March 28, 2009


Quico says: OK, so here's my idea for a movie pitch: As we fade in, we see the old oil baron on his death bed, a picture of Comandante Chávez hanging sternly from the wall. As Ramirez struggles for breath, we hear him whisper his last word, two syllables that carry with them a lifetime of regret:
As he does, we see a snow-globe slip from his grasp and shatter on the floor. Rafael Ramírez is no more.

For the next two and a half hours, through an intricately constructed series of flashbacks, an enterprising reporter works feverishly to piece together the mystery of Ramírez's dying word, talking to everyone who was once close to the old man. What was Rosemont? A favorite Motel on the Panamericana? A brand of whiskey even more decadent than Blue Label? If only he could find out what Rosemont meant, it could be the final piece of the jigsaw, the key that unlocks the meaning of his life.

But every clue he follows is a dead end. In the final scene, after the reporter has given up the search, we see workmen in red, PDVSA overalls following orders to just burn the bitter old coot's every worldly possession. As they mindlessly toss his stuff into the incinerator, we see them throw in a stack of papers. As we zoom into the fire, we see the one on top is marked "Rosemont Corporation - Confidential Information." And beneath that, as the fire eats away at the document, we just manage to read:
Cotización del Dólar: Cliente PDVSA
Para la compra: BsF.2.15
Para la venta: BsF.6.45
Suddenly, it all falls into place. We grasp Rosemont as the lynchpin of the one truly happy period in Ramírez's life: those halcyon days when PDVSA could take one dollar worth of oil revenue, turn it into BsF.6.45 through Rosemont, then take those BsF.6.45 to Cadivi and turn them into $3 at the official rate...$3 that PDVSA could take back to Rosemont to buy BsF.19.35, which they could then go back to Cadivi and magically transmogrify into $9...and then $27...and $81...lather, rinse, repeat.

We see that, for Ramírez, Rosemont stood for a frolicking utopia of unlimited free money, when a simple phone call to a friendly broker in South Florida could create more and more dollars, instantly, risk free...and then we peer into his ocean of regret, that damn regret, at realizing it could have gone on forever if only those pesky DEA kids hadn't gone poking around into Rosemont's affairs.

For the viewers, the realizations cascade one after the other. In a flash, the entire previous 150 minutes of movie-making are recast in a different light. All of a sudden, we can see that underneath all the revolutionary rhetoric, the grandiloquent promises, the visions of a New Society for a New Man, all along we were just looking at a little boy trapped inside a man's body, a little boy with the same dreams and aspirations as any little boy in Venezuela: the dream of something for nothing, of having a money-spigot nobody could turn off.

"Mr. Ramírez is a man who had everything he could want, and then lost it," the reporter says. And then adds, "anyway, I doubt that any man's life can be summed up in a single word."

By this point only we, the viewers, realize how wrong he is.

March 27, 2009

Deep thought

Quico says: Rama Vyasulu is the Gordo Antonini of 2009.

Update: Confused by this whole story? The Wall Street Journal explains it from start to finish.

Así! Así! Así es que se bloguea!

Quico says: You've heard of Bad Hair Days? Well Miguel Octavio had a Good Blog Day yesterday. A very Good Blog Day.

I love it when the blog tail wags the MSM dog. Yesterday was one of those days.

(I could re-hash what he wrote, but what would be the point? Go read it over there.)

March 26, 2009

Panic in the Swap Market

Quico says: I'll own up, I have no idea what the hell is happening in the bolivar swap market. Some prominent Caracas exchange operators have stopped trading altogether on reports that one or more key accounts in the US have been frozen by court order. We hear reports of an "omnibus" account involved, which carried transactions by as many as 49 separate Venezuelan swap market operators. Rumors are rife, nothing is confirmed as far as I can tell. Reuters seems to be cribbing mostly from Miguel's blog.

If you have any detail - or, hell, at this point, any good rumors - please write in.

No NPR for me...

Quico says: Sorry, false alarm.

Choices, choices, choices...

Quico says: Now that el jefe has announced that there isn't enough money to go around this year, it stands to reason that any spending increase has to be offset by cuts elsewhere. With that in mind, a simple question for Foreign Minister Nicolás Maduro: are you planning to take Venezuela's $2 billion contribution to the new Banco del Sur out of school teachers' pay settlements, the aluminum sector bailout, or Barrio Adentro's equipment budget?

The era of "real y medio" is over...has that penny even dropped for them yet?

March 24, 2009

The devil hates Prada

Juan Cristobal says: - Remember Chávez's prophetic speech about how Cuba and Venezuela were sailing together toward the same "sea of happiness"?

Funny, I doubt Havana Airport's Duty-Free stores are as empty as the ones in Maiquetía (pictured left).

Come to think of it, if the shelves for imported Scotch are as barren as the cosmetics and fancy purse shelves, there's no telling what the angry mobs will do. Caracazo? Maiquetíazo!

What a vision for departing tourists coming to visit our sea of happiness - all three of them.


Quico says: In the current New Republic, Enrique Krauze writes a remarkable essay grounding Chávez's authoritarianism in its historical context. Whether he's covering familiar ground or striking off into what is - to me - entirely new territory, Krauze's narrative always crackles with intelligence and insight. The elegance of his prose and the depth of his analysis are in a league of their own. Read it.

Definitely read it.

Alí, meet Bernie. Bernie, Alí.

Quico says: It's funny. Last year, when Bernie Madoff was caught fabricating reports designed to make it seem like he was still holding $50 billion worth of investors' money even though, in fact, the money had already been spent, he was called the biggest con artist in history. This year, when Venezuelan Finance Minister Alí Rodríguez fabricates stories designed to make it seem like Fonden, the Investment Fund his ministry oversees on behalf of the Venezuelan public, is still holding some $51 billion that have, in fact, already been spent, he's feted as an eminence grise of Socialist economic management.

All this year, Alí has kept repeating a line about how Fonden has accumulated some $57 billion over five years, and he's consistently portrayed those savings as a key safeguard against the global financial crisis. How can we be sure that this claim is a wild misrepresentation, at best, and a flat out lie, at worst? Because the Finance Ministry's own reports say so!

Fonden itself still hasn't published its balance sheet for the second half of 2008, but MinFinanzas's own 2008 Memoria y Cuenta - its yearly comprehensive financial report - has a whole chapter devoted to the fund. It is, as far as I know, the most complete and up-to-date official report on the state of Fonden's finances, and it includes this startling gem on page 171.
As of December 31st, 2008, Fonden's Investment Portfolio reached a sum of US$6.07 billion alongside 280 million euros and 169 million bolivars.
Which means that, unless the government has somehow scrounged up some $51 billion to put into the fund since January, Alí Rodríguez's repeated claim that the government has some $57 billion ferreted away in there is deception on a Madoffesque scale.

In fact, the government's $57 billion claim is based on a bit of book-keeping sleight of hand so clumsy, so crude, you really have to pinch yourself.

The 2008 Memoria y Cuenta shows, on page 170, that the accumulated inflows into Fonden, between 2005 and 2008, totaled some $45 billion. Throw in the $12 millarditos worth of BCV reserves the government dumped into Fonden this year, and the total inflows into Fonden, over its lifetime, have indeed totaled around $57 billion.

Trouble is, money flows out of Fonden as well as flowing in, and the same Memoria y Cuenta shows that out of the $45 billion that flowed into Fonden between 2005 and 2008, $33 billion had already been spent by the end of last year! And a further $6 billion had already been committed to various projects, which means they can't be considered "available" to face up to a new crisis.

What did Fonden's money pay for? In 2006 and 2007, it helped pay for social spending, as well as for those new Sukhoi fighter jets Chávez is into, and for the 100,000 Kalashnikovs he wanted, as well as that Chinese-made satellite. We don't know what the 2008 tranche went towards, exactly, because all the detail got taken out of this year's report.

The point, though, is that the money that bought those planes and those guns and all the other stuff Fonden's bought over the years, all that money keeps turning up in Alí's $57 billion boast, as though it hadn't already been spent!

And it's even worse than that, because part of the $57 billion he's double counting is the $12 billion transfer from BCV Reserves, which were themselves a clear instance of double-counting. So, in fact, some of the notional money in Alí's $57 billion figure has been triple counted! Strip away all the accounting gimmicks and, as best as I can tell, Fonden has maybe $6 billion in real savings - just over a month's worth of public spending.

What gets me is that Alí is not a stupid man. He's obviously aware of all this. If you look at his statements closely, he typically couches his claim in language about how "over five years, Fonden has accumulated some $57 billion." Which is clearly intended to leave you with the impression that that's how much money Fonden has on hand now, without him ever quite having to say so explicitly. And, of course, since he only talks to the grovelling parade of sycophants that pass for journalists on State-owned media, nobody ever presses him on it.

Bernie Madoff, you got nothin' on this guy.

[Hat tip: Miguel Octavio. Big thanks!]

March 23, 2009

Lies, damn lies, and Fonden

Quico says: One aspect of this whole Economic Adjustment story that isn't getting enough attention is "the development fund that didn't bark": Fonden. Sold to us for years as Venezuela's "rainy day fund" which would shield the country in case of a fall in oil prices, Chávez picked a very odd time to go all silent about it.

As recently as yesterday, Finance Minister Alí Rodríguez was still adamant that the government has $57 billion ferretted away in Fonden. Not, mind you, that he's willing to actually show us Fonden's balance sheet. Apparently, asking for details about where exactly the public's money - our money - is kept, in what form, is an outrageous provocation. But I digress.

Of course, the degree to which the money in Fonden could really be considered "savings" was always open to question. Still, considering the way it's been described to us for all these years, I was amazed that Chávez could spend hours and hours talking about the financial crisis on Saturday and never once mentioned Fonden!

In effect, the official position is something like,
Rest assured, we have $57 billion stashed away in Fonden: it's insurance in case oil prices fall. Of course, oil prices have fallen by some 66% since their peak last year. On second thought, though, we've decided that instead of using the money we'd set aside for exactly this contingency, we'd rather borrow astronomical figures from the banks (even though that fuels inflation and risks a financial crisis) and raise taxes while we cut public spending (even though we're headed into a recession, and that'll make unemployment worse) because...well, y'know, just because.
Makes perfect sense...and it shows with crystal clarity why only a patria-sellin', CIA-conspirin' imperialist ne'erdowell would think to demand transparency over Fonden's finances. The money's not there!

Chávez Brain-Mouth Malfunction du Jour

Chávez says:
"We're going to face down the separatist intentions of the regional governments in Zulia, Táchira, Miranda, Nueva Esparta and the mafias that stand behind them."
...Zulia...ok, Táchira, I guess...Nueva esparta, maybe...MIRANDA?!!? WTF!

Is this really what they figure Capriles Radonski's secret evil plan is? An international border between Sabana Grande and El Rosal?!

March 22, 2009

What exactly happened on Saturday?

Quico says: In response to my insta-analysis of last night's economic announcements, a reader who, ahem, actually understands macroeconomics pipes in to say:
I really think you are missing the key point here, I have to say. First of all, we are talking about the budget, so the relevant benchmark for the amount budgeted for 2009 is the amount they had budgeted for 2008 - which was well below the BsF. 197 billion they actually ended up spending.

What makes you think there won't be any "creditos adicionales" and off-the-books spending this time around? What do you think the 12 millarditos taken away from the central bank are for? Or whatever is left over in Fonden, for that matter?

The real issue here is the new borrowing. Remember, the original 2009 budget already implied a deficit worth 2.5% of GDP. So basically what we're looking at is an additional fiscal gap to be filled, this one worth 8% of GDP. The tax increase will contribute 1.5% of GDP at most, the spending cuts are good for maybe 2% of GDP. So we're left with a hole of around 4.5% of GDP, over and above the original budget's deficit forecast, that they say they're going to fill with domestic debt.

Now, remember they had already planned to place 2.5% of GDP worth of domestic debt in the original budget. So, the “adjustment” brings the amount of new domestic borrowing needed this year to 7% of GDP.

That's huge.

How huge? Look at it this way: the total amount the private banks had on hand and available for lending, as of last Friday, was just BsF.2.1 billion. That's not even 10% of the additional BsF. 22 billion Chávez announced the government will borrow this year!

How on earth are they going to pull off this conjuring trick? There are two ways.

The first is to force the banking system to swallow a huge amount of new bonds, which would dramatically increase the financial sector's vulnerability, shattering what remains of the public's confidence in the banking system, as well as implying a significant contraction in credit to the private sector that could severely affect the payments system.

The other is to implicitly force the BCV to lend the money. If the encaje legal is used for that purpose, this will be exactly equivalent to an increase in high-powered money: the monetary base. In that case, we'd be looking at a very, very sharp spike in inflation.

This move, together with the monetization of the international reserves they've already grabbed, would result in a very significant increase in liquidity, precisely at a time when the slow down of the economy and the reduction in confidence are leading to a collapse in the demand for money.

So, people want less bolivares in their portfolio, but they're forced to hold more. As a result they will try to get rid of the excess, and the way they'll get rid of it will be to go to the parallel market and bid for all those dollars PDVSA is placing there. The foreseeable consequence? A sharp depreciation of the bolivar in the parallel market and a very significant spike in prices.

For all of you that are disappointed thinking that yesterday's announcements were dull, brace yourself for the very bumpy road ahead.

This was a hell of an announcement! Or should I say…hellish?