November 21, 2009

Fernandez Barrueco Busted...but why?

Quico says: On the day after Bolibourgeois operator extraordinaire Ricardo Fernández Barrueco got shuffled off to a prison cell at Disip - Venezuela's secret police - the questions far outnumber the answers. It's easy to guess that Fernández Barrueco - head of such bankruptrrific banks as Banco Confederado, BanPro and Banco Canarias - did something serious to displease his higher ups. Suspicions will fall most heavily on Infrastructure Minister Diosdado Cabello who, as far as we can tell (which isn't very far at all), is very much the man behind the curtain on these matters.

Part of me wants to imagine Fernández Barrueco sharing a Disip cell with his little banking empire's also imprisoned-without-trial former boss, Eligio Cedeño. Seriously, those banks are jinxed...

Yet beyond that broadest of outlines, there's no real way to discern the power politics at play here. Chalk it up to the lethal combination between the regime's opacity, its willingness to silence the media, and the pathetic disinterest that most Venezuelan media have always shown towards investigative journalism in general. Even if somebody in the Venezuelan media had the capacity and the budget you'd need to do justice to the story of Fernández Barrueco's downfall, nobody would dare to.

So no, I don't really know why he went to jail. If you do: dish!

November 19, 2009

Caracas Chronicles 2.0: Help us Test the Beta

Quico says: So the new software for Caracas Chronicles 2.0, including its custom-coded, state-of-the-art Community Powered Comments system, is now in testing. And we're looking for volunteers to tell us what they like about it, what they hate about it, what needs to improved, and what needs to be flushed altogether.

If you're interested in spending some quality time playing around with the interface and writing us some feedback on it, please send me an email: caracaschronicles at fastmail dot fm

November 18, 2009

The Collected Wit and Wisdom of Nelson Merentes

Quico says: One day after Venezuela officially went into recession with a harsh 4.5% decline in 3rd quarter GDP amid alarming signs of stagflation, let us pause to reflect on the wisdom of the man in charge of the nation's money, Central Bank chief Nelson Merentes.

January 14, 2009:
"In Venezuela there is no and there shall be no recession because the world financial crisis has had no impact on the Venezuelan economy."

"If the financial crisis lasts some five or six years, Venezuela could be affected and suffer its consequences."

31st August, 2009:

(on third quarter growth) "We won't end up very high up, we'll come in just above zero. Nonetheless, I believe we'll come out in positive territory."

"There was an inflection point, upward, and that means that it's going to be better than in the second quarter, but so far we don't know how far that point will go."

November 12th, 2009:

(on how to spur economic growth) "It's like economic accupuncture, where you have to touch the launching points so as to guarantee lift off."

"...the country is reaching a point of deflation."

Well, lets count our lucky stars we dodged that deflation bullet, at least...

I think a recession on this scale would be a big deal anywhere. But in a normal country, you could just spend your way out of the hole. Run the Keynesian playbook, the way the Americans and Europeans have been doing. You pile up a lot of debt doing that, yes, but it tends to work.

Thing is, the US and the EU could do that because they went into the crisis with their macroeconomic houses more or less in order: low inflation, credible central banks, no massive imbalances lurking just beneath the surface ready to sabotage any attempt to run the Keynesian playbook.

Venezuela, on the other hand, is going into its recession with core inflation running at 36%: i.e., facing a clearly stagflationary scenario. That means that any attempt to run the Keynesian playbook will yield not growth but, instead, more inflation.

In any event, the government doesn't really have that option because even with oil flirting with $80 a barrel they can't find enough money - or enough people crazy enough to lend them money - to try to inflate their way out of the crisis.

So, instead of countercyclical demand management, Chávez's 2010 budget calls for a brutal 33% spending cut in real terms, suggesting that, instead of Keynes's, the playbook they're really looking to run is Paul Volcker's: wringing the inflationary expectations out of the economy through a series of spending cuts, in the middle of a recession!

Just to dwell on the ironies involved here, notice that this means Chavismo is going to get forced to apply precisely the kind of harsh, pro-cyclical fiscal policy that chavistas have spent a decade criticizing the IMF for forcing countries like Argentina to apply!

Pause to take stock of what this means: what we're looking at here is Chávez making a recession deeper, on purpose, to get rid of inflation! And all on his own innitiative, not because some IMF apparatchik forced him to! Fin de mundo!

In fact - and this here is my candidate for least likely sentence ever written in the English language - on one point I do agree with Jorge Giordani, Paul Volcker, Nelson Merentes, Milton Friedman, Alí Rodríguez, Margaret Thatcher, Hugo Chávez and Ronald Reagan: purposefully cutting aggregate demand even though you're in the middle of a recession is the right fiscal response to Stagflation.

"Right", that is, in the same way that amputation is the "right" medical response after you've shot yourself in the foot, dallied for a week trying various voodoo remedies, and allowed gangrene to develop.

[Hat tip: LV]

November 17, 2009

Chavismo's Crazy New PR Strategy: Telling the Truth

Quico says: OK, people, we're through the looking glass here. Just when we thought chavismo had exhausted all the rhetorical curve-balls it could possibly throw at us, they pitch us the ultimate change-up: the truth.

Late last week, we had Arias Cardenas just come out and say Chávez would pipe down about the Colombia-US military deal if Obama would just give him an oval office audience. At the weekend, Chávez told the truth again, saying the opposition didn't have the balls to run primaries. And now, Alí Rodríguez just about busts the truth-o-meter with this neocortex-scrambling statement, which defends the government's exchange rate policy noting that "the overvalued bolivar is a mechanism for economic redistribution."

Oh wow. Turns out that the government doesn't see keeping an insanely overvalued currency as a problem in need of a solution. Just the opposite: they see it as a key means calculated to bring about a cherished end.

La vaina es a proposito!

Make no mistake about it: Alí is speaking unvarnished truth here. An overvalued currency is a mechanism for economic redistribution. Any econ undergrad could tell you that.

It's just that our esteemed Minister of the People's Power for Finance left out one small detail: redistribution from whom, precisely, and to whom?

An overvalued currency redistributes wealth from people who produce stuff in Venezuela to people who buy the same stuff abroad and then import it. That's the main effect of a policy that, in layman's terms, could be rendered as "making sure a bolivar buys more stuff abroad than at home."

Or, to be a little bit more exact, an overvalued currency means a currency that buys more once it's turned into a foreign currency (at the official rate, bien sur) than it buys internally. After all, what would you rather find when you're rooting around between couch cushions, two bolivars and fifteen cents or four quarters?

If we're going to be precise about it, it's not imports that overvaluation makes cheaper, it's the currency that imports are priced in. So overvaluing a currency is a way of redistributing wealth from people without access to those official-rate-dollars to people with access to them.

Not, of course, that you need a degree in economics to explain that to any of the thousands of poor, connectionless saps banging their heads against a keyboard in frustration that Cadivi won't release their official dollar requests while Chávez's army of Crony Socialists make off with the nation's petrodollars at bargain basement prices.

For the third time this week, we can fault chavismo for many things, but not for dishonesty. Alí Rodríguez got at a core truth here. Keeping the bolivar deliriously overvalued is no mistake; it's a cherished policy goal.

Those Hummers don't come cheap, y'know?

November 15, 2009

Chávez shoots at an open goal, scores

Quico says: Noting that "sovereignty" starts from the bottom up, Chávez today challenged the opposition to follow PSUV's lead and hold internal elections for important party posts. For once, the guy has it exactly right, calling the oppo leadership on its simply inexcusable paralysis on the issue of primaries.

In fact, one of the frustrations of the endless opposition debate on how to choose its candidates for next year's parliamentary election its the way it tees Chávez up for this kind of attack, which is exceptional only in the sense of being totally justified.

Come to think of it, it's something of a novelty to hear Chávez slamming us for something that's real rather than a paranoid delusion. Odd feeling, actually. But the oppo's never-ending bickering on the issue leaves him shooting at an open goal.

Of course, his criticism is not without its ironies: PSUV may be holding internal elections for delegates for its upcoming party congress, but nobody could be under any illusion that the delegates elected will have any substantive say over the way the party (or the country) are run. Jefe es jefe, y'know. It's easy enough to guess that the moment any of the delegates goes rogue and issues any kind of substantive criticism of the hyperleader is the moment Disip discovers his previously unnoticed paramilitary connections, or the contraloria dusts off some corruption allegation or other hanging over him.

In PSUV, what party members ultimately compete for when they stand for election is the right to agree with Chávez from a better spot on the tarima.

And yet, it's also easy to guess that if there's one thing Chávez fears is the kind of reinvigorated, relegitimized opposition that could only imaginably emerge out of primaries. In a wacky, reverse-double-dare kind of way, you could see his attack today as a ploy to prevent opposition primaries. After all, nothing delegitimizes an idea more effectively among antichavistas than presidential support. How long can it be until anyone on our side who calls for primaries is slammed as a collaborator who "backs Chávez's position" on the issue?

Sneaky SOB, he is...