October 30, 2009

The Real Winner in Honduras

A longer version of this post appears on The New Republic's blog, The Plank.

Juan Cristóbal and Quico say:
The Honduran tragicomedy that has consumed the hemisphere's diplomats for months is at an end (read the details here). Barring the unforeseeable - which is always an iffy thing to do in Honduras - Micheletti is out, Zelaya is in (pending a face-saving vote by Congress and the Supreme Court), and an election to replace him will be held on November 29, as planned.

In light of all this, who was the winner in the Honduran crisis?

Certainly not Zelaya. He's back in power, but is significantly weakened. He will not be allowed to push for the Constitutional Reform that precipitated the crisis in the first place. He'll be forced to head a "unity government" (a.k.a., an "amarren-al-loco government") and he'll have to find himself another job in January.

Certainly not Micheletti. By giving up power to Zelaya, he loses a massive amount of face and may face criminal charges down the road. In spite of having stopped the illegal referendum Zelaya was pushing for, his fate is up in the air.

Certainly not Chávez, who can say goodbye (for now) to his main objective: ensuring Zelaya remained in power through indefinite re-election and permanently adding Honduras as an ALBA satellite. His intervention in the crisis, which went from ridiculing Micheletti to threatening to ignite civil war, was as hyperbolic as it was ineffectual; it left him sounding like a clown. Count on Chávez to ignore reality and call this a heroic, historic, glorious triumph of the Revolution, though.

Certainly not the OAS. In a futile attempt to compete with Chávez's maximalist rhetoric, the regional body let its presumed power get ahead of its actual leverage, effectively sidelining itself from the negotiations that eventually brought the crisis to an end. The hypocrisy of the organization's scorn toward the Honduran Supreme Court became overwhelming when Daniel Ortega of Nicaragua pushed an illegal, clearly unconstitutional Supreme Court ruling giving him the power to be re-elected indefinitely and the OAS erupted in silence. The region's heavyweights (a.k.a., Brazil) showed that, without US influence, they have little to no leverage.

No. The real winner in this drama is the power broker, the top diplomat for the key power who quietly, patiently pushed for this settlement all along.

If this deal leads Honduras away from crisis and toward a legitimate Presidential election, if it leads Zelaya and Micheletti to the dustbin of history - I think we have the lady in the picture to thank.

The view from your window: Reading

Reading, Pennsylvania, USA. 10 AM.

Send us the View from Your Window: caracaschronicles at fastmail dot fm, or nageljuan at gmail dot com.

Please ensure the window frame is visible, and tell us the place and time the picture was taken. And don't try to "pretty it up" - just show us what you see when you look up from the seat where you typically read the blog. Files should be no bigger than 400 KB.

October 28, 2009

Iberdrola and Elecnor supply the electricity to cook the books

Juan Cristóbal says: - Venezuela is in the grips of an unprecedented electricity crisis, and much of it has to do with festering corruption and boundless incompetence.

Since Hugo Chávez nationalized the electricity sector, blackouts have become the norm in much of the country, and the President has gone so far as to threaten shopping malls and love motels - Miraflores not included - with cutting their power. Our Commander-in-Chief is now our Conserje-in-chief, quite literally looking to pull the plug on the undeserving.

The corruption that seeps through all levels of the chavista administration and its international allies is a big part of the problem here.

Take the deal, announced last July, by Spanish companies Elecnor and Iberdrola (IBE in the Madrid Stock Exchange). The companies said they had signed an agreement with the Venezuelan government to build a power plant in Cumaná, in eastern Venezuela. The plant, which is being built for PDVSA and will use combined-cycle gas turbines (CCGT), wasn't tendered. As has become usual, the contract was just assigned, a dedo, on a presidential whim.

(We'll leave it to far more cynical minds than ours to wonder whether the Spanish government's longstanding reticence to criticize any aspect of chavista governance had anything to do with the fact that this deal went to Spanish firms...)

So what do we know about the particulars of the deal? Sadly, little, and mostly what the companies themselves - rather than the government - has chosen to make public.

Funny detail, Elecnor's press release curiously left out a key component of this deal: the plant's capacity. They only disclose the plant will cost 1.4 billion Euros, roughly $2 billion at current exchange rates.

However, Iberdrola's press release goes all chatty Cathy. It proudly pegs the plant's capacity at 1000 MW. It also goes into great detail, boasting about who was in on the deal. The agreement was signed in Miraflores Palace by high management of both Elecnor and Iberdrola, and by the President of PDVSA Gas, Mr. Ricardo Coronado. Present in the signing ceremony: Spanish Foreign Minister Moratinos and Hugo Chávez himself.

So far, so kosher, right? Not so fast.

It turns out that the 2008 World Energy Outlook, an annual publication put out by the International Energy Agency, says that the typical construction cost for a CCGT plant in Latin America is on the order of $750 per kW. It's right there, in Table 2.

In other words, the estimated cost of a 1000 MW CCGT plant in Latin America should be in the order of $750 million, not $2 billion.

Now, some may say that the World Energy Outlook estimate is an average, that there is a lot of variation between Latin American countries. Others might argue that the contract may include other things, such as maintenance or the actual operation.

Baloney. The gap between $750 million and $2 billion is too large to reconcile. Any of these considerations should have, and would have, been made public. They haven't been. Google the cost per kW of building a CCGT plant and the figures vary, as they should. Nowhere do they reach the astonishing figure of $2,000 per kW the Venezuelan government is paying.

Assuming $750 million is the true cost, can anyone doubt that if the government had run a proper public tender, we would collectively be $1.25 billion richer than we are? At what point do the crimes against public coffers reach the tipping point when people realize their country is being pillaged from the inside out?

Of course, Chávez has a few madre patria enablers in this deal. And while it is impossible to claim they are in on it, they are hardly innocent bystanders.

The irony reaches pitch level when you find out Iberdrola is listed in the Dow Jones Sustainability Index, scoring highly on, among other things, "social responsibility." One has to wonder: are Iberdrola's and Elecnor's shareholders aware of these shenanigans?

What do episodes like this one say about Chávez's priorities? If the Venezuelan government was worried about the electricity sector, it would spend more time thinking of ways to increase investment in this vital industry, and doing so in an efficient manner. Instead, it spends its energies currying favor with foreign governments by paying their firms for an electric plant three times the going price.

It's not about the people. It's all about staying in power and keeping the cronies happy.

Dear Editor

Quico says: I was about to send this as an email to an editor who asked me to write something about Chávez's hypertrophied presidential office budget. But as the rant took shape, I found myself thinking... "hmmmm, did I just write a post without meaning to?"
Dear [Name withheld],

Thanks for getting in touch. It's always a bit funny getting to realize which kinds of stories about Venezuela pique a foreign editor's interests: if you'd asked me a week ago, I wouldn't have guessed that a largely bureaucratic story about the Presidential Office's budget allocation would get so many papers abroad interested, though in retrospect I guess I can sort of see why it's a resonant theme. My blog partner, Juan Nagel, sure got into it.

I don't think I can write it, though, for two reasons. The first is a bit technical and has to do with the way the budget process works in Venezuela, or rather, doesn't work. The second goes more to the heart of the issue...

First, the technical bit: Venezuelans who follow these things all know that the official budget the Finance Minister presents to our National Assembly each year is more like an opening gambit than a finalized statement of what the state expects to spend in the following fiscal year. For as long as anyone can remember, Venezuelan law has allowed the government to go back to parliament in the course of the fiscal year and ask them to top up whichever accounts have run dry earlier than expected, a handy little procedure known as an "additional credit" ("crédito adicional").

On some abstract plane, I guess having some mechanism in place to make sure the budget is flexible enough to adjust to changing realities is a good idea. But as with most good ideas in Venezuela's political system, this one has been abused out of any semblance of good sense over the years.

I'm not blaming Chávez here, this is one of those old-regime vices the revolution just sort of forgot to revolutionize. But the long and the short of it is that initial budget figures are an extremely misleading thermometer of how much a given government office in Venezuela will spend at any given time, because actual spending is often many multiples of the original figure, thanks to "additional credits."

In this case, in particular, the amount the government is budgeting for Chávez's office in 2010 is several multiples what they had budgeted for 2009, but I doubt very much it's what they actually spent this year: take the time to go through the additional credits and I bet the rise looks a lot less scandalous.

So it seems likely that what we have here is a kind of accounting mirage: the government deciding to ask for more of what Chávez will spend up front rather than returning to the parliamentary teat again and again over the course of next year. If you were so minded, you could even see this as an advance in terms of monetary transparency. (Though, of course, to make Venezuelan budgets genuinely useful as analytical and planning tools they would need much tighter controls over the "additional credit" mechanism overall, and the government sure isn't about to consider such a thing.)

I tried to think of a pithy way to explain all that in 3 sentences in a way that would make sense and wouldn't put your readers to sleep, but couldn't really think of one.

But beyond the accounting angle, there's this thing that's been gnawing away at me about the way the presidential budget is being reported abroad: when you're talking about a political system like the one we have, the whole notion of a "presidential office" budget that's somehow separate from the rest of the budget seems quaintly out of place. In Venezuela, every ministry and every agency's budget is at the president's unrestricted discretion...that's what petrostate autocracy boils down to!

You could multiply the examples here. I could tell you about Chávez's explicit threat to private shopping mall owners last week to get their own power generators or face power cuts from the public utility companies: a guy who micromanages the operations of even parastatal agencies like the utilities like that doesn't need a ringfenced private budget to spend as much as he wants on whatever he wants, he can just pick up a phone, call any agency head, issue a direct order and get his way, pre-existing budget commitments be damned.

I could go into the details of Fonden, the government's hyper-opaque "national development fund" which hasn't presented a balance sheet in public in over a year, whose actual holdings are a matter of simple-conjecture, but which by most accounts has at least several billion dollars and, according to some government spokesmen earlier this year, as many as $50 billion at its disposal: all money that's spent at Chávez's discretion, with simply no oversight, no previous budgeting, no form of outside accountability or control whatsoever.

I could go into the way the New PDVSA's management also spends money discretionally, on Chávez's orders, before handing that money over into the finance ministry's budgeting stream, such that that nearly endless money-stream is also, in effect, part of Chávez's no-oversight, no-controls budget.

When you think through the realities of the way money gets spent in a country like ours, where no public institution is ever able to put a check or a balance on the president's whim, getting upset over a $341,000 allocation for the president's clothing seems grotesquely out of place. I mean, what we're focusing on here is the fig leaf, the part they had the decency to declare, the equivalent of the profits Vito Corleone reported through Genco Olive Oil.

It's the millions upon millions of dollars they're spending off the books, to fund FARC or Iranian uranium exploration in Bolívar state, or extremist groupies' presidential campaigns in the rest of the hemisphere that I'm worried about. It's the unbudgeted, unreported, unaccounted for and officially non-existent billions flowing from PDVSA through various financial intermediaries and into the accounts of Ricardo Fernández Barrueco and Pedro Torres Ciliberto and Arné Chacón that I'm concerned about. It's the whole black underbelly of the parallel, off-the-book Chavista Second (and Third, and Fourth) Budget that we need to focus on, not the vanilla $1.4 billion they had the modesty to own up to!

In conditions like these, writing a story about the presidential office's official budget allocation is, in itself misleading. A first world reader looking into is bound to read the story and think, "so...they have budget debates, we have budget debates, they have controversies about particular budget items, we have controversies about particular budget items, they have venal politicians who make a grab for the sweet life while in office, and so do we!...hey, Venezuela seems like a pretty normal country!"

But it's not like that, my friend...it's just not like that at all...


October 27, 2009

Tell me how you budget and I'll tell you who you are

Juan Cristóbal says: - Hugo Chávez's administration introduced a draft 2010 budget a few days ago. The project promises a whopping $84 billion in spending that somehow manages to disappoint. It is lower than the 2009 budget in real terms, and assumes an optimistic 0.5% GDP growth and a frankly fantastical 22% inflation, in itself nothing to shout home about. But a few hidden gems are raising significant eyebrows.

The main one: Spain's El Pais, through the inimitable pen of Maye Primera, is reporting that Chávez's discretionary spending will rise by 638% in 2010, to an astonishing $1.5 billion. This is twice as high as the entire budget of the Energy and Oil Ministry, higher than the budgets of the Agriculture, Mining or Foreign Affairs Ministries.

Nevertheless, the more egregious comparison is with the funds assigned to our embattled judicial system. Chávez's personal budget is on par with the $1.7 billion allocated to all the country's courts, and several times larger than the miserly $474 million that go to Prosecutors. Both amounts are 16 and 9% lower, respectively, in nominal terms than they were in 2009.

But it's just as well. The budget instructs the "justice" "system" to work in advancing the government's socialist agenda. If the courts are ordered to defend a political project instead of the rule of law, then there must be some sort of silver lining in them getting the axe, right?

The numbers underlying Chávez's discretionary spending offer cynics a not inconsiderable serving of red meat. There is a paltry $9 million allocation for Chávez to give out freely to those pesky people asking for help at the front door of Miraflores Palace, while security for the President (presumably to guard him from those very people) gets $16 million. The President's trips overseas (to get away from those people) get another $9.1 million, while his weekly TV show Aló, Presidente (so those people can be entertained while keeping quiet) gets $2.6 million.

Chávez's appearance clearly shall not bear the brunt of budgetary restrictions. The president's clothing gets $361 thousand per year - three times what Sarah Palin scandalously got for the 2008 US Presidential elections. This amount is, according to Chile's La Tercera, the highest in South America, exceeding even Cristina Kirchner's gaudy, unseemly $350 thousand-a-year wardrobe (which, come to think of it, Venezuelan tax-payers also help pay for.)

But as any fashion consultant will tell you, it's not just the clothes, it's how you wear them. That's why dry-cleaning gets $92 thousand, while $84 thousand are earmarked for stocking the President's palaces with "personal care" products. Assuming the President spends three minutes in the shower each day, his grooming costs taxpayers $76 per minute. Quite literally, he is throwing our money down the drain.

As snicker-inducing as these numbers are, they are not the most astonishing part of the Miraflores budget. Chávez is a well-documented narcissist, so these figures fit the bill. Unless you were still under the delusion that Chávez was sincere in his zest for socialism and his constant decrying of consumerism, these numbers are "dog-bites-man."

What these figures point to is Chávez's increased reliance on discretionary spending for his own political survival. As poll numbers for the President go from red to very red, Chávez knows his fate cannot be left to the headless bureaucracy he has fed all these years. As in 2003, he is well aware that the key is to have the cash ready to spend on quick, easy fixes that will somehow dupe the population into thinking he's solving their problems.

So the real headline shouldn't be what Chávez spends on clothes. The real headline is Chávez's strategy to stay politically relevant. In a country with the highest crime rates in the world, where personal safety is by far people's top concern, the President cuts funding for the justice system to increase his own discretionary funding. He clearly believes his own political survival depends not on solving people's problems, but on having the cash to look like he's doing so.

October 26, 2009

Chávez thinks you suck; you agree

Quico says: As Chávez takes to blaming more and more of the nation's problems on you, the latest Datanalisis poll confirms it: 23.9% of respondents identify "la gente" (the people) as the main culprit for the nation's problems, just beating Chávez (23.2%) for top spot.

You suck, and you know it.