Venezuelan Politics

We were going to write an article about all of the aid that was provided to the people of Myanmar before the cyclone. The problem is, we found little other than Human Rights reports on the abuse by the Military Junta that governs this Southeastern Asian country. In other words, the rest of the World minded their own business as the government there abused its way to create the type of poverty that multiplies the number of victims every time there is a natural disaster.

As heartwarming as it is to drop food to people affected by a flood, a storm, a hurricane, etc., this method is much less effective than figuring out what can be done beforehand to avoid mass deaths. Considering that the aid will be handled by a dictatorship, it's even less effective.

So what can be done? Plenty. For example, read this article from 2005 in which "safe housing" is stressed as a human right.

Given the opacity of Myanmar as a country, we cannot know for sure if the estimated 100,000 deaths are a product of unsafe housing and poor evacuation systems or biblical bad luck. But we do know a lot about Venezuela and specially about Caracas. All a person from the UN needs to do is to take a NY-CCS flight and visit the slums that surround the city (preferably at daytime and with a guide). Then, talk with experts on urban planning and finally take a good look at the creeks near the barrios and project their overflow when a good storm hits*.

Then, they will be able to conclude that the alarms that should be sounding are completely mute. Caracas and Venezuela in general are perhaps less at risk than many other countries but it would be really sad in decades to come to continue seeing UN-labeled cargo planes with food after a disaster strikes instead of warnings from people who should know better.

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* In spite of local expertise, many municipal governments in Venezuela have ignored the risks of not maintaining these waterways and educating the people to do so themselves.

Labels: disasters

The good thing about a double-edged sword is that it, well, has two edges. In other words, you can still use it to slash your opponent instead of killing yourself.

That's the case with Venezuelan oil, which in spite of being used for disencouraging exports by artificially increasing the value of the Venezuelan Bolívar, can also be used for productive investments that we usually take for granted. For example, even if CANTV (the Venezuelan phone company that was repurchased by the government from GTE) will be once again a loss-leader in a matter of months due to a "socialism-oriented management", the State is actually laying out aggressively plenty of miles of fiber optic cable. When a more pro-business government settles in (perhaps in five years from now), we will have a top-notch telecommunications infrastructure at least compared to other countries in Latin America.

And speaking of Latin America, remember when we used to whine about our country not growing and being left behind by other countries such as Chile? Well, thanks to the ridiculous oil price increase and consequential government spending, Venezuela has logged 17 consecutive quarters of > 5% GDP growth. In case you wondered, Chile is doing just fine.



Nowadays, we whine about this Venezuelan GDP growth not propping up our farming and manufacturing base in the same order of magnitude. For example, in the previous post we showed vehicle sales for cars assembled here and abroad. In the year 2002, 59% of 128,623 vehicles sold were assembled locally. In 2007, a record year, that number dropped to 32% of 491,899 cars. In 5 years, sales increased 2.8X but production only 1.1X. In other words, workers from other countries have enjoyed our newly-found wealth more than us.

But that's where the good part of the sword comes in. Just as imports were encouraged in 2007, this year the government has begun a plan to impose a limit on finished goods from foreign countries. After all, even with oil over $110, there's a limit to what we can spend abroad.

And that is the math that many people are doing. With the oil price not showing any sign of slowing down in the short term, the Venezuelan government will continue injecting cash into the economy to avoid the political cost of a recession. But plenty of cash chasing few products creates inflation which the government tried to combat with price controls. But these controls just created scarcity as nobody wanted to sell at a loss or with little profit. Therefore, they're being removed or relaxed. For example, an increase of 89% was allowed for chicken and the price of eggs was freed from controls. Sorry, no idea on what came first.

So, a Venezuelan businessman or farmer now has more options in front of him/her. There's a country full of people willing to buy their wares and the government is finding out that price controls will not work. Not that there's little red tape. There's enough of that to wrap a Tepuy. But still, producing for the local market has become more attractive than last year at least. And all of this due to the side-effect of a poorly managed oil economy. Just imagine if they'd be doing a good job.

Labels: oil money

The interesting chart was built using data from the Venezuelan Vehicle Chamber CAVENEZ. A quick read tells us that local capacity has remained stuck at approximately 13,000-15,000 vehicles for the past 4 years while the slack in demand was picked up by imports. In 2008, the government introduced some restrictions to imported vehicles such as the one in which passenger cars with an engine larger than 3 liters were not granted import permits. Hence the drop.

Labels: cars

At least in Latin America, leftist "revolutions" seem to belong to a time and place. The Cuban revolution, tied basically to its charismatic but dying leader is the most famous besides being the one that has lasted the most. But alas, nowadays the news we hear from Cuba is usually about their citizens receiving benefits that the rest of the world (developing or developed) takes from granted. For examples, now Cubans are allowed to have computers at home. The good thing about living in Cuba is that there no phishing, no spam, no keyloggers, no slave machines, no viruses and many of the other ills that afflict PC users that are connected to the internet. Then again, that Raul Castro is not that dumb.

The point is not to crack jokes about the sad truth regarding deprived and bullied Cuban citizens but to stress the fact that the current communist system is not sustainable there without Fidel Castro and that it's on its last leg. The original enthusiasm that followed the group of combatants that removed Batista from power in the late 1950's is pretty much out of touch with the 21st Century. There was a time when people could make sacrifices for ideology but this is certainly not it and Fidel's brother is well aware that if a transition to something less onerous is not made, then a political bomb could blow up in his hands.

Speaking of political bombs, the news from Bolivia tells us that the forward-looking province of Santa Cruz (where most of the Bolivian industries are) voted "for more independence" from the central government led by Evo Morales, a person committed to the ideology of the Cuban revolution. Mr. Morales has moved to nationalize companies in a country that couldn't afford to alienate investors in the first place. A populist by heart, Mr. Morales was sworn in with the support of the poorest sector of the country.

But why would Bolivia proceed with ill-conceived populist moves in the first place? Because of Venezuela. You see, President Hugo Chávez, who has been governing "for the poor" and giving away money without consequences to supporters here and abroad, can really afford to do so. Last time we checked, the price of oil (which represents 90% of our exports) was at a record high of US$ 106.13 (the OPEC basket) or more than 5 times the price than when Chávez became President. All else equal and if we don't consider US$ inflation, Venezuela has today 5 times the foreign income than in 1999.

But that is not true. Venezuela today produces and exports less oil because the government has mishandled the industry. As a matter of fact, it has mishandled practically everything it has touched. But that won't matter in Venezuela while the oil price remains high so in the meantime, Chávez can fill his mouth saying that his "Bolivarian Revolution" has wings, or legs. But Hugo forgot to tell his pal Evo to read the fine print when buying a magic revolution: "results may vary".

Labels: bolivia

For those of you new to Venezuelan politics in general, Leopoldo López, the current Mayor of Chacao (one of the districts in Caracas) is officially running for Mayor of Caracas as a whole. This larger post is called "Alcaldía Mayor" or "Greater City Council". Although in an ideal country, there would be a smaller number of Mayors in a city of 5 MM (there are 5), there is still a lot to do for every one of them.

The most important task, in our opinion, is to manage the city police efficiently. Each Mayor has its own preventive police force and unless you are a die-hard radical, you can give credit to the police departments of Chacao (López - opposition), Baruta (Capriles Radonski - opposition), Sucre (Rangel - government) and El Hatillo (Catalan - opposition), who have done a better than average job to keep crime off the streets. Even so, Caracas is one of the most dangerous cities in the World. Poverty, inequality and a weak Justice system are a breeding ground for the multiple assassinations we read about every weekend.

And that's where Mr. López can help. The Metropolitan Police, which covers the whole city and blankets the efforts of the local police organizations, is the most understaffed, underfunded and poorly-trained group in the city and has historically been used for political purposes since even the previous Caracas administration by Alfredo Peña (opposition). The fact that the current Mayor of Caracas, Juan Barreto even wanted to "give it away" to the central government (i.e. Chávez) as an extra group of "armed revolutionaries" just proves that Barreto does not have the slightest idea of what crime prevention is all about. Contrast that with the effort that has been made by Chacao to improve its police and the next election could be a no-brainer on who to pick.

But this change in Caracas is not easy. As a matter of fact, it's incredibly hard. That's where the group of "La Ciudad Que Queremos" (The City We Want) comes in. You see, parallel to his campaign, López supporters are setting up a group of voluntary helpers to "plan the city". Yes, that's right. What seems obvious in retrospect hasn't been applied by any Caracas Mayor since perhaps the 1940's when Altamira (within Chacao) was designed. A city, even one where there is no space to build further, needs planning and this group is supposed to help. When I signed up (a disclosure of sorts) they asked me what I could do and then said that they would allocate me with a group in which I could help. Hopefully, if Leopold López wins the election, this effort will be integrated in the organizations that are already part of the City Council and avoid duplicating efforts.

Anyhow, it won't be an easy race to unseat Chávez's hand-picked city Mayor. Some people argue that Leopoldo López can be cast as an "elitist" and rejected by the poorest people. Then again, these people forget that when somebody moves to Caracas and is bound to a slum, they do it to improve their status. And if they can get the former Mayor of Chacao (perhaps the richest district per capita in Latin America), then they'll probably go for him.

Labels: Caracas

Who said investing in Venezuela was for losers? You can either make a killing or lose your shirt by investing in the currency market. Below you will find the annual historical returns for buying and selling VEB for every week since 1998.



The fun began in February 2002, just before the PDVSA strike. Since then, it's been a roller-coaster (red curve) in which you could make money both ways, depending on whether you were buying or selling Venezuelan bonds in Bs. or US$.

Labels: bolivar dollar investing

If you want to know why the "socialist" PDVSA (Venezuelan Oil Monopoly) is producing less oil every day, read this excellent article regarding the Rockefeller heirs. There you can see the clear distinction between the money-making arm of the family (i.e. their shares in Exxon-Mobil) and the philanthropist arm (the Rockefeller foundation).

In Venezuela, this distinction should be made: PDVSA's purpose should be making money for its shareholders (currently the State but the people should have a direct participation, too) and the government's purpose should be using this money to aid the development of the nation as a whole. Sounds simple but there is a countless number of people who do not understand this separation and applaud the new red (as in lossy) company.

Labels: PDVSA

Independendently of what your opinions are on Ayn Rand, you can't object to the fact that even after her death, her ideas have been able to stir enough controversy to keep us entertained. In the worse case, her objectivism has fueled many Op-Ed articles (yes, this one too). After all, it's cool for a decently-educated and/or talented person to consider himself a Howard Roark or Atlas. How many of us would like to look down on others while we think to ourselves: "poor bastards, if it weren't for us, they'd be nothing". You've got to admit it, being an uncomprehended genius is fun.

So as we were enjoying our break from feeling superior by writing Op-Eds (ok, the abbreviation is silly: it sounds like an old surf clothing brand worn together with sneakers), we came across an old article (early 2007) by the Editor of The New Individualist in which he tells investors to flee Venezuela and not act like Atlas supporting a "progressive dictator" like Hugo Chávez. He supports his argument by saying that AES (the former owners of "La Electricidad de Caracas") were duped by Chávez. Of course, hindsight is 20/20 and if we just mentioned that the AES stock jumped after selling EDC to the Venezuelan government, we wouldn't be doing anybody a favor. In a nutshell, the worst-case scenario in which the government didn't pay a cent for EDC did not come to pass.

But what many Venezuelan business journalists knew at the time is that AES had been threatened for years and that it had slowly been selling off non-strategic assets from the EDC. So by the time they sold it to the government for "less money" than they bought it, they really were selling a smaller company. To give you an example, nowadays there is no customer attention office of the EDC in the Tamanaco shopping mall in Caracas (its acronym is CCCT, but it's just the opposite of the former CCCP). Why is there no office in one of the most important malls in Caracas? Because they sold it and moved payments and support to more automatic means even if many Venezuelans still prefer to visit a teller. The EDC also outsourced bill payments to banks, too.

So AES didn't lose in its Venezuelan adventure. It "shrugged" a long time ago or so to speak. Many investors have fled and others don't give the country a second thought (that's if they gave the first one). The Chávez government has been particularly terrible for investors in a country that wasn't that attractive in the first place. However, there are still foreign companies here making a profit. Last month Toyota manufactured 2,692 vehicles in Cumaná even though they had a hard time finding dollars for importing the great number of parts required for each car and they had been called "antipatriotic" by a local Mayor. Toyota doesn't manufacture cars out of "kindness", they do it because it makes sense to sell a Corolla in Venezuela 80% more expensive than in the USA*.

And finally, the author of the article also ignores who is the real Atlas supporting the Venezuelan economy and government (nop, not him). It's not those that do business with Venezuelan oil but the oil economy itself. It's hard to believe that USA companies that are buying Venezuelan oil are doing it due to some kind of altruism and not because it's the most convenient and/or inexpensive option. When it comes to petroleum, historically they don't seem to mind doing business with dictators, progressive or not. The imperfect global energy economy (renewable energy should be way more advanced than it is now) sustains weak democracies like ours and because that Atlas won't shrug, the government has very little incentive to improve.

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* Aha! You were curious about the number. Here's where it comes from: the top-of-the-line Corolla in Venezuela has a MSRP of Bs.F. 80,332 whereas the top-of-the-line Corolla in the USA has a MSRP of US$ 19,950 which would mean an exchange rate of Bs.F/US$ 4.00. But since they receive(d) preferential dollars at Bs.F 2.15, the difference would be around 80%.

Labels: aynrand