January 31, 2009

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?

January 30, 2009


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.

January 29, 2009

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.

January 28, 2009

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?

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.


January 27, 2009

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.

January 26, 2009

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.