple clause, typical of the those applied in the private sector to control corporate debt levels, would enable, as if by magic:

An immediate and dramatic drop in the interest rates applied to the country, when international markets realize that the country, with its relatively modest debt, is determined to put an end to the distortion of short-term debt, the refinancing of which has been the eternal reason for charging high rates, while at the same time guaranteeing that the resulting relief in servicing the debt is not used as a pretext for increasing it. 

The end of the country risk financial rating, when after only a few days credit raters will have to classify Venezuelan public debt as worthy of investment.

Opening the economy to all kinds of private initiatives on the part of individuals, families, companies and cooperatives, since all would have access to new loans under reasonable conditions – something which to date has been blocked by our political leaders’ hunger for tax income and the consequent increase in debt.

Friends, I am sure the clause I propose would help put our country on the road to sustainable economic development but - I swear! - how difficult it is to convince our leaders of the past and present who blithely condemn old debt while at the same time extolling the virtues of new debt.

It sounds easy but... could it be done? Indeed it could! The hard part will be to free ourselves of loans traffickers and to ensure that our eternal paradigm changes actually change – even if only one little paradigm. 

Some may rightly say that the country would lose part of its independence. However, it would be well worth it if this would allow us to decree an abolition of public debt slavery, the same way we abolished slave labor long ago. 

Translated from El Universal, Caracas, July 3, 2003

A RADICAL OF THE MIDDLE?

Those who are politically between the extremes are commonly known as the passive, silent majority, but a radical of the middle is neither passive nor silent … but nor is he strident, aggressive or vulgar. 

A radical of the middle does not let a few extremists bring the country to the verge of a civil war. Like a good father, he would put them face to face in a cage in Bolívar Square, roped belly to belly, televised, until they came out friends and compatriots.

A radical of the middle believes the nation must hold responsible those who are responsible, “no matter what head must roll”. He would dismiss civil servants for their pure ineptitude and would imprison both those who are corrupt and those who by striking damage the nation’s vital interests.

A radical of the middle knows that the nation cannot survive without a strong and efficient State (not necessarily a big one) and a dynamic private sector. He knows that educational excellence is necessary for the country to advance, but that this has no value without a good general educational system, since a genius gets nowhere without good countrymen. To him, the grandeur and strength of a nation is measured in terms of the treatment it gives to its small and weak.

A radical of the middle is concerned both by the brain drain and by the “heart drain”. He sees the opportunities and the threats of globalization and does not accept proposals or impositions, no matter where they come from and regardless of how fashionable they may be, without analyzing them critically himself.

A radical of the middle knows that with the help of OPEC oil has generated fabulous income which, unfortunately, PDVSA and the governments have wasted... but he believes that there are better options than selling the kitchen sink. He is convinced that, on balance, the public debt will never be of any use; he wants to eliminate it and seek foreign investment, but only when the interests of national investment have been assured.

A radical of the middle knows that the country cannot be saved from the trenches and has marched against the government, but has also abstained himself from marching in opposition to the opposition. He respects the current Constitution and the right to make changes to it and, above all, Democracy itself… since it was designed precisely for him... as only he is able to duly represent the minorities at the extremes. His current slogan is “Neither Havana nor Miami… CARACAS”

Translated from El Universal, Caracas July 19, 2003

An Unsustainable Sustainability

An Unsustainable Sustainability 

The latest fashion in the academic world of international finance is to calculate what is known as the Sustainable Debt Level (SDL). As you may have guessed, it has to do with the level of public debt a country can sustain without entering into a crisis. Normally the SDL is calculated based on the size of the economy (GNP) or on a country’s exports.

Whatever scientific approach is given to the SDL issue, it sure seems somewhat obscene to the citizenry of countries where it is evident that public debt engenders low or even no productivity.

If a credit is granted properly, the credit is repaid and then debt levels never become a problem. It is only the bad or mediocre loans that accumulate—those that do not generate their own repayment. So it could be said that what is really being calculated with the SDL is the level of bad debt that a country can get saddled with. Quite frankly, a developing country with real needs cannot afford the luxury of canceling even one cent in interest on a debt level arising from a series of credits that are nonproductive on the average.

From this perspective and since what we really mean is sustaining something that is unsustainable, this question remains: wouldn’t it be better to skip calculating this debt level and try to free ourselves once and for all from these mortgages, instead of condemning future generations to live forever under the weight of an SDL that has been perfectly calculated? How much torture can the torture victim take before passing out?

And who encouraged these countries to go into debt? Ask those who are well-acquainted with the temptation that credits pose to politicians. In China, they say that you wish for your enemies to live in interesting times. In Argentina, because of the suffering provoked by excessive debt, it would seem that what their enemies could have wished upon them was the trust and confidence of international markets.

On the day that our country Venezuela firmly and irrevocably sets upon the path of totally canceling its debt, on this day an enormous opportunity will open for all those private and collective initiatives that need financial oxygen. Unfortunately it will not be easy, since our politicians, while condemning past debts, have mastered the magic of simultaneously preaching the benefits of new credits.

From El Universal, Caracas, June 5, 2003
As translated in my "Voice and Noise" of 2006

http://unsustainabledebtsustainability.blogspot.com/2003/06/unsustainable-sustainability.html

And this article lead me here:

The financial handicap

The financial handicap

In horse racing, to try to equalize the chances of victory among the competitors, the handicap system is frequently used, which implies putting a greater weight on the horses, which have shown a greater ability to win. The world of finance is not so benevolent, there more weight is imposed on those who, according to the market, have fewer prospects... present greater risk.

Every morning when a Venezuelan goes out to build his future and that of his Homeland, whether he is a public or private servant, he carries on his shoulders the weight of the country risk (CR) that the financial markets have set that day. That CR, which in principle is calculated based on how much more interest the market requires for Venezuela's external public debt, compared to a similar one in the United States, is currently located at 11% - 14%.

CR affects not only the public sector, but permeates the entire economy. Effectively, we see, for example, a private person who wishes to contract external debt and if he does not have external guarantees to offer, he must pay his normal interest rate, plus the CR. In terms of public service rates, the models indicate the need to reward the investor with a normal profit margin, plus the CR.

A high CR is economic contamination, which covers everything and prevents breathing normally. If Venezuela wants to recover from this economic emphysema, there is no better way than to reduce the CR fast and considerably.

Obviously, CR has many causes and many origins, but the main one is generally related to the ability to service the country's public debt.

In this sense, I guarantee you that if we only manage to spread the amortization of our public debt over a much longer term and guarantee to the market that this is not done to increase it later, due to its relatively modest size, we could quickly achieve that our debt was classified as investment grade, which would reduce the CR considerably.

All it takes is a little will and drive. If the discordant parties insist on preferring to fight suffocated and short of breath, then so be it. However, I am convinced that the oxygen that reducing the CR would produce would benefit both the Government and the opposition, not to mention the rest of our country, which needs and deserves it so much.

Translated from El Universal
http://unsustainabledebtsustainability.blogspot.com/2023/02/the-financial-handicap.html

I was a very early anti-fragilist!

In April 2003 this is what I argued in a formal written statement delivered as an Executive Director of the World Bank:

"A mixture of thousand solutions, many of them inadequate, may lead to a flexible world that can bend with the storms. A world obsessed with Best Practices may calcify its structure and break with any small wind. Who could really defend the value of diversity, if not The World Bank?"

Out of the box tourism: Lessons from Florence

THE CONTEST!

My apologies to the Florentines, but their beautiful city is like the Magic Kingdom of the Renaissance. The inexhaustible flow of tourists, hotels, prices, and lines for attractions, fast or slow meals, and souvenirs, all makes one question, between Medici and Disney, just who copied the model of whom. In my opinion, not only are the gelatos of Florence richer, but also, with the possible exception of Goofy, Michelangelo’s David and the frescos of Fra Angélico are far superior to Mickey, Pluto, and the rest. 

What an inheritance the Medicis left to their city! The Florentine economy will always be easy to manage, since the only thing that their Paperon de Paperoni (Scrooge McDuck) has to do is fix admissions prices. The one little cloud on the horizon could be the quantity of English, Venezuelan, German, and other immigrants who try to take advantage of the infrastructure. What would Machiavelli have thought about entering the European Union?

We know that despite all its possibilities, Venezuela, in a local saying, still has not managed to connect the foot to the ball when it comes to developing its tourism industry. This will never be resolved by naming ministers who spend their time conducting publicity campaigns, or visiting Orlando and Florence. We are not proposing that other Medicis substitute for those who govern us—we can discuss this on another day. But in the meantime, we could emulate the experts.

In Florence 500 years ago, the contest system was used to assure that the best artistic proposals were utilized to adorn the city. So let’s organize a grand contest.

It will be a grand contest to choose a grand team and a grand plan for the strategic development and management of the tourism sector for the next 30 years, with an estimate of costs and results.

A qualified panel of judges should choose the best three proposals, and the proposals should be publicly debated on television. The losers will receive an important prize, and the winners will be commissioned to execute their proposal during thirty years, with a significant fixed, indexed and guaranteed annual budget.

Since televised public contests enjoy high ratings, this contest could also be a way to build pontes novos, new bridges, in our divided society.

The Santa María del Fiore Cathedral took more than 100 years to construct, and for a long time everyone thought its dome would be impossible to build. And so, friends, let’s not lose the hope of finding a local genius like Brunelleschi for our Helicoide (a local 45-year-old monstrous white elephant). 

From El Universal, Caracas, April 10, 2003

Extracted from "Voice and Noise" 2006

Fingerprints of Venezuela

I needed a new passport, so when the DIEX official told me “nai nai, I'm sorry, we couldn't find your alphabetical file, the one that has all your data”, I felt… well, you know how. So when, after a while, that same officer told me "don't worry... we'll get it" and proceeded to take my ten fingerprints, I almost pouted... convinced that I would never get out of that Kafkaesque swamp.

Imagine then my astonishment when, in less than an hour, my potential enemy, today my friend, comes back smiling saying- “we got you… hey, in Táchira, in 1957… who would have thought?”. If he was surprised with the place and date of my ID, I was amazed that they "had gotten me" and curious I asked - "Show me how"... Harry Potter apprentice!

He took me to the Central File and Fingerprinting Directorate, a few gloomy rooms, full of dusty files… set for a wizard movie. There, between books and card holders, his boss, the Director and his assistants kindly showed me everything that happens when you get your first ID, how your fingerprints are analyzed and classified under a Galtonian magnifying glass, producing a unique morphology for each Venezuelan citizen. . With my new fingerprints (somewhat thicker/fatter...), they re-established a chain of 14 numbers, thanks to which they found in the digital archive the card with my smaller fingerprints, taken 45 years ago!, with which the DIEX was able to verify that the citizen Per Kurowski exists, that he is Venezuelan and that he deserves a passport. What an impression those impressions caused me!

In the act I remembered that five years ago I had protested a plan to modernize the identification system, because it seemed like an expensive robbery, 500 million dollars! Shutting up about such a sin, I sat down to talk with my new friends about "modernization." With modesty, they indicated to me the urgent need for new magnifying glasses, a better light to see the fingerprints better and yes, if possible, to digitize the files to speed up the identification work. They ended by saying, “we have heard that they will install a new system soon”-“What system?”- “We don't know, but they say it will cost a good money”.

AHA! I said to myself, since I also know about fingerprints, I have just identified the footprint of the public administration of Venezuela. Instead of allowing these obviously dedicated and capable officials continuous access to the few resources they would need to accomplish wonders and stay modern, for which a small portion of the annual interest would surely suffice, which would cost a $500 plan millions of dollars, there, in some ministry, there is a know-it-all politician who wants it all, generating his own solution... a real hit!

Governors of Venezuela, the day you want to modernize the DIEX, I beg you not to abuse the public servants who work there, better use them... they are true magicians!

Translated from El Universal, November 7, 2002

.

Not one more case of financial engineering

Not one more case of financial engineering

 'In June 2000, when AES was buying Electricidad de Caracas (EdC), I wrote an article titled “The EdC that I want”, where I said; “From my local electrical distributor, what I am interested in seeing are some good engineers with colorful helmets, accompanied by competent accountants with simple calculators that only serve to add and subtract. Observing the presence of lawyers, financiers, brokers, publicists and other professionals unrelated to bringing light home, frankly, I don't like it." 

No sooner said than done. Today, just over two years later, the EoC is already having difficulties making the necessary investments. Its new foreign shareholders milked the company's equity accounts for 900 million dollars, when probably any national owner, much less versed in financial engineering, would surely have allocated a large part of such resources to reduce the immense foreign debt, which currently weighs on the company. company. 

I think the same with respect to public finances. Given the total mess that Venezuela's public debt presents, largely inherited, there is pressure to professionalize its management, but, if it is already difficult for us to evaluate what is happening, imagine what it will be like when such refined "artists" come performing " puts”, “calls” etc. and etc. 

No! As far as Venezuela's public liabilities are concerned, if I can't have access to a property administrator, like Juan Vicente Gómez, who can simply cancelled it and forgot about that nonsense, I would prefer a grocery store a thousand times. Suppose that the rulers of Venezuela were only allowed to issue debt up to a fixed percentage of the GNP and that this had to be contracted exclusively through the issuance of 15-year bonds, with 15 equal and consecutive annual amortizations. 

Such a measure would put an end to the pernicious tendency of “expensive credit card” type financing, which by pushing the wrinkle has led us to the current situation, where although as a country we do not owe much, however due to the large accumulation of maturities in the short term, the markets demand us and can charge us an arm and a leg. A flat amortization profile, with our modest level of debt, would surely earn us an infinitely better credit risk rating than the current one.

Furthermore, the use of a single type of instrument would give wonderful depth and liquidity to the Venezuelan debt market. Regarding the demand for different placement terms, this could be met by the market itself, with its mechanisms that assign different maturities to the different holders.

Finally, the best, TRANSPARENCY. The country would always know for sure what the real cost of any State project is, without having to resort to the financial calculator or experts, who always represent a high direct cost, as well as a very high indirect cost, for all the nonsense they invent.

PS. At that time I had really not understood how regulators (the Basel Committee) had wrestled banks out of the hands of loan officers, and placed these into the hands of dangerously creative financial engineers. Which was why our friend George Banks had to go and fly a kite.

The riskiness of country risk

How horrible it must be to work as an air-traffic controller! Any slight error can provoke an unimaginable human tragedy. No wonder these professionals burn out so rapidly. I “suppose” the same must happen with the country-risk assessors, those people who carefully pass judgment as to what the country risk is for any given nation.

The all-important mission of these risk evaluators is twofold. The first that for which they are actually paid consists of analyzing whether or not the debtor nation will ultimately be able to honor its obligations. This determines whether or not pension funds, banks, and insurance companies will be willing, or even allowed, to invest in that country’s sovereign debt instruments. The second, even more important than the first, is to send subtle signals to the governments of these nations in order to help them improve their performance.

What a difficult job this is! If they overdo it and underestimate the risk of a given country, the latter will most assuredly be inundated with fresh loans and will be leveraged to the hilt. The result will be a serious wave of adjustments sometime down the line. If on the contrary, they exaggerate the country’s risk level, it can only result in a reduction in the market value of the national debt, increasing interest expense and making access to international financial markets difficult. The initial mistake will unfortunately turn out to be true, a self-fulfilling prophecy. Any which way, either extreme will cause hunger and human misery.

What a nightmare it must be to be risk evaluator! Imagine trying to get some shuteye while lying awake in bed thinking that any moment one of those judges, those with the global reach that have a say in anything and everything, determinates that a country has become essentially bankrupt due to your mistake, and then drags you kicking and screaming before an International Court, accused of violating human rights. If I were to be in the position of evaluating country risk, I would insure that the process is totally transparent, even though this takes away some of the shine of the profession and obligates me to sacrifice some of my personal market value.

How lucky we are that we are neither air-traffic controllers nor sovereign-risk evaluators! However, since we can easily become victims of their missteps, it behooves us, if only because of our survival instinct, to make sure that both do their jobs correctly.

We have seen in recent Country Reports how, after having introduced a myriad of information into the black box of methodology, as if by magic, a credit qualification is produced. Many of these reports seem to me like the pronouncements of film critics. It would seem that, more often than not, the individual evaluator is determining more how much he likes the ways or forms the Directors of a nation try to honor its obligations than on producing an honest and profound financial analysis of the country’s capacity for servicing its debt correctly.

In his book The Future of Ideas: The Fate of the Commons in a Connected World (New York: Random House, 2001), Lawrence Lessig maintains that an era is identified not so much by what is debated, but by what is actually accepted as true and so is not debated at all. In this sense, given the risk that the perceived country risk actually becomes the real country risk, it is best not to assign an AAA rating blithely to the risk qualifiers—perhaps not even a two-thumbs-up.

El Universal, Caracas, September 26, 2002

Daily Journal, Caracas, September 27, 2002

Included in "Voice and Noise" May 2006.'

Hardships

Hardships

HOW MUCH easier it is to give recommendations to companies about what to do during an economic crisis, than, as I have been asked, to people of flesh, blood and unseasoned hearts!

What's more, I think it would even be disrespectful to try to give her information on how to find a solution or how to make more money, like an ingenious housewife. Everyone knows what is within their reach and I can only wish them the best. Much less would I dare to give any recommendation to a desperate father, who does not have the resources for the medicines his sick son needs, other than praying to God, if he is a believer.

What I would dare to talk about is how to face the emotional pressure, which naturally arises in a crisis like the current one. Ah...Kurowski became a psychologist! They will say... Noooo, what's up! My recommendations have no other foundation than my intuition and if someone has the audacity to publish them, it's just my luck.

Perhaps, because I am a financial consultant, I get the image of the overwhelmed debtor, who tosses and turns in bed unable to sleep, until he opens the window and yells at his neighbor, the banker, "Friend, I can't pay you!" thus shedding an immense weight after having screwed his friend over. The above shows that it is not advisable to swallow our anxieties, but that we should share them openly with our wife, children and friends and not just with our pillows.

Perhaps, because you are an economist, you understand that individual shame should not cause any shame, since unemployment of the magnitude that exists in Venezuela suggests a state of war and, in war, no one has to feel ashamed that a crazy missile Just reach your house.

Perhaps, because you are a father, you see the urgent need to seek to learn from difficulties, that we must learn to enjoy the little things in life as much as possible, which are also free.

However, as a Venezuelan, overcome by deep anger at the ridiculous and unjustified situation in which we find ourselves, I am sure that the solution is in our hands and not in that of imported healers. Colleagues, let's stop looking for an escape door. That's depressing! Let's dedicate ourselves to finding the gateway to a better Venezuela, through which we can all pass.

P.S. To my compatriots who are not fighting, I remind them of the superhuman challenge of being human and avoiding ostentation.

https://radicaldelmedio.blogspot.com/2002/07/pelando.html

Translated by Google

Tourist Mementos

Just taking flight to Porlamar triggers reflections. Flying over Cubagua, what a good place!... to set up the mother of all "Surviving" episodes, placing 10,000 ultra pro and 10,000 ultra against Chavistas and letting them, unarmed, negotiate an islet project.

I landed at the Porlamar International Airport and speculated on the impact that a photo would have for Joe W. from Texas, a fan of adventure tourism, where “Er Arcarde” [the local mayor] gave him, for his personal use, a latest model Cavim bulletproof vest.

At the airport I confirm that the “duty free” type stores, which in the whole world mean high prices, are camouflaged and do not stand out in a “duty free” area and I remember having proposed to tax “L'Aisla” with very high taxes, to then encourage tax evasion tourism, thus reclaiming its venerable smuggling tradition. For Hans from Hamburg, there should be no antelope head that can compete with a tax evasion certificate issued by the Chamber of Commerce.

And following the same vein, imagine the shy and obedient Lisa from Birmingham, taking a photo “negotiating with the authorities”, with that fat traffic guy who always stopped me at the intersection of Rómulo Gallegos and Los Ruices.

Hans and Helga, the environmentalists from Amsterdam, will remember their protests in front of the power plants that burn oil, because of the geniuses who prefer to cross the Gran Sabana with a power line, to sell our hydroelectricity to Brazil, cheaper than the one we bought to Colombia.

Frank from Boston will be able to visit the Miss Venezuela museum, that should be built; and Moníque from Cannes, could rebuild her ego in Playa El Agua, noting that there are still those who are not indifferent to her uncovered parts.

Finally, and as a great departure gift, everyone will find in their hotel, bound in leather, a copy of the Official Gazette of July 15, 1998, which contains Instruction No. 1 for the Public Servant, which among others, in Article 19 forces the use of “You”, prohibiting familiarities, such as “my love”.

Some time ago I read the label of a soft drink, which proudly proclaimed “Guaranteed 100% artificial” and learned about the importance of mental attitude. Frankly, Margarita is too much of an Island to follow the same route as the others in the Caribbean, where, even on the souvenir flannels we can read, “Different Island...same shit....”

http://alborotandoturismo.blogspot.com/2001/08/momentos-turisticos.html

Hugo, me and the Revolution

Hugo, me and the Revolution

When I see our industrial cemeteries, where the hopes of so many Venezuelans lie due to a very poorly implemented trade liberalization and a stupid exchange rate policy, I know that Hugo and I want a revolution.

When I see the United States apply a 60% tariff on the import of orange concentrate and only allow the best quality to be imported, while Venezuela only applies 20% and allows the entry of any garbage, condemning our orange groves to die, I know that Hugo and I want a revolution.

When I observe the very unfair distribution of income in my country, the inefficiency of fiscal spending and I notice how efforts to collect an income tax are abandoned for the ease of VAT and other direct taxes, I know that Hugo and I want a revolution .

When we reflect on the decades of silence in the face of a terrible education system and the obscene and violent programming with which our television stations indoctrinate our youth, I know that Hugo and I want a revolution.

When I see my Venezuela immersed in anarchy, without an authority capable of controlling that small percentage of abusers, who exist everywhere, I know that Hugo and I want a revolution.

But, when Hugo says that his revolution is the daughter of the Chinese or Cuban revolution, I also know that Hugo and I are not talking about the same revolution.

My revolution only pursues the humble goal of achieving a good Venezuelan government for Venezuelans and that, if we ever make a mistake along the way, at least it will be in favor of Venezuela. My revolution welcomes the foreign investor happily, but it is only happy when it manages to retain the Venezuelan investor. In my revolution, except for the strengthening of OPEC (including gas and incorporating new members), a pragmatic Great-Colombianism and a rational environmental solidarity, there are no resources or time for other geopolitical considerations.

Although I consider that selling about 53 thousand barrels of oil to Cuba under overly generous conditions is a minor sin, compared to the still not so distant proposal of selling 5 million barrels to the world at a price of only 7 dollars; The fact is that as long as some Venezuelan is dying of hunger, does not receive a good education or decent health care, my revolution does not contemplate giving anything to anyone – except, a Christian solidarity in emergencies.

Hugo has an amazing ability to communicate, in a pedagogical way, Venezuelan messages to the Nation and in this sense, for those of us who know that the future requires building bridges of understanding, he represents a very valuable asset for the country. For this reason, whoever has access to Hugo, please ask him to stop with this invention and not waste his talent, speaking to the Sovereign, in Chinese with a Cuban accent.

Translated by Google from an Op-Ed in Venezuela April 26, 2001

https://radicaldelmedio.blogspot.com/2001/04/hugo-yo-y-la-revolucion.html