By Frank Jack Daniel
BOGOTA, May 31 (Reuters) - Conservative Juan Manuel Santos is well placed to win Colombia's presidency after a first electoral round victory that pleased investors but which may also help a foe, Venezuela's President Hugo Chavez.
Santos, a Harvard and LSE-trained economist was only around three percentage points short of the majority needed to win the election outright on Sunday, and his 25 point lead will make it very difficult for his rival Antanas Mockus to catch up. The two face off in a June 20 runoff.
Sunday's result is a ratification of the tough security and pro-business policies of staunch U.S. ally President Alvaro Uribe in Latin America's third most populous country and was received well by investors.
A victory in June for the wealthy scion of Bogota's political elites will likely inflame already high tensions with neighboring Venezuela -- possibly benefiting Chavez who is beset by economic woes and often thrives on external conflict.
"I doubt Chavez is unhappy with this result. Mockus would have thrown him off balance," said Michael Shifter, an analyst with Washington think-tank Inter-American Dialogue.
Former Defense Minister Santos has for years verbally sparred with the socialist leader, who is beefing up his armed forces. Officials have said Colombia's military needs to prepare itself for an "external threat."
A Santos presidency would do nothing to reduce fears of a border clash -- although war in the region is unlikely. After the vote, Santos said he had no political enemies.
"I don't recognize enemies in national politics or in foreign governments," he told supporters.
A seasoned warrior of Colombia's internal conflict, Santos, 58, is the anointed heir to Uribe, who cleared much of the country of leftist rebels and multiplied investment five-fold with security and low taxes in eight years in office.
The peso currency and benchmark TES bonds firmed on Monday [ID:nN31223302], while the country's risk rating on JPMorgan's EMBI Plus index 11EMJ fell 8 points to 231 points.
"Now there is much more certainty about what might happen and what lies in store for the country. As well economic matters, the teams are well regarded. That generates stability and confidence recovers," said Alexander Cardenas, director of economic research at Colombian brokerage Acciones and Valores.
Mockus, an eccentric two-time former Bogota mayor, is also seen as a steady economic hand but is a relative unknown and has little sway in Congress since his Green Party has few seats -- raising governability questions.
"OIL AND WATER"
The son of one of the country's most influential families who for years owned top newspaper El Tiempo, Santos proved his steel in the fight against FARC guerrillas, overseeing the dramatic rescue of hostages and a 2008 bombing raid that killed the insurgents' No. 2 commander.
That raid, on a rebel camp in neighbor Ecuador, briefly raised the specter of war in the Andean region. Relations with Venezuela never fully recovered and Chavez repeatedly called Santos a danger to Latin America during the election campaign.
Santos says he and Chavez are like "oil and water," and although both men say they are willing to talk, Chavez also says he would struggle to have normal ties with Santos.
Venezuela's leader is highly unpopular in Colombia and his remarks were always likely to increase support for Santos, although some analysts attributed a surge in Mockus' ratings in April to hopes for less conflict.
"In the end the reverse happened, it strengthened Santos," former Colombian Vice President Humberto de La Calle said on TV station RCN.
Some Chavez allies have said in private they would prefer Santos to become president because Mockus is relatively unknown. The conservative Santos offers a clear target for Chavez, who often attacks what he terms as venal elites in his own country.
Chavez rose to international prominence with fierce criticism of former U.S. President George W. Bush. Since Bush left office, Chavez has focused his wrath on Uribe, whom he accuses of conspiring with Washington to topple him.
"With Santos, Chavez can continue to play his favorite game," Shifter said. "Chavez lost Bush and will soon lose Uribe, but at least he'll have Santos as a foil." (Additional reporting by Nelson Bocanegra, editing by Alan Elsner)
Monday, May 31, 2010
Sunday, May 30, 2010
DOG IN THE MANGER
Published by VenEconomy
VenEconomy: The Insurance Business Act, passed following its second debate, gives a mortal blow to insurance and reinsurance companies, private clinics and health care centers, and the population in general.
Here are just some of the main absurdities:
Insurance and reinsurance companies will not be able to grant loans, thus closing the doors to a series of alternatives for placing their reserve funds; nor will they be able to finance insurance premiums, which will leave millions of Venezuelans without coverage, forcing them to join the millions who are already without any type of health care.
Disproportionate economic burdens are imposed on these companies, among them: a special contribution for the Insurance Business Superintendency of between 1.5% and 2.5% of net premiums collected, instead of 0.3% as previously; default in paying or uncollectible quotas will no longer be grounds for annulling financed premiums; and huge fines and prison sentences.
The law forces the companies to assume new risks, among them coverage for agricultural projects, projects by the communes, and users with pre-existing medical conditions. What it does not provide for, and even inhibits, are adjustments in the premiums, leaving the setting of compulsory affordable rates to the Superintendency of Insurance, for which it has full discretionary powers. The regime does not seem to want to understand that, in the insurance business, companies require an actuarial study to allow them to precisely calculate the cost of the services provided and the risk involved.
The communal councils are given the authority to investigate claims filed with the insurance companies.
No provision is made with regard to the requirements for setting up and operating an insurance brokerage firm, leaving this to regulations to be established at a later date.
Within a period of five years from the entry into force of this law, all government service agencies and offices must transfer their insurance plans to the public insurance companies and the national health system.
This law introduces more controls and greater discretionary powers, which will have a negative impact on the coverage provided and the quality of the service and even the possible disappearance of a fair number of private companies in this sector.
Once again, the government is bent on destroying a sector of the economy, offering, in exchange, a thousand and one alleged benefits, despite the fact that it is light years away from being able to provide them. It is common knowledge that the supply of health services by the State is negligible; the public hospitals, health care centers, Barrio Adentro modules, and even the new Immediate Health Care Centers suffer from all kinds of shortages and deficiencies.
Once again, the Chavez regime is being a dog in the manger, and, even worse, what it is doing is not even in keeping with a socialist system, where the State takes responsibility for providing the entire population with basic public health care services.
VenEconomy: The Insurance Business Act, passed following its second debate, gives a mortal blow to insurance and reinsurance companies, private clinics and health care centers, and the population in general.
Here are just some of the main absurdities:
Insurance and reinsurance companies will not be able to grant loans, thus closing the doors to a series of alternatives for placing their reserve funds; nor will they be able to finance insurance premiums, which will leave millions of Venezuelans without coverage, forcing them to join the millions who are already without any type of health care.
Disproportionate economic burdens are imposed on these companies, among them: a special contribution for the Insurance Business Superintendency of between 1.5% and 2.5% of net premiums collected, instead of 0.3% as previously; default in paying or uncollectible quotas will no longer be grounds for annulling financed premiums; and huge fines and prison sentences.
The law forces the companies to assume new risks, among them coverage for agricultural projects, projects by the communes, and users with pre-existing medical conditions. What it does not provide for, and even inhibits, are adjustments in the premiums, leaving the setting of compulsory affordable rates to the Superintendency of Insurance, for which it has full discretionary powers. The regime does not seem to want to understand that, in the insurance business, companies require an actuarial study to allow them to precisely calculate the cost of the services provided and the risk involved.
The communal councils are given the authority to investigate claims filed with the insurance companies.
No provision is made with regard to the requirements for setting up and operating an insurance brokerage firm, leaving this to regulations to be established at a later date.
Within a period of five years from the entry into force of this law, all government service agencies and offices must transfer their insurance plans to the public insurance companies and the national health system.
This law introduces more controls and greater discretionary powers, which will have a negative impact on the coverage provided and the quality of the service and even the possible disappearance of a fair number of private companies in this sector.
Once again, the government is bent on destroying a sector of the economy, offering, in exchange, a thousand and one alleged benefits, despite the fact that it is light years away from being able to provide them. It is common knowledge that the supply of health services by the State is negligible; the public hospitals, health care centers, Barrio Adentro modules, and even the new Immediate Health Care Centers suffer from all kinds of shortages and deficiencies.
Once again, the Chavez regime is being a dog in the manger, and, even worse, what it is doing is not even in keeping with a socialist system, where the State takes responsibility for providing the entire population with basic public health care services.
Venezuela ... Ruled by an Inept, Corrupt and Heartless Administration
Published: Sunday, May 30, 2010
Bylined to: The Global Post
I am still flabbergasted about the news that at the very least 20,000 tonnes of imported food went to waste in Puerto Cabello because no one cared enough to remove them from the container storage area to deliver them to their righteous owner/handler/beneficiaries/whatever. At this point it is impossible to structure a narrative about such an incredibly shameful operation though we can already predict in all confidence that no one will go to jail, or even receive a public sanction for such a disaster. After all, let's not forget that in 2000 Venezuela received a lot of help for the Vargas disaster and a lot of that help found its way in some lot at Puerto Cabello where it went to waste, waiting for its discovery years later. No one was prosecuted or even fired for such an attempt against Human Rights, the Human Rights of the victims of the Vargas disaster to which that generous international help was destined.
However I can list a few things about this latest disaster that speaks volumes about what kind of country we have become after 11 years of Chavez.
The facts
We will never know for sure, since we never know for sure in this country about things that cast a negative light on the regime's blunders. From reading about a dozen entries on the web it seems that at the very least a thousand + containers (1,300?), loaded with food destined to Mercal and PDVAL, the food distribution system of the state, are involved in the deal. Each container carried an average of at least 20 tonnes, which means that at the very least up to 20,000 thousand tonnes of food items might have been lost. Maybe not all is lost, maybe some has still a valid expiration date. But you will agree with me that expiration date on food is designed for food stored in proper warehouses and not for months under the sun and humid sea air of Puerto Cabello. It does not matter how you cut it out, spin it, whatever, it is a monumental disaster only attributable to the regime bureaucracy since that one seized Puerto Cabello from its independent control as soon as the Carabobo state was taken back by the opposition in November 2008.
The blame is with Chavez and his appointees, nowhere else.
The outrage
It does not exit, really. Only El Nacional had it in big on its front page, El Universal in smaller, and nowhere on top in Globovision. On the other hand plenty of articles about the primary vote fallback on each side. The opposition alliance MUD, given such an excellent opportunity to attack Chavez mis-administration, is wasting it since it cannot be bothered to create a group of spokespeople to hammer the government with such things. I mean, the MUD should have sent a commission to visit Puerto Cabello even if they knew full well that entry would be denied at least they would have made a media show at the door!
The honor, to give it a name, was saved by Carabobo folks who have been denouncing the routine losses at Puerto Cabello as much as for its waste as for the public health hazard that tonnes of food going to rot represent. It is through Carabobo State legislator Neidy Rosal that we learn, in horror, that these thousand plus containers were discovered by luck, because the authority was investigating the robbery of three powder milk trucks in an unrelated event. That is how they "stumbled" on the mound of rotting food!
The Governor of Carabobo Salas Feo reminds that his administration has been making similar accusations for a while, accusing mafias associated with the regime for these importations that go nowhere. He notes that in a time of crisis, the food that went to waste could have fed for several days million of people in Venezuela. That is right, it could have fed at least all of Carabobo State for a few weeks.
The government reaction
Very limited of course: what can they say besides brief declarations from the SEBIN officials in charge of the investigation? But from other two items happening today we sense that they are trying to take measures to make sure people do not speak up while creating a side show to distract.
The government certainly is going to try to limit the fallout of this scandal. How? For example punishing the whistle blowers just as it is doing in punishing the PDVComunal Gas workers who dared to go to Caracas this week to protest the miserable conditions that are forced to do their work. Any "informant" in Puerto Cabello caught is certain to get punished. How else can we explain that the workers did not report of such a storage that was in front of them? Even if that area was of limited access or interest, surely someone must have walked around regularly in the last 6 months since the containers arrived. No?
As an importer, I know that when one of my containers is delayed for any reason the port authority bills me for the storage. Nobody was watching for the storage fees of 1000+ containers? This hiding of containers could have only happened if there was some sort of complicity at the highest level of the port authority and the National Guard that supervises everything.
The irony is that the show this week end to cover up all the troubles of the country is the government making a big fuss of the distribution in diverse markets of Venezuela of 9,000 tonnes of food stuff! Yes, you read that right, the government heralds the distribution of 9,000 tonnes of food which do not represent half of what was lost in Puerto Cabello! They go overboard, claiming the organization of 1,800 points of distribution and they call it "Socialist meat fair" to fight against speculation and hoarding. They certainly are not fighting waste and mismanagement.
The minister in charge of the the ministry that was supposed to monitor such things is Richard Canaan. He was named in February 2010 to replace Eduardo Saman, the red shirted, bearded taliban who loved to close business on any excuse and whose claim to fame was the opening of the first "arepera socialista" of dubious success. Thus the purchase order for this rotten food was placed during Saman tenure. Though this should not excuse Canaan who should have made a point of getting to know about all what his predecessor left on his desk, the more so that Canaan function is to deal with perishables.
The fear
Based on precedent we also learn that the legislators of Carabobo who monitor Puerto Cabello are afraid that the government will try to recover some of the stuff found. Of course this would go for sale at the Mercal and PDVAL outlets because it is clear that health is not an issue here, only political propaganda. The hoi poloi should be happy with free food and not look into the quality.
Indeed, we should look into what could be recovered, if anything to feed livestock. But it should be done in the open, people knowing where everything goes. From past knowledge I am willing to bet that this will not happen, and that in fact new juicy contracts will be established to reprocess the stuff through friends of the regime.
My scenario
This is such an example of all that is wrong with Venezuela today that even a seasoned observer like me has trouble comprehending the scale of it. Below I am going to write a list of a few of the things that may have happened in the whole process and I am willing to bet that most of them are true. I know that because I know the Puerto Cabello beast form the inside, because I have suffered for too long of its inadequacy and corruption and because my personal tales are almost nothing compared to the tales from other folks that reach me regularly.
The purchase
The government buys for Mercal and PDVAL without any control, without bothering for quotes. It buys wherever it can through "trusted" bolivarian nouveau riche. Or through Cuban agencies. It is rare that the private sector can quote and sell large amounts today, unless for some reason it is the private sector that has access to a given source of food (for example some of the US grain imported directly). The whole process is laden with corruption since with CADIVI and import permits there is is all sorts of paper works that can block you.
Bolibourgeoisie turns that around easily because they 1) "are with the revolution," feeding "el pueblo" and thus get "priority," 2) are willing to pay the necessary bribes and 3) simply charge the whole thing to the overpriced bills that are cashed to the state. Since there is no public accounting we do not know for sure what was bought where and for how much.
Overprices, back handled payments and forced intermediaries are the norm if you need to sell anything to Venezuela as the latest Argentina scandal of the "coimas" reveals.
The delivery
As it is only too often the case with these type of business "arrangements," the trader really does not care much about the fate of the merchandise once he receives the purchase order and can cash the bill. The trader receives preferential dollar value, at 2.6 today, well more favorable than the black market one of 8. thus the temptation of overpricing the stuff so as to get a substantial margin is simply too strong to resist.
The port Authority of Puerto Cabello and the National Guard which is supposed to control it know very well what is going on (in addition of the other business of drug trafficking, contraband and what not). They know of all the people that deal with the government and long ago have established the network to skim the traders along the way. They know the traders are robbing the state, that the state allows it, so why should they not get their cut?
Thus, from the initial emission of the purchase order to the time when the truck leaves Puerto Cabello for a given Mercal facility, a spectacular network of corruption has been built. And it has gained strength since the local authorities have been banned, along as the private subcontractors, from the facilities in the first half of 2009. Venezuelan ports have now the reputation of being among the very most corrupt organizations of the state. It is to be noted that in ALL countries of the world ports are in need of close supervision as they offer too many opportunities of crooked deals, from the dockers giving priority to those who give nice tips, to contraband fees paid to security. So you imagine what it is in Venezuela where the government is not only corrupt but overly lax in efficient controls, controls being designed to make sure the Guard and port bureaucrats can cash in at the gate, literally.
The beauty of the Venezuelan system is that it is nearly impossible to collect the evidence. One, it is simply difficult to collect evidence as any attempt form your part to complain becomes quickly a fine or a delay in delivery with fast accruing storage costs. Second, even if you could collect the evidence, to what tribunal are you going to go? And third, all is so time consuming and your business needs so badly the merchandise so you can work and meet payroll and customer demands that you simply swallow hard, pay your custom agent (the one that does the dirty work for you) and simply increase your resale prices to compensate. At the end the ones who pay for the corruption are the same as always: "el pueblo."
The payment: did something go wrong?
Clearly something went wrong along the way. That the merchandise was abandoned in a lot for over six months can only be because some scam was at play and either something went wrong at the time of finishing it up, or went very well, the "trader" cashing his or her money and bailing out of doge, forgetting about the merchandise sunbathing for ever.
Case 1: something went wrong. The date is the clue: Saman was fired at the time I suspect the paperwork was processed if the containers arrived in December/January. That does not mean that Saman is involved but he was a dork and when he left office some of his administrators also left the office or were shuffled somewhere else by the Canaan staff. Chavista ministers rotate so much that it is known that they have a close posse like staff that they bring along with them to whichever posts they go. If one of Saman minions was involved in some "coup" his early dismissal screwed everything and he remained quiet about it least someone in the incoming group would notice. After all Saman was fired in disgrace so it would have been unlikely that anyone in the Canaan group would have been willing to talk and take chances.
Case 1B: of course we cannot forget that the chavista famous incompetence might be the only explanation needed. Saman was out, nobody cared anymore about the matter. In this case the responsibility is with the Canaan group not to make sure they were receiving a complete detail of on going operations.
Case 2: all worked out just fine for the interested parties. Let's do some numbers. We are talking here of at least 20,000 tonnes of food at an average price of say, modestly, $2 per kilo. Let's say that the overprice was a mere $0.5 per kilo. We are talking here of a 10 million dollar commission at the very least, more likely, form precedent, of twice or thrice that amount. Even if the head of the scam had to share a lot of that commission, we can assume that a group of 2-3 guys cashed in from $5-10 million. If you have $3 million and put them in a fund paying you interest and out of capital 200,000 a year, you can live comfortably for at least 20 years out of that scam. Which does not stop you form starting your business outside of Venezuela, you know, to extend these years by a few more.
What happened in this case? Whoever was in charge of the scam needed just the approval of importation to cash in the CADIVI dollars, pay the provider and cash in his commission. He paid off whatever National Guard mafia he needed to pay off, sent the notice to PDVAL and Mercal and forgot about the whole business. Why Mercal did not act on it? That is the mystery we would like to know, but there is no mystery about why the provider never bothered in making sure the goods were delivered as planned.
The storage
This is really the most interesting mystery when you think of it. How can 1,000+ containers be stored somewhere and no one notice? No one asking when the space will be made available? No one asking for the storage fees? No one noticing that some of the stuff started to smell? No one noticing that there were more rats than usual in that area? No electricity bill charged on the refrigerated containers? And so many other questions, made the more inexcusable as the traffic at Puerto Cabello has been going down so there is not even the excuse of "we were too busy to notice."
We can attribute this to the utter neglect that we witness today at every level of the Venezuelan bureaucracy now that the "customer" is helpless, unable to go anywhere to complain from the bureaucratic abuse. But this case is just too big, to flagrant, too inexcusable for mere neglect: there was foul play somewhere. That is why I think that these imports were illegal in some way, from excessive pricing to even some drug smuggling scheme that failed at the last moment. That is the only explanation I can come up to explain that not only the delivery was never made but that the Puerto Cabello workers and administration decided to remain quiet about it, pretending that these containers were not there.
What does it says about Venezuela?
By now you must guess what follows. Venezuela has become a nation ruled by an inept, corrupt and heartless administration. Kind of redundant when you think of it? That so much food has been wasted and no one noticing it, no one assuming the blame is simply a mark that chavismo has created the most egotistical, careless, self centered, arrogant administration that we have ever seen here, and probably in our continent. If such a scandal were to happen in a semi normal country, the President might not have to resign but I am sure that at least a dozen of high ranking officials would have already tended their resignation and probably some of them would already be in preventive jail. It is not a matter of only corruption, robbing the state. It is a matter of playing with the needs of the people, their rights, their hunger. And this for a government that operates in the name of "el pueblo," and that as such thinks it has the right to accuse Alimentos Polar of hoarding 114 tonnes of food. I am going to tell you something: I doubt that Polar has ever let rot any food it has imported.
But it is even worse, though at least on that one I hope to be mistaken over time. This disaster should become a national cause, taken up by any independent media, by any political group including the now "dissident" PPT. If the country does not demand an explanation for this, does not stop until at least someone is punished, then we will really have become a country as rotten as the food found in Puerto Cabello.
We would have become a country so used to the easy oil money, so self assured of our entitlement, so little concerned about where the money goes, that we deserve what Chavez has in store for us.
If the MUD does not make this one of its banner causes for the September election then they do not deserve to win because they have no moral fiber for that, they do not deserve office.
Bylined to: The Global Post
I am still flabbergasted about the news that at the very least 20,000 tonnes of imported food went to waste in Puerto Cabello because no one cared enough to remove them from the container storage area to deliver them to their righteous owner/handler/beneficiaries/whatever. At this point it is impossible to structure a narrative about such an incredibly shameful operation though we can already predict in all confidence that no one will go to jail, or even receive a public sanction for such a disaster. After all, let's not forget that in 2000 Venezuela received a lot of help for the Vargas disaster and a lot of that help found its way in some lot at Puerto Cabello where it went to waste, waiting for its discovery years later. No one was prosecuted or even fired for such an attempt against Human Rights, the Human Rights of the victims of the Vargas disaster to which that generous international help was destined.
However I can list a few things about this latest disaster that speaks volumes about what kind of country we have become after 11 years of Chavez.
The facts
We will never know for sure, since we never know for sure in this country about things that cast a negative light on the regime's blunders. From reading about a dozen entries on the web it seems that at the very least a thousand + containers (1,300?), loaded with food destined to Mercal and PDVAL, the food distribution system of the state, are involved in the deal. Each container carried an average of at least 20 tonnes, which means that at the very least up to 20,000 thousand tonnes of food items might have been lost. Maybe not all is lost, maybe some has still a valid expiration date. But you will agree with me that expiration date on food is designed for food stored in proper warehouses and not for months under the sun and humid sea air of Puerto Cabello. It does not matter how you cut it out, spin it, whatever, it is a monumental disaster only attributable to the regime bureaucracy since that one seized Puerto Cabello from its independent control as soon as the Carabobo state was taken back by the opposition in November 2008.
The blame is with Chavez and his appointees, nowhere else.
The outrage
It does not exit, really. Only El Nacional had it in big on its front page, El Universal in smaller, and nowhere on top in Globovision. On the other hand plenty of articles about the primary vote fallback on each side. The opposition alliance MUD, given such an excellent opportunity to attack Chavez mis-administration, is wasting it since it cannot be bothered to create a group of spokespeople to hammer the government with such things. I mean, the MUD should have sent a commission to visit Puerto Cabello even if they knew full well that entry would be denied at least they would have made a media show at the door!
The honor, to give it a name, was saved by Carabobo folks who have been denouncing the routine losses at Puerto Cabello as much as for its waste as for the public health hazard that tonnes of food going to rot represent. It is through Carabobo State legislator Neidy Rosal that we learn, in horror, that these thousand plus containers were discovered by luck, because the authority was investigating the robbery of three powder milk trucks in an unrelated event. That is how they "stumbled" on the mound of rotting food!
The Governor of Carabobo Salas Feo reminds that his administration has been making similar accusations for a while, accusing mafias associated with the regime for these importations that go nowhere. He notes that in a time of crisis, the food that went to waste could have fed for several days million of people in Venezuela. That is right, it could have fed at least all of Carabobo State for a few weeks.
The government reaction
Very limited of course: what can they say besides brief declarations from the SEBIN officials in charge of the investigation? But from other two items happening today we sense that they are trying to take measures to make sure people do not speak up while creating a side show to distract.
The government certainly is going to try to limit the fallout of this scandal. How? For example punishing the whistle blowers just as it is doing in punishing the PDVComunal Gas workers who dared to go to Caracas this week to protest the miserable conditions that are forced to do their work. Any "informant" in Puerto Cabello caught is certain to get punished. How else can we explain that the workers did not report of such a storage that was in front of them? Even if that area was of limited access or interest, surely someone must have walked around regularly in the last 6 months since the containers arrived. No?
As an importer, I know that when one of my containers is delayed for any reason the port authority bills me for the storage. Nobody was watching for the storage fees of 1000+ containers? This hiding of containers could have only happened if there was some sort of complicity at the highest level of the port authority and the National Guard that supervises everything.
The irony is that the show this week end to cover up all the troubles of the country is the government making a big fuss of the distribution in diverse markets of Venezuela of 9,000 tonnes of food stuff! Yes, you read that right, the government heralds the distribution of 9,000 tonnes of food which do not represent half of what was lost in Puerto Cabello! They go overboard, claiming the organization of 1,800 points of distribution and they call it "Socialist meat fair" to fight against speculation and hoarding. They certainly are not fighting waste and mismanagement.
The minister in charge of the the ministry that was supposed to monitor such things is Richard Canaan. He was named in February 2010 to replace Eduardo Saman, the red shirted, bearded taliban who loved to close business on any excuse and whose claim to fame was the opening of the first "arepera socialista" of dubious success. Thus the purchase order for this rotten food was placed during Saman tenure. Though this should not excuse Canaan who should have made a point of getting to know about all what his predecessor left on his desk, the more so that Canaan function is to deal with perishables.
The fear
Based on precedent we also learn that the legislators of Carabobo who monitor Puerto Cabello are afraid that the government will try to recover some of the stuff found. Of course this would go for sale at the Mercal and PDVAL outlets because it is clear that health is not an issue here, only political propaganda. The hoi poloi should be happy with free food and not look into the quality.
Indeed, we should look into what could be recovered, if anything to feed livestock. But it should be done in the open, people knowing where everything goes. From past knowledge I am willing to bet that this will not happen, and that in fact new juicy contracts will be established to reprocess the stuff through friends of the regime.
My scenario
This is such an example of all that is wrong with Venezuela today that even a seasoned observer like me has trouble comprehending the scale of it. Below I am going to write a list of a few of the things that may have happened in the whole process and I am willing to bet that most of them are true. I know that because I know the Puerto Cabello beast form the inside, because I have suffered for too long of its inadequacy and corruption and because my personal tales are almost nothing compared to the tales from other folks that reach me regularly.
The purchase
The government buys for Mercal and PDVAL without any control, without bothering for quotes. It buys wherever it can through "trusted" bolivarian nouveau riche. Or through Cuban agencies. It is rare that the private sector can quote and sell large amounts today, unless for some reason it is the private sector that has access to a given source of food (for example some of the US grain imported directly). The whole process is laden with corruption since with CADIVI and import permits there is is all sorts of paper works that can block you.
Bolibourgeoisie turns that around easily because they 1) "are with the revolution," feeding "el pueblo" and thus get "priority," 2) are willing to pay the necessary bribes and 3) simply charge the whole thing to the overpriced bills that are cashed to the state. Since there is no public accounting we do not know for sure what was bought where and for how much.
Overprices, back handled payments and forced intermediaries are the norm if you need to sell anything to Venezuela as the latest Argentina scandal of the "coimas" reveals.
The delivery
As it is only too often the case with these type of business "arrangements," the trader really does not care much about the fate of the merchandise once he receives the purchase order and can cash the bill. The trader receives preferential dollar value, at 2.6 today, well more favorable than the black market one of 8. thus the temptation of overpricing the stuff so as to get a substantial margin is simply too strong to resist.
The port Authority of Puerto Cabello and the National Guard which is supposed to control it know very well what is going on (in addition of the other business of drug trafficking, contraband and what not). They know of all the people that deal with the government and long ago have established the network to skim the traders along the way. They know the traders are robbing the state, that the state allows it, so why should they not get their cut?
Thus, from the initial emission of the purchase order to the time when the truck leaves Puerto Cabello for a given Mercal facility, a spectacular network of corruption has been built. And it has gained strength since the local authorities have been banned, along as the private subcontractors, from the facilities in the first half of 2009. Venezuelan ports have now the reputation of being among the very most corrupt organizations of the state. It is to be noted that in ALL countries of the world ports are in need of close supervision as they offer too many opportunities of crooked deals, from the dockers giving priority to those who give nice tips, to contraband fees paid to security. So you imagine what it is in Venezuela where the government is not only corrupt but overly lax in efficient controls, controls being designed to make sure the Guard and port bureaucrats can cash in at the gate, literally.
The beauty of the Venezuelan system is that it is nearly impossible to collect the evidence. One, it is simply difficult to collect evidence as any attempt form your part to complain becomes quickly a fine or a delay in delivery with fast accruing storage costs. Second, even if you could collect the evidence, to what tribunal are you going to go? And third, all is so time consuming and your business needs so badly the merchandise so you can work and meet payroll and customer demands that you simply swallow hard, pay your custom agent (the one that does the dirty work for you) and simply increase your resale prices to compensate. At the end the ones who pay for the corruption are the same as always: "el pueblo."
The payment: did something go wrong?
Clearly something went wrong along the way. That the merchandise was abandoned in a lot for over six months can only be because some scam was at play and either something went wrong at the time of finishing it up, or went very well, the "trader" cashing his or her money and bailing out of doge, forgetting about the merchandise sunbathing for ever.
Case 1: something went wrong. The date is the clue: Saman was fired at the time I suspect the paperwork was processed if the containers arrived in December/January. That does not mean that Saman is involved but he was a dork and when he left office some of his administrators also left the office or were shuffled somewhere else by the Canaan staff. Chavista ministers rotate so much that it is known that they have a close posse like staff that they bring along with them to whichever posts they go. If one of Saman minions was involved in some "coup" his early dismissal screwed everything and he remained quiet about it least someone in the incoming group would notice. After all Saman was fired in disgrace so it would have been unlikely that anyone in the Canaan group would have been willing to talk and take chances.
Case 1B: of course we cannot forget that the chavista famous incompetence might be the only explanation needed. Saman was out, nobody cared anymore about the matter. In this case the responsibility is with the Canaan group not to make sure they were receiving a complete detail of on going operations.
Case 2: all worked out just fine for the interested parties. Let's do some numbers. We are talking here of at least 20,000 tonnes of food at an average price of say, modestly, $2 per kilo. Let's say that the overprice was a mere $0.5 per kilo. We are talking here of a 10 million dollar commission at the very least, more likely, form precedent, of twice or thrice that amount. Even if the head of the scam had to share a lot of that commission, we can assume that a group of 2-3 guys cashed in from $5-10 million. If you have $3 million and put them in a fund paying you interest and out of capital 200,000 a year, you can live comfortably for at least 20 years out of that scam. Which does not stop you form starting your business outside of Venezuela, you know, to extend these years by a few more.
What happened in this case? Whoever was in charge of the scam needed just the approval of importation to cash in the CADIVI dollars, pay the provider and cash in his commission. He paid off whatever National Guard mafia he needed to pay off, sent the notice to PDVAL and Mercal and forgot about the whole business. Why Mercal did not act on it? That is the mystery we would like to know, but there is no mystery about why the provider never bothered in making sure the goods were delivered as planned.
The storage
This is really the most interesting mystery when you think of it. How can 1,000+ containers be stored somewhere and no one notice? No one asking when the space will be made available? No one asking for the storage fees? No one noticing that some of the stuff started to smell? No one noticing that there were more rats than usual in that area? No electricity bill charged on the refrigerated containers? And so many other questions, made the more inexcusable as the traffic at Puerto Cabello has been going down so there is not even the excuse of "we were too busy to notice."
We can attribute this to the utter neglect that we witness today at every level of the Venezuelan bureaucracy now that the "customer" is helpless, unable to go anywhere to complain from the bureaucratic abuse. But this case is just too big, to flagrant, too inexcusable for mere neglect: there was foul play somewhere. That is why I think that these imports were illegal in some way, from excessive pricing to even some drug smuggling scheme that failed at the last moment. That is the only explanation I can come up to explain that not only the delivery was never made but that the Puerto Cabello workers and administration decided to remain quiet about it, pretending that these containers were not there.
What does it says about Venezuela?
By now you must guess what follows. Venezuela has become a nation ruled by an inept, corrupt and heartless administration. Kind of redundant when you think of it? That so much food has been wasted and no one noticing it, no one assuming the blame is simply a mark that chavismo has created the most egotistical, careless, self centered, arrogant administration that we have ever seen here, and probably in our continent. If such a scandal were to happen in a semi normal country, the President might not have to resign but I am sure that at least a dozen of high ranking officials would have already tended their resignation and probably some of them would already be in preventive jail. It is not a matter of only corruption, robbing the state. It is a matter of playing with the needs of the people, their rights, their hunger. And this for a government that operates in the name of "el pueblo," and that as such thinks it has the right to accuse Alimentos Polar of hoarding 114 tonnes of food. I am going to tell you something: I doubt that Polar has ever let rot any food it has imported.
But it is even worse, though at least on that one I hope to be mistaken over time. This disaster should become a national cause, taken up by any independent media, by any political group including the now "dissident" PPT. If the country does not demand an explanation for this, does not stop until at least someone is punished, then we will really have become a country as rotten as the food found in Puerto Cabello.
We would have become a country so used to the easy oil money, so self assured of our entitlement, so little concerned about where the money goes, that we deserve what Chavez has in store for us.
If the MUD does not make this one of its banner causes for the September election then they do not deserve to win because they have no moral fiber for that, they do not deserve office.
Friday, May 28, 2010
Only 42.7% of petrodollars sold to Venezuela's Central Bank
El Universal: Foreign exchange income and outlays at the Central Bank of Venezuela (BCV) and the balance of payments show that in the first quarter of 2010 state-run oil company Petroleos de Venezuela (PDVSA) transferred $6.68 billion to the BCV, only 42.7% of Venezuelan oil revenues.
This declining trend dates back to June 2005, when a legal reform changed Venezuela's financial architecture. Since then, PDVSA is not obliged to transfer all the dollars it gets from oil sales to the BCV.
Orlando Ochoa, an economist and professor with the Andres Bello Catholic University (UCAB), says that the reduced amount of US dollars received by the Central Bank of Venezuela has forced the government to slow down the authorization of foreign exchange payments by the Foreign Exchange Administration Commission (CADIVI).
Based on official data, Ochoa said that BCV's foreign exchange operating reserves amount to $8.99 billion dollars, an amount that "is not enough to hand over the US dollars authorized by CADIVI, inject funds to the National Development Fund (Fonden) and defend the band system that will be implemented to control the (parallel) foreign exchange market."
The Venezuelan economist highlighted another important factor. Official figures show that PDVSA's accounts receivable amount to $16.48 billion. "At least 95% of PDVSA's accounts receivable relate to oil delivered to ALBA and Petrocaribe member countries such as Cuba and the Dominican Republic," said Ochoa.
PDVSA's accounts receivable have increased significantly. In the first quarter of 2007, they totaled $7.15 billion. This shows that PDVSA's accounts receivable soared 130% in three years.
This declining trend dates back to June 2005, when a legal reform changed Venezuela's financial architecture. Since then, PDVSA is not obliged to transfer all the dollars it gets from oil sales to the BCV.
Orlando Ochoa, an economist and professor with the Andres Bello Catholic University (UCAB), says that the reduced amount of US dollars received by the Central Bank of Venezuela has forced the government to slow down the authorization of foreign exchange payments by the Foreign Exchange Administration Commission (CADIVI).
Based on official data, Ochoa said that BCV's foreign exchange operating reserves amount to $8.99 billion dollars, an amount that "is not enough to hand over the US dollars authorized by CADIVI, inject funds to the National Development Fund (Fonden) and defend the band system that will be implemented to control the (parallel) foreign exchange market."
The Venezuelan economist highlighted another important factor. Official figures show that PDVSA's accounts receivable amount to $16.48 billion. "At least 95% of PDVSA's accounts receivable relate to oil delivered to ALBA and Petrocaribe member countries such as Cuba and the Dominican Republic," said Ochoa.
PDVSA's accounts receivable have increased significantly. In the first quarter of 2007, they totaled $7.15 billion. This shows that PDVSA's accounts receivable soared 130% in three years.
VenEconomy // On the Slippery Slope
VenEconomy: On Tuesday, May 25, the Central Bank of Venezuela presented the results of the balance of payments and the economy for the first quarter of the year. Even at a time when the average price of the Venezuelan oil basket has reached $70.59/bbl, the balance of payments posted a deficit of $6.1 billion. Of that amount, $5 billion correspond to the illegal and absurd transfer of international reserves to Fonden
It is worth noting that, in 2009, when the price of the Venezuelan oil basket averaged $38.60/bbl, the balance of payments posted a deficit of $15.3 billion, $12.3 billion of which were transfers to Fonden.
The reason for this relative improvement could be that, in the first quarter of 2010, revenue from oil exports rose by $6.5 billion and spending on imports fell by $4.4 billion, which is why there is a recovery in the balance on the assets account of $10.9 billion from the $3.7 billion deficit posted in the first quarter of 2009, giving a surplus for the first quarter of 2010 of $7.2 billion.
There was little change on the capital and financial account, which reflects a deficit of $11.5 billion for the first three months of 2010, an increase in the deficit of $800 million compared to 2009.
If transfers to Fonden are excluded, the deficit on the balance of payments would be $1.1 billion in the first quarter, compared to $2.9 billion in 2009; in other words, an improvement of $1.8 billion. This improvement is due to the rise in oil prices, which saved the government's skin, but was not sufficient to provide the surplus it so badly needed. What VenEconomy cannot understand is how Venezuela's balance of payment is incapable of showing a surplus with the oil barrel at $70.59.
Unfortunately, the figures for the economy are even worse, showing a contraction of 5.8% according to the Central Bank, with a 5% contraction in the oil sector and a 4.9% contraction in the non-oil sector. The net tax on product account fell by 12.4%.
The Central Bank reports that the manufacturing sector fell by 9.9% and that imports shrank by 40%. This combination was reflected, in turn, in drops in transportation (15.9%), commerce (11.6%), and financial services (9.7%).
The picture revealed by these figures is consistent with the drop in overall consumption, which is estimated at 11%.
While the figures of the real country show such ominous results, the government is making intolerant strides towards a Castro-communism that forecasts hunger and desolation.
It is worth noting that, in 2009, when the price of the Venezuelan oil basket averaged $38.60/bbl, the balance of payments posted a deficit of $15.3 billion, $12.3 billion of which were transfers to Fonden.
The reason for this relative improvement could be that, in the first quarter of 2010, revenue from oil exports rose by $6.5 billion and spending on imports fell by $4.4 billion, which is why there is a recovery in the balance on the assets account of $10.9 billion from the $3.7 billion deficit posted in the first quarter of 2009, giving a surplus for the first quarter of 2010 of $7.2 billion.
There was little change on the capital and financial account, which reflects a deficit of $11.5 billion for the first three months of 2010, an increase in the deficit of $800 million compared to 2009.
If transfers to Fonden are excluded, the deficit on the balance of payments would be $1.1 billion in the first quarter, compared to $2.9 billion in 2009; in other words, an improvement of $1.8 billion. This improvement is due to the rise in oil prices, which saved the government's skin, but was not sufficient to provide the surplus it so badly needed. What VenEconomy cannot understand is how Venezuela's balance of payment is incapable of showing a surplus with the oil barrel at $70.59.
Unfortunately, the figures for the economy are even worse, showing a contraction of 5.8% according to the Central Bank, with a 5% contraction in the oil sector and a 4.9% contraction in the non-oil sector. The net tax on product account fell by 12.4%.
The Central Bank reports that the manufacturing sector fell by 9.9% and that imports shrank by 40%. This combination was reflected, in turn, in drops in transportation (15.9%), commerce (11.6%), and financial services (9.7%).
The picture revealed by these figures is consistent with the drop in overall consumption, which is estimated at 11%.
While the figures of the real country show such ominous results, the government is making intolerant strides towards a Castro-communism that forecasts hunger and desolation.
Venezuela to Ban Brokerages From Bolivar Debt Sales
By Corina Rodriguez Pons and Daniel Cancel
May 28 (Bloomberg) -- Venezuela will prohibit brokerages from buying and selling government debt in bolivars as part of a new capital markets law to be presented next week, Ricardo Sanguino, president of the congressional finance committee said.
Brokerages, which were prohibited from buying and selling dollar-denominated securities on May 18 in a crackdown of the unregulated currency market, will still be allowed to trade in commercial debt and company stock, Sanguino said in a phone interview.
“The bill will try to limit brokerages to operations with commercial paper and stock from the private sector and remove them from debt operations issued by the government,” Sanguino said.
President Hugo Chavez is tightening regulation of the financial industry after blaming currency speculators for weakening the bolivar in the unregulated market this year and a surge in consumer prices. Chavez said yesterday that brokerages are unnecessary in a socialist state and “private capitalists” still control the majority of economic power in the country.
Bolivar Plunged
The government moved to dismantle the parallel currency market after the bolivar plunged 26 percent this year to a record low of 8.2 per dollar on May 11. Chavez devalued the bolivar on Jan. 8 and created a multi-tiered exchange system in a bid to slow capital flight and to close a budget deficit.
Chavez blamed the private sector for accelerating inflation that quickened the most in seven years in April, rising 5.2 percent from March. Venezuela, which has the highest inflation rate of 78 countries tracked by Bloomberg, may see 40 percent inflation this year, according to RBS Securities Inc.
The central bank will now oversee the buying and selling of dollar-denominated securities within a trading band to substitute the previous parallel market operated by brokerages.
Venezuelan companies depended on the parallel market when they couldn’t get government approval to buy dollars at the official rates of 2.6 and 4.3 per dollar. Trading has been closed in the market since May 13 and the central bank may inaugurate the new system next week, bank director Armando Leon told Globovision yesterday.
Chavez said late yesterday that his government will increase pressure on private banks operating in the country and that brokerages aren’t necessary in a socialist country.
Chavez said last night that with volatile international markets, Venezuela is stable after government action.
‘Speculative Tricks’
“Venezuela’s markets don’t go up or down, because they’re intervened,” Chavez said. “Why do we need brokerages in socialism? They know all the speculative tricks.”
Banks will be the main intermediaries between clients and the central bank to buy dollars and will continue to trade bolivar-denominated debt, Sanguino said.
The government raided as many as 16 brokerages since May 13, took control of eight firms and jailed 10 brokerage directors, accusing them of illicit currency transactions.
Finance Minister Jorge Giordani said that brokerages were fueling capital flight, possibly laundering money and establishing artificial exchange rates in the parallel market.
The crackdown on the financial sector may cause a greater number of brokerages to close as their investment opportunities are limited, Richard Obuchi, a professor of public policy at the IESA business school and director of ODH Grupo Consultor, said in a phone interview.
“The market for commercial debt and stock is very small in Venezuela after the main companies on the stock market were nationalized,” Obuchi said. “By eliminating their participation in the public debt markets, it’s inevitable that some will disappear.”
May 28 (Bloomberg) -- Venezuela will prohibit brokerages from buying and selling government debt in bolivars as part of a new capital markets law to be presented next week, Ricardo Sanguino, president of the congressional finance committee said.
Brokerages, which were prohibited from buying and selling dollar-denominated securities on May 18 in a crackdown of the unregulated currency market, will still be allowed to trade in commercial debt and company stock, Sanguino said in a phone interview.
“The bill will try to limit brokerages to operations with commercial paper and stock from the private sector and remove them from debt operations issued by the government,” Sanguino said.
President Hugo Chavez is tightening regulation of the financial industry after blaming currency speculators for weakening the bolivar in the unregulated market this year and a surge in consumer prices. Chavez said yesterday that brokerages are unnecessary in a socialist state and “private capitalists” still control the majority of economic power in the country.
Bolivar Plunged
The government moved to dismantle the parallel currency market after the bolivar plunged 26 percent this year to a record low of 8.2 per dollar on May 11. Chavez devalued the bolivar on Jan. 8 and created a multi-tiered exchange system in a bid to slow capital flight and to close a budget deficit.
Chavez blamed the private sector for accelerating inflation that quickened the most in seven years in April, rising 5.2 percent from March. Venezuela, which has the highest inflation rate of 78 countries tracked by Bloomberg, may see 40 percent inflation this year, according to RBS Securities Inc.
The central bank will now oversee the buying and selling of dollar-denominated securities within a trading band to substitute the previous parallel market operated by brokerages.
Venezuelan companies depended on the parallel market when they couldn’t get government approval to buy dollars at the official rates of 2.6 and 4.3 per dollar. Trading has been closed in the market since May 13 and the central bank may inaugurate the new system next week, bank director Armando Leon told Globovision yesterday.
Chavez said late yesterday that his government will increase pressure on private banks operating in the country and that brokerages aren’t necessary in a socialist country.
Chavez said last night that with volatile international markets, Venezuela is stable after government action.
‘Speculative Tricks’
“Venezuela’s markets don’t go up or down, because they’re intervened,” Chavez said. “Why do we need brokerages in socialism? They know all the speculative tricks.”
Banks will be the main intermediaries between clients and the central bank to buy dollars and will continue to trade bolivar-denominated debt, Sanguino said.
The government raided as many as 16 brokerages since May 13, took control of eight firms and jailed 10 brokerage directors, accusing them of illicit currency transactions.
Finance Minister Jorge Giordani said that brokerages were fueling capital flight, possibly laundering money and establishing artificial exchange rates in the parallel market.
The crackdown on the financial sector may cause a greater number of brokerages to close as their investment opportunities are limited, Richard Obuchi, a professor of public policy at the IESA business school and director of ODH Grupo Consultor, said in a phone interview.
“The market for commercial debt and stock is very small in Venezuela after the main companies on the stock market were nationalized,” Obuchi said. “By eliminating their participation in the public debt markets, it’s inevitable that some will disappear.”
Venezuela Has Most Distressed Economy on Earth
Published by By JACKSON DIEHL, Washington Post
Hugo Chavez has been keeping a relatively low profile of late -- there have been no grand world tours, no fiery speeches at the United Nations. The Obama administration, which once promised to "engage" the Venezuelan caudillo, is instead quietly shunning him.
There's a simple reason for this: The implosion of Chavez's self-styled "Bolivarian socialism" is accelerating.
Figures reported Tuesday by Venezuela's Chavez-controlled central bank portrayed an economy that is perhaps unique in the world in the degree of its distress. Gross national product fell 5.8 percent in the first quarter, while inflation remained at 30 percent. Private investment plummeted 27.9 percent as capital continued to flee the country.
Private economists suspect the economic contraction is even worse than what the official figures concede. But let's assume they are correct. Inflation in Caracas is triple the next-highest rate in Latin America (Argentina) and is more than double that of the next-worst economy anywhere (Pakistan) among the 56 tracked by The Economist's website. Even Zimbabwe, which used to be considered the world's economic basket case, looks good compared with Venezuela: It is expecting 6 percent growth this year, while inflation is under 5 percent.
In short, economic recovery is taking hold across the world -- except in Chavez's Venezuela.
Chavez's desperate measures to stop the free-fall are only making it worse. Recently, he abruptly moved to abolish the private currency market, which supplies the dollars for 30 to 40 percent of Venezuela's imports. The dollar exchange rate was soaring, so the government arrested a bunch of currency traders and announced that sales of dollars henceforth would be controlled exclusively by the central bank. The result will almost certainly be another drastic decrease in imports, the worsening of already widespread shortages in food and basic consumer goods, and the creation of a new black market in dollars.
The implosion of Chavez's potted socialism does matter to the rest of Latin America. It's not just that the Obama administration no longer needs to bother with the strongman, because he is doing an excellent job of self-destruction. It's that Venezuela's clients and imitators -- especially in Bolivia and Nicaragua -- stand to lose both subsidies and ideological sustainment from Caracas. Chavez's decade-long attempt to create a bloc of like-minded countries is in tatters.
With an election for the National Assembly coming this fall, Chavez has resorted to the Iranian tactic of disqualifying prominent opponents from the ballot. He will try to steal the election; if that doesn't work, he will try to strip the legislature of power.
No matter: Chavez appears powerless to stop the unraveling of Venezuela's economy -- and with it, his "revolution."
Hugo Chavez has been keeping a relatively low profile of late -- there have been no grand world tours, no fiery speeches at the United Nations. The Obama administration, which once promised to "engage" the Venezuelan caudillo, is instead quietly shunning him.
There's a simple reason for this: The implosion of Chavez's self-styled "Bolivarian socialism" is accelerating.
Figures reported Tuesday by Venezuela's Chavez-controlled central bank portrayed an economy that is perhaps unique in the world in the degree of its distress. Gross national product fell 5.8 percent in the first quarter, while inflation remained at 30 percent. Private investment plummeted 27.9 percent as capital continued to flee the country.
Private economists suspect the economic contraction is even worse than what the official figures concede. But let's assume they are correct. Inflation in Caracas is triple the next-highest rate in Latin America (Argentina) and is more than double that of the next-worst economy anywhere (Pakistan) among the 56 tracked by The Economist's website. Even Zimbabwe, which used to be considered the world's economic basket case, looks good compared with Venezuela: It is expecting 6 percent growth this year, while inflation is under 5 percent.
In short, economic recovery is taking hold across the world -- except in Chavez's Venezuela.
Chavez's desperate measures to stop the free-fall are only making it worse. Recently, he abruptly moved to abolish the private currency market, which supplies the dollars for 30 to 40 percent of Venezuela's imports. The dollar exchange rate was soaring, so the government arrested a bunch of currency traders and announced that sales of dollars henceforth would be controlled exclusively by the central bank. The result will almost certainly be another drastic decrease in imports, the worsening of already widespread shortages in food and basic consumer goods, and the creation of a new black market in dollars.
The implosion of Chavez's potted socialism does matter to the rest of Latin America. It's not just that the Obama administration no longer needs to bother with the strongman, because he is doing an excellent job of self-destruction. It's that Venezuela's clients and imitators -- especially in Bolivia and Nicaragua -- stand to lose both subsidies and ideological sustainment from Caracas. Chavez's decade-long attempt to create a bloc of like-minded countries is in tatters.
With an election for the National Assembly coming this fall, Chavez has resorted to the Iranian tactic of disqualifying prominent opponents from the ballot. He will try to steal the election; if that doesn't work, he will try to strip the legislature of power.
No matter: Chavez appears powerless to stop the unraveling of Venezuela's economy -- and with it, his "revolution."
Thursday, May 27, 2010
In Our Opinion...
"The trouble with lying and deceiving is that their efficiency depends entirely upon a clear notion of the truth that the liar and deceiver wishes to hide."
Hannah Arendt
We understand that Mr. Chavez can not be pleased with the GDP data released by his Central Bank showing an economic contraction of -5.8% for the quarter. He is deceiving all of his constituents by blaming the poor result on “the capitalistic calculation method” the index uses.
Lets examine the facts: Mr. Chavez ordered 20 percent cuts in electricity usage, and industrial production plunged -9.9 percent in the quarter. His incendiary speech against the private sector as well as his nationalization decrees are in great part responsible for the commerce sector and financial sector contractions of -11.6 percent and -9.7 percent respectably. More troublesome, Venezuela’s oil industry contracted -5 percent, the non-oil sector fell -4.9 percent in the quarter and private consumption dropped -5.9 percent.
In our opinion, a new “Socialist-friendly gauge”, could be obtained my multiplying the final result from the index by negative one which will immediately take the Venezuelan economy from being the worst performing economy in Latin America to the best performing one.
The commandant should know that “Liars begin by imposing upon others, but end deceiving themselves”
Hannah Arendt
We understand that Mr. Chavez can not be pleased with the GDP data released by his Central Bank showing an economic contraction of -5.8% for the quarter. He is deceiving all of his constituents by blaming the poor result on “the capitalistic calculation method” the index uses.
Lets examine the facts: Mr. Chavez ordered 20 percent cuts in electricity usage, and industrial production plunged -9.9 percent in the quarter. His incendiary speech against the private sector as well as his nationalization decrees are in great part responsible for the commerce sector and financial sector contractions of -11.6 percent and -9.7 percent respectably. More troublesome, Venezuela’s oil industry contracted -5 percent, the non-oil sector fell -4.9 percent in the quarter and private consumption dropped -5.9 percent.
In our opinion, a new “Socialist-friendly gauge”, could be obtained my multiplying the final result from the index by negative one which will immediately take the Venezuelan economy from being the worst performing economy in Latin America to the best performing one.
The commandant should know that “Liars begin by imposing upon others, but end deceiving themselves”
Chávez Discounts Accuracy of GDP
By DAN MOLINSKI and DAVID LUHNOW, published by the Wall Street Journal
President Hugo Chávez wasn't pleased with data released this week that showed the Venezuelan economy tumbling into a recession. So the populist leader came up with a solution: Forget traditional measures of economic growth, and find a new, "Socialist-friendly" gauge.
"We simply can't permit that they continue calculating GDP with the old capitalist method," President Chávez said in a televised speech before members of his Socialist party on Wednesday night. "It's harmful."
Mr. Chávez's comments came shortly after data showed Venezuela's gross domestic product -- a broad measure of annual economic output -- fell 4.5% in the third quarter from the year-earlier period. It was the second consecutive quarterly decline, and observers have questioned how Mr. Chávez will be able to generate growth without high oil prices.
The Venezuelan president isn't alone in suggesting traditional economic-output measures are too rigid. French President Nicolas Sarkozy recently said his country, in addition to measuring GDP, would start gauging prosperity by including factors such as vacation time, health care and family relationships.
[Dismal Quarter]
An economic commission headed by Nobel Prize winner Joseph Stiglitz supports such moves, saying every country should design its own basket of indicators that would include factors such as unemployment, security, and income inequality.
Both France and Venezuela argue their citizens are better off than economic data suggest. French workers have generous social-security benefits and vacations. Mr. Chávez said free health care in Venezuela isn't counted in economic output because money doesn't change hands.
The most famous example of this line of reasoning is the tiny Himalayan kingdom of Bhutan, which has tried to measure gross national happiness instead of GDP.
Mr. Chávez has criticized GDP in the past, but had been quieter on the subject in the past few years, when high oil prices fueled a spending binge by his government and Venezuelan consumers that led to average annual economic growth of about 10% from 2004 to 2008 -- the highest in Latin America, according to International Monetary Fund data.
Now that oil prices are less high, economists say Mr. Chávez's stepped-up government spending and nationalizations of various industries are taking their toll, causing a combination of high inflation from the spending and weak growth from a lack of investment by local businesses. Economists forecast continued weak growth for Venezuela next year, worrisome for a leader who has relied on spending to stay in power for more than a decade.
Some analysts worry Mr. Chávez might follow in the footsteps of leaders in Argentina, where the government changed the way it measured inflation in a move that was widely seen as an attempt to camouflage rising prices and that has added to investor distrust of Buenos Aires.
"It's hard to say if [Mr. Chávez] is serious or not," said Robert Bottome of publisher VenEconomía. "They've already tampered with the way they compute unemployment and how they determine how much oil [state oil company] PdVSA exports. So why not tamper with the economy figures as well."
Petróleos de Venezuela SA, known as PdVSA, routinely reports oil-production and export figures that are higher than independent estimates.
President Hugo Chávez wasn't pleased with data released this week that showed the Venezuelan economy tumbling into a recession. So the populist leader came up with a solution: Forget traditional measures of economic growth, and find a new, "Socialist-friendly" gauge.
"We simply can't permit that they continue calculating GDP with the old capitalist method," President Chávez said in a televised speech before members of his Socialist party on Wednesday night. "It's harmful."
Mr. Chávez's comments came shortly after data showed Venezuela's gross domestic product -- a broad measure of annual economic output -- fell 4.5% in the third quarter from the year-earlier period. It was the second consecutive quarterly decline, and observers have questioned how Mr. Chávez will be able to generate growth without high oil prices.
The Venezuelan president isn't alone in suggesting traditional economic-output measures are too rigid. French President Nicolas Sarkozy recently said his country, in addition to measuring GDP, would start gauging prosperity by including factors such as vacation time, health care and family relationships.
[Dismal Quarter]
An economic commission headed by Nobel Prize winner Joseph Stiglitz supports such moves, saying every country should design its own basket of indicators that would include factors such as unemployment, security, and income inequality.
Both France and Venezuela argue their citizens are better off than economic data suggest. French workers have generous social-security benefits and vacations. Mr. Chávez said free health care in Venezuela isn't counted in economic output because money doesn't change hands.
The most famous example of this line of reasoning is the tiny Himalayan kingdom of Bhutan, which has tried to measure gross national happiness instead of GDP.
Mr. Chávez has criticized GDP in the past, but had been quieter on the subject in the past few years, when high oil prices fueled a spending binge by his government and Venezuelan consumers that led to average annual economic growth of about 10% from 2004 to 2008 -- the highest in Latin America, according to International Monetary Fund data.
Now that oil prices are less high, economists say Mr. Chávez's stepped-up government spending and nationalizations of various industries are taking their toll, causing a combination of high inflation from the spending and weak growth from a lack of investment by local businesses. Economists forecast continued weak growth for Venezuela next year, worrisome for a leader who has relied on spending to stay in power for more than a decade.
Some analysts worry Mr. Chávez might follow in the footsteps of leaders in Argentina, where the government changed the way it measured inflation in a move that was widely seen as an attempt to camouflage rising prices and that has added to investor distrust of Buenos Aires.
"It's hard to say if [Mr. Chávez] is serious or not," said Robert Bottome of publisher VenEconomía. "They've already tampered with the way they compute unemployment and how they determine how much oil [state oil company] PdVSA exports. So why not tamper with the economy figures as well."
Petróleos de Venezuela SA, known as PdVSA, routinely reports oil-production and export figures that are higher than independent estimates.
Venezuelan Recession Deepened After Electricity Cuts
By Daniel Cancel and Corina Rodriguez Pons
May 25 (Bloomberg) -- Venezuela’s economy fell deeper into recession in the first three months of the year as electricity rationing decimated manufacturing and investment dried up because of government takeovers.
Gross domestic product shrank 5.8 percent in the first quarter from a year earlier, the central bank said today in a statement. Economists forecast a 7 percent decline, according to the median estimate of 11 analysts surveyed by Bloomberg.
“This is the worst performing economy in Latin America,” Alejandro Grisanti, an economist at Barclays Plc in New York, said in a phone interview before the report. “The government expropriations are weighing on production and it’s impossible to have adequate investment in that kind of climate.”
Venezuela, South America’s biggest oil producer, is entering a second year of recession as President Hugo Chavez’s nationalization drive saps investment and his price and currency controls squeeze industrial output. The International Monetary Fund forecasts that Venezuela will be the only country in South America to see a decline in GDP this year.
“The results show Venezuela is experiencing stagflation due to much reduced economic activity,” Boris Segura, an economist at RBS Securities Inc., said in a telephone interview.
Industrial production plunged 9.9 percent in the first quarter after Chavez ordered 20 percent cuts in electricity usage because of a severe drought that threatened to collapse the power grid. Inflation has accelerated to a seven-year high, with prices rising 31.9 percent in April from a year ago.
Financial Industry
In the first quarter, transport fell 15.9 percent, commerce shrank 11.6 percent and the financial industry contracted 9.7 percent, the central bank said. The decline stems from reduced imports, electricity rationing and the fall in investment.
Venezuela’s oil industry contracted 5 percent, the non-oil sector fell 4.9 percent in the quarter and private consumption dropped 5.9 percent, the bank said in the report.
Chavez, who devalued the bolivar Jan. 8, said April 26 that the economy may shrink for a second straight year as it sheds “capitalist” consumption habits. GDP will probably shrink 2.4 percent in 2010, according to the median forecast of nine banks including Bank of America, Merrill Lynch and Citigroup Inc. The economy contracted 3.3 percent during 2009.
State oil company Petroleos de Venezuela SA slashed output last year by more than 300,000 barrels a day in line with OPEC production quotas. The company says it produces 3 million barrels a day while Bloomberg estimates show that it produced an average of 2.18 million barrels a day in April. Oil exports fell 5.9 percent in the quarter, the bank said.
The mining industry plunged 4.8 percent in the first quarter.
Foreign Investment
In December, Venezuela halted some production lines at state-run aluminum companies Alcasa and Venalum as well as two units at Siderurgica del Orinoco’s steel mill known as Sidor, to save electricity.
The government posted a current account surplus of $7.2 billion in the quarter while the capital account had a $11.5 billion deficit.
Venezuela had a $3 billion direct investment outflow in 2009 as companies pulled capital out of the country following nationalizations in the steel, cement, oil and food industries.
Chavez reacted to the economic recession and fall in oil revenue by devaluing the currency and creating a multi-tiered exchange system in a bid to stimulate non-oil exports and to double the amount of bolivars received for every dollar from oil sales.
Venezuela may be facing a cash crunch as oil output wanes, Morgan Stanley said in March. Venezuela’s economic recovery may also be hindered because of the recent fall in commodity prices spurred by concern about European government debt. Oil, which accounts for 94 percent of government export revenue, tumbled to a seven-month low on May 20.
Venezuelan imports and industrial output may be further hampered after the government dismantled the unregulated currency market on May 18 that companies used as an escape valve to obtain dollars through bond swaps at brokerages.
The central bank will now oversee currency transactions through the buying and selling of dollar-denominated securities within a price band. The bank, which said the system would take at least two weeks to get started, may not be able to supply enough dollars to meet demand.
Venezuela imported about 30 percent of its goods last year through the unregulated currency market, or about $12 billion worth, according to Barclays Plc.
“These poor results are basically due to the electricity crisis but also the lack of dollars injected into the economy by the government and central bank,” Segura said. “Importers have been strangled and that brought negative effects for investment.”
May 25 (Bloomberg) -- Venezuela’s economy fell deeper into recession in the first three months of the year as electricity rationing decimated manufacturing and investment dried up because of government takeovers.
Gross domestic product shrank 5.8 percent in the first quarter from a year earlier, the central bank said today in a statement. Economists forecast a 7 percent decline, according to the median estimate of 11 analysts surveyed by Bloomberg.
“This is the worst performing economy in Latin America,” Alejandro Grisanti, an economist at Barclays Plc in New York, said in a phone interview before the report. “The government expropriations are weighing on production and it’s impossible to have adequate investment in that kind of climate.”
Venezuela, South America’s biggest oil producer, is entering a second year of recession as President Hugo Chavez’s nationalization drive saps investment and his price and currency controls squeeze industrial output. The International Monetary Fund forecasts that Venezuela will be the only country in South America to see a decline in GDP this year.
“The results show Venezuela is experiencing stagflation due to much reduced economic activity,” Boris Segura, an economist at RBS Securities Inc., said in a telephone interview.
Industrial production plunged 9.9 percent in the first quarter after Chavez ordered 20 percent cuts in electricity usage because of a severe drought that threatened to collapse the power grid. Inflation has accelerated to a seven-year high, with prices rising 31.9 percent in April from a year ago.
Financial Industry
In the first quarter, transport fell 15.9 percent, commerce shrank 11.6 percent and the financial industry contracted 9.7 percent, the central bank said. The decline stems from reduced imports, electricity rationing and the fall in investment.
Venezuela’s oil industry contracted 5 percent, the non-oil sector fell 4.9 percent in the quarter and private consumption dropped 5.9 percent, the bank said in the report.
Chavez, who devalued the bolivar Jan. 8, said April 26 that the economy may shrink for a second straight year as it sheds “capitalist” consumption habits. GDP will probably shrink 2.4 percent in 2010, according to the median forecast of nine banks including Bank of America, Merrill Lynch and Citigroup Inc. The economy contracted 3.3 percent during 2009.
State oil company Petroleos de Venezuela SA slashed output last year by more than 300,000 barrels a day in line with OPEC production quotas. The company says it produces 3 million barrels a day while Bloomberg estimates show that it produced an average of 2.18 million barrels a day in April. Oil exports fell 5.9 percent in the quarter, the bank said.
The mining industry plunged 4.8 percent in the first quarter.
Foreign Investment
In December, Venezuela halted some production lines at state-run aluminum companies Alcasa and Venalum as well as two units at Siderurgica del Orinoco’s steel mill known as Sidor, to save electricity.
The government posted a current account surplus of $7.2 billion in the quarter while the capital account had a $11.5 billion deficit.
Venezuela had a $3 billion direct investment outflow in 2009 as companies pulled capital out of the country following nationalizations in the steel, cement, oil and food industries.
Chavez reacted to the economic recession and fall in oil revenue by devaluing the currency and creating a multi-tiered exchange system in a bid to stimulate non-oil exports and to double the amount of bolivars received for every dollar from oil sales.
Venezuela may be facing a cash crunch as oil output wanes, Morgan Stanley said in March. Venezuela’s economic recovery may also be hindered because of the recent fall in commodity prices spurred by concern about European government debt. Oil, which accounts for 94 percent of government export revenue, tumbled to a seven-month low on May 20.
Venezuelan imports and industrial output may be further hampered after the government dismantled the unregulated currency market on May 18 that companies used as an escape valve to obtain dollars through bond swaps at brokerages.
The central bank will now oversee currency transactions through the buying and selling of dollar-denominated securities within a price band. The bank, which said the system would take at least two weeks to get started, may not be able to supply enough dollars to meet demand.
Venezuela imported about 30 percent of its goods last year through the unregulated currency market, or about $12 billion worth, according to Barclays Plc.
“These poor results are basically due to the electricity crisis but also the lack of dollars injected into the economy by the government and central bank,” Segura said. “Importers have been strangled and that brought negative effects for investment.”
Good and bad in Central Bank of Venezuela's Q1 figures
VHeadline News Editor Patrick J. O'Donoghue reports:
Venezuela's GDP Q1 is down 5.8% compared to the same period last year and among the reasons for the drop feature: restriction of access to foreign currency for imports, less demand and investments and the effect of climate change that forced the government to adopt electricity-rationing measures.
Gross public added value fell 2.8% and private activity 6% compared to the same period last year.
The fall registered in oil activities is said to be -5% and non-oil -4.9%. In the latter, value added growth was observed in community, social and personal services (2.8%) and communications (9.7%) but transport took a dive (-15.9%), trade (-11.6%), construction (-7.8%) and mining (-4.8%) just to mention a few relevant sectors.
In manufacturing there was growth in chemical products (3.3%), clothing (4.1%), electrical appliances and machinery (6.9%), textiles (10.4%) non metal minerals (24.6%). The sector was offset by drops in furniture (-46.8%). common metals (-39.7%). plastic and rubber (-25.9%) finished metals (-23.6%) among others.
While there was a drop in food industry (-4.5%), production was up in the following: meat production and processing (4.3%), wheat grinding (13.7%).
It should be noted that health and education services showed 1.6 and 2.5% growth respectively, despite a small -0.2% fall in productive services.
The value offer contracted 16.7% because of a combined 39.7% drop in imports and of course, the GDP fall.
The Central Bank of Venezuela (BCV) has announced that it will continue to pursue policies that will bring inflation down and under control, participate in currency markets and stimulate credits to productive sectors as well as promoting savings.
Venezuela's GDP Q1 is down 5.8% compared to the same period last year and among the reasons for the drop feature: restriction of access to foreign currency for imports, less demand and investments and the effect of climate change that forced the government to adopt electricity-rationing measures.
Gross public added value fell 2.8% and private activity 6% compared to the same period last year.
The fall registered in oil activities is said to be -5% and non-oil -4.9%. In the latter, value added growth was observed in community, social and personal services (2.8%) and communications (9.7%) but transport took a dive (-15.9%), trade (-11.6%), construction (-7.8%) and mining (-4.8%) just to mention a few relevant sectors.
In manufacturing there was growth in chemical products (3.3%), clothing (4.1%), electrical appliances and machinery (6.9%), textiles (10.4%) non metal minerals (24.6%). The sector was offset by drops in furniture (-46.8%). common metals (-39.7%). plastic and rubber (-25.9%) finished metals (-23.6%) among others.
While there was a drop in food industry (-4.5%), production was up in the following: meat production and processing (4.3%), wheat grinding (13.7%).
It should be noted that health and education services showed 1.6 and 2.5% growth respectively, despite a small -0.2% fall in productive services.
The value offer contracted 16.7% because of a combined 39.7% drop in imports and of course, the GDP fall.
The Central Bank of Venezuela (BCV) has announced that it will continue to pursue policies that will bring inflation down and under control, participate in currency markets and stimulate credits to productive sectors as well as promoting savings.
Wednesday, May 26, 2010
In Our Opinion...
“Peace is not the absence of war but the presence of justice.” Harrison Ford
Using Harrison Ford’s definition of peace one must conclude that Venezuelans are facing a prolonged period of war, Chavez has become an absolute tyrant solely responsible to ferret out any opposition to his regime.
In our opinion, history will define Chavez as the President who committed treason and whose rancor, bitterness, and resentment ended with the country long-term economic stability.
Even with the biggest oil boom ever experienced, he has managed to put Venezuela on the verge of financial chaos; and has been noted for his unfair dealing with the private sector.
His complete control of all the Venezuelan Institutions enables him to run the country like his own personal “Estate”.
He uses the State television to host a show “Hello President” and cabinet officials are required to attend the program: There, he may question them about anything and order them to do whatever he wants.
Just recently, On May 16, he ordered the attorney general to open judicial procedures against all the Casas de Bolsa that operate in Venezuela and to jail the people responsible of operating them: mainly because he claims that these institutions are responsible for attempting an economic coup against his socialist revolution, but more importantly, because they are part of the “Savage Venezuelan Bourgeoisie”
In the mean time in 11 years of his mandate, none of the officials accused of corruption have been charged with anything as the commandant revolutionary veil protects them.
Using Harrison Ford’s definition of peace one must conclude that Venezuelans are facing a prolonged period of war, Chavez has become an absolute tyrant solely responsible to ferret out any opposition to his regime.
In our opinion, history will define Chavez as the President who committed treason and whose rancor, bitterness, and resentment ended with the country long-term economic stability.
Even with the biggest oil boom ever experienced, he has managed to put Venezuela on the verge of financial chaos; and has been noted for his unfair dealing with the private sector.
His complete control of all the Venezuelan Institutions enables him to run the country like his own personal “Estate”.
He uses the State television to host a show “Hello President” and cabinet officials are required to attend the program: There, he may question them about anything and order them to do whatever he wants.
Just recently, On May 16, he ordered the attorney general to open judicial procedures against all the Casas de Bolsa that operate in Venezuela and to jail the people responsible of operating them: mainly because he claims that these institutions are responsible for attempting an economic coup against his socialist revolution, but more importantly, because they are part of the “Savage Venezuelan Bourgeoisie”
In the mean time in 11 years of his mandate, none of the officials accused of corruption have been charged with anything as the commandant revolutionary veil protects them.
Financiers for the Revolution
Published: Wednesday, May 26, 2010 By VenEconomy
VenEconomy: This weekend, Venezuelans were witnesses to a depressing Alo Presidente broadcast from the site of the Puerto Cabello-La Encrucijada railway, which has ground to a halt owing to improvisation and bad administration that have resulted in delays in payments to contractors.
Faced with the paralysis of these and other projects, the best idea the President could come up with was to peremptorily urge the foreign contractors to put their hands in their pockets in order to finance completion of the work. He warned that he would not make any "advance payments" and that the company that did not finance itself would not be welcome. He claimed that there were no cash flow problems, but that the State could not cope with everything.
Today, Venezuela is paying the price for the lamentable deterioration of the oil industry, the dismantling of the private domestic productive sector, and the ruining of the basic industries, which has undoubtedly culminated in the cash crisis that is denied by the President's statements but confirmed by his actions.
Another situation that reveals the economic straights in which the government finds itself is the compulsive seizure of food products, which end up in the government's food distribution network: Mercal, PDVAL, and the recently expropriated Exito hypermarkets (today Supermercados Bicenternario). Last Thursday, 120 tonnes of food products were confiscated from Empresas Polar's warehouses in Barquisimeto's Industrial Zone III on the grounds of alleged inconsistencies in the company's inventory records.
The confiscation was carried out by the National Guard under the command of General Luis Bohorquez Soto, one of the military officers who are registered members of the PSUV according to accusations made some days ago by Rocio San Miguel. The shipment was immediately sent to the government's food distribution network, leaving dozens of local retailers without merchandise.
On Saturday, two trucks of supplies belonging to Polar were also seized when they arrived on Margarita Island. Then, to top it all, on Sunday, the President ordered the Public Prosecutor's Office to open an investigation of the company and, if necessary, to take it over if it "continues hoarding."
Also last week, Friosa was taken over by Indepabis for a period of 90 days. This is a wholesale company in Puerto Ordaz that supplies more than 5,000 small and medium merchants in Bolivar state.
Communist ideology aside, the government's cash crisis seems to be what is behind the recent rash of confiscations, company takeovers, and threats to contractors. It would seem that the government lacks the funds for continuing to lavishly import food products, never mind completing projects.
There are grounds for thinking that this is a desperate effort to find scapegoats to cover up the government's innumerable mistakes.
All this type of behavior will do is to worsen the situation for everyone, as it will eventually wipe out the few companies that are still producing.
VenEconomy: This weekend, Venezuelans were witnesses to a depressing Alo Presidente broadcast from the site of the Puerto Cabello-La Encrucijada railway, which has ground to a halt owing to improvisation and bad administration that have resulted in delays in payments to contractors.
Faced with the paralysis of these and other projects, the best idea the President could come up with was to peremptorily urge the foreign contractors to put their hands in their pockets in order to finance completion of the work. He warned that he would not make any "advance payments" and that the company that did not finance itself would not be welcome. He claimed that there were no cash flow problems, but that the State could not cope with everything.
Today, Venezuela is paying the price for the lamentable deterioration of the oil industry, the dismantling of the private domestic productive sector, and the ruining of the basic industries, which has undoubtedly culminated in the cash crisis that is denied by the President's statements but confirmed by his actions.
Another situation that reveals the economic straights in which the government finds itself is the compulsive seizure of food products, which end up in the government's food distribution network: Mercal, PDVAL, and the recently expropriated Exito hypermarkets (today Supermercados Bicenternario). Last Thursday, 120 tonnes of food products were confiscated from Empresas Polar's warehouses in Barquisimeto's Industrial Zone III on the grounds of alleged inconsistencies in the company's inventory records.
The confiscation was carried out by the National Guard under the command of General Luis Bohorquez Soto, one of the military officers who are registered members of the PSUV according to accusations made some days ago by Rocio San Miguel. The shipment was immediately sent to the government's food distribution network, leaving dozens of local retailers without merchandise.
On Saturday, two trucks of supplies belonging to Polar were also seized when they arrived on Margarita Island. Then, to top it all, on Sunday, the President ordered the Public Prosecutor's Office to open an investigation of the company and, if necessary, to take it over if it "continues hoarding."
Also last week, Friosa was taken over by Indepabis for a period of 90 days. This is a wholesale company in Puerto Ordaz that supplies more than 5,000 small and medium merchants in Bolivar state.
Communist ideology aside, the government's cash crisis seems to be what is behind the recent rash of confiscations, company takeovers, and threats to contractors. It would seem that the government lacks the funds for continuing to lavishly import food products, never mind completing projects.
There are grounds for thinking that this is a desperate effort to find scapegoats to cover up the government's innumerable mistakes.
All this type of behavior will do is to worsen the situation for everyone, as it will eventually wipe out the few companies that are still producing.
Tuesday, May 25, 2010
In Our Opinion...
"A lie gets halfway around the world before the truth has a chance to get its pants on"....Sir Winston Churchill
In our opinion, the strategy is clear, tell a lie, and keep repeating it until you believe it is the truth: So first was the Commandant who claimed That the Casas de Bolsa in Venezuela were plotting against his government in a “Financial Coup” by pushing down the value of his beloved Bolivar Fuerte against the US dollar, with the sole purpose of creating shortages and inflation; then was the turn of the Attorney General which was followed by the Minister of Justice and finally to close the act, it was the turn of the one in charge of regulating the capital markets, the president of the “Comision Nacional de Valores.”
The worst blind is the one who refuses to see. When the exchange control was implemented, the Chavez administration allowed a loophole permitting the private sector to access hard currency through a swap exchange mechanism, or “permuta”. The reasoning behind the decision was simple; those transactions were private transactions that did not affect the international reserves of the nation.
The problems with controls are that they might be effective when applied for a short period of time, but have proven to be highly ineffective otherwise.
As is the case with every market, the price of the permuta dollar depended on the laws of the supply and demand. The Casas de Bolsa became the market makers of the permuta market with the responsibility of providing liquidity to it. The pivot point was the 2007 Constitutional referendum, which became Chavez first and only political lost.
At that point Chavez plotted the real coup against the Venezuelan democracy, as he decided to use the extraordinary powers given to him by the Venezuelan National Assembly through an “Enabling Law” which allowed him to pass laws on specific issues as decrees: He passed a law changing the country administrative structure and a law ending the autonomy of the central bank. Furthermore, his rhetoric changed dramatically shifting from a Bolivarian Nationalist to a Marxist Socialist. The pace of Nationalizations accelerated and the war against the private sector became his top political agenda.
He nationalized the oil production sites; metal companies; mining companies; transport companies; service companies. In addition the government seized the coffee, cement and electricity and communications sectors and large parts of the banking sector. By nationalizing scores of companies and entire industries the Chavez administration dried up the supply of dollars of the permuta market and created a large imbalance that could no longer be addressed by the Casa de Bolsas.
His economic team recognized the one in a lifetime opportunity, to create wealth for themselves. In exchange for very lucrative commissions, the Ministry of Finance started to sell to a selected group of bankers, structured notes denominated in dollars but payable in Bolivars at the official rate of 2.15 per US dollar. The notes were sold with large premiums, which allowed the Ministry of Finance to record large profits in Bolivars, and provided the selected financial institutions with large foreign exchange profits.
In addition, in 2009 alone, the Chavez Administration issued USD14.84 Billion in Bolivar-Dollar issues pressured by the declining oil prices, difficulties cutting the budget and a parallel foreign exchange market that demanded a higher supply of US dollars. According to the Central Bank of Venezuela the external debt jumped 81 percent in the last 3 years and amounts to 48.3 Billion US dollars.
In a bid to jump-start the recession-hit economy, on January 9th, 2010, the Chavez Administration devalued the currency for the first time since 2005, a decision that the market anticipated for a long time. The new two-tiered exchange system offers the Bsf. 2.6 per dollar for goods deemed essential including food, medicine and industrial machinery. Other products, including cars and telephones, are imported at the higher Bsf. 4.3 per dollar.
The Financial Coup was not created by the Casas de Bolsa as the Chavez administration wants us to believe, it came with Chavez’s yearly orders to transfer US$ from the International Reserves managed by the Central Bank to the Development Fund “Fonden.” The latest one in January of this year, a whooping US$7 Billion, which proved to be highly irresponsible because monetary liquidity was at Bsf. 236 Billion while the International Reserves were left at US$28 Billion which created an equilibrium price of Bsf. 8.42 per US$ of reserve.
In our opinion, the strategy is clear, tell a lie, and keep repeating it until you believe it is the truth: So first was the Commandant who claimed That the Casas de Bolsa in Venezuela were plotting against his government in a “Financial Coup” by pushing down the value of his beloved Bolivar Fuerte against the US dollar, with the sole purpose of creating shortages and inflation; then was the turn of the Attorney General which was followed by the Minister of Justice and finally to close the act, it was the turn of the one in charge of regulating the capital markets, the president of the “Comision Nacional de Valores.”
The worst blind is the one who refuses to see. When the exchange control was implemented, the Chavez administration allowed a loophole permitting the private sector to access hard currency through a swap exchange mechanism, or “permuta”. The reasoning behind the decision was simple; those transactions were private transactions that did not affect the international reserves of the nation.
The problems with controls are that they might be effective when applied for a short period of time, but have proven to be highly ineffective otherwise.
As is the case with every market, the price of the permuta dollar depended on the laws of the supply and demand. The Casas de Bolsa became the market makers of the permuta market with the responsibility of providing liquidity to it. The pivot point was the 2007 Constitutional referendum, which became Chavez first and only political lost.
At that point Chavez plotted the real coup against the Venezuelan democracy, as he decided to use the extraordinary powers given to him by the Venezuelan National Assembly through an “Enabling Law” which allowed him to pass laws on specific issues as decrees: He passed a law changing the country administrative structure and a law ending the autonomy of the central bank. Furthermore, his rhetoric changed dramatically shifting from a Bolivarian Nationalist to a Marxist Socialist. The pace of Nationalizations accelerated and the war against the private sector became his top political agenda.
He nationalized the oil production sites; metal companies; mining companies; transport companies; service companies. In addition the government seized the coffee, cement and electricity and communications sectors and large parts of the banking sector. By nationalizing scores of companies and entire industries the Chavez administration dried up the supply of dollars of the permuta market and created a large imbalance that could no longer be addressed by the Casa de Bolsas.
His economic team recognized the one in a lifetime opportunity, to create wealth for themselves. In exchange for very lucrative commissions, the Ministry of Finance started to sell to a selected group of bankers, structured notes denominated in dollars but payable in Bolivars at the official rate of 2.15 per US dollar. The notes were sold with large premiums, which allowed the Ministry of Finance to record large profits in Bolivars, and provided the selected financial institutions with large foreign exchange profits.
In addition, in 2009 alone, the Chavez Administration issued USD14.84 Billion in Bolivar-Dollar issues pressured by the declining oil prices, difficulties cutting the budget and a parallel foreign exchange market that demanded a higher supply of US dollars. According to the Central Bank of Venezuela the external debt jumped 81 percent in the last 3 years and amounts to 48.3 Billion US dollars.
In a bid to jump-start the recession-hit economy, on January 9th, 2010, the Chavez Administration devalued the currency for the first time since 2005, a decision that the market anticipated for a long time. The new two-tiered exchange system offers the Bsf. 2.6 per dollar for goods deemed essential including food, medicine and industrial machinery. Other products, including cars and telephones, are imported at the higher Bsf. 4.3 per dollar.
The Financial Coup was not created by the Casas de Bolsa as the Chavez administration wants us to believe, it came with Chavez’s yearly orders to transfer US$ from the International Reserves managed by the Central Bank to the Development Fund “Fonden.” The latest one in January of this year, a whooping US$7 Billion, which proved to be highly irresponsible because monetary liquidity was at Bsf. 236 Billion while the International Reserves were left at US$28 Billion which created an equilibrium price of Bsf. 8.42 per US$ of reserve.
Monday, May 24, 2010
RBS Cuts Venezuela 2010 GDP Forecast to -4.5% on Currency Rules
By Corina Rodriguez Pons and Jose Orozco
May 24 (Bloomberg) -- Royal Bank of Scotland Plc said Venezuela’s economy will shrink more than it previously expected this year as the government’s takeover of currency trading makes it harder to obtain imports.
RBS now expects Venezuela’s economy to shrink 4.5 percent in 2010 rather than 3 percent, RBS economist Boris Segura wrote in a report. Consumer prices may rise more than the bank expected at an annual rate of 35 percent, up from a previous forecast of 30 percent, the report said.
Venezuela suspended trading of dollar-denominated assets in the local market on May 18. Venezuelans use the parallel market to obtain dollars through the swap of bolivar and dollar bonds through brokerages.
The free-floating currency rate has declined 26 percent this year to 8.2 per U.S. dollar, more than 45 percent weaker than the official rate, as Chavez’s seizure of private companies prompts investors to withdraw capital from the country.
The central bank will create a trading range for the currency and oversee the transactions in a bid to tame inflation and speculation in the market, bank President Nelson Merentes said last week.
“We suspect that a full resumption of imports is likely to take several weeks, with lasting damage on private demand and domestic output,” the RBS report said
May 24 (Bloomberg) -- Royal Bank of Scotland Plc said Venezuela’s economy will shrink more than it previously expected this year as the government’s takeover of currency trading makes it harder to obtain imports.
RBS now expects Venezuela’s economy to shrink 4.5 percent in 2010 rather than 3 percent, RBS economist Boris Segura wrote in a report. Consumer prices may rise more than the bank expected at an annual rate of 35 percent, up from a previous forecast of 30 percent, the report said.
Venezuela suspended trading of dollar-denominated assets in the local market on May 18. Venezuelans use the parallel market to obtain dollars through the swap of bolivar and dollar bonds through brokerages.
The free-floating currency rate has declined 26 percent this year to 8.2 per U.S. dollar, more than 45 percent weaker than the official rate, as Chavez’s seizure of private companies prompts investors to withdraw capital from the country.
The central bank will create a trading range for the currency and oversee the transactions in a bid to tame inflation and speculation in the market, bank President Nelson Merentes said last week.
“We suspect that a full resumption of imports is likely to take several weeks, with lasting damage on private demand and domestic output,” the RBS report said
In Our Opinion...
Over the weekend The Venezuelan President Hugo Chavez said the new foreign exchange rate should not be much above the highest current official rate of 4.30 Bolivars to the Dollar.
It is becoming very clear that Mr. Chavez forced his economic team to rush a decision to have the Venezuelan Central Bank become the settler between buyers and sellers of the precious hard currency, not taking into consideration that it will be an impossible task to maintain an equilibrium between supply and demand unless they become the suppliers of dollars in the marketplace.
In the meantime, the witch-hunt is taking place against the brokerage houses: brokers, administrators and directors are being put behind bars without an arrest warrant, only to please the Commandant who accused them of undermining the Bolivar.
In our opinion, a new black market will inevitably spring up, creating a fourth and much higher rate for the dollar with the corresponding results of higher inflation, lower private demand, more severe shortages and deeper contraction of economic activity.
It is becoming very clear that Mr. Chavez forced his economic team to rush a decision to have the Venezuelan Central Bank become the settler between buyers and sellers of the precious hard currency, not taking into consideration that it will be an impossible task to maintain an equilibrium between supply and demand unless they become the suppliers of dollars in the marketplace.
In the meantime, the witch-hunt is taking place against the brokerage houses: brokers, administrators and directors are being put behind bars without an arrest warrant, only to please the Commandant who accused them of undermining the Bolivar.
In our opinion, a new black market will inevitably spring up, creating a fourth and much higher rate for the dollar with the corresponding results of higher inflation, lower private demand, more severe shortages and deeper contraction of economic activity.
Sunday, May 23, 2010
Looting Bolivarian-Style
Published by VenEConomy- May 21, 2010
The prices of Argentina’s public debt bonds have fallen, in part, owing to bad management by the Kirchners, but, above all, they have plummeted as a result of the plundering of the pension funds by the Cristina Kirchner administration.
As far as the Venezuelans are concerned, the problem is that President Hugo Chávez is copying whatever bad example he encounters. Now, he is not only copying the Castro-communist model that involves the extermination of the private sector, but he also intends to follow Cristina’s example and attack the savings of the workers in the public sector.
This Thursday, May 20, the Ministry for Planning and Finance announced that it will be issuing a special offer of bonds for savings plans, pension funds, and other public funds amounting to Bs.F.6 billion. With this order, these accounts will be up to their neck in government bonds that yield interest below the market rates. The only possible outcome of this saga is that the workers will find that their savings will completely dry up.
Another act of looting Bolivarian-style that has gone almost unnoticed by the general public has to do with the country’s international reserves. Since that “mere million” in 2005, the government has put more than $45 billion of the international reserves at FONDEN’s disposal, plus another $15 billion from PDVSA. These “mere millions,” had they been well administered, could have been used to back the VenezuelanState’s debts and, more importantly, they could have safeguarded the exchange rate of the bolivar.
What is even more serious is that no one knows precisely what the administrators of the public purse have done with all that money, as, so far, FONDEN has presented no accounts to the country. The consensus among analysts is that practically all those funds have evaporated and are not available to solve the enormous needs of the population.
On top of that, according to the analysts, PDVSA apparently posted a loss in 2009 and it is thought that the profits so far this year are very lean. That is the measuring stick by which one should gauge the cash crisis the government has come up against, and possibly the explanation for the witch hunt that has been unleashed in Venezuela.
But it seems that the looting Bolivarian-style does not end there. In less than ten days, the President has twice threatened the private banks with intervention if they do not increase the number of loans they grant to the people and to his government’s social development projects. “You either give the people loans or you give me the bank. I’ll pay you later and I’ll see how I’ll pay you,” he warned the bankers. The President forgets that the money in the banks belongs to the people who put their savings there.
The prices of Argentina’s public debt bonds have fallen, in part, owing to bad management by the Kirchners, but, above all, they have plummeted as a result of the plundering of the pension funds by the Cristina Kirchner administration.
As far as the Venezuelans are concerned, the problem is that President Hugo Chávez is copying whatever bad example he encounters. Now, he is not only copying the Castro-communist model that involves the extermination of the private sector, but he also intends to follow Cristina’s example and attack the savings of the workers in the public sector.
This Thursday, May 20, the Ministry for Planning and Finance announced that it will be issuing a special offer of bonds for savings plans, pension funds, and other public funds amounting to Bs.F.6 billion. With this order, these accounts will be up to their neck in government bonds that yield interest below the market rates. The only possible outcome of this saga is that the workers will find that their savings will completely dry up.
Another act of looting Bolivarian-style that has gone almost unnoticed by the general public has to do with the country’s international reserves. Since that “mere million” in 2005, the government has put more than $45 billion of the international reserves at FONDEN’s disposal, plus another $15 billion from PDVSA. These “mere millions,” had they been well administered, could have been used to back the VenezuelanState’s debts and, more importantly, they could have safeguarded the exchange rate of the bolivar.
What is even more serious is that no one knows precisely what the administrators of the public purse have done with all that money, as, so far, FONDEN has presented no accounts to the country. The consensus among analysts is that practically all those funds have evaporated and are not available to solve the enormous needs of the population.
On top of that, according to the analysts, PDVSA apparently posted a loss in 2009 and it is thought that the profits so far this year are very lean. That is the measuring stick by which one should gauge the cash crisis the government has come up against, and possibly the explanation for the witch hunt that has been unleashed in Venezuela.
But it seems that the looting Bolivarian-style does not end there. In less than ten days, the President has twice threatened the private banks with intervention if they do not increase the number of loans they grant to the people and to his government’s social development projects. “You either give the people loans or you give me the bank. I’ll pay you later and I’ll see how I’ll pay you,” he warned the bankers. The President forgets that the money in the banks belongs to the people who put their savings there.
Friday, May 21, 2010
In Our Opinion...
The Venezuelan Central bank announced today in its web page that they are developing an efficient technological Platform that will be transparent and of easy use for all the individuals and corporations who wish to purchase Venezuelan bonds denominated in dollars. They went further and assured that “with their mechanism, speculation will not take place since the central bank will limit its role to maintain an equilibrium between the supply and demand”. Furthermore, they said that the price of the bonds would be determined by their reference value in the international markets, which will enable the Central bank to establish a system of bands with a floor and a ceiling determined by them.
In our opinion, this statement clearly points out to the Central Bank lack of understanding of how the “Permuta” market operates: First of all, individuals and corporations who choose to be part of the “Permuta” market are not Bond investors. The Permuta, which is a swap mechanism to do an exchange between a Bolivar and a Dollar denominated asset, is purely and solely a way to document a foreign exchange transaction, through a loophole that was left purposely by the Venezuelan legislators, when they enacted the foreign exchange law after the exchange controls were established by the Chavez Administration.
Individuals and Corporations who need to sell or buy US Dollars establish a relationship with a Brokerage firm or “Casa de Bolsa” (as they are commonly known in Venezuela) and place their orders to buy or sell the hard currency. The brokers then have the choice to act as principal or an agent in which case they must find the other side of the trade, which could be one of their clients or in some instances, a ‘Professional Counter party”, or another Casa de Bolsa.
The laws of supply and demand then determine the prices. Once both parties agree on the price, the rest is simple: The Casa de Bolsa documents the transaction with a permuta in a way that after all is said and done the seller of the dollars ends up with the Bolivars and the Buyer with the Dollars and none of them with Bonds.
Yesterday, Chavez had the audacity to request every individual or Corporation to register their Bonds with the Government. Once again the Socialist Commandant, proves his lack of knowledge of the subject. Doesn’t he know that in Venezuela the Central Bank is already the sole custodian of these Bonds?
The Central Bank Platform will only work if the Central bank provides liquidity to the market and by that we mean ample supply of US Dollars given the restricted access to Dollars at the official rates of 2.60 and 4.30 and the fact than more than half of the imports had been depending on the parallel market.
What he does not seen to understand is that the Casas de Bolsa or the, “Savage Venezuelan Bourgeoisie”, as he has been calling them recently, were the market makers and among the most important providers of Dollars in the market.
In our opinion, this statement clearly points out to the Central Bank lack of understanding of how the “Permuta” market operates: First of all, individuals and corporations who choose to be part of the “Permuta” market are not Bond investors. The Permuta, which is a swap mechanism to do an exchange between a Bolivar and a Dollar denominated asset, is purely and solely a way to document a foreign exchange transaction, through a loophole that was left purposely by the Venezuelan legislators, when they enacted the foreign exchange law after the exchange controls were established by the Chavez Administration.
Individuals and Corporations who need to sell or buy US Dollars establish a relationship with a Brokerage firm or “Casa de Bolsa” (as they are commonly known in Venezuela) and place their orders to buy or sell the hard currency. The brokers then have the choice to act as principal or an agent in which case they must find the other side of the trade, which could be one of their clients or in some instances, a ‘Professional Counter party”, or another Casa de Bolsa.
The laws of supply and demand then determine the prices. Once both parties agree on the price, the rest is simple: The Casa de Bolsa documents the transaction with a permuta in a way that after all is said and done the seller of the dollars ends up with the Bolivars and the Buyer with the Dollars and none of them with Bonds.
Yesterday, Chavez had the audacity to request every individual or Corporation to register their Bonds with the Government. Once again the Socialist Commandant, proves his lack of knowledge of the subject. Doesn’t he know that in Venezuela the Central Bank is already the sole custodian of these Bonds?
The Central Bank Platform will only work if the Central bank provides liquidity to the market and by that we mean ample supply of US Dollars given the restricted access to Dollars at the official rates of 2.60 and 4.30 and the fact than more than half of the imports had been depending on the parallel market.
What he does not seen to understand is that the Casas de Bolsa or the, “Savage Venezuelan Bourgeoisie”, as he has been calling them recently, were the market makers and among the most important providers of Dollars in the market.
Venezuela's Chavez Vows Further Financial Crackdown
Published: Friday, 21 May 2010 | 4:19 AM ET
By: Reuters
President Hugo Chavez vowed Thursday to deepen a financial crackdown after raids on 15 brokerages and the arrest of four directors in the wake of the state's takeover of foreign exchange trading.
The socialist leader said this week's move to exclude private money-changers and transfer the so-called "parallel" currency business to the Central Bank, had brought a typically ferocious reaction from Venezuela's traditional elite.
"We're going to keep hitting them hard," Chavez said in a speech on state TV. "We will become more radical, the more imperialism and its allies attack us."
With Venezuela's "parallel" market paralyzed, until the central bank sets up its new system, economists and business leaders have accused Chavez of bringing chaos to the OPEC member nation's already recession-hit economy.
Given restricted access to dollars at the official rates of 2.6 and 4.3 bolivars, more than half of imports had been depending on the "parallel" market, where the local currency had dived this year to more than 8.0 to the dollar.
By taking over that "parallel" market, South America's biggest oil exporter is now effectively setting up a third controlled exchange rate, albeit within a band.
Chavez said the band would be near the 4.3 rate, though analysts and traders had forecast around 5.0-7.0 bolivars.
Angrily waving the front page of local business daily El Mundo and quoting business leaders' criticism of him, Chavez said the "savage Venezuelan bourgeoisie" had launched a concerted attack since Tuesday's currency announcements.
Analysts say a new black market will inevitably spring up, creating a fourth and much higher rate for the dollar, and another devaluation may come next year.
Since Tuesday's measures were announced, financial officials have searched 15 institutions in Caracas, studying documents, examining computers and quizzing staff. Four brokerage directors have been arrested.
Chavez said the government was bringing down an old system of "fraud houses" run by a "mafia".
"Nothing and nobody is going to stop me, I guarantee you, Mr. Oligarchs," he said.
Chavez accuses capitalist speculators of undermining the bolivar and fueling one of the highest inflation rates in the world.
Critics blame him, however, for the country's economic woes, saying a complex currency system distorted the market, while socialist policies hobbled investment and production.
Chavez rejected criticism of state currency board CADIVI, saying it had released $11.8 billion to businesses so far this year, compared to $10.3 billion in the same period of 2009.
Analysts say the government must act swiftly during a period of uncertainty until the new system is operating.
"Delays will only choke imports, with the corresponding results of higher inflation, lower private demand, more severe shortages and deeper contraction of economic activity," the Royal Bank of Scotland said in a research note on Thursday. "The erratic policy response and the authorities' track record does not augur well for a fast resumption of a working permuta (swap) FX market."
Venezuela's more than 90 brokerages had increasingly relied on the exchange business — via complex debt-swaps — because trade on the local stock exchange was minimal, sometimes less in a day than the cost of a middle-class Caracas apartment.
"There is panic. Many firms have already started laying off people. There is a witch-hunt taking place against the brokerage houses, as if they are the only ones who are responsible for what is happening," said one trader.
Despite its oil, analysts predict Venezuela will be the only Latin American nation with economic contraction in 2010.
By: Reuters
President Hugo Chavez vowed Thursday to deepen a financial crackdown after raids on 15 brokerages and the arrest of four directors in the wake of the state's takeover of foreign exchange trading.
The socialist leader said this week's move to exclude private money-changers and transfer the so-called "parallel" currency business to the Central Bank, had brought a typically ferocious reaction from Venezuela's traditional elite.
"We're going to keep hitting them hard," Chavez said in a speech on state TV. "We will become more radical, the more imperialism and its allies attack us."
With Venezuela's "parallel" market paralyzed, until the central bank sets up its new system, economists and business leaders have accused Chavez of bringing chaos to the OPEC member nation's already recession-hit economy.
Given restricted access to dollars at the official rates of 2.6 and 4.3 bolivars, more than half of imports had been depending on the "parallel" market, where the local currency had dived this year to more than 8.0 to the dollar.
By taking over that "parallel" market, South America's biggest oil exporter is now effectively setting up a third controlled exchange rate, albeit within a band.
Chavez said the band would be near the 4.3 rate, though analysts and traders had forecast around 5.0-7.0 bolivars.
Angrily waving the front page of local business daily El Mundo and quoting business leaders' criticism of him, Chavez said the "savage Venezuelan bourgeoisie" had launched a concerted attack since Tuesday's currency announcements.
Analysts say a new black market will inevitably spring up, creating a fourth and much higher rate for the dollar, and another devaluation may come next year.
Since Tuesday's measures were announced, financial officials have searched 15 institutions in Caracas, studying documents, examining computers and quizzing staff. Four brokerage directors have been arrested.
Chavez said the government was bringing down an old system of "fraud houses" run by a "mafia".
"Nothing and nobody is going to stop me, I guarantee you, Mr. Oligarchs," he said.
Chavez accuses capitalist speculators of undermining the bolivar and fueling one of the highest inflation rates in the world.
Critics blame him, however, for the country's economic woes, saying a complex currency system distorted the market, while socialist policies hobbled investment and production.
Chavez rejected criticism of state currency board CADIVI, saying it had released $11.8 billion to businesses so far this year, compared to $10.3 billion in the same period of 2009.
Analysts say the government must act swiftly during a period of uncertainty until the new system is operating.
"Delays will only choke imports, with the corresponding results of higher inflation, lower private demand, more severe shortages and deeper contraction of economic activity," the Royal Bank of Scotland said in a research note on Thursday. "The erratic policy response and the authorities' track record does not augur well for a fast resumption of a working permuta (swap) FX market."
Venezuela's more than 90 brokerages had increasingly relied on the exchange business — via complex debt-swaps — because trade on the local stock exchange was minimal, sometimes less in a day than the cost of a middle-class Caracas apartment.
"There is panic. Many firms have already started laying off people. There is a witch-hunt taking place against the brokerage houses, as if they are the only ones who are responsible for what is happening," said one trader.
Despite its oil, analysts predict Venezuela will be the only Latin American nation with economic contraction in 2010.
Thursday, May 20, 2010
In our opinion...
What has happened to Chavez over the last few weeks? He certainly looks uptight, upset and more polarized that at any time during his twelve-year tenure. More troublesome, is the fact that this is a very important electoral year for his “Bolivarian Socialist Revolution”
If one has learned something from “El Comandante” is that he does not make isolated decisions: he is a great strategist; everything has a reason and is part of a mastermind plan.
In our opinion he has been trying very hard to instigate civil unrest. Every single of his latest decisions point to that direction. The opposition in the meantime has finally unified given his constituents a reason for hope, and therefore, are not taking part of his game. Nevertheless, he will keep trying to create distress because he knows that in this electoral contest he is done.
In his latest raid against the economy he has order the freezing of the trading of the dollar-denominated fixed income securities in Venezuela. Does he think this will effectively solve the deterioration of the value of his “Venezuelan Bolivar Fuerte”. Of course not, what he is trying to accomplish is a much larger deterioration of the Venezuelan Economy that is already showing signs of sporadic shortages of many items. The more time he chooses to keep the markets closed the greater the shock the economy will feel and of course, he has the power to decree a financial emergency and stop the electoral process.
Hopefully, the opposition leaders have learned their lesson and are strategy-zing and working hard to reach the elections, which at this time are in great danger, since they are being attacked by no other than the Socialist Comandante!
If one has learned something from “El Comandante” is that he does not make isolated decisions: he is a great strategist; everything has a reason and is part of a mastermind plan.
In our opinion he has been trying very hard to instigate civil unrest. Every single of his latest decisions point to that direction. The opposition in the meantime has finally unified given his constituents a reason for hope, and therefore, are not taking part of his game. Nevertheless, he will keep trying to create distress because he knows that in this electoral contest he is done.
In his latest raid against the economy he has order the freezing of the trading of the dollar-denominated fixed income securities in Venezuela. Does he think this will effectively solve the deterioration of the value of his “Venezuelan Bolivar Fuerte”. Of course not, what he is trying to accomplish is a much larger deterioration of the Venezuelan Economy that is already showing signs of sporadic shortages of many items. The more time he chooses to keep the markets closed the greater the shock the economy will feel and of course, he has the power to decree a financial emergency and stop the electoral process.
Hopefully, the opposition leaders have learned their lesson and are strategy-zing and working hard to reach the elections, which at this time are in great danger, since they are being attacked by no other than the Socialist Comandante!
Chavez concedes: Too many imports, too little national production...
VHeadline News Editor Patrick J. O'Donoghue reports:
President Chavez has admitted that imports are far too high. It has taken the government a long time to accept a nagging opposition accusation that Venezuela has been forced to import food to make up for deficiencies in domestic production.
Chavez made the admission at a ceremony handing out credits to small and medium entrepreneurs. The President told his audience that domestic production is failing to supply demand that has grown enormously. Venezuela, he challenged, is currently reaching the 30-million inhabitant mark and consumption among the popular classes has tripled after successive salary increases.
Private banks, the President complained, are not releasing credits to small and medium business persons and without that support national industry cannot develop quickly enough, making substitution of imports more complicated.
The State cannot own everything, Chavez conceded, declaring that his government is not Statist and not anti-private property. However, he maintained his government's position against the big private business associations interested only in their own profit margins to the detriment of the nation.
Defining his thought further, the President spelled out that private property is acceptable "always when it produces assets and services to satisfy needs and if its surpluses do not fall into the hands of monopolies and contribute to the accumulation of capital in a few hands exploiting consumers and workers."
Chavez reiterated that the fight against monopolies continues and ratified the push to make Venezuela self-sufficient in food.
Another factor that has not helped production in agriculture has been the year-long drought. At the moment, the government is reviewing its agricultural program and teams are visiting socialist farms and companies to check on the state of machinery and effectiveness of socialist companies in meeting production plans.
There have been important successes in many of the agrarian reform projects while others have not cut the mustard.
President Chavez has admitted that imports are far too high. It has taken the government a long time to accept a nagging opposition accusation that Venezuela has been forced to import food to make up for deficiencies in domestic production.
Chavez made the admission at a ceremony handing out credits to small and medium entrepreneurs. The President told his audience that domestic production is failing to supply demand that has grown enormously. Venezuela, he challenged, is currently reaching the 30-million inhabitant mark and consumption among the popular classes has tripled after successive salary increases.
Private banks, the President complained, are not releasing credits to small and medium business persons and without that support national industry cannot develop quickly enough, making substitution of imports more complicated.
The State cannot own everything, Chavez conceded, declaring that his government is not Statist and not anti-private property. However, he maintained his government's position against the big private business associations interested only in their own profit margins to the detriment of the nation.
Defining his thought further, the President spelled out that private property is acceptable "always when it produces assets and services to satisfy needs and if its surpluses do not fall into the hands of monopolies and contribute to the accumulation of capital in a few hands exploiting consumers and workers."
Chavez reiterated that the fight against monopolies continues and ratified the push to make Venezuela self-sufficient in food.
Another factor that has not helped production in agriculture has been the year-long drought. At the moment, the government is reviewing its agricultural program and teams are visiting socialist farms and companies to check on the state of machinery and effectiveness of socialist companies in meeting production plans.
There have been important successes in many of the agrarian reform projects while others have not cut the mustard.
Wednesday, May 19, 2010
In our opinion:
In our opinion, yesterday's announcements by President Chavez' Economic team will not accomplish anything since they are aiming at the consequences of the exchange control regime and not the causes of it. At this point of the economic cycle, the most important reason for the devaluation of the Bolivar in the "Permuta" market is President's Chavez shift from a Nationalist Bolivarian to a Marxist Socialist. His constant "almost daily" attacks to the private sector have generated a great deal of anxiety and distrust among the investment community. To worsen matters even further, the members of Economic team can not find common ground resulting in policies that are highly inefficient: such as the interventions of the last few months by the Central Bank with the "Bono Cambiario."
Venezuela temporarily halts bond trading
By FABIOLA SANCHEZ, Associated Press Writer Fabiola Sanchez, Associated Press Writer
CARACAS, Venezuela – Authorities temporarily halted the trading of government bonds on Tuesday and said they would seek to control Venezuela's currency exchange rates by setting a range of permitted prices in the bond market.
National Securities Commission President Tomas Sanchez said that bond trading is being suspended while new regulations are established following the approval last week of legislation increasing the Central Bank's control over currency trading.
The government also plans to seize control of brokerage firms suspected of conducting "speculative operations," Sanchez said.
Central Bank President Nelson Merentes, meanwhile, announced a plan to establish a band with maximum and minimum prices in bond trading, which until last week had been an important outlet for Venezuelans to obtain U.S. dollars.
President Hugo Chavez is seeking to crack down on currency speculation that he blames for soaring inflation and the decline of Venezuela's bolivar currency on the unregulated market. The embattled bolivar reached 8.30 bolivars to the dollar on the so-called parallel market on Tuesday — almost twice the official exchange rate of 4.30 applied to nonessential goods.
The government is worried because the rising price of dollars on the parallel market increases the cost of consumer goods in Venezuela, which imports more than half the products it consumes despite Chavez's efforts to boost domestic production.
Roughly 30 percent of imports and 70 percent of capital repatriation traditionally occurs through the government bond market, according to the Caracas-based Ecoanalitica think tank.
Consumer prices jumped 5.2 percent in April alone, driving the annual inflation rate to 30.4 percent — the highest in Latin America — according to the Central Bank and National Statistics Institute.
Planning Minister Jorge Giordani accused brokerge firms and Venezuela's media of trying to drive up the cost of the bolivar on the parallel market, and he warned they could face criminal charges "if they continue this perverse game of creating expectations" within the market.
"The Attorney General's Office will have to take action," Giordani said.
Police and prosecutors, meanwhile, raided the offices of four Caracas-based brokerages firms — Ban Valor Casa de Bolsa, Italbursatil Casa de Bolsa, Positiva Sociedad de Corretaje and Premier Valores Sociedad de Corretaje — as part of investigations into speculation-related accusations, the Attorney General's Office announced in a statement.
It remains unclear how local brokerages will continue turning a profit.
Maria Fernandez, a local banking analyst, predicted the new regulations would lead some brokerage firms to bankruptcy.
Many brokerages will be forced to impose "a significant reduction of employees" in order to survive, but others probably will close because the business "is no longer viable" for them, Fernandez said in a telephone interview.
CARACAS, Venezuela – Authorities temporarily halted the trading of government bonds on Tuesday and said they would seek to control Venezuela's currency exchange rates by setting a range of permitted prices in the bond market.
National Securities Commission President Tomas Sanchez said that bond trading is being suspended while new regulations are established following the approval last week of legislation increasing the Central Bank's control over currency trading.
The government also plans to seize control of brokerage firms suspected of conducting "speculative operations," Sanchez said.
Central Bank President Nelson Merentes, meanwhile, announced a plan to establish a band with maximum and minimum prices in bond trading, which until last week had been an important outlet for Venezuelans to obtain U.S. dollars.
President Hugo Chavez is seeking to crack down on currency speculation that he blames for soaring inflation and the decline of Venezuela's bolivar currency on the unregulated market. The embattled bolivar reached 8.30 bolivars to the dollar on the so-called parallel market on Tuesday — almost twice the official exchange rate of 4.30 applied to nonessential goods.
The government is worried because the rising price of dollars on the parallel market increases the cost of consumer goods in Venezuela, which imports more than half the products it consumes despite Chavez's efforts to boost domestic production.
Roughly 30 percent of imports and 70 percent of capital repatriation traditionally occurs through the government bond market, according to the Caracas-based Ecoanalitica think tank.
Consumer prices jumped 5.2 percent in April alone, driving the annual inflation rate to 30.4 percent — the highest in Latin America — according to the Central Bank and National Statistics Institute.
Planning Minister Jorge Giordani accused brokerge firms and Venezuela's media of trying to drive up the cost of the bolivar on the parallel market, and he warned they could face criminal charges "if they continue this perverse game of creating expectations" within the market.
"The Attorney General's Office will have to take action," Giordani said.
Police and prosecutors, meanwhile, raided the offices of four Caracas-based brokerages firms — Ban Valor Casa de Bolsa, Italbursatil Casa de Bolsa, Positiva Sociedad de Corretaje and Premier Valores Sociedad de Corretaje — as part of investigations into speculation-related accusations, the Attorney General's Office announced in a statement.
It remains unclear how local brokerages will continue turning a profit.
Maria Fernandez, a local banking analyst, predicted the new regulations would lead some brokerage firms to bankruptcy.
Many brokerages will be forced to impose "a significant reduction of employees" in order to survive, but others probably will close because the business "is no longer viable" for them, Fernandez said in a telephone interview.
Venezuela to Set Currency Trading Band, Merentes Says
By Daniel Cancel and Corina Rodriguez Pons
May 18 (Bloomberg) -- Venezuela will establish a trading band on its free-floating exchange rate in a bid to halt a four- month tumble in the currency and stem an inflation surge that is undermining the country’s economic recovery.
The country will use prices on government dollar bonds that investors trade in the currency market to set the range, said central bank President Nelson Merentes. He declined to specify what the range will be. The free-floating rate, known as the parallel rate, plunged 26 percent this year to 8.1 per dollar, leaving it more than 45 percent weaker than the official exchange rates, as President Hugo Chavez’s seizure of private companies prompts investors to pull capital from the country.
“We’re going to seek a balance between buyers and sellers of securities, and setting clear rules for the market,” Merentes said. “We believe that with this trading band there won’t be any speculation.”
Chavez, who devalued the official exchange rate in January by as much as 50 percent, has called for a “strong hand” against currency speculators he blames for a surge in consumer prices and the tumble of the bolivar to a record low. He pledged earlier this year to drive the bolivar down to 4.3 per dollar to “burn the hands” of investors. The currency band may hurt foreign companies that used the parallel market as a legal mechanism to get around the controls.
40 Percent
Venezuelan consumer prices surged 5.2 percent in April from March, the biggest increase in seven years, after food prices were adjusted for the devaluation and due to higher import prices from the weaker bolivar. Venezuela, which has the highest inflation rate of 78 economies tracked by Bloomberg, may see annual inflation accelerate to 40 percent this year, according to RBS Securities Inc.
The trading band will begin in a maximum of 15 days and the bank will look to sell dollar-denominated instruments already circulating in the market, Merentes said in a phone interview. Operations may begin sooner if the trading platform is ready, he said.
“Merentes has said that the new set-up is likely to take 15 days; given the authorities’ track record, we would expect this period to last longer,” Boris Segura, an RBS economist who forecasts that the economy will contract 3 percent this year, said today in a research note. “Imports are likely to come to a halt, with the associated higher inflation and increased shortages.”
‘Far Lower’
Venezuela, which will keep the official rates of 2.6 and 4.3 per dollar for imports, has sold $8.9 billion at those rates this year to importers, Merentes said during the press conference.
The implicit exchange rate from the currency transactions at the central bank will be “far lower” than the rates in the parallel market in recent weeks, he said.
People and companies turned to the parallel market when they can’t get government approval to buy dollars at the official rates. They used brokerages to access U.S. currency by buying and selling dollar-denominated securities in the parallel market.
The yield on Venezuela’s 9.25 percent bonds maturing in 2027 rose 34 basis points to 13.75 percent at 4:06 p.m. in New York, according to JPMorgan Chase & Co. The bond’s price fell 1.72 cents on the dollar to 70.54 cents, the lowest since Dec. 22.
Securities trading will be temporarily suspended in the local market and brokerages will be excluded from participating in the currency band at the central bank, securities regulator Tomas Sanchez, said on state television.
Brokerages
The regulator, which closed five brokerages in the last week, and the attorney general will begin an investigation to determine whether traders were involved in money laundering through the swap of bonds to obtain dollars, Sanchez said.
The government also blocked websites that published the parallel exchange rate after Chavez said they were partly responsible for currency speculation.
Finance Minister Jorge Giordani said traders in the parallel currency market were fueling capital flight and trying to sap the country’s international reserves. Traders may have been laundering capital from drug trafficking through the market and were setting “illogical exchange rates,” he said.
“If they can’t prove the origin of funds, we’d be before a situation of laundering,” Giordani said. “I think there’s been a high level of laundering in these operations.”
Reserves
Venezuela’s central bank reserves have plunged 23 percent this year to $27 billion after $5.5 billion was transferred to an off-budget development fund controlled by Chavez. Bank efforts to shore up the currency by selling $523 million of 90- day zero-coupon notes in the local market this year were unsuccessful.
Goldman Sachs Group Inc. said on May 14 Venezuela is nearing a currency crisis and the country may have to devalue the official rates again in 2011.
Venezuelan importers used the parallel market for 30 percent of imports, or about $12 billion, last year, according to estimates by Barclays Plc. The new central bank trading band will spark a bigger black market, Barclays economist Alejandro Grisanti said in a phone interview from New York.
“If the government can’t supply the market, a black market is inevitable,” he said. “People will look for alternative means that aren’t necessarily legal to acquire currency.”
May 18 (Bloomberg) -- Venezuela will establish a trading band on its free-floating exchange rate in a bid to halt a four- month tumble in the currency and stem an inflation surge that is undermining the country’s economic recovery.
The country will use prices on government dollar bonds that investors trade in the currency market to set the range, said central bank President Nelson Merentes. He declined to specify what the range will be. The free-floating rate, known as the parallel rate, plunged 26 percent this year to 8.1 per dollar, leaving it more than 45 percent weaker than the official exchange rates, as President Hugo Chavez’s seizure of private companies prompts investors to pull capital from the country.
“We’re going to seek a balance between buyers and sellers of securities, and setting clear rules for the market,” Merentes said. “We believe that with this trading band there won’t be any speculation.”
Chavez, who devalued the official exchange rate in January by as much as 50 percent, has called for a “strong hand” against currency speculators he blames for a surge in consumer prices and the tumble of the bolivar to a record low. He pledged earlier this year to drive the bolivar down to 4.3 per dollar to “burn the hands” of investors. The currency band may hurt foreign companies that used the parallel market as a legal mechanism to get around the controls.
40 Percent
Venezuelan consumer prices surged 5.2 percent in April from March, the biggest increase in seven years, after food prices were adjusted for the devaluation and due to higher import prices from the weaker bolivar. Venezuela, which has the highest inflation rate of 78 economies tracked by Bloomberg, may see annual inflation accelerate to 40 percent this year, according to RBS Securities Inc.
The trading band will begin in a maximum of 15 days and the bank will look to sell dollar-denominated instruments already circulating in the market, Merentes said in a phone interview. Operations may begin sooner if the trading platform is ready, he said.
“Merentes has said that the new set-up is likely to take 15 days; given the authorities’ track record, we would expect this period to last longer,” Boris Segura, an RBS economist who forecasts that the economy will contract 3 percent this year, said today in a research note. “Imports are likely to come to a halt, with the associated higher inflation and increased shortages.”
‘Far Lower’
Venezuela, which will keep the official rates of 2.6 and 4.3 per dollar for imports, has sold $8.9 billion at those rates this year to importers, Merentes said during the press conference.
The implicit exchange rate from the currency transactions at the central bank will be “far lower” than the rates in the parallel market in recent weeks, he said.
People and companies turned to the parallel market when they can’t get government approval to buy dollars at the official rates. They used brokerages to access U.S. currency by buying and selling dollar-denominated securities in the parallel market.
The yield on Venezuela’s 9.25 percent bonds maturing in 2027 rose 34 basis points to 13.75 percent at 4:06 p.m. in New York, according to JPMorgan Chase & Co. The bond’s price fell 1.72 cents on the dollar to 70.54 cents, the lowest since Dec. 22.
Securities trading will be temporarily suspended in the local market and brokerages will be excluded from participating in the currency band at the central bank, securities regulator Tomas Sanchez, said on state television.
Brokerages
The regulator, which closed five brokerages in the last week, and the attorney general will begin an investigation to determine whether traders were involved in money laundering through the swap of bonds to obtain dollars, Sanchez said.
The government also blocked websites that published the parallel exchange rate after Chavez said they were partly responsible for currency speculation.
Finance Minister Jorge Giordani said traders in the parallel currency market were fueling capital flight and trying to sap the country’s international reserves. Traders may have been laundering capital from drug trafficking through the market and were setting “illogical exchange rates,” he said.
“If they can’t prove the origin of funds, we’d be before a situation of laundering,” Giordani said. “I think there’s been a high level of laundering in these operations.”
Reserves
Venezuela’s central bank reserves have plunged 23 percent this year to $27 billion after $5.5 billion was transferred to an off-budget development fund controlled by Chavez. Bank efforts to shore up the currency by selling $523 million of 90- day zero-coupon notes in the local market this year were unsuccessful.
Goldman Sachs Group Inc. said on May 14 Venezuela is nearing a currency crisis and the country may have to devalue the official rates again in 2011.
Venezuelan importers used the parallel market for 30 percent of imports, or about $12 billion, last year, according to estimates by Barclays Plc. The new central bank trading band will spark a bigger black market, Barclays economist Alejandro Grisanti said in a phone interview from New York.
“If the government can’t supply the market, a black market is inevitable,” he said. “People will look for alternative means that aren’t necessarily legal to acquire currency.”
Tuesday, May 18, 2010
In our opinion:
In our opinion an illiquid market set up by the Venezuelan Central bank will contribute to the further deterioration of an economy which is already showing signs of sporadic shortages of many items. While we thought today was the day for further clarification on the platform to be implemented by the Venezuelan Central Bank, what we really found in today's press conference is that the Government does not seem to know how this new platform will be implemented and more importantly whether it will be an effective policy tool. We firmly believe that its effectiveness will depend on the amount of supply of Dollars the Chavez Administration is willing to inject to the market.
Venezuela sets band for forex trade
(Reporting by Ana Isabel Martinez and Andrew Cawthorne; Editing by Daniel Wallis)
CARACAS, May 18 (Reuters) - Venezuela will set a band for dollar exchanges and is banning brokerages from foreign exchange trading on a "parallel" unofficial market in response to the rapid fall of its bolivar currency, the government said on Tuesday.
Central Bank President Nelson Merentes said the move would eliminate speculation while still letting the market set prices. International bond prices would be used as a reference to give transparency to the new trading system, he said.
"The market will now be set according to the values of the securities in the international market through a simple mathematical model which produces a band with upper and lower limits," Merentes told a news conference.
The parallel market, where dozens of brokerages had used a debt swap mechanism to sell dollars at a price above the official rates of 2.6 and 4.3 bolivars, was supplying currency for about half of the OPEC member nation's imports.
But the bolivar has plunged to more than 8.0 to the dollar this month, fueling one of the world's highest inflation rates, and President Hugo Chavez has blamed capitalist speculators.
Analysts and market sources believe the band for the "parallel" dollar will probably be between 5.0 and 7.0 bolivars.
Some economists have warned this strategy may backfire and create a fourth, illegal market for dollars and possibly hasten another devaluation by the government next year. The bolivar was devalued from an official rate of 2.15 in January.
The bolivar's woes are complicating a grim macroeconomic environment for Venezuela which, despite its oil wealth, is predicted by analysts to be the only country in Latin America with negative growth this year.
Chavez blames inflation, which rose to a monthly high of more than 5 percent in April, and the bolivar's weakening on an "oligarchy" bent on causing him problems ahead of an assembly election this year and a presidential vote in 2012.
Many analysts, however, say the socialist president's incompetence in running the economy, including heavy-handed controls and nationalizations of private business, are to blame for Venezuela's poor economic health.
CARACAS, May 18 (Reuters) - Venezuela will set a band for dollar exchanges and is banning brokerages from foreign exchange trading on a "parallel" unofficial market in response to the rapid fall of its bolivar currency, the government said on Tuesday.
Central Bank President Nelson Merentes said the move would eliminate speculation while still letting the market set prices. International bond prices would be used as a reference to give transparency to the new trading system, he said.
"The market will now be set according to the values of the securities in the international market through a simple mathematical model which produces a band with upper and lower limits," Merentes told a news conference.
The parallel market, where dozens of brokerages had used a debt swap mechanism to sell dollars at a price above the official rates of 2.6 and 4.3 bolivars, was supplying currency for about half of the OPEC member nation's imports.
But the bolivar has plunged to more than 8.0 to the dollar this month, fueling one of the world's highest inflation rates, and President Hugo Chavez has blamed capitalist speculators.
Analysts and market sources believe the band for the "parallel" dollar will probably be between 5.0 and 7.0 bolivars.
Some economists have warned this strategy may backfire and create a fourth, illegal market for dollars and possibly hasten another devaluation by the government next year. The bolivar was devalued from an official rate of 2.15 in January.
The bolivar's woes are complicating a grim macroeconomic environment for Venezuela which, despite its oil wealth, is predicted by analysts to be the only country in Latin America with negative growth this year.
Chavez blames inflation, which rose to a monthly high of more than 5 percent in April, and the bolivar's weakening on an "oligarchy" bent on causing him problems ahead of an assembly election this year and a presidential vote in 2012.
Many analysts, however, say the socialist president's incompetence in running the economy, including heavy-handed controls and nationalizations of private business, are to blame for Venezuela's poor economic health.
Venezuela authorities raid two financial brokerages
By Enrique Andres Pretel
CARACAS, May 17 (Reuters) - Venezuelan authorities raided two brokerages on Monday in the latest example of efforts by President Hugo Chavez's government to increase its control over an unofficial foreign exchange market.
The OPEC member nation's leftist leader signed a law on Sunday that put the central bank in sole control of foreign exchange in the country, whether in currencies or securities, after the bolivar plunged on the parallel, unofficial market.
Analysts say the move could worsen inflation and erode confidence in the economy. The finance minister and central bank president were due to hold a news conference on Tuesday, but officials said it would only be open to state media.
In a statement, the official prosecutor said the raids took place following a complaint by the National Securities Commission "about alleged irregularities by the operators, which apparently ran contrary to the existing legal system."
The two targeted brokerages were Sociedad de Corretaje de Valores Heptagon and Casa de Bolsa Finalca -- both smaller firms based in the capital Caracas.
Last week, the authorities raided four brokerages and arrested one person as part of the operation to fight against "speculation." The latest raids took place even though the amended law has yet to come into force by being published in the Official Gazette. Monday was a bank holiday in Venezuela.
Brokerages operating in the unofficial market have been virtually paralyzed since last week when the national assembly voted to reform the law and put the central bank in charge. [ID:nN17260162]
Chavez has threatened to close down all finance trading houses and brokerages if they do not play by the rules.
Under the new regulations, the central bank will decide which brokerages can participate in the foreign exchange market where the bolivar has until now been freely floated.
It is called the parallel market because it operates alongside two fixed rates for the bolivar of 2.6 and 4.3 per dollar -- set by the government in a devaluation in January.
The 2.6 rate is for importing food and medicine and the 4.3 rate is for turning oil dollars into bolivars and for importing items deemed non-essential.
Officials have said the central bank could be aiming to create a floor and ceiling price for the bolivar in the parallel market. Analysts say it could be between 5-7 bolivars.
Analysts have warned this strategy may backfire and create a fourth, illegal market for dollars and possibly hasten another devaluation by the government early next year. The bolivar was devalued from an official rate of 2.15 in January. (Editing by Daniel Wallis)
CARACAS, May 17 (Reuters) - Venezuelan authorities raided two brokerages on Monday in the latest example of efforts by President Hugo Chavez's government to increase its control over an unofficial foreign exchange market.
The OPEC member nation's leftist leader signed a law on Sunday that put the central bank in sole control of foreign exchange in the country, whether in currencies or securities, after the bolivar plunged on the parallel, unofficial market.
Analysts say the move could worsen inflation and erode confidence in the economy. The finance minister and central bank president were due to hold a news conference on Tuesday, but officials said it would only be open to state media.
In a statement, the official prosecutor said the raids took place following a complaint by the National Securities Commission "about alleged irregularities by the operators, which apparently ran contrary to the existing legal system."
The two targeted brokerages were Sociedad de Corretaje de Valores Heptagon and Casa de Bolsa Finalca -- both smaller firms based in the capital Caracas.
Last week, the authorities raided four brokerages and arrested one person as part of the operation to fight against "speculation." The latest raids took place even though the amended law has yet to come into force by being published in the Official Gazette. Monday was a bank holiday in Venezuela.
Brokerages operating in the unofficial market have been virtually paralyzed since last week when the national assembly voted to reform the law and put the central bank in charge. [ID:nN17260162]
Chavez has threatened to close down all finance trading houses and brokerages if they do not play by the rules.
Under the new regulations, the central bank will decide which brokerages can participate in the foreign exchange market where the bolivar has until now been freely floated.
It is called the parallel market because it operates alongside two fixed rates for the bolivar of 2.6 and 4.3 per dollar -- set by the government in a devaluation in January.
The 2.6 rate is for importing food and medicine and the 4.3 rate is for turning oil dollars into bolivars and for importing items deemed non-essential.
Officials have said the central bank could be aiming to create a floor and ceiling price for the bolivar in the parallel market. Analysts say it could be between 5-7 bolivars.
Analysts have warned this strategy may backfire and create a fourth, illegal market for dollars and possibly hasten another devaluation by the government early next year. The bolivar was devalued from an official rate of 2.15 in January. (Editing by Daniel Wallis)
Venezuela a great example of misrule, mismanagement
Published: Monday, May 17, 2010
Bylined to: Dale McFeatters
Dale McFeatters: Venezuela has the largest oil reserves outside the Mideast and some of the largest known natural gas deposits. Yet the country is an economic shambles thanks to the mismanagement of its buffoonish and authoritarian President, Hugo Chavez.
This past week, he further crippled the economy by effectively banning private bond trading in order to stop Venezuelans from sequestering their savings in dollar accounts. He instituted currency controls of 2.60 bolivars to the dollar for priority goods and 4.30 for nonessential items. The black market rate is 8.20 bolivars to the dollar. Not surprisingly, there is a thriving black market, widespread shortages and soaring inflation of more than 30%.
In 2003, when Chavez began experimenting with price controls, Venezuela was self-sufficient in beef. Last year it imported more than half of what it consumed. After his police began rounding up butchers for selling beef at more than the state-mandated price, beef disappeared almost altogether from the stores.
The same has happened with coffee. After expropriating roasting companies, coffee warehouses and plantations, production in coffee-producing Venezuela fell by more than 16% last year and continues to decline.
Because of lack of investment in the national grid -- and with some help from a drought -- electricity is rationed and there are frequent blackouts and mandatory power cuts. Similarly, since he barred Western firms from participating in Venezuela's oil industry, investment has fallen and the country has turned to the Chinese for help.
Chavez has been incapable of dealing with the country's chronic crime and the Economist newspaper describes Caracas as "the most violent capital in South America."
He has spent $4 billion on Russian weapons against the imaginary threat of a US invasion. His foreign policy consists of trying to build an anti-US alliance of "21st-century socialists" like Cuba, Nicaragua, Iran Bolivia. He has been accused, convincingly in the case of Colombia, of aiding communist guerrillas and harboring violent Basque separatists from Spain.
In advance of next September's congressional elections, he has begun jailing opposition leaders on assorted trumped-up charges, such as the crime of spreading false information -- the false information being criticism of Chavez and his policies.
Venezuelans, to their credit, stubbornly cling to democratic traditions. Despite his control of the judiciary, suppression of the opposition media and lavish spending on his base in the sprawling slums, his re-election in 2012 is no foregone conclusion. There may be a limit to Venezuelans tolerance for lowered standards of living and diminished freedoms.
Chavez' explanation: "There's an economic conspiracy against the revolution to boost inflation, increase shortages and malaise among the people."
We know who the conspirator is.
http://www.newschief.com/article/201005
17/NEWS/5175044/1013?p=1&tc=pg
Bylined to: Dale McFeatters
Dale McFeatters: Venezuela has the largest oil reserves outside the Mideast and some of the largest known natural gas deposits. Yet the country is an economic shambles thanks to the mismanagement of its buffoonish and authoritarian President, Hugo Chavez.
This past week, he further crippled the economy by effectively banning private bond trading in order to stop Venezuelans from sequestering their savings in dollar accounts. He instituted currency controls of 2.60 bolivars to the dollar for priority goods and 4.30 for nonessential items. The black market rate is 8.20 bolivars to the dollar. Not surprisingly, there is a thriving black market, widespread shortages and soaring inflation of more than 30%.
In 2003, when Chavez began experimenting with price controls, Venezuela was self-sufficient in beef. Last year it imported more than half of what it consumed. After his police began rounding up butchers for selling beef at more than the state-mandated price, beef disappeared almost altogether from the stores.
The same has happened with coffee. After expropriating roasting companies, coffee warehouses and plantations, production in coffee-producing Venezuela fell by more than 16% last year and continues to decline.
Because of lack of investment in the national grid -- and with some help from a drought -- electricity is rationed and there are frequent blackouts and mandatory power cuts. Similarly, since he barred Western firms from participating in Venezuela's oil industry, investment has fallen and the country has turned to the Chinese for help.
Chavez has been incapable of dealing with the country's chronic crime and the Economist newspaper describes Caracas as "the most violent capital in South America."
He has spent $4 billion on Russian weapons against the imaginary threat of a US invasion. His foreign policy consists of trying to build an anti-US alliance of "21st-century socialists" like Cuba, Nicaragua, Iran Bolivia. He has been accused, convincingly in the case of Colombia, of aiding communist guerrillas and harboring violent Basque separatists from Spain.
In advance of next September's congressional elections, he has begun jailing opposition leaders on assorted trumped-up charges, such as the crime of spreading false information -- the false information being criticism of Chavez and his policies.
Venezuelans, to their credit, stubbornly cling to democratic traditions. Despite his control of the judiciary, suppression of the opposition media and lavish spending on his base in the sprawling slums, his re-election in 2012 is no foregone conclusion. There may be a limit to Venezuelans tolerance for lowered standards of living and diminished freedoms.
Chavez' explanation: "There's an economic conspiracy against the revolution to boost inflation, increase shortages and malaise among the people."
We know who the conspirator is.
http://www.newschief.com/article/201005
17/NEWS/5175044/1013?p=1&tc=pg
Monday, May 17, 2010
Chavez asks Venezuelan tweeters to blow the whistle on currency speculators
By: CHRISTOPHER TOOTHAKER
Associated Press
05/16/10 5:50 PM EDT
CARACAS, VENEZUELA — President Hugo Chavez urged supporters to use Twitter to blow the whistle on currency speculators on Sunday and announced that police raids on illegal traders would continue as Venezuela's government tries to defend the embattled bolivar.
The socialist leader asked Venezuelans to send messages identifying illegal traders. He described them as "thieves" who must be punished for currency speculation, which he blames for rapidly rising inflation.
"My Twitter account is open for you to denounce them," Chavez said during his weekly radio and television program. "We're going to launch several raids. We've already launched some raids, thanks to the complaints from the people."
Venezuelan authorities began raiding currency trading offices last week and arrested a man who posts black-market rates for currency on the Internet. Jaime Renteria, 52, is apparently the first person arrested for illegal currency trading under Chavez's new crackdown, which has been prompted by a sharp decline in the free-market value of the bolivar.
Renteria is the registered administrator of notidolar.com, a website that offered visitors a chance to exchange Venezuela's bolivar currency, according to version cached by Google.
His downtown Caracas office was one of four raided Friday night, according to the government's Bolivarian News Agency. There was no answer at Renteria's phone number on Sunday.
The crackdown on traders and threats to punish websites that report the bolivar's decline on the black market has alarmed economists, who predicted on Sunday that the measures will backfire.
"It's a Draconian system," said Asdrubal Oliveros, an analyst at the Caracas-based Ecoanalitica think tank. "Unfortunately this new scheme is going to end up increasing inflation, bringing about shortages of products and creating more distortions in the currency market."
Oliveros believes the bolivar's slide is largely caused by uncertainty over the government's efforts to control trading of U.S. dollars on Venezuela's black market and in the bond market previously dominated by brokerage firms.
Friday's raids were prompted by Chavez's demands for officials to halt regulated trading. Federal Police Chief Wilmer Flores said investigators "gathered criminal evidence" at the offices of informal exchange businesses, so prosecutors can "determine criminal liabilities of the owners of these establishments."
Chavez joked last week that he could attempt to capture illegal foreign currency traders himself, posing as a potential buyer on Internet sites only to apprehend the dealers later. "I'm going to grab a computer and begin to buy those dollars ... but it's to capture them," he said.
He urged authorities to get tough with websites that violate long-ignored laws against publishing the black-market rate. Within hours, three popular blogs that offer currency trading services or publish the value of the bolivar against the dollar vanished from the Web.
The bolivar has been steadily sliding on the unregulated market, increasing in recent weeks to about 8.20 bolivars to the dollar — almost twice the official rate of 4.30 applied to nonessential goods.
The government is worried because the rising price of dollars on the so-called parallel market increases the cost of consumer goods in Venezuela, which imports more than half the products it consumes despite Chavez's efforts to boost domestic production.
Consumer prices jumped 5.2 percent in April alone, driving the annual inflation rate to 30.4 percent — the highest in Latin America — according to the Central Bank and National Statistics Institute.
An average of 1.4 million dollars is exchanged daily either on the black market or at the floating rate through the government bond market — a total of $28 billion in 2009, according to Ecoanalitica.
Last week, Venezuela's predominantly pro-Chavez National Assembly approved a bill tightening currency dealing rules and giving the Central Bank exclusive control over trading in government bonds — a market where the bolivar also has been sliding. The law bars brokerages from operating in the parallel dollar market through bond trading.
Chavez signed the bill into law on Sunday, saying it would take effect this week upon its publication in the Official Gazette.
"This is to combat speculation of the dollar," Chavez said of the legislation.
Read more at the Washington Examiner: http://www.washingtonexaminer.com/world/venezuela-raids-currency-traders-as-chavez-broadens-effort-to-protect-the-sliding-bolivar-93890969.html#ixzz0oEZ7VzzG
Associated Press
05/16/10 5:50 PM EDT
CARACAS, VENEZUELA — President Hugo Chavez urged supporters to use Twitter to blow the whistle on currency speculators on Sunday and announced that police raids on illegal traders would continue as Venezuela's government tries to defend the embattled bolivar.
The socialist leader asked Venezuelans to send messages identifying illegal traders. He described them as "thieves" who must be punished for currency speculation, which he blames for rapidly rising inflation.
"My Twitter account is open for you to denounce them," Chavez said during his weekly radio and television program. "We're going to launch several raids. We've already launched some raids, thanks to the complaints from the people."
Venezuelan authorities began raiding currency trading offices last week and arrested a man who posts black-market rates for currency on the Internet. Jaime Renteria, 52, is apparently the first person arrested for illegal currency trading under Chavez's new crackdown, which has been prompted by a sharp decline in the free-market value of the bolivar.
Renteria is the registered administrator of notidolar.com, a website that offered visitors a chance to exchange Venezuela's bolivar currency, according to version cached by Google.
His downtown Caracas office was one of four raided Friday night, according to the government's Bolivarian News Agency. There was no answer at Renteria's phone number on Sunday.
The crackdown on traders and threats to punish websites that report the bolivar's decline on the black market has alarmed economists, who predicted on Sunday that the measures will backfire.
"It's a Draconian system," said Asdrubal Oliveros, an analyst at the Caracas-based Ecoanalitica think tank. "Unfortunately this new scheme is going to end up increasing inflation, bringing about shortages of products and creating more distortions in the currency market."
Oliveros believes the bolivar's slide is largely caused by uncertainty over the government's efforts to control trading of U.S. dollars on Venezuela's black market and in the bond market previously dominated by brokerage firms.
Friday's raids were prompted by Chavez's demands for officials to halt regulated trading. Federal Police Chief Wilmer Flores said investigators "gathered criminal evidence" at the offices of informal exchange businesses, so prosecutors can "determine criminal liabilities of the owners of these establishments."
Chavez joked last week that he could attempt to capture illegal foreign currency traders himself, posing as a potential buyer on Internet sites only to apprehend the dealers later. "I'm going to grab a computer and begin to buy those dollars ... but it's to capture them," he said.
He urged authorities to get tough with websites that violate long-ignored laws against publishing the black-market rate. Within hours, three popular blogs that offer currency trading services or publish the value of the bolivar against the dollar vanished from the Web.
The bolivar has been steadily sliding on the unregulated market, increasing in recent weeks to about 8.20 bolivars to the dollar — almost twice the official rate of 4.30 applied to nonessential goods.
The government is worried because the rising price of dollars on the so-called parallel market increases the cost of consumer goods in Venezuela, which imports more than half the products it consumes despite Chavez's efforts to boost domestic production.
Consumer prices jumped 5.2 percent in April alone, driving the annual inflation rate to 30.4 percent — the highest in Latin America — according to the Central Bank and National Statistics Institute.
An average of 1.4 million dollars is exchanged daily either on the black market or at the floating rate through the government bond market — a total of $28 billion in 2009, according to Ecoanalitica.
Last week, Venezuela's predominantly pro-Chavez National Assembly approved a bill tightening currency dealing rules and giving the Central Bank exclusive control over trading in government bonds — a market where the bolivar also has been sliding. The law bars brokerages from operating in the parallel dollar market through bond trading.
Chavez signed the bill into law on Sunday, saying it would take effect this week upon its publication in the Official Gazette.
"This is to combat speculation of the dollar," Chavez said of the legislation.
Read more at the Washington Examiner: http://www.washingtonexaminer.com/world/venezuela-raids-currency-traders-as-chavez-broadens-effort-to-protect-the-sliding-bolivar-93890969.html#ixzz0oEZ7VzzG
Wall Street Journal: Venezuela Postpones Press Conference On New Forex Rules
http://online.wsj.com/article/BT-CO-20100517-708999.html?mod=WSJ_latestheadlines
CARACAS -- A Venezuela government press conference scheduled for Monday to explain how newly approved restrictions on currency trading will be enacted has been postponed, officials said.
According to a spokesperson for Finance Minister Jorge Giordani, the minister said the press meeting would instead probably be held Tuesday.
Monday is a banking holiday in Venezuela, but President Hugo Chavez nonetheless announced plans over the weekend for a Monday press conference, and the Information and Communications Ministry confirmed it in a statement Sunday.
Investors in Venezuela are anxious to understand what exactly the new currency trading rules will look like, and market observers say delays will not help the situation.
"The more time that lapses before the new market is formalized, the rougher its launch may become," said Russ Dallen at Caracas-based BBO Financial Services.
Last week, Venezuela's legislature, which is majority-controlled by Chavez' socialist party, quickly passed the currency legislation, which is likely to make it even more difficult for people and companies in Venezuela to conduct currency transactions.
The bolivar has been plunging this year in the free-floating, legally murky currency market, creating a huge gap between its rate and the official, fixed rate.
The government has an official, pegged rate of 4.3 bolivars for $1 and another rate of 2.6 bolivars for $1 for vital goods such as medicine. The unregulated market rate is now above 8 bolivars for $1, more than 25% weaker from the start of the year.
The bolivar's decline has created a huge inflation problem, because most imported consumer products are priced in line with the unregulated rate for the bolivar rather than the official rate.
The new rules approved by Congress will become law when published in the government's Official Gazette, perhaps as early as Tuesday morning. Chavez signed the bill Sunday.
The main new rule would be that it gives the central bank the power to regulate the up-to-now unregulated, free-floating market.
Some analysts say that with this power, the central bank may also decide to create a tightly-controlled trading band between 5 and 7 bolivars per $1, to prevent any sharp drops in the currency.
In the meantime, the free-floating currency market remains mostly closed. The majority of brokerages have refused to make trades for the past week due to concerns that if the trade settles after the new rules are enacted, they may be breaking the new laws.
CARACAS -- A Venezuela government press conference scheduled for Monday to explain how newly approved restrictions on currency trading will be enacted has been postponed, officials said.
According to a spokesperson for Finance Minister Jorge Giordani, the minister said the press meeting would instead probably be held Tuesday.
Monday is a banking holiday in Venezuela, but President Hugo Chavez nonetheless announced plans over the weekend for a Monday press conference, and the Information and Communications Ministry confirmed it in a statement Sunday.
Investors in Venezuela are anxious to understand what exactly the new currency trading rules will look like, and market observers say delays will not help the situation.
"The more time that lapses before the new market is formalized, the rougher its launch may become," said Russ Dallen at Caracas-based BBO Financial Services.
Last week, Venezuela's legislature, which is majority-controlled by Chavez' socialist party, quickly passed the currency legislation, which is likely to make it even more difficult for people and companies in Venezuela to conduct currency transactions.
The bolivar has been plunging this year in the free-floating, legally murky currency market, creating a huge gap between its rate and the official, fixed rate.
The government has an official, pegged rate of 4.3 bolivars for $1 and another rate of 2.6 bolivars for $1 for vital goods such as medicine. The unregulated market rate is now above 8 bolivars for $1, more than 25% weaker from the start of the year.
The bolivar's decline has created a huge inflation problem, because most imported consumer products are priced in line with the unregulated rate for the bolivar rather than the official rate.
The new rules approved by Congress will become law when published in the government's Official Gazette, perhaps as early as Tuesday morning. Chavez signed the bill Sunday.
The main new rule would be that it gives the central bank the power to regulate the up-to-now unregulated, free-floating market.
Some analysts say that with this power, the central bank may also decide to create a tightly-controlled trading band between 5 and 7 bolivars per $1, to prevent any sharp drops in the currency.
In the meantime, the free-floating currency market remains mostly closed. The majority of brokerages have refused to make trades for the past week due to concerns that if the trade settles after the new rules are enacted, they may be breaking the new laws.
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