How To Argue Like an International Chavista

Quico says: After my epic, 200 post comments-thread-cum-PSF-free-for-all over on the Guardian's Comment is Free site, I think I've learned some valuable lessons about the subtle art of arguing like an English trotskyite. It was a trip: most of the time it felt like I was up against the entire membership of Hands Off Venezuela. I walked off bruised, but wiser for it nonetheless.

So in the spirit of improving the debate, I thought I'd share my new insights with you, my PSF readers, by providing a handy How-To guide for the aspiring young international net-bound Bolivarian groupie.

There are a number of debating tactics you'll need to master to argue like a genuine First World Chavista, but before we get to specifics, we need to get clear on the basics.

Basic Principles

1. Only the government tells the truth about Venezuela. This is the big one; your Golden Rule. Always treat evidence that does not come from chavista sources as self-evidently false, wrong, forged, or all three at the same time.

2. Every criticism has an ulterior motive. Never accept an adversary's own characterization of his motivations. Always impute unambiguously evil motives onto him, and be sure to link every criticism he makes to said evil motive.

3. Links are dangerous. In online debates, never click through any link an adversary provides to document his argument. You risk lasting trauma arising from the terrible scourge of EFIPIC (Exposure to Facts Irreconcilable with Pre-existing Ideological Certainties) Syndrome. Each year, dozens of International Chavistas ignore this rule and end up suffering this painful condition, whose symptons include listlessness, depression, and the sudden, irresistible urge to go eat at McDonald's. Protect yourself: never click through.

Keep those three principles in mind, and you should have no trouble applying:

The Ten Do's and One Don't of Raging PSFery
First off, relax. Arguing like a real International Chavista is easy. It requires little knowledge and absolutely no imagination. In a way, the less you know the better: facts can be so confusing.

Luckily, all you have to do is follow these handy, ready-made templates, making sure never to stray from them:


1. The Bush Distraction

Walk up to a guy and punch him in the face.
Guy: "Heeeeyyy! You punched me in the face!"
You: "George W. Bush punched loads of people in the face, way, way harder than that, too!"

2. The Classic Race/Class Bait

Walk up to a guy and punch him in the face.
Guy: "Heeeeyyy! You punched me in the face!"
You: "Under the old regime, poor/dark skinned people used to get punched in the face all the time; you're only complaining because you've lost your privileges!"

3. The Unrelated Social Claim

Walk up to a guy and punch him in the face.
Guy: "Heeeeyyy! You punched me in the face!"
You: "UNICEF has declared Venezuela free of illiteracy, isn't that what you're really mad about?" [For best form, make sure your social claim is unambiguously wrong.]

4. The Cold War Era CIA Slam

Walk up to a guy and punch him in the face.
Guy: "Heeeeyyy! You punched me in the face!"
You: "The CIA has a long history of neo-colonial meddling in Latin America: they put you up to making these unfounded allegations, didn't they?!"

5. The Matriz de Opinion Gambit

Walk up to a guy and punch him in the face.
Guy: "Heeeeyyy! You punched me in the face!"
You: "Well, I think it's clear you are trying to establish a matriz de opinion to the effect that I punched you in the face."

6. The Recitation of Constitutional Principles Maneuver

Walk up to a guy and punch him in the face.
Guy: "Heeeeyyy! You punched me in the face!"
You: "That's impossible! The 1999 Bolivarian Constitution enshrines some of the strongest, most progressive safeguards against face-punching of any constitution in the world."

7. The Dastardly MSM Riposte

Walk up to a guy and punch him in the face.
Guy: "Heeeeyyy! You punched me in the face!"
You: "You're just parroting the same old tired propaganda we get from the corporate mainstream media all the time!"

8. The Election Evasion

Walk up to a guy and punch him in the face.
Guy: "Heeeeyyy! You punched me in the face!"
You: "If the revolution is so horrid that it goes around randomly punching people in the face, how do you explain the fact that Chávez has won 10 elections?!"
[Latinobarómetro Variant:"If the revolution is so horrid that it goes around punching people in the face, how do you explain the latest Latinobarómetro poll, which shows Venezuelans overwhelmingly approve of the current state of fist-face relations."]

9. The Random Declaration of Non Evidence

Walk up to a guy and punch him in the face.
Guy: "Heeeeyyy! You punched me in the face!"
You: "I think it's clear that you've failed to show any evidence that I punched you in the face." [advanced practitioners might try a variant such as the Declaration of Non Evidence for Arguments That Were Never Actually Made, (e.g., "I think it's clear that you've failed to show any evidence that I kicked you in the stomach") or the Unilateral Declaration of Victory (e.g., "I think anyone can see your argument doesn't make any sense at all.") ]

10. The 11 de Abril Ruse

Walk up to a guy and punch him in the face.
Guy: "Heeeeyyy! You punched me in the face!"
You: "Where do you get off? You supported a coup against the democratically elected government of Venezuela!" [For best form, couch your attack in terms that could be applied directly to 4F.]

Those will be the main tools in your arsenal. Remember, practice makes perfect!

If you're serious about becoming a real International Chavista debating champ, you need to grasp this: knowing what not to say is just as important as knowing what to say.

Whatever you do, never, ever say something like:

Walk up to a guy and punch him in the face.
Guy: "Heeeeyyy! You punched me in the face!"
You: "Well, I understand it hurts right now, and I certainly don't expect you to be happy about it, but I've come to the conclusion that the prohibition on face-punching is a bourgeois conceit that creates insuperable obstacles to empowering poor people and helping them live better, safer, more dignified lives, so I decided that punching you in the face is justified under the circumstances, y'know, for the sake of the greater good."

See, if you do that, you end up inhabiting the same world of facts as your opponent, potentially laying the groundwork for a fruitful dialogue in the future. If you're not careful, you might even find yourself engaging with him in deliberation oriented towards crafting a shared understanding. Your job is to avoid such an outcome at any cost. We are better than them. Inhabiting the same world of facts as them can only sully us.


Advanced Application
Now that you know the Basic Principles and the Dos and the Don'ts of arguing like a fully paid up member of the International Chavista Brigade, the final step is learning how to combine them into a seamless, maximally obnoxious debating style.

With practice, you should be able to manage something like:

Walk up to a guy and punch him in the face.

Guy: "Heeeeyyy! You punched me in the face!"

You: "George W. Bush illegally invaded Iraq, killing hundreds of thousands of innocent civilians...funny how we never seem to hear you complain about that!"

Guy: "God, my face really hurts now, why'd you have to punch me?!"

You: "What are you, the Miami Herald? You're just parroting the tired old propaganda lies of the corporate mainstream media elite!"

Guy: "What the hell are you talking about? There are like 50 people here who just saw you..."

You: "It's clear that you've failed to provide any evidence whatsoever that I kicked you in the groin."

Guy: "Groin? Who said anything about any groin? Look, see how my eye is swelling up and going all black and blue now?"

You: "Well, you're obviously trying to establish a matriz de opinion that says I just punched you in the face."

Guy: "Well...yeah!...cuz you just punched me in the face!"

You: "If we chavistas are going around punching people in the face willy-nilly, how come in the latest Latinbarómetro poll Venezuelans overwhelmingly approve of the current state of fist-face relations? Huh? HUH?!"

Guy: "Erm...well...jeez I guess it's a good thing that many Venezuelans aren't getting punched in the face, but I don't really see how that excuses your punching me in the face just now."

You: "Admit it! You're only sore because Chávez created a free public health care system that never existed before...it sickens you to think that poor children are now able to see a doctor, doesn't it? Isn't that what this is really about?"

Guy: "Wait a minute, what the heck does that have to do with anything? You still punched me in the face!"

You: "That's impossible! The 1999 Bolivarian Constitution contains some of the strongest, most progressive safeguards of any constitution in the world against face-punching."

Guy: "I know! It sure would be nice if those safeguards were followed...I never said the constitution allows you to punch me in the face, I just said you punched me in the face!"

You: "Again with these wild-eyed allegations! Y'know, this constant barrage of unproven claims is very suspicious: just months before the Arbenz regime was overthrown in Guatemala in 1954, the CIA started spreading false rumors that people were randomly getting punched in the face..."

Guy: "Erm, I'd love to have a debate on Guatemalan history with you at some point, but in this context it's hard to see what that has to do with..."

You: "Before Chávez, Afro-descended Venezuelans used to get punched in the face all the time; you're only complaining because you've lost your privileges!"

Guy: "Ummmm...ooooo-kayyyyy..."

You: "How dare you even talk about face-punching after you supported a bloody coup against the elected government of Venezuela! What kind of blood-soaked fascist ogre pig could possibly support people who actually tried to violently overthrow an elected government?!! Huh?! ANSWER ME!!!"

Guy: whimpers off in despair

And that, comrades, is how you win an argument the International Chavista Way!

Are you there, Stalin? It's me, Hugo

Juan Cristobal says: - Something very strange happened today. As far as we know, for the first time in five years, Chavez spoke with a member of the opposition.

Apparently, UNT leader Stalin Gonzalez was in a meeting with Primero Justicia's Juan Carlos Caldera and Interior Minister Tareck Al Aissami, when Chavez called. The president spoke to Gonzalez briefly regarding tomorrow's scheduled march.

Signs that the government is softening up? Perhaps the government thinks that its tough stance is not working? Is Stalin a closet communist? Or is simply the unfortunate result of a llamada ligada?

You be the judge.

The Translation-bot Revolution

Quico says: Following on from yesterday's ground breaking revelations, I see this in the INCES website:


Now that is a classic! Sadly, the banner seems to have been taken down now, to be replaced with one that's big into "impelling the union among the towns." (Confused? Check the comments section.)

The site itself goes on to inform us that,

"The front of workers for the yes that make academic life in the Center of Socialist Agricultural Formation 'José Laurencio Silva' of the National Institute of Qualification regional Educational Socialist (Inces) Cojedes, installed today in San Carlos' streets, red points of information in favor of the constitutional amendment."

Mmmmmm...moving on:

"Starting from the present month the National Institute of Qualification and Socialist Education (INCES) and the Producer and Distribuidora of Foods (PDVAL), unify efforts to take more and better feeding to the mediating population an agreement that allows at last o'clock, to carry out distribution of their products in the facilities of the socialist formation (CFS) diverse centers of Inces in the state Lara."

Good thing that's cleared up then!

I've said it before and I've said it again: for the amount of money chavismo spends, the standard of propaganda they buy themselves is truly appalling.

Seriously, shouldn't Clodosbaldo Russián be investigating this? However much they're paying the guy who convinced them INCES needed a website in English, that's a salvaguarda case right there!

[H/T: W.T.]

All Your CIA Fax Are Belong To Us!

Quico says: Folks, I'm afraid the gig is up. They found us out. Somehow, our secret plot with the gringos over the referendum got leaked to Aporrea. They have everything. Every detail on Plan Angostura, y'know, the one we hatched together with the CIA in Puerto Rico.They have the secret memo the CIA sent to Teodoro, they even know he bounced it on to Súmate.

This is awful, they have us by the balls!

They know that "this week we ended a series of meetings with elements of the opposite party, following our diplomatic delegation departure/removal." They know that we only adopted the "No is No" slogan because "in the perception that these approaches are accepted it will be convenient to show them as a no partisan vision."

They have the scoop on our "campaigning axles", so they know that it's the gringos who put us up to complaining about "the shortness of time for the audits and fraud threats", and spreading the corruption accusations, "particularly the cases related with the familial environment," as well as telling us to "point toward the food shortages as the best testimony of the fail down of the administration."

Sorry folks, it was good while it lasted, but the gig is up: we're busted.

Read the gory details here.

Too Hot for TV: The Ads CNE Won't Let You Watch

Quico says: How level is the electoral playing field in Venezuela these days? So level that the chavista-run National Elections Council actually gets to pick-and-choose which TV ads can be shown on behalf of the "No" campaign, at what times, and on which channels.

Right now, a go-slow operation at CNE is effectively keeping these four ads off the air:

1.This spot starts with a famous quote by Simón Bolívar, from his 1819 speech to the Angostura Congress: "Nothing is so dangerous as allowing a single citizen to remain in power for a long time. The people get used to obeying him, and he gets used to commanding them, whence come usurpation and tyranny." Announcer: "Whether another Venezuelan enters this hall is up to you." CNE is, in effect, censoring Simón Bolívar!





2. This second spot is built around a series of quotes by Chávez's left wing allies in South America speaking out against abolishing term limits.






3. Announcer: "It's out in the open: this is about presidency for life. Don't count me in for more of the same."





4.Man with a heavy Cuban accent: "Some fifty years ago, we all felt it was for the best. They hold elections every five years, but nothing changes. The government doesn't solve the country's problems. We're stuck in time. The worst part is that, right now, even if we wanted to, we feel that there is no way to change." Announcer: "In Venezuela, we still have time: it's up to you."



CNE denies that its new regulations, which bar the campaigns from buying their own Ad-time directly from TV channels and forces them to go through the CNE instead, amount to prior restraint. But with just days to go before the vote, unexplained delays amount to censorship, puro y duro.

Chavismo's Amazing Self-Refuting Referendum Argument

Quico says: So we've all heard it again and again and then again some more: getting rid of term limits is not the same thing as "indefinite reelection" because, ultimately, Chávez will still have to face the voters. Don't let them manipulate you: voting "Sí" doesn't mean voting for a single man to stay in power forever. Every single Venezuelan will have a fair chance to challenge him for the presidency every six years.

That's their story, and they're sticking to it. Relentlessly. On 11 state owned TV channels and hundreds upon hundreds of radio stations, round the clock, you're bombarded with it: "Vote Sí, because elections will still be fair!" Plastered on every ministry, every PSUV controlled state or local office, the signs are all around you: "Vote Sí, because the people have a right to choose!" Hundreds of thousands of public servants from PDVSA and Ipostel to the Armed Forces and every last recondite little corner of the bureaucracy, all fully mobilized (when not openly coerced) to participate in rallies designed to drum in one simple message: "Vote the way you're told, because there's no ventajismo here!" They'll even pipe it into the Metro during your morning commute, just to make sure you don't miss it.

I heard a tiny-but-telling story the other day. Apparently, these days, if you have any business to do at PDVSA and you park your car in one of its parking lots, when you come out you find "Sí"s scribbled in big letters with white markers on your car windows. Nobody asks your permission to do this: whether you like it or not, you drive out of there turned into a big rolling ad that screams out "Vote Sí, because this government wouldn't dream of abusing its control of petrostate resources to try to swing an election!"

The government's argument doesn't need people like me to refute it. It refutes itself.

---

Do you have an anecdote on the use of state resources to aid the Sí campaign? An observation, or possibly a photo? I'm collecting these for future use. If you've got one, please do share it through the comments section or via email to caracaschronicles at fastmail dot fm. Thank you!

Update: Within minutes of writing that plea for materials, a reader in Zulia sent this flyer in, picked up off a desk inside PDVSA.

(Highlighting added by me.)

Pico y Bonkers

Quico says: I've been trying to think up the right words to describe the Opera Buffa surrounding Miranda State Governor Henrique Capriles's decision to trial the "Pico y Placa" anti-congestion plan on the Panamerican Highway. As the voluntary pilot got going this week, the entire controversy shot through multiple layers of absurdity to attain heights of sheer dada nonsense to make any Buendía proud.

Lets start at the beginning. Traffic in Caracas is bad. I mean really bad. I don't mean annoying-but-whatchoo-gonna-do bad. I mean imperiling-people's-livelihood-strategies bad. People living in outlying suburbs like Los Teques and Guarenas can easily spend 4 or 5 hours a day stuck in traffic. The reasons aren't hard to fathom: gas is way too cheap, there are more and more cars, no new roads, and the new mass transit systems just aren't keeping up with demand.

Enter "Pico y Placa" - roughly translatable as "Rush Hour Plates". It's a simple, low-tech system to get traffic moving again during the hellish commuting peak times. If your licence plate ends in 0 or 1, you're asked to car-pool or use public transport on Mondays, or else to commute earlier or later than usual. If your plates end in 2 or 3, it's Tuesdays. Etc.

Thanks to its success in Bogotá, the plan attracted the attention of some opposition mayors in Caracas, who saw it as the kind of common-sense solution to an acute quality-of-life problem they'd been elected to enact. So they trialed it. And, to an extent, it worked...so far so sane.

Enter chavismo. As soon as they caught wind that oppo mayors were doing something small-scale, practical and successful, chavistas flipped out.

Suddenly, the right to drive your car whenever you feel like it became a matter of High Constitutional Principle, a cornerstone value Bolivarian Socialism. Carpooling started being denounced as the thin-end of the fascist wedge.

Injunctions started flying, which were of course accepted by the chavista judges who now preside over just about every court in the country. In time Supreme Tribunal eventually handed out a genuinely bizarre ruling declaring Pico y Placa unconstitutional. Because, apparently, cars have a constitutional right to free transit in Venezuela.

Score one for the noble bolivarian ideal of...erm...um....spending a lot of time stuck in traffic and...ummmm...standing up for the fundamental rights of oppressed cars everywhere. Right!

So the mayor's offices involved had to stop collecting the fines they'd used to enforce the plan, and you thought that was the end of that.

Except it wasn't, because the traffic problem in Caracas remained just as bad as it had been. So newly elected Miranda State Governor Henrique Capriles decided to try to run Pico y Placa on a voluntary basis, with no fines. In this form, the plan was little more than an exhortation from the governor for people to coordinate their commuting so the hellish drive on the Panamerican Highway (really just a 2 lane road) from Los Teques would be a little bit nicer for all involved.

Now, this is where the story gets weird...

Yesterday, on the first day of Capriles's volunteer trial, Miranda State authorities documented a notable decrease in car volume...which would've eased congestion on La Panamericana considerably, if it hadn't been because the government concluded that this had to be some kind of car-pooling based CIA destabilization plan and sent a fleet of military-style Armored Personnel Carriers to watch over the road.

Of course, now that the plan is fully voluntary and no Miranda cops were out writing tickets, it's not exactly clear what all those National Guardsmen's role was...were they supposed to, um, arrest people for not driving their cars at rush hour? Or, now that Bolivarian jurisprudence has given machinery legal standing, maybe they should've just arrested any car found in flagrante delito in the act of not being driven at rush hour...

Of course, that wasn't the point. They were there to ensure the plan didn't work by mucking up traffic with a bunch of slow moving Armored Personnel Carriers...with the added bonus of freaking the hell out of some drivers, who saw all the military hubbub and figured a coup was in the works!

The government's attempt to sabotage Capriles's administration is so obvious, so transparent, so small-minded, it's hard to even know where to start. In a city that sees 10 murders on a typical week day, we have dozens - if not hundreds - of security personnel tasked with...creating traffic jams!

Simply mad.

Quico vs. Maisantabot

Quico says: Check out my Battle Royale with VIC (Britain's VIO equivalent) chavista extraordinaire Redmond O'Neill on The Guardian's Comment is Free section.

The back-and-forth was...um, an odd experience. Most of the time, I had the distinct impression that I was dabating a Chavista Propaganda Text Generator rather than, y'know, an actual sentient being. I mean, Jesus, the guy's name starts with Red...maybe I shouldn't have been so surprised.

Still, it made me stop and think: for all the millions upon millions Chávez spends on PR abroad, he really buys himself an appalling standard of propaganda. Just shoddy, shoddy stuff.

4,000 No Show Jobs Under Juan Barreto

Quico says: It's too bad this stunning article by Phil Gunson for the Miami Herald got buried in the week between Christmas and New Year. For one thing, it had escaped my awareness altogether, which is just a travesty.

The piece deals with the literally thousands of Metropolitan Caracas contract workers who just stopped showing up for work after the opposition's upset win over Juan Barreto in last November's election, detailing some of the more colorful extra-curriculars they were getting up to,

A close associate of Barreto, who asked not to be identified for fear of reprisals, said around 50 were employed by a ''community development coordination body'' set up in October 2005, and based in the Phelps Building.

Their role, the associate said, was political enforcement, ''intelligence work'' and carrying out attacks on the opposition. ''This was also the group that attacked the ambassador,'' he said, referring to an incident in April 2006 in which former U.S. Ambassador William Brownfield (now ambassador to Colombia) was followed by a gang of motorcyclists who pelted his motorcade with vegetables.

This group was composed of Tupamaros, according to the Barreto associate. But several other 23 de Enero-based groups have also been mentioned in news reports as supplying ''enforcers'' to City Hall during Barreto's term.

Definitely read the whole thing.

[H/T: Santiago G.]

Venezuela's Lost Decade

Quico says: As of today, Hugo Chávez has been president of Venezuela for exactly as long as Rafael Caldera was.

Believe it, baby.

Hot Dato

Quico says: An impeccable source writes in to say that Datos is not planning to make its polling public this cycle. They are polling, however, and the results they're getting are not substantially different from the latest Datanalisis poll.

I'm not any happier about that than you are, but it is what it is...

Poll Chart: Too Much Noise, Not Enough Signal

Quico says: You asked for it, you got it:Click to expand

A few things to note:

1. IVAD is more and more "the government pollster." A month before the 2007 constitutional reform referendum, they had the Sí ahead 64%-28%. This time around, it was Information Minister Jesse Chacón who made their poll result public.
2. CECA is a small firm without much of a track record. In November, 2006, they had Manuel Rosales edging ahead of Chávez for the presidency. This poll used a very small sample (242 interviews in big cities) which yields a massive +/- 6.3% margin of error.
   
3. I haven't been able to get my hands on Schemel's slides, just an UnionRadio write-up, so I don't know the size of Hinterlaces's sample or when exactly they were out in the field. Schemel is, in any case, Globovision's pollster.

Basically, the only recent poll by a serious pollster we've got is Datanalisis, which shows a dead heat basically. Then again, LVL was sure Aristóbulo would win the Caracas mayor's race, so...

The firm with the best forecast of the 2007 referendum outcome was Datos, and they've not been heard from this cycle.

There's no way around it, it's just a data-poor environment.

(As always, if you've seen a published poll I missed, send it along.)

Stagflation's just another word for Catch-22

Quico says: One vital question that's getting virtually no attention is what the correct policy response would be to the economic crisis likely to hit Venezuela later this year.

By all accounts, we're looking at a recession, with economic activity falling and unemployment rising. The normal, orthodox response to a recession is to spend, even if you have to borrow the money to do it. That's what the US, Britain, Germany and pretty much everyone else is doing these days...and what Mark Weisbrot wants Venezuela to do as well.

There's just one problem with that plan: the US, Britain, and the rest of them don't have 31% inflation rates to deal with. In those countries, it's the prospect of deflation that keeps policy-makers up at night . But in Venezuela, what we're staring at is something different: not a mere recession, but a recession-alongside-runaway-inflation. Stagflation, they used to call that.

And that changes things, because when inflationary expectations are already built into an economy, the net effect of higher public spending is not to boost aggregate demand, it's just to boost the price level. In other words, the ability to spend your way out of a recession is a privilege that serious countries earn by virtue of having kept a clean sheet, inflation-wise, for a number of years.

That's not where Venezuela is, and suggests that any attempt to borrow our way out of Hurricane Feces will only boost inflation.

The correct policy response to stagflation is actually the opposite: as Paul Volcker showed the world in the late 70s, the only way out of a stagflationary funk is a wrenchingly awful period of tight money where unemployment rises sharply as people are clobbered out of expecting prices to rise any further.

Which suggests that, very very painful though the coming months and years are likely to be, it's a good thing that the government is close to out of money. The way out of the inflation trap Chávez has built necessarily goes through a period of high unemployment.

But, again, there's a catch. Because as Chávez has already showed, once you compromise the Central Bank's autonomy, you can always get it to print more local currency for any given level of foreign currency reserves. As the hard budget constraints of the oil crash start to bite, we'll find ourselves in the hand of an autocratic leader who simply doesn't understand enough about macroeconomics to grasp the down side of just asking the central bank to print more cash. And as the government's bills pile up, in one way or another, that's exactly what he's going to do. Not out of any great ideological commitment, but just out of the sheer political imperative to pay off angry constituents.

Countries that back themselves into a stagflationary corner always end up faced with this same awful choice: they can try to fight inflation, or they can go after unemployment, but not both. Going after inflation sucks, but if you have the stomach for it, it eventually pays off, bringing down both inflation and unemployment in the medium term. But trying to go after unemployment only makes inflation worse, with the hoped-for employment gains of printing new money evaporating into the inflationary ether almost as soon as the money is spent.

Now, knowing his instincts...which way do you figure Chávez is going to go?

PDVSA Maula

Quico says: This Dow Jones wire story, by-lined Raúl Gallegos, makes for compelling reading. The entire thing is really quite stunning, but if I had to pick just a couple of grafs:

Oil company executives say PdVSA stopped paying service firms in August and the debt to all suppliers may have risen by as much as $3 billion. As of September, bills owed to suppliers stood at $7.86 billion, a 39% jump from the same nine-month period in 2007, according to PdVSA figures. [...]

In a recent meeting with service companies, a PdVSA board member asked them to cut down on their charges by 40%, according one executive with knowledge of the meeting. The proposal did not sit well with those firms.

"This is worse than the oil strike," an oil executive said, recalling a three-month oil industry strike that began in December 2002. "At least back then we were getting paid."

Note that PDVSA stopped paying its bills before the oil market collapsed: in August 2008, prices were still in triple digits. And now Reuter's says Helmerich & Payne is also shutting down drilling rigs until PDVSA pays up.

This time last year, the talk was that PDVSA was livid that it couldn't find enough rigs to hire amid the boom-time worldwide rush to drill. All the usual canards were trotted out, including the predictable, evidence-free allegations that the CIA was organizing an international boycott by oil service firms against the revolution.

Back then, most big rig operators shrugged the whole thing off, saying they had multiple offers and would just as soon go work in places where they could be sure they wouldn't have any nasty surprises. One year later, PDVSA is proving the doubters right, and guaranteeing that the next time it puts out a tender for a rig, contractors will be even more leery about bidding.

And, y'know, I may not know much about the oil industry, but I do know this: no rigs, no oil.

Anything is possible in a country...

...where even the bagres are climbers.

Huffo-ing and puffing

Quico says: The Parable of the Leaves is up on Huffo. Take a minute to write a comment over there, would you?

EIA Settles the Matter

Quico says: The US Department of Energy's well regarded Energy Information Administration has just put out its latest Country Analysis Brief on Venezuela. After acknowledging methodological and opacity concerns (even they can't figure out what “other liquids” means!) the EIA estimates that, in 2007, Venezuela was producing about 2.7 million barrels of oil and associated products per day (2.4 million b/d of crude oil, 300,000 b/d of condensates and natural gas liquids).

EIA estimates domestic consumption reached 740,000 b/d. That would leave 1.95 million b/d left over for export, but that's not the total that actually gets paid for: Petrocaribe and Cuba (which have two separate agreements) get 170,000 b/d, and China has preferential terms as well, alongside the ad hoc deals Chávez has cut with the likes of Joe Kennedy and some hard-up African countries.

Overall, then, we'll be getting actual, up-front cash on maybe 1.71 million b/d worth of exports: higher than my 1.35 million b/d estimate of a couple of weeks ago, but almost a million barrels below the chavista Official Line.

Here's a little summary of what's been happening these last two years, following EIA's numbers:

(OK, the "other petrodiplomacy" is my own number - and yes, it's pretty much made up.)

On these numbers, Central Bank exaggerated Venezuela's oil exports to the tune of almost $40 billion last year. And the year-on-year fall in oil revenues would top $33 billion if oil prices stay where they are today.

EIA's numbers would yield this Export Revenue table for 2009:

Click to Enlarge

Which means Chávez needs oil prices to more than double (from $35 to $85) just to hit his budget targets. And that may actually be optimistic: it assumes that PDVSA has managed to stem the decline in production since 2007. But there's a lot of circumstantial evidence to the contrary.

My inbox has been registering a greater than usual volume of emails from despondent oil industry folk saying PDVSA is way, way behind on its payments to contractors. The trend hit the newswires yesterday when PDVSA physically took over Ensco's only drilling rig in the country. Apparently, Ensco got tired of asking nicely for PDVSA to pay its bills, shut down the rig pending payment and, well...the rest is a wire story, as they say.

Stories like that are a dime a dozen in the oil industry these days, as PDVSA devotes scarce resources to intervening in the parallel exchange market instead of paying its contractors. Dow Jones reports that PDVSA has not paid its contractors since August and is trying to "renegotiate" its debts to them, angling for a retroactive 40% discount on their accounts payable...classy!

And here's a final thought: just a few months ago Mark Weisbrot wisely opined that "there does not appear to be any basis for the claim that Venezuela’s oil exports are overstated by PDVSA" citing as evidence a single EIA table showing OECD oil (and oil product) imports originating in (but not necessarily produced by - think re-exports) Venezuela. Given that these updated figures, from the very same source, flatly contradict his assertion that Venezuela is exporting at least 2.62 million b/d, should we expect a note correcting the earlier mistake? Isn't that what you'd expect from a researcher who is independent and not affiliated to any government?

My breath is not held.

Two nuggets of truth from my inbox

Juan Cristobal says: - Excerpts from some email conversations I had yesterday.

---------------

From: Juan Cristobal
To: My friend Roger, roger@deepinsidechavistabureaucracy.gob.ve
Subject: What have you heard?

Dude,
Tell me about the Referendum. Is it true that they are telling government workers they have to take a picture of their vote with their cell phone to prove they voted "Yes"? That's what I'm hearing from the rumor mill.

Are they making you go to a lot of rallies? Que ladilla con estos carajos...

---------------

From: Roger
To: Juan Cristobal
Subject: Re: What have you heard?

No chamo, nada que ver, who told you all those lies? The story is even worse. They gave me a list, a table with my daily salary, indicating how much I had to contribute to the Yes campaign. Besides, I have to sell the "Raspaditos de la Enmienda," the Amendment Lotto Tickets. What is that, you ask? Well mi amol, that's a lotto ticket "de lo laz," it says YES YES YES to the Amendment and it costs 20 thousand bolivares and you have to sell fifty of those and show up with a million bolivares to give to them, ask me how many I've sold. So that's why you shouldn't pay attention to those hallway rumours, ask me because I'm giving you the true truth, fatherland, socialism or death...

The worse thing is that they made me go to a Comitee for the Yes, an event at the Ministry. In that event I heard some wild, intergalactic speeches about our motherland, Africa... hmm, I wonder whose motherland that is, because it ain't mine... and about how our ancestors, the Spanish MFers, did away with the Native population, etc. The best speech was the one that Diosdado gave, it was as sparkling as his wife's Chanel purse (oh yeah, she was there).

Anyway, I have to find 10 people to say YES YES to me, imagine that, I can't even find one woman to say YES to me and now I have to find 10. So I'm really busy, I'm off, I have to go find my voters...

-----------------

To: Juan Cristobal
From: Lucius Malfoy, lucius@welcometothejungle.com
Subject: Here in Caracas...

Putting aside the question of the difference in power between the "Yes" and the "No" campaigns, I have to say the "Yes" campaign is excellent. It's almost convinced me, for their use of humor, among other things. They give a series of examples of countries with no term limits. The first, of course, is England. A chubby fifty-year old woman says, with an incredible accent, cup of tea in hand and Union Jack behind her: "Not for elections, not for tea: nobody limits me."

And they use examples from all of Europe (even Switzerland, damn it!).

That specific campaign, that the CNE doesn't even pay attention to, is on TVES all the time.

Our only hope is:

That people are tired of all this.

That the campaign is too subtle - after all, who the hell knows anything about England or France or Italy.

That the students are, from the Generation of 1928 onward, a hystoric symbol, and the brutal way they have been repressed could make an impression.

Aside from that, the impression I get here is that anything can happen. The Yes may win fair and square, or they can steal it without us being able to prove it because, it seems, the Yes is climbing anyway. I'm telling you, the Yes campaign has been excellent. I know, I've worked on this.

I was watching the No campaign in Chile, where you lived until recently, and it's remarkable how much leeway they had. We don't have that symbolic coherence. Not only have we not suffered enough, but we lack the memory of that suffering to pull us together. One feels like suffering, like a civil war, is like a trial, a funnel we must go through. It scares me, but it may be unavoidable.

You talk about 30 seconds in an elevator. In Caracas, if you go inside the Metro for five minutes, it's all about the Yes. The CNE does nothing. Almost all TV stations (incouding the rats at Venevision) say good things about the government. And they have good creative people behind them. Nothing is certain. But the "Yes" has more effective power.

One of the problems from blogging from afar is that things look ideal, simple almost. And here all we see is turbulence.

Chavistas are attacking VERY effectively, and there is nobody around to measure, weigh, ponder and limit the difference in power.

Evander Hollyfield against a 12-year old kid. That's how it feels.

And all we can do is go vote. I have no way of getting to La Bombilla to watch over the vote count. Nobody can give me a ride, there is no coordination. Seriously, anything can happen. This thing is not in the bag.

Yes, the PSUV has a long, complicated campaign (put that down under the mistakes of the PSUV). But it's on the Metro, every day, all day long.

It's not an elevator. The elevator is 30 seconds until you get to your job. But before that, there is the train from El Tuy (25 minutes), there is the Metro, the ads when you watch your soaps at 9. The elevator? You can't even hear what they are saying. Venezuela is not the US. Elevators? You don't even listen. All you want to do is get to work.

Things are looking ugly, really ugly.

Lucius.

The elevator speech

Juan Cristobal says: Imagine you're working to get someone elected and you run into an undecided voter in an elevator. You have thirty seconds to convince this voter to support your candidate before she gets off. What do you tell her? What is your elevator speech?

Successful campaigns need good, tight elevator speeches: tiny narratives that encapsulate what the election is about and why you should vote a certain way. The opposition has one this time around, built around a perfectly straightforward theme: No means No.

The message is that this proposal is a trick, something we clearly decided against a year ago - hence the duplicate negation. Chavez's attempts to do away with term limits are unfair, they diminish our democracy, they strip away our ability to choose a different course, and they fly in the face of the popular will expressed in December of 2007.



"No means no" is what you tell a pesky little kid who wants something so bad he just won't shut up - Chavez as your spoiled little nephew.

The government's message - well, that one ain't so clear. For a while it looked like they were going to focus on the positives, that the Sí meant eliminating an obstacle to the free expression of popular will. Certainly the way the question is worded hints at the repulsive "I am in love with the rivers" Chavez we first encountered in 2006.



The only things missing is asking voters whether they love puppies, babies and hot cocoa on a cold, rainy night.

Lately, the message has gotten muddier. Swing voter: Chavez wants you to vote Yes because those of us on this side are stooges of the Empire. You should vote Yes because, if you do not, you are a pitiyanqui, Chavez's horribly ineffective epithet for those who do not agree with him. You should vote Yes if you don't want to be gassed. You should vote Yes if you like tractors. The list goes on and on...seriously, there's a list!

Polls suggest that indefinite reelection is an enormous challenge for the government. Barely a month ago, the No was ahead by 15 points. While I fully expect this margin to shrink in the coming weeks - no surprise given how relentlessly negative the government's campaign has been - something dramatic would have to happen for Chavez to be pull this one off. He simply has no time.

While Quico may be right in pointing out that the inclusion of governors and mayors to the proposal may help Chavez, I don't think it will be enough. Quico's on thinner ice when he says baiting the students will help. Polarization used to work for Chávez, but only because the opposition kept taking the bait. When we don't, it just looks like random bullying.

In short, Chavez needs a convincing elevator speech. Instead, he's tear-gassing the elevator.

Reading the Referendum Tea Leaves

Quico says: I haven't been writing much about the upcoming referendum on abolishing term limits, for a couple of reasons. The whole thing's been rushed through so fast that nobody seems to have commissioned any polling, and what polls are getting made aren't getting leaked. So I'm flying blind here...(needless to say, if you have something, put it in my damn inbox - you know who you are!) It's also that, more and more, I think 2012 is awful far away, and without a massive economic rescue plan in the form of some kind of spike in oil prices, electoral considerations seem to be getting less and less relevant to Chávez's hopes of staying in power.

That said, it would be great to win. And, frankly, I'm nervous. While the underlying idea of indefinite re-election is a loser with Venezuelan voters, it's also true that hyper-polarized elections typically break chavismo's way.

Chávez knows that, and has been working overtime on "heating up the streets", pumping up the incredibly vanilla Student Movement into some kind of sinister imperialist conspiracy tele-directed, presumably, from a comfortable retirement in Crawford, Texas. The whole idea of UCAB Law Students as fascist shock troops is - how to put this delicately? - too fucking ridiculous for words...but repeat it often enough on enough state run channels, and some people end up believing it.

Hearing him talk about the student movement, I can't help but feel that Chávez has perfected a subtle kind of electoral protection racket. He constantly holds out the prospect of chaos and violence if things don't go his way, even as he gives out orders that guarantee an ample supply of chaos and violence. The subtext is clear enough, and not really different from the mobster who visits your shop, compliments you on how nice it is, and notes "what a shame it would be if something should happen to it." It's stomach-turningly cynical, but it works!

The bigger reason to worry, though, concerns Chávez's shrewd decision to extend perennial reelection to all public offices rather than just the presidency, as had been his "political concept" just 15 months ago.

Turns out that Chávez knows how to read an election result just as well as the next guy. He knows he needs to rally popular regional leaders to the cause, get them to mobilize their voters in favor of a Sí vote. This is critical in three states in particular: Anzoátegui, Monagas and - especially - Lara, places where PSUV gubernatorial candidates in 2008 far outperformed the Sí vote in 2007.


Chávez has calculated that by holding out the prospect of being "governor for life" he can entice Tarek, el Gato Briceño and the pivotal Henry Falcón into going all out for a Sí vote this time. He needs those votes; he can't win if that threesome holds back as it did 15 months ago.

Will it work? I have no idea. What I do know is that, for all the attention being lavished on the student protests in Caracas, Valencia and San Cristobal, this referendum will probably be decided in Maturín, Barcelona and Barquisimeto.

One ray of hope for our side comes from this oddly subdued statement, where Chávez said the Sí and No sides are about tied in the polls now, though the Sí is on an upward trajectory. Typically, chavista propaganda shows the government a good 15-25 points ahead of where election night results eventually place them, so in a funny kind of way Chávez's statement suggests they're getting trounced.

More likely, though, he just slipped up and revealed PSUV's real poll numbers instead.

The Parable of the Leaves

[coming soon on Huffo...]

Quico says: Talk about Venezuela these days and people assume the argument splits neatly between two camps: nutty Pat Robertson-style Chavez-hating right-wingers who couldn't care less about the poor at home, let alone in South America; and sane, progressive folks with the sense to balance off concerns about Hugo Chavez's autocratic streak with admiration for his government's remarkable achievements in improving the lives of poor Venezuelans.

Personally, I'm in neither camp: I'm a radical anti-Chavez progressive. (We do exist, dammit, we do!!) Fighting poverty sustainably is right at the top of my agenda. In fact, it's one of the biggest reasons I oppose the guy.

"But what sense does that even make?" my friends back in the US will say, "Chavez has cut the poverty rate in half since 2003...what kind of progressive is radically against that?"

"A progressive," I'm tempted to answer, "who's concerned with the sustainability of poverty reduction." Because in Venezuela, we have a long, sad history of big advances in the fight against poverty that turn out to have been mirages when the economy tanks.

Chavez's claims to have halved the poverty rate aren't wrong, but they're incredibly misleading. If you'll allow a little parable, Chavez right now is like a mayor who, ten months into his term of office, calls a press conference to say:

"My fellow citizens, today we come together to celebrate our victory over the leaves. Think back on what this city was like back before my administration was elected last October. Our neighborhoods were blighted with dead leaves. They were everywhere: clogging up our gutters, making our streets and sidewalks dangerously slippery, sapping the life from our community. That was the city we inherited.

"But this is a people's revolutionary government! We promised that we would get rid of the leaves...and we have. From the moment we took office, we never let up in our fight against the leaves. And the results are all around you. As we stand here in this brilliant August evening, our government has reduced the leaves-on-the-ground rate by more than 99%! The only way they're coming back is if the evil old regime ever manages to get their hands on power again somehow! No volveran!"

It can surprise no one that poverty in Venezuela is lower now than it was five years ago, for the same reason that it can surprise no one that there are fewer dead leaves on the ground in August than in October. The reason is that Venezuela is a petrostate: 93% of what we sell to the world is oil, the government owns the only oil company, and oil prices rose every single year from the turn of the century through last year. Chavez has spent his decade in office swimming in cash!

The point isn't just that we're incredibly dependent on the world oil market; the point is that, like dead leaves, the price of oil is cyclical. So far, though, we've only seen how Chavez performs in one part of the cycle. Which is what makes Chavez's poverty boast so misleading. As a rule, whenever you hear a politician comparing the situation at the top of any cycle to the situation at its bottom, you can be sure he's trying to pull the wool over your eyes.

The real question for chavismo isn't "have you managed to reduce poverty amid a dizzying oil boom?" any more than the real question for our hypothetical mayor is "are there fewer dead leaves on the ground in the summer than in the autumn?"

The real question, for both of them, is: are you ready for The Fall? Do you have enough money on hand to pay your way out of trouble when The Fall comes?

Lets put things in perspective here: Venezuela has received some $405 billion in oil revenue since Chavez took office ten years ago - a staggering sum of Free Money for a smallish South American country. And almost a quarter of that came last year alone!



Having handled these massive sums, today, the Venezuelan government has confirmed savings of less than $1 billion on hand to face up to a crisis. In Venezuela, that's less than one week's worth of government spending. (The government makes vague claims that it has other reserves, but refuses to publish the figures.)

So Chavez has spent pretty much the entire Oil Boom windfall, leaving himself - and, much more importantly, the Venezuelan people - badly exposed to The Fall. Now that the bottom has fallen out of the oil market, the government is likely to face a $40 billion shortfall in oil revenues this year alone, just as the worldwide credit crunch makes it harder and harder to borrow the difference. So it's not even September, and the leaf-clearing budget's gone already!

All of which puts a rather different hue on Chavez's boast that he has halved poverty since 2003. Because beating the leaves-on-the-ground problem is "about" clearing leaves off the ground only in the most boneheadedly superficial of ways. Scratch the surface and you can see that the real challenge is managing the leaf cycle: planning ahead so you can concentrate your leaf-clearing resources where and when you'll need them most. And the fact that these guys are actually bragging about how there are no leaves on the ground in the middle of summer, that they count that as a big achievement, only underscores how unprepared they are for The Coming Fall.

51 years on from that one, fleeting, dizzying flash of no-bullshit national unity

Quico says: If I told you that, in the wake of a sham referendum aimed at keeping the president in power forever, Venezuelans of all kinds - left and right, rich and poor, military and civilian, catholic and communist, pro-US and anti - could rise up after a decade of autocracy and come together, all of a sudden, in one great big joyful spasm of revulsion against dictatorship, dedication to democracy, unity of purpose, optimism, freedom and hope...would you believe me?

It wouldn't be the first time. All the crap that came afterwards - and, believe me, there was a lot of crap afterwards - has dimmed our historical consciousness of it to the vanishing point, but today of all days we owe it to ourselves to remember: it did happen.

It comes as no surprise that those who profit from division feel threatened by the very prospect of national unity. And so they've spared no expense to try to scrub that moment out of our school's history books and our collective memory, recalling it, if at all, only to distort it.

And yet, it happened. Nothing they can do will change that, or the menace that it holds for them. Because if it happened once, it can happen again.

Minc(i)ed Facts

Quico says: A couple of readers have pointed me to this remarkable Information Ministry press release, which one of them surmises must be an implicit response to my two recent posts on Central Bank Reserves. As he puts it, "there's no other reason I can think of for this note, which is unlike any I've seen before."

There's too much vacuous nonsense in it to translate the whole thing, but I feel honor bound to pick apart a couple of the more egregious instances of sheer gibberish.

Most irksomely, the press release parrots the meaningless concept of an "optimal level of foreign currency reserves", which immediately flags it as a work of rank hackistry. For the Nth time, calling any absolute level of reserves "optimal" is simply meaningless. It's a bit like confidently declaring that 2 kg. is the "Optimal Level of Harina Pan reserves."

Is 2 kg. the optimal level of Harina Pan reserves? Erm...that depends. For me it is: it takes me months to go through that much. How about for an arepera? Is 2 kg. the optimal level of Harina Pan reserves for an arepera?

The adequacy of any level of reserves depends entirely on how fast you go through them. Somehow, though, the government defines its optimal level of foreign currency reserves without any reference of the level of obligations those reserves have to cover. I mean, a claim like that can't even rise to the level of being wrong. It just means nothing, like saying "my electricity bill likes pink sonatas."

Shockingly, though, that isn't even the worst of it. The worst of it is the third and fourth paragraphs, where Minci informs us that:

It is the difference between the price of the Venezuelan oil export basket and the target price established in the National budget that feeds Macroeconomic Stabilization Fund FEM, formerly known as FIEM.

Each quarter, BCV and PDVSA review the price, and if it is equal or greater than the last five years the funds are deposited in the aforementioned fund.

...without betraying any hint of understanding that those two savings rules are entirely different! Minci wants us to believe that FEM follows two distinct savings rules at the same time.

Now, it's true that if the budget targets were set deliberately for that purpose, those two savings rules could match. But I checked, and they don't.

Let me walk you through it. The 2009 budget was calculated with a target oil price of $60/barrel. According to the first rule, if that target is hit precisely, there would be no change to FEM's balance this year. Except, if that target is hit precisely, the average price of Venezuelan oil over the 2004-2009 period will have been $63/barrel, which, according to the second rule, would trigger a withdrawal from FEM!

By contrast, in 2008 the budget's target oil price was $35/barrel. If we'd hit that target, implying no change to FEM according to the first rule, that would have made the average price for 2003-2008 some $47, which would've triggered a deposit according to the second rule. In the event, Venezuelan oil exports averaged $88/barrel in 2008, which was $30 higher than the five year average, but was $53 higher than the budget target.

You get the picture. It's one rule or the other, but not both...

In the event, though, it's neither. Had they been followed, either of the two rules would have resulted in accumulated savings worth tens of billions of dollars by now. Rule #1 implies that FEM should've accumulated some $56 billion in 2008 alone. My back-of-the-envelope estimate for where FEM's balance would be if they'd followed rule #2 since 1998 puts the total at well over $100 billion. But, as the very same Minci press release admits, the balance in FEM right now is just a tad lower than that: $828 million, to be precise.

Which must be some kind of record, even for Minci: in the space of just two sentences these guys managed to make two truth claims that are not only mutually incompatible but are both spectacularly disproved by a third claim contained in the same document!

Seriously, who writes this stuff?

Any questions?

Obama says: "To those leaders around the globe who seek to sow conflict, or blame their society's ills on the West — know that your people will judge you on what you can build, not what you destroy. To those who cling to power through corruption and deceit and the silencing of dissent, know that you are on the wrong side of history; but that we will extend a hand if you are willing to unclench your fist."

No. 1 reason why term limits are a good thing

Six of one, half a dozen of the other

Quico says: Yesterday's post was one I'd been meaning to get off my chest for a long time. It felt good to put it out there. Still, there's no pleasing some people, so I wasn't surprised that Greg Wilpert, of Venezuelanalysis fame, wrote in to tut-tut my Magnum Postus.

In particular, he had a bone to pick with this slide, telling me he'd checked with sources in the Finance Ministry and found out it's all wrong, invalidating my whole argument:


Greg knows for sure that the government's plans are not to re-convert Fonden's dollars back into bolivars. Their intention, instead, is to spend them abroad, as dollars, (for instance, using them to pay for imported food or for all those backlogged nationalizations).

Greg may well be right about this. I don't doubt he is, actually. What he hasn't grasped, though, is that even if he is right, that does precisely nothing to invalidate my argument.

To understand why, take a bolivar bill out of your pocket and look at it closely. Notice how it says your bolivars are "Pagaderos al portador en las oficinas del Banco" ("payable to the bearer at the bank's offices")? Ever wonder what that actually means?

It's a funny thing. Turns out that, while the bolivars in your pocket are an asset to you, they're a liability from the point of view of the Central Bank. That may be an unfamiliar thought, but hell, it says so right there on the bill!

In an accounting sense, Bolivars are a promise of payment, something the BCV owes you. Notionally, at least, you're supposed to be able to take your bolivars back to the Central Bank and trade them for something else of worth - gold, say, or its current day equivalent: dollars.

We're not be used to thinking of it in this way, but it's a fact, and it has consequences. It means that, like any corporation, the Central Bank of Venezuela has assets and liabilities. Activos y pasivos. Stuff it owns and stuff it owes. In other words, it has a balance sheet. And in that balance sheet, the bolivars in your pocket show up as its biggest liability, while the dollars BCV holds in international reserves make up the bulk of the assets.

With that in mind, lets get back to Greg's objection.

Yesterday, I wrote that The Great "Excess Reserves" Swindle works by increasing the Central Bank's liabilities (the number of bolivars in circulation) without any corresponding increase in its assets (dollars in reserves).

Greg's devastating retort was that, quite to the contrary, the government's plan is to decrease the Central Bank's assets (its reserve dollars), without any corresponding reduction in its liabilities (the number of bolivars in circulation).

As you can see, that's totally different...

Heh.

What Greg fails to see is that, either way, the government is out to get something for nothing. A free lunch.

Think about it: if a mere mortal like you or me wants to get his hands on some Reserve Dollars, BCV isn't just going to give them away to us. We have to pay for them. Specifically, we have to fork over some hard-earned bolivars in exchange for those dollars. Why does Central Bank insist that we pay for our dollars? In order to preserve its balance sheet. When you buy dollars, the bank's reserve assets fall, so it needs its bolivar liabilities to fall proportionately if it's to preserve its value. So we hand over our bolivars, get our dollars, and the bank is worth neither more nor less at the end of the process than it was at the beginning.

A different set of rules applies when it's the government looking for dollars. In effect, Chávez contrived to give himself the power to get BCV to cough up dollars in return for nothing at all. All he has to do is intone the magic words "excess reserves", as though they were some kind of santería spell with the power to make central bankers take leave of their senses!

I mean, if Greg is right, what we're looking at isn't even a swindle; it's more like outright bank robbery. Cuz, hell, if I waltz in to the BCV's offices mumbling something about "excess reserves" and demanding they give me a huge number of dollars, my best case scenario involves a straitjacket...but El Rodeo is probably the more likely outcome.

The crux of the Swindle is that BCV's takes a massive hit on its balance sheet. Because if there's one thing you'll never be able to get away from it's the simple accounting identity:

Capital = Assets - Liabilities

Whether the hit comes in the form of BCV owning fewer dollars or owing more bolivars is neither here nor there.

Which brings us to another of those "conventional absurdities" you hear around town all the time. People will say "hey, BCV has $40 billion in reserves, that's a really solid level!" as though such a thing had any meaning whatsoever. "Solid" in relation to what?!

From the point of view of the Central Bank', what's important is neither how many dollars it has in reserves, nor how many bolivars are out circulating through the economy. What's important is the ratio between the two.

That's one of those deceptively simple-seeming principles you may be tempted to skim over. Don't. Grasp this point and you'll already understand more about Venezuelan macroeconomics than Greg Wilpert, Alí Rodríguez and Mark Weisbrot put together!

Because, once you see it, you'll understand why the effect on inflation is exactly the same whether Fonden takes its dollars on a shopping spree to Miami or whether it trades them in for thin-air bolivars at home.

In the end, there ain't no such thing as a free lunch. Somebody always pays. And in this case, that somebody is you, me and anyone else who happens to be holding bolivars. Because as BCV's balance sheet deteriorates, the value of its debt falls...the twist being that BCV is a funny old creature whose debt happens to take the shape of banknotes residing in the pocketbook of "el portador" - a.k.a. you! - and that, when the value of its debt falls, we conventionally call that "inflation."

Understanding that the debate would go this way, Miguel had the foresight to send me a spreadsheet showing that all-important ratio between bolivars in circulation and reserve dollars over the last few years. This is a key indicator of the Central Bank's financial health, the figure that synthesizes this whole assets-to-liabilities relationship we've been talking about all through this post. And the picture that emerges is not pretty:

Click to enlarge

In effect, up until 2006 BCV had more than $1 worth of reserves to cover every Bs.F circulating out in the Venezuelan economy. After the 12 millarditos get handed over, the bank will have one dollar in reserves for every Bs.F 2.89 circulating. Optimal indeed!

"OK," you say, "but I still don't see it...how can I be sure that that really has an impact on inflation?" To answer that question, I overlaid Miguel's Bs.F-per-reserve-$ data onto the monthly inflation numbers for the last three years.

Now, there are definitely some lags in the data. Big spikes in inflation seem to come several months after the ratio of Bolivars-to-reserve-dollars jumps to a higher level. These processes take some time to work themselves out.

Still, even in this form, you can certainly see the pattern:
The thing is, monthly inflation data is "noisy". It's cyclical and seasonal and sprinkled with outliers.

To bring out the underlying trend, I thought I'd try a couple of things: first, for any given week, I calculated the average monthly rate of inflation for the preceding 16 weeks. That ought to smooth out the outliers. Then, to adjust for the lags that retrospective averaging generates - as well as for the underlying lag between cause-and-effect - I shifted the entire inflation series back by 28 weeks.

My jaw pretty much hit the floor when I saw how close the resulting fit is...
That chart, right there, really ought to put the question to rest.

Make no mistake about it. All this tomfoolery with the reserves is going to cost us. Maybe not this month, maybe not next month, but before the year is out, we're all going to pay for this.