To resign or not to resign

Venezuela has continually seen its hopes and illusions for a better future crushed as a consequence of the traditional argument used by our leaders which translated literally goes something like “we were not allowed to govern nor did the conditions to govern exist”. Unfortunately, our governors usually are illuminated with this realization towards the end of their tenure, after they have confiscated five years of national destiny.

Today, all presidential candidates coincide that profound structural reforms must be implemented in order to make this country governable. The sectors that most require these reforms are the judicial system and education. What differs are the candidates’ ideas as to how to go about putting these reforms into place. Methods range from calling for dissolution of congress and rewriting the constitution, to a series of nationwide agreements and consensus.

Not one of the candidates has offered us his or her formal stance on what he or she would do should the reforms required to ensure governability not be effectively applied.

Any reasonably sensible person to whom a specific mission has been assigned (or awarded) would immediately specify and enumerate the resources he will require to successfully complete his duties. Should these resources not be available or in effect be revoked during the course of the mission, this person would either not accept or resign from the latter.

I am not a politician, but if someone asked me to hypothetically elaborate my five-year plan for government, I would definitely have to include the possibility of resigning my post as an integral component of the same. Should I actually have to do so, I would say “I made my promises based on the presumed existence of certain resources; these were not made available; no problem; I’ll go home; I’m certainly not going to make a fool of myself”. The problem is, however, that with such an honorable withdrawal I would, in the eyes of most of our current politicians, be doing exactly that, making a fool of myself.

In parliamentary systems which require a government to form a coalition in order to insure a majority, in countries with electoral processes that require a second round should the first not guarantee any candidate an outright majority and, in effect, in any country with solid two-party systems, governments normally request, and get, a minimum amount of resources required in order to govern.

This evidently is not valid in Venezuela. There must be few countries in which a government is allowed to take power democratically based on the votes of only 18% of the electorate. The current government was put into place after receiving a 30% share of the votes of 60% of the eligible voters.

If as an eligible voter I would wish to introduce reforms to the electoral system, they would apply to exactly that issue. We should find a scheme that allows us, democratically and without undue stress and trauma, to shorten the tenure of any government that shows an evident incapacity to comply with its promises. I consider that to oblige any government to necessarily ride out its five-year term is undue cruelty, both for the governors as well as for the governed.

I will listen very closely then, to the promises and plans of our candidates before I decide for whom to vote in December. This time around, I will also listen very closely to catch any offers to resign should they not comply with the same.

If a lack of availability of promised resources is a logical reason for resigning, then so should be the failure of implemented policies. The way in which our politicians are allowed to pave over their mistakes by making 180-degree reversals in their policies without so much as offering to hand over the keys is embarrassing. There is no doubt that the valiant cry emanating from our war for independence, “vuelvan caras”, today would definitely refer to another part of the anatomy.

It is strange that those that are most hung up on their positions and have consistently ignored their option to resign are usually those that make the most hoopla out of their “resignations” upon actually being fired. It is also strange to note that those that resist any thought of manly resignation are the first to jump ship when the latter begins to take on water

Treading deeper into red

As we all know by now, PDVSA has recently managed to successfully float a bond issue for US$ 1.8 billion in the international financial markets. Mr. Giusti, its President, as well as some external market analysts maintain that PDVSA’s asset base is immense while its debt load is relatively small. According to all of them, the company should be in a position to use more leverage.

As a Venezuelan citizen, father of three other Venezuelan citizens and therefore, at least in theory, a minority shareholder of PDVSA, I must admit that rarely have declarations by “people in the know” caused me so much anguish.

Venezuela used to be the target of the international financial community due to the existence of vast oil sector assets and reserves that ranked us among the wealthy nations of the world. This resulted in the contracting of loans that ultimately resulted in our overbearing external debt load. These resources have been poorly managed and have definitely not contributed to the well being of the country.

Should PDVSA now go out and contract debt and issue liens or mortgages on our petroleum assets without insuring that the resources obtained thereby are used to repay debt previously acquired, we are condemning the country to total ruin.

Evidently we all know about the fiscal bind we are in as a consequence of the fall in world oil prices. It is easy to argue in favor of new indebtedness as a transitory way of squaring our national accounts when the alternatives are 1) inflation as a result of fiscal deficits or 2) deepening recession due to an effort to balance the before-mentioned fiscal accounts.

What is not, and cannot, be permissible is to allow PDVSA to take over roles corresponding specifically to the Ministry of Finance and the Central Bank. The nation also cannot allow the evasion, via PDVSA, of the few instruments still in place, which allow us to control national debt levels.

Until now, I figured there was a great national consensus about the need to keep PDVSA’s balance sheet basically free of liabilities. The evidence seemed to be there. To begin with, PDVSA’s current debt doesn’t reach US$ 4 billion. On top of this, the Oil Opening was justified on the basis of a lack of resources available in PDVSA for future expansion. Evidently, the company’s debt capacity was not taken into account then.

We can also clearly remember that during all the restructuring processes undertaken by Venezuela in the past and which finally resulted in the Brady Bond issues, any alternative which was to involve PDVSA’s assets in one way or another as a basis for the restructuring was rejected outright.

We feel that something seems to have changed. From one day to the next, we are told that an offshore company, PDV Finance, has been set up to facilitate the assignation of accounts receivable or to undertake factoring transactions. At the same time, we understand that Mr. Giusti has expressed his surprise at PDVSA’s capacity for leverage. This cannot possibly surprise anybody expect those that have never even contemplated it.

We remember that a few months back, when the Brady Bond swap came to light, we were witnesses to the debate related to the application of the Law of Public Credit. For a smaller amount, many protested the fact that Congress was not properly and directly consulted. Today’s silence, then, is outright baffling.

I sincerely hope, for the sake of my country, that things have really not changed radically and that someone has not decided to take the stick to the PDVSA piñata.

Some analysts have gone on record as saying that PDVSA qualifies for loans at lower interest rates, and that the country therefore has a good deal going. I remind these analysts, however, that the true final cost of any debt transaction depends on what the resources are actually used for. In this sense, our governments have been masters at converting even the most generous loans into expensive ones through sheer wastefulness.

I remind those that console themselves with the fact that the resources made available by this new debt are aimed exclusively at covering PDVSA internal requirements how fungible these resources really are. For example, the US$ 2 billion raised by the oil opening, which should theoretically have been applied towards PDVSA’s investment program, were really spent on our central “dis-administration’s” unproductive payrolls. If this permeability becomes a habit, we are merely allowing them to dig all of us deeper into the hole.

Therefore, as a Venezuelan, I also remind Mr. Giusti and his other co-Directors that their function is to be the custodians of Venezuela’s riches. Their function is not to raise the specter of generous credit lines and basically act as a croupier or as a Maecenas to the government of turn.

Learning to appreciate

It is absolutely incredible. There is no anthropologist who understands it. Ours is a nation that dedicates serious effort to the art of national, religious, pagan and other such festivities. However, there is absolutely no mention of any holiday, not even a minor municipal one somewhere out in the wilds of Venezuela, to celebrate what undoubtedly must be the most important single object for the nation, its reserves of black gold.

The magazine Debates IESA recently published an article in which, precisely to create food for thought and debate, I tackle the subject of oil. I forward the possibility that our usual habit of labeling oil as something bad and disagreeable, to the point of actually calling what in most other nations would be considered to be God’s gift, the devil’s excrement, is simply part of an intelligent plot to cover up mistakes and avoid a severe audit of accounts.

While oil income continues to be considered “dirty” and has not been channeled through our pockets as ordinary citizens in order to avoid soiling or corrupting us, we will not give any importance to the efficiency with which the administrators to which we have delegated the task of handling these resources actually go about it. It would be another story, however, if this oil income would be considered squeaky clean and be the object of devout attention every Sunday at mass.

I ask you to reflect on the value of an educational program that would instill in even the poorest child the need to a) thank God for the Bs. 200,000 of oil income that would correspond to every single Venezuelan citizen (and which all of us have subrogated to the government in 1997), and b) to assume direct responsibility for its clean and correct administration.

Tongue in cheek aside, I am an economist and have a Master’s Degree in Business Administration. During my career if have learned, and taught, the basic precept that the most important step required in order to develop a solution to a problem is the clear identification of the resources you have on hand. Here, the opposite seems true. Colleagues, social planning gurus, VIPs and other such well-intentioned people seem to insist on preaching a model based on the theory that Venezuela should try to ignore its oil income. Something like supposing we decide that we should really be leaving the oil underground and immediately thereafter begin praying one hundred “ceteris paribus” to compensate for the fact that we continue pumping it anyhow.

Our oil income continues to exist, and all the efforts being undertaken under the umbrella of the oil sector opening seem to be aimed an increasing the same. In light of this reality, I propose in my article the thesis that maybe the best model for Venezuela is exactly a rentier one.

Many people would label this as heresy, but I steadfastly maintain that in my opinion, a rentier model has nothing to do with having a laid-back attitude or being a vagabond. On the contrary. A rentier model obligates us not only to save, but also to develop solid characters in order to assume the responsible management of our wealth to the benefit of future generations.

For example, experts from multilateral agencies and, of course, politicians thirsting for more resources to spend, seem to be basing their advice on models which are closer to being sado-masochistic than macro-economic. They advise us to completely ignore the horrifying experience we have been subjected to by our State administrators and to continue, in the name of fiscal deficit reduction, to pump more and more resources into our leaky fiscal system.

In stark contrast to this, we can well imagine the simple wisdom of the rentier model often used in the private sector and which motivates the owner of a company to cut off his capital contributions and avoid future indebtedness at all cost should his manager prove to be a useless failure after having misused the company’s resources.

I think, therefore, that an honest and simple application of a rentier model would allow us to identify with more clarity the true comparative advantages upon which to base Venezuela’s real development and which would in turn generate employment commensurate with our reality as an oil producing country.

Maybe then we could escape the mortal trap we have fallen into as a country by assuming that in order to initiate development we must substitute the traditional mix of incentives such as low prices for energy, communications and fertilizers with a salary structure almost comparative to a banana republic.

Certainly, it is not ethical to be poor rentiers and to throw out our income in order to work with the sweat of our brows. It would be ethical and logical to simply become excellent rentiers.

The shameful lack of housing

A young Venezuelan recently spoke with satisfaction and pride about how he had managed, after only eight months in the United States, to purchase his own home. He could finally enjoy his privacy and consolidate his married life. Unfortunately, he had to work in New York City cleaning bathrooms, but what else could he do? For the previous five years in Venezuela, after graduating as an engineer together with his wife, he had not even managed to scrape together the minimal down payment required to purchase an apartment.

It is difficult to fathom the accumulation of errors required to create a scenario in which young educated people from an oil rich nation with all the advantages of a tropical climate must immigrate to a country with a hostile winter in order to solve their housing problems. A country’s reserves are not those sitting in the Central Bank, but rather its people, especially after they have invested in a decent education. Today, our Central Bank is raising interest rates in order to keep its dollar reserves. Today, our young human reserves are leaving in droves.

A home is a long-term investment. It is not a vehicle, a trip to some Caribbean isle or a new double-breasted suit. A home for the normal citizen, who lives from his work and savings, is an investment that he hopes to amortize in 20 or 30 years if all goes well. In order to allow a young couple to acquire a home it is necessary to provide them with a real and sustainable source of long-term financing. The key words here are “real” and “sustainable”.

In Venezuela, the conditions for local currency loans are non-existent. To begin with, there is absolutely no possibility to establish fixed interest rates for a long-term Bolívar loan. Either interest rates are so high in real terms that it becomes virtually impossible to service the loan. Or they are too low, which effectively results in undeserved subsidies, which in turn threaten the very existence of the financial system as a whole.

In the case of loans with variable interest rates, the erosion of value due to inflation is usually covered with an increase in the interest rates. This makes the term of a 20- or 30-year loan, whether documented as such or not, a tasteless joke.

Let us take a closer look at this. If inflation rises to 40%, interest rates more than likely will be pegged at around 50%. Should a young couple manage to qualify for a Bs. 10 million loan for a 20-year term, they would need to raise Bs. 5 million to cover interest payments and Bs. 500,000 to cover amortization of principal on an annual basis. After one-year elapses (if they survive) they still owe Bs. 9.5 million. This amount, adjusted for 40% inflation is only worth Bs. 6.8 million in real terms (Bs. 9.5 million divided by 1 plus the inflation rate). Our young couple in essence has amortized the sum of Bs. 500,000 plus the amount corresponding to this adjustment, that is, Bs. 2.7 million. This has absolutely no relation with a 20-year term.

Other countries plagued by inflation have looked for solutions to this problem by denominating loans in indexed units. In this case, the debtor would owe Bs. 13.3 million instead of Bs. 9.5 million after the first year (Bs. 9.5 million plus inflation of 40%). However, instead of having to pay Bs. 5.5 million to service the loan as in our first example, service would have been limited to Bs. 1.5 million corresponding to a 10% real interest rate and the payment of a real amortization of Bs. 500,000.

Evidently, another alternative to indexed units is the denomination of loans in a stable currency, US dollars for example. Even when devaluation could possibly wreak havoc with debt service in the short term, a working person could most likely weather this and adequately service his dollar loan if and when it is contracted under prudent terms. When contracting a dollar denominated loan, a company or bank must immediately reflect exchange losses on their balance sheets. In the case of our young couple, the impact is limited to higher monthly payments which he could eventually expect to offset with inflation adjusted increases in his salary.

It is a shame that a full 15 years after the initial devaluation in 1983, we have not managed to reestablish sources of long-term financing for acquisition of housing. The fact that the Agenda Venezuela does not include a real and concerted effort directed at solving the problem of housing only serves to reinforce my belief that my daughters’ respective agendas have much more meaning.

I hope to stay in Venezuela. Somehow, I feel I would definitely prefer to remain here accompanied by many young, eager and educated people dedicated to the country’s future and without one single dollar in the Central Bank, rather than the other way around.

The Petroleum Ombudsman revisited

Almost one year ago, I published an articled titled “The Petroleum Ombudsman”. In this article I raised the need to institutionalize the figure of a qualified entity that could satisfy the requirements of the Venezuelan citizens of objective and independent information and analysis related to the country’s oil industry.

At that time, my observations were initially driven by a desire to know what effects on the industry the vast restructuring of PDVSA’s organization would have. In my opinion, there was a risk of centralization of the company.

Today, upon reviewing the myriad of questions PDVSA’s actions have raised in the Venezuelan society over the past year, I am even more convinced that the matter of the ombudsman for the petroluem sector must pass from being a mere suggestion to being an outright and urgent requirement. Let us see some examples:

The Oil Opening was justified by a lack of availability of resources to continue PDVSA’s investment plans. All of the funds raised by the opening, however, went directly into the Nation’s fiscal coffers. Who can explain that?

Without the slightest remorse, the National Executive requested that PDVSA withhold or delay payment of its obligations to local suppliers in an effort to further fight inflationary pressures, thereby becoming just another poor payer. Could this have been the beginning of an interesting swap aimed at sending Mr. Guisti to the Central Bank in return for Dr. Casas?

We are continually bombarded by adds in the press, selling courses and seminars to be dictated by an educational affiliate denominated PDVSA Cied. One single session, from 8 AM to 5 PM costs Bs. 300,000, an evident divorce from the economic realities of the country. When was PDVSA authorized by the country to expand its scope of activities in this manner?

Everyone has been made aware of the dangers of lead in gasoline. The solution for this seems to be of lesser importance than the revamping of an immense amount of service stations which, in addition to dispensing gasoline, are also to sell snacks. Who establishes investment priorities?

If any market is to be considered a captive client for PDVSA, it should be the Venezuelan one. I find it difficult to visualize a supertanker from the gulf trying to pass gasoline through our port authorities with the aim of selling me the concept “Put a camel in your tank”. If this is so, and if PDVSA truly is short of resources, on what basis can they announce a plan to invest US$ 800 million over the next nine years in order to improve their service station network. Why aren’t these resources invested in countries who’s markets we should be conquering?

And while we are talking of PDV, how much did the changes in image and the marketing of a new logo and trademark cost us?

And speaking of logos and trademarks, I haven’t seen any of the large oil companies now coming into Venezuela to participate in the local markets make these changes in order to compete in our environment. In a world of global markets, global coherence would seem to be important. We are all aware of the PDVSA’s important participation in the US markets through its holdings in the CITGO network. Why, then, don’t we support this trademark and market it in Venezuela as well?

By raising these questions, I don’t wish to give the impression that I argue in favor of the Petroleum Ombudsman only to supervise PDVSA. It is also important to note that this office could also launch a vigorous defense of the industry’s interests at times when fiscal pressures are brought to bear by the National Executive. These pressures could ultimately lead to further indebtedness and/or endanger our goose of the golden eggs in many other ways.

If anyone still harbors doubts as to the need for the office of this ombudsman, it should be enough to reflect on the confusion and ado created by the question as to whether PDVSA has or has not legally complied with is fiscal obligations.

PDVSA is a State owned company, headed by Directors and Management designated by the State. We should therefore be able to expect a certain confidence an adherence by the same with the norms handed down by the State. If this were not so, it would seem to indicate a much more serious problem, one that cannot be solved merely by establishing a special SENIAT office within PDVSA.

A worthy election volunteer

By Per and M.C. Kurowski

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

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

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

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

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

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

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

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

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

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

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

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

The taxes we have to pay

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Should we abandon OPEC?

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

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

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

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

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

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

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

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

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

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

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

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

Speaking about trust and distrust

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

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

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

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

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

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

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

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

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

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

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

Electricity supply for Brazil

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

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

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

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

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

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

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

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

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

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

How good or bad is your municipality?

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

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

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

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

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

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

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

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

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

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

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

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

PDVSA’s shadow budget

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

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

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

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

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

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

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

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

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

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

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

The merry-go-round of aluminum prices

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

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

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

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

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

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

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

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

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

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

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

Accessing www.Venezuela.com

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

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

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

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

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

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

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

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

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

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

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