Oil Wars

When Chavez came to power he vowed to change Venezuelan oil policy. He would respect OPEC production quotas, cut back on oil ouput, and help bolster oil prices. This was a 180 degree turnaround from Venezuelan oil policy up to that point where production was maximized and everything possible was done to accamodate foreign oil interests. Chavez’s assertive oil policies produced immediate dividends for Venezuela as oil went from $8 per barrel to over $20 per barrel.

One aspect of this policy was for OPEC to implement a price band. The band was from $22 to $28 per barrel. The way it was to work was for production to be cut if prices fell below $22 and for it to be increased if it went above $28. While this was a very sensible and succesfull policy it was viruntly attacked by Chavez’s oppenents. The arguement was that by increasing prices OPEC was making oil so expensive that consumers of oil would cut back on consumption or switch to alternative energy sources.

However, that arguement never held much water. It ignored the fact that even at $28 per barrel oil was very cheap by historical standards – aproximately a third of what it was in the early 70s and early 80s. In fact for most of the past year oil has been priced at about twice the upper end of the band and it still turns out that oil, and the gasoline it is refinted into to, is inexpensive . An excellent analysis of this was published in the USA Today:

Gas prices too high? Not by historical standards
By Mark J. Perry

By Mark J. Perry
If you're like most Americans, you have probably found yourself complaining lately about the high price of gasoline — especially if you just spent a day or two in the car over Memorial Day weekend.

A USA TODAY/CNN/Gallup Poll in May found that 59% of those surveyed said high gas prices had caused a hardship on them.

You might even find yourself longing for the good old days of cheap gas. If so, think again. Gas prices today, by any measure that adjusts for inflation and rising real income, are a bargain.

Gas prices appear to be at a historical high, and prices of the past appear to be cheap (17 cents per gallon in the 1930s, a quarter in the 1950s and 50 cents in the 1970s). But this is a classic example of "money illusion." In real inflation-adjusted dollars, gas prices are the same or lower today than in most previous decades.

Measured in real dollars, gas prices peaked in March 1981 at more than $3 per gallon. We have not even come close to paying the highest real gas price in history — today's prices are still 30% below the all-time high.

We can compare gas prices over time by calculating the cost of 1,000 gallons of gas purchased at the average price in a given year, as a percentage of per-capita disposable income in that year. For example, in 1935, when gas prices were 17 cents per gallon and annual disposable income was $466, the cost of 1,000 gallons of gas was 36% of average disposable income. Today, it takes less than 7% of our disposable income to buy 1,000 gallons of gas at the current $2.10 a gallon. The "cheap" gas of the '60s and '70s cost about 12% as a share of income.

Prices stable

Gas prices since the mid-1980s have not only been more affordable as a share of income than at any time, they also have been remarkably stable. The recent small increase in gas prices relative to income is fairly insignificant.

Further, we can avoid money illusion by pricing gas in "minutes of work at the average wage per gallon of gas," instead of dollars per gallon. Priced in minutes per gallon, you certainly wouldn't be longing for yesteryear's gas prices.

A typical American working today at the average hourly wage of $17.50 works about seven minutes to buy a gallon of gas for $2.10. In contrast, the average worker in the 1930s worked more than 20 minutes to buy a gallon of gas. During the 1940s, it took 12 minutes of work. During the 1950s, it took about 10 minutes per gallon.

Cost in minutes

Americans are paying about the same for gas in minutes per gallon today (7.2 minutes) as during the 1970s, when the retail price was only 40 cents per gallon, and much less than during the early 1980s (more than 10 minutes per gallon) when real gas prices peaked.

Finally, consider the consumers in most other countries. With the exception of members of the Organization of Petroleum Exporting Countries, such as Iran, U.S. gas prices are lower than almost anywhere in the world.

Go to Europe and you'll pay from $5 to $7 per gallon — even in Finland and the United Kingdom, which are major oil producers and exporters. In Mexico, the world's fourth-largest oil producer, they pay $3.20 per gallon, about the same as in India, Brazil and Singapore.

Consumers might have a lot of gripes to justifiably complain about, but the illusory high price of gas is not one of them.

The good old days of cheap U.S. gas are here now.

Mark J. Perry is a professor of finance and economics at the University of Michigan-Flint and an adjunct scholar at the Mackinac Center for Public Policy in Midland, Mich.

Of course, as interesting as this analysis is and as many different calculations that he did to show how in monetary terms and in time worked gasoline is inexpensive the real proof of the pudding is in the eating. So are people in the U.S. cutting back on gas consumtion due to the higher prices? Not at all. Witness this article:

Drivers use more gas despite prices
By Barbara Hagenbaugh, USA TODAY
WASHINGTON — U.S. drivers are using more gasoline despite near-record prices, a trend that could lead to even higher prices at the pump in coming weeks.

The four-week average for U.S. gasoline demand was up 2.9% from a year ago last week, which included Memorial Day, the unofficial start to the summer driving season, the Energy Department said Wednesday. That's the strongest year-over-year increase in four months and the sixth-consecutive weekly gain. Gasoline supplies could grow tight and prices rise if the trend continues, Alaron Trading oil analyst Phil Flynn says.

So there you have it. Even at oil prices of over $50 per barrel, way over what Chavez’s opponents said was too high, consumption is unaffected. This shows just how cautious and prudent the $22 - $28 price band was. Recently Venezuela has been pushing within OPEC for the price band to be increased to over $40 per barrel. The empirical evidence to date shows that is very reasonable and workable. If OPEC is smart it will listen to the Venezuelans.

And as for Chavez’s opponents – do you think they’ll admit they were wrong on this and apologize? After all, Chavez being right and being so assertive on this has created a windfall for Venezuela. But to date they haven’t and I’m not holding my breath.
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When Chavez raised the royalties for Venezuela's heavy crudes from 1% to 16.6% the vendepatrias of eastern Caracas cried that you can't do this as the western oil companies will all leave. Never mind that even the ultimate free market country, the United States, charges similiar royalites. .

But even if they do leave Venezuela has a pretty good plan B in the form of the fastest growing economy in the world - China. Witness this article where the Canadians, who have heavy sand oils similiar to Venezuela, are fearfull of losing out to the "bad boy" of South America:

Alberta Keeps Eye on Venezuela Flirtation

By PATRICK BRETHOUR

Monday, March 7, 2005



CALGARY -- As Canada frets about China snapping up oil supplies here, the Asian giant is being wooed by the bad boy of South America, Venezuela's Hugo Chavez.

Senior Chinese leaders have touched down in Caracas in recent weeks as part of wider tours of South America and the Caribbean, with those meetings culminating in agreements to explore for oil in Venezuela.

It makes a curious case for a strategic alliance: On one side, an emerging communist superpower that prefers to deal with state-controlled industry, and on the other a politically unstable oil-rich nation that is looking to reduce its dependence on the United States.

Yet even while Mr. Chavez tangos with the Chinese, he has been tangling with giant oil companies that he views as surrogates of the Bush administration -- which he is convinced is a dark force plotting his assassination.


Alberta is watching closely. It competes with Venezuela for oil exports and in attracting investment capital. That means Canadian oil-sands companies may have to vie for China's investment dollars with a regime willing to cut a sweetheart deal to score political points in a government-to-government agreement.

Then again, there is a potential upside for Alberta, too, if U.S.-based oil giants decide that the fickle and fiery Mr. Chavez poses too much of a risk to the billions in capital needed to develop Venezuelan heavy oil.

"They've created uncertainty, which always hinders investment," says Murray Smith, a former Alberta energy minister and now the province's representative in Washington.

That uncertainty is less of a hindrance to China, on the hunt for new sources of crude as its need for imports soars. China is taking an increasingly bigger role, not only as a partner in exploration, but as a new market for Venezuelan crude. The Chinese need for new oil supplies is meshing with Venezuela's desire -- or at least that of its controversial president, Mr. Chavez -- to wean itself from depending on the U.S. market for sales of its crude and gasoline.

The flip side of Venezuela's courtship of the Chinese has been the pressure brought to bear on giant U.S. oil companies such as Exxon Mobil Corp., including increasing royalties by nearly 17-fold last fall.

A prominent Venezuelan expatriate says the government is targeting supermajors such as Exxon to retaliate against the Bush administration, which Mr. Chavez has accused of a host of sins, including plotting to kill him. "Chavez is doing anything and everything he can do to hurt the United States," says Luis Guisti, a former head of the state oil firm Petroleos de Venezuela SA and now a board member of the Centre for Global Energy Studies in London.

Mr. Giusti, for one, has little doubt that the Chinese will seek to take full advantage of any overtures from Mr. Chavez. "I think they're seeing fertile ground in Venezuela. They're seeing that the way this man is lining up his strategy could be a big opening for them."

Mr. Giusti is far from a disinterested observer; he exited PDVSA following Mr. Chavez's 1999 election. But he has decades of experience in the country's oil sector, and spent years dealing with the Chinese. When he was the head of PDVSA in the 1990s, he says, Chinese state oil firms were perfectly willing to pay rich prices. "The Chinese, they came and they outbid everybody," he says.

But Mr. Giusti says he believes the Chinese would prefer to strike a government-to-government deal for oil supplies, viewing that as an "easier way" than the sort of competitive bidding process that was part of Venezuela's apertura policy of liberalization and, of course, is the way in which any assets in Canada would have to be acquired.

Despite being nominally independent, state oil firms such as Petro-China or Sinopec Corp. are "virtually former government ministries" being deployed to carry out China's great-power goals, says an expert on China trade and politics.

"It's not just a matter of commerce, it's a matter of strategic interest," says Wenran Jiang, an associate professor of political science at the University of Alberta.

In that light, Canada's close association with the United States is a negative for the Chinese when considering where to invest, Mr. Jiang says, with the worry being that China would be cut off from oil sands production in the event of a supply crisis. For China, that is equivalent to the kind of political risk the U.S. supermajors face in Venezuela. Such a perception of risk could mean the Chinese feel compelled to seek better economic payoffs in any Canadian deal as a counterbalance, Mr. Jiang says.

But he has little doubt China's thirst for oil is great enough that it will eventually turn to Alberta's oil sands. "Sooner or later, they will come."

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Mary Anastasia O’Grady, the Wall Street Journals dedicated anti-Chavez scribe, was back to work today. In her latest volley against Chavez she took up the cause of the Maria Corina Machado, the leader of SUMATE who was last seen hanging out with Bush in the White House. As I mentioned the last time Ms. O’Grady wrote an article on Venezuela her job of decrying Chavez has become more and more difficult, to the point where she generally has to use outright falsehoods to make her point. Today’s essay was no exception. Those wishing to read the entire article may find it here but I will comment on the most salient points:

“Chávez paints himself as the second coming of Fidel Castro, who few serious politicians would regard as a Latin democrat.”

No, Ms. O’Grady, Chavez doesn’t paint himself in any such way. It is YOU, and others opposed to him, who try to portray him this way. Why? I don’t know. Maybe because seeing as Chavez has done precious little that you can criticize without resorting to outright lies you have to try to smear him through guilt by association. You can do that all you want but it won’t work – first and foremost because Chavez himself has been exceedingly clear and unambigious that he is not the second coming of Castro or anyone else and that Venezuela is not trying to emulate Cuba. As far as what most serious politicians think of him take a look at what happening at the most recent O.A.S. meeting. That should clue you in.

“Chávez's battle cry is class warfare, even as his policies make poor Venezuelans even poorer.”

Chavez is making poor Venezuelan’s poorer? I don’t think so. Ms O’Grady your ignorance of all things Venezuelan is shining through. In an effort to enlighten you take a look at this. As you will note the income of poor Venezuelan’s went up by 33% last year. Maybe you are mixing up Chavez and the opposition? In that case let me remind you it was the opposition who tried to drive poor Venezuelan’s into the ground by shutting down the oil industry. Yes that’s right, in spite of their new found concern for the state of the economy and the welfare of the poor they spent the better part of two years doing everything they could to destroy both. Chavez is the one who led the recovery of oil production and then used the money from it to implement the social programs which have done so much to increase the income and well being of the poor. Hope this helps clearify things.

“Súmate is adamant that it is not concerned with who governs but rather that those in power respect the rule of law. The Venezuelan democracy, Súmate points out, was set up with a separation of powers, an independent judiciary, civil rights and provisions for clean elections. "It is not enough to have elections," Ms. Machado says. ‘They must be free, fair and transparent. Once elected, you have to behave democratically.’”

I have my doubts about Ms. Machado’s professed concern for the rule of law and democracy. One wonders where this concern was in April 2002 when the opposition overthrew the government, abolished every elected body, and simply ripped up the constitution (who needs to waste time with things like constituent assemblies). If she believes in democracy why didn’t she speak out against what was happening? She definitely was aware of what was happening as she personally (along with her Mom – a very tight relationship obviously) went to Miraflores and stood in the very room where all this was happening.

Actually, when Ms. O’Grady interviewed Ms. Machado she should have asked her why she went to Miraflores that day. I’ve always wondered about that – why would you go inside the presidential palace when the coup leaders where carrying out their coup? Could it be that she doesn’t really support democracy? Could she be like so many others, Teodoro Petkoff for instance, who today pretend to care about democracy and the law but when the chips were on the table on April 11th 2002 cheered on a coup? It sure does look that way.

"It is a matter of record that the Chávez-controlled National Electoral Council (CNE) had custody of the electronic voting machines in last year's recall referendum and refused to allow an independent audit of the paper ballots.”

I’m starting to lose track of how many outright lies we’ve come across in this article. I’m sure Ms. O’Grady must be aware that the referendum she is referring to was fully monitored by the Carter Center and the OAS and both found no evidence of fraud. And indeed they DID audit the voting machines and the machines passed the audit with flying colors. If she is unfamiliar with this she can check the Carter Center report on the referendum linked to on the right. Further, SUMATE has spent most of the past year trying to find independent experts who can back up their claims of fraud. So far they haven’t found a single one.

And again Ms. O’Grady lost the opportunity to ask an important question of Ms. Machado. Her organization, Sumate, carried out exit polls during the referendum. This poll, which was illegally distributed before the polls even closed, supposedly showed Chavez losing the referendum by a 60-40 margin when the official results, verified by the observers, showed him winning by an almost 60-40 margin. It is Sumates exit poll that served as the basis for the claims of fraud. But there is a problem. First, almost all other exit polls on that day showed that Chavez won. Second, the audited official vote totals show that he won. And lastly, even most opposition types with some modicum of rationality accept that he won. So clearly, the Sumate exit poll was very, very wrong. How is this possible? Is it possible that Sumate is so inept that their exit poll really gave such erroneous results? Or is it that to help the opposition save face and undermine Chavez the poll results were intentionally falsified? Too bad O'Grady didn't ask because inquiring minds do want to know.

“To try to maintain his popularity, Chávez spends government revenues, which come mainly from state-owned oil, on free-wheeling social programs. But it's hard to tell from opinion polls just how popular he is, given the threats critics face.”

Ms. O’Grady doesn’t like any opinion poll that doesn’t give her the results she wants. That’s understandable. But to say people are afraid to speak freely in Venezuela? I don’t know – why were they so willing to speak freely a couple of years ago when Chavez was down in the polls but not now when he is up? Almost all the opinion polls are done by firms known to be very hostile to Chavez and you don’t have to give your name. So as much it sticks in O’Grady’s throat the only rational conclusion is that Chavez is indeed quite popular.

Now here is a final thought. Ms. O’Grady is something of an intelligent women. So wouldn’t you think the fact that she has to knowingly write so many lies and falsehoods would cause her to question what she is doing? I sure would hope so. Then again, maybe she just needs the paycheck.
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Not much to mention in the news from Venezuela today. The talk of the town is the butt whipping given the U.S. at the O.A.S. But seeing as that was amply covered yesterday there is no need to dwell on it. So time to play catch up on some odds and ends that don’t justify posts in their own right but are worthy of mention.

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First, it appears that the European Union will not be sending a group of observers for the local elections in August. The reason given by the E.U. is that they normally do not send observer groups for local elections, only national ones. However, the C.N.E. is still making it clear it wants them to come (no matter how much Tulio Alvarez might object ) in December for the National Assembly elections.

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Next, there was more good news on the economic front. It was reported in Panorama today that automobile sales keep increasing this year by leaps and bounds. In May 2005 14,716 cars were sold in Venezuela compared to 9,537 in May of 2004. This is an increase of 54.3%. Year to date 76,621 cars have been sold which represents and increase of 82.58% with respect to the 41,966 sold through May of last year.

The other day we saw how the poor in Venezuela had their income increase by 33% in 2004 which is certainly very good news. But these sales numbers show that it is not only the lower classes that are doing well, but the middle and upper classes as well. Clearly these cars are not being purchased by people in Mission Robinson. The middle and upper classes, who in general despise Chavez, can bitch and moan all they want. But what they are doing with their wallets, as evidenced by these sales statistics, speaks much more forcefully to the true state of Venezuela than any of the ridiculous placards they carry at marches.

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On another note the foreign oil companies operating in Venezuela better watch out, the tax man in coming. Jose Vielma Mora, the head of Venezuela’s tax service SENIAT, announced that he believes foreign oil companies in Venezuela owe $3 billion in back taxes. If indeed they owe that money they better pay up. Mora doesn’t suffer tax cheats. After decades of rampant tax evasion by Venezuela’s commercial and upper classes SENIAT now has teeth and consistently exceeds its tax collection goals. The reason is that they have imposed strict record keeping and reporting requirements on Venezuelan businesses. Businesses are regularly audited by the tax authorities and if anything is out of order, even due to sloppy record keeping, heavy fines are imposed or the establishment is temporarily closed. So these oil companies better not be trying to pull a fast one or they will definitely regret it.

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A final note on the economy. Inflation through the first five months of the year was 7.4% as compared to 9% through the first five months of 2004. So along with all the other good economic news inflation maintains its downward trajectory.

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The last little item is another example of the age old item that copying someone the sincerest form of flattery. Recently it seems a good many people are trying to emulate Chavez. For instance last week we saw how some other countries are copying his oil policies. In fact, if he could patent his ideas and license them as intellectual property just those royalties alone would do much for the Venezuelan treasury!

Today it was Colombia’s turn to follow in Chavez’s footsteps. One very sensible policy that Chavez has followed it to quit running up foreign debt and when debt is needed make sure it is local debt in the local currency. This is a very smart policy because paying back debt in your own currency is much less onerous than paying it back in hard currencies. It greatly mitigates the negative aspects of inflation because if your debt in your own currency then to the extent you have inflation the money you have to pay back is less valuable and not as difficult to obtain. And it reduces the need to do everything possible to keep an over valued currency.

Today Colombia announced that it was following Chavez's lead on this and swapping $3 billion of debt in dollars and euros for debt in Colombian pesos. Pretty soon the Colombians won’t need a finance minister – they can just watch Alo Presidente and follow Chavez’s cues.
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Maria Corina Machado’s kids must be feeling really let down today. They thought that over the past couple of days their mom would get to play the role of dragon slayer, cutting that dastardly Hugo Chavez down to size. She, along with her gringo friends was going to get a change in the in the OAS Charter to deal with “undemocratic” countries. I never could figure out exactly what they were going to put in the charter about this. Maybe a rule saying that any government that wins more than 3 elections in a row is undemocratic by not letting its opponents win once in a while?

Anyways, its an academic question at this point as the U.S. proposal went down in flames for lack of support. So much for that idea. This shows why the U.S. doesn’t like votes on international questions. It much prefers to have these questions decided based on who has the most aircraft carriers and cruise missiles. [There is a report, as yet unconfirmed, that in response to not being able to win any recent OAS votes the U.S. has decided to unilateraly change the OAS so that each STATE in the U.S. gets a vote – ie the U.S. as a whole gets 50 votes and always wins. Stay tuned for updates]

Of course going in it was a pretty much a forgone conclusion that the U.S. wasn’t going to get its way so that really didn’t upset anything. But at the very least they had been hoping for a two day anti-Chavez propoganda festival where they could tell the whole world about their new bogeyman and fill up the U.S. media with lots of anti-Chavez stories. Unfortunately for them they didn’t even get that. No sooner than the conference gets going than the president of Bolivia gets overthrown completely upstaging whatever boring stories on Venezuela’s “warts” may have been about to come out. Maria’s kids never did get to see their mom on TV cutting Chavez down to size.

Of course, not all was lost. The Wall Street Journal editorial page stayed on message and wrote the perfunctory anti-Chavez editorial – all four paragraphs of it neatly hidden in the crease. Clearly their heart wasn’t in it. For the most part they just trotted out the same old canards that they have been using to no effect for years now – “Chavez is an autocrat”, “he is destroying democracy”, “he controls all the institutions”, blah, blah, blah. And even when they did try something new they just looked foolish. For example, they said “Chavez is a living reminder of the old Latin saw, “one man, one vote, once.” Errr, guys, Chavez has one three votes at this point. But hey, who's counting. [PS, I think there are a lot of gringos who would LOVE to get “one man, one vote” even just once – they’ve never gotten it in their whole history - dammed electoral college]

They did put in what is their mantra on Venezeula at this point by calling last summers presidential referendum “stolen”. Of course, the international observers including the OAS said it was fine, but I guess they missed that. Of course, even the U.S. State Department accepted the results, but I guess they missed that. Of course, even the few rational souls (and even some of the non-rational ones too!) left in the Venezuelan opposition accept Chavez’s victory, but I guess they missed that. And we’re going on a year now and they haven’t found even one independent expert who agrees with any claims of fraud, but the WSJ hasn’t bothered to think about that.

So there you have it, the whole sad little spectacle. Pobrecitos, their mom went all the way to Ft. Lauderdale and all they got was one crappy little editorial. Hopefully she’ll make it up to them by taking them to Disney. In my experience, Mickey Mouse can cheer anybody up.
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Here is yet another example of what the U.S. thinks about everyone else in the world and their legal systems:

A Spanish judge wants to question three U.S. soldiers as suspects in the death of a Spanish cameraman who was killed when a U.S. tank fired on a hotel housing foreign journalists during the 2003 assault on Baghdad.
"It would be a very, very cold day in hell before that would ever happen," said a State Department official, who asked not to be named.
The Pentagon has found no fault with the soldiers, but High Court Judge Santiago Pedraz wants to question the three men who were in the tank, a court official said on Tuesday.
Telecinco cameraman Jose Couso and Reuters cameraman Taras Protsiuk died and several other people were injured by a shell fired on the Palestine Hotel in the Iraqi capital on April 8, 2003, in the U.S.-led war to topple Saddam Hussein.
The Spanish court would only have jurisdiction in the death of the Spanish citizen.
The soldiers would be questioned as suspects for murder and for crimes against the international community, which carry sentences of 15 to 20 years in jail and 10 to 15 years respectively.
Pedraz on Tuesday agreed to send a request for U.S. cooperation in the investigation, but he is still only in the initial stages of the criminal investigation and several steps away from bringing charges.
Pedraz's investigation stems from a complaint brought by the Couso family.
Legal sources say the U.S. Army is unlikely to grant access to the soldiers, and if the case ever got far enough to warrant arrests the soldiers could only be arrested in Spain. The judge is willing to travel to the United States to take their statements, the court official said.
"I just cannot imagine how any U.S. soldier can be subject to some kind of foreign proceeding for criminal liability when he is in a tank in a war zone as part of an international coalition," the State Department official added.
A Pentagon report on the incident concluded U.S.-led forces bore "no fault or negligence."
The Pentagon released a brief summary of the report in August 2003, which ruled that American forces acted "in an appropriate manner" when they fired into the hotel, but the full report was classified.
The New York-based Committee to Protect Journalists obtained the 52-page report under the U.S. Freedom of Information Act and said it strengthened its own finding that the hotel shelling could have been avoided.

Am I the only person who has noticed that the U.S. Army seems more adept at shooting journalists than insurgents? I wonder why that is.

Also, is it just me or do all military inquiries always exonerate U.S. soldiers accused of wrongdoing? Except of course when those soldiers are being used as scape goats to cover up for the wrong doing of generals and the Secretary of Defense.
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In the first installment we described what it was like when Venezuela was run by bankers who knew how to have a good time with other peoples money. In today’s installment we will see what happened when anyone, government officials included, crossed them.

The Price of Vigilance in Venezuela’s Banking Community

Wall Street Journal
March 4, 1994

By Thor Halvorssen

Carlos Andres Perez was Venezuela’s first re-elected president. His 1989 come-back had the makings of a new era in the development and restructuring of Venezuela. I had served in his first term and was excited about the potential of his second. A few weeks after taking office, President Perez designated me anti-drug czar. He instructed me: “Tell the Americans that mine will be a term known for its commitment in the drug war.” After one year, my reports on money-laundering and drug-trafficking were no longer welcomed by the president. However, I was not dismissed, so I continued my investigations.

In 1992, the Venezuelan Senate, inspired by the U.S. Senate investigations, created an Anti-Money Laundering Commission. In March of that year I was appointed special overseas investigator for that commission. Among the banks I was investigating was the now defunct Banco Latino. It seemed inconceivable to me that this bank could move the enormous amounts of money that it did without being involved in some kind of money-laundering scheme. I alerted the U.S. Federal Reserve and the New York District Attorney’s Office of my suspicions. I believed the bank was used in a Ponzi scheme that sooner or later would have to fall.

In September 1993, an informant gave me a brief with incontrovertible evidence of money-laundering in Venezuelan banks. The largest amount of evidence concerned Banco Latino. Shortly after I received that evidence, an attempt was made on my life, foiled only because I was not traveling in my usual vehicle. However, the brief was taken from that car. The next day, and on two other occasions, I told the acting interior minister, Carlos Delgado Chapellin, that I was under surveillance and thought it was due to the Banco Latino investigation. I asked for his support. “Thor, the doors to my office will always be open to you,” he responded.

I immediately left for New York to meet with Manhattan District Attorney Robert Morgenthau. More than 90% of Venezuelan international wire transfers go through Manhattan and are consequently in his jurisdiction.

When in New York, I received a call from Jesus Abreu, right-hand man of Banco Latino Chairman Gustavo Gomez Lopez. Mr. Abreu asked if I could come to Venezuela right away for a meeting with the bank’s chairman. I suspected that they wanted to come to an agreement for a plea bargain. A meeting was set for Oct. 8 at 11 a.m. A treasury agent in New York warned me that it might be a trap. I took no heed of this warning.

I flew back to Venezuela. But the day before the meeting, Mr. Gomez Lopez’s secretary canceled it. The next day, I was arrested by the Venezuelan Technical Judicial Police and charged with masterminding a series of bombings that had rocked Caracas during the summer.

Neither my home nor my offices were searched by the police. No member of my family was interrogated. No evidence was brought forth against me – not even fabricated evidence. The only thing used to keep me in custody was testimony extracted under torture from one of my alleged co-conspirators. It is clear today that there was never any intention to convict me. My life was to be taken when I was in custody.

Two days after my arrest, Orlando Castro Llanes, a man I had investigated, went to the police with “evidence” trying to link my supposed involvement in the bombings with some of his banking rivals. His son, Orlando Castro Castro, a board member of several banks and insurance companies came with him. At the time, I was sitting in a room in the homicide department. Suddenly I was handcuffed and the four officers assigned to guard me left the room. Orlando Castro Castro entered the room and struck me in the head and neck. He then pummeled my rib cage, fracturing three ribs. After the beating, he said: “This is just the beginning before the cemetery. I want you to get the feeling of it.” The young banker then left me bleeding on the floor.

The result of the beating was verified and photographed by an Amnesty International representative (a medical doctor) sent from England a month after the event. The evidence of the attack was unmistakable even after nearly 30 days.

While in the hands of the police chief, Orlando Jordan Petit, I was psychologically and physically tortured and sent to a maximum security jail, Reten de Catia. While in the prison, I was put in a section known as “the pit,” punishment cell. Another attempt was made on my life there. The assassins, prison inmates from another wing, were sent to Cell 407, where they took the life of two inmates imprisoned there. I was in Cell 417.

My knight in white armor arrived in the form of British writer David Yallop, an old friend. He and I had been working on a book about money-laundering in Venezuela. Mr Allop began a media campaign to counter the one being waged against me. His efforts were halted when uniformed members of the police forced him – at gunpoint – to leave the country. The justice minister, Fermin Marmol Leon, who had declared me guilty hours after my arrest, now stated that my life could not be guaranteed while I was in custody.

However, after 74 days of imprisonment, I was unconditionally released. Fortunately, the police had not bothered to fabricate evidence, and “lack of evidence” was the official reason given for my release. In fact, international pressure exerted by Mr. Yallop, the Manhattan district attorney, British Parliamentarians and human-rights groups saved my life.

This deplorable, unabashed violation of human and civil rights demonstrates the extent to which members of a corrupted banking system are willing to go to eradicate those who oppose them. The new president, Rafael Caldera, has shown strength and courage in his efforts to expose the scandal behind Banco Latino and other banking institutions. But this is a scandal that will not go away until those responsible are punished, their influence in Venezuela wiped out, and their ill acquitted wealth confiscated.

Poscript: Mr. Halvorssan unfortunately was later implicated himself in acts of corruption and left Venezuela. He was last known to be living in Philadelphia and has been active in the Venezuelan opposition. Fortunately, at least he give us a window into how things worked when the opposition was running the government and he certainly did get the last sentence of this article right.
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One of the great imponderables for the Venezuelan opposition his how Chavez is so popular after nearly seven years in office when, according to them, the country is coming apart at the seems. The explanations range from the superficial (“it is all based on promises”), to the bizarre (“Chavez supporters don’t believe in rational things like improving their standard of living”), to the ostrich strategy (“most Venezuelans want him out – I don’t care what all the polls say”). What the opposition will twist, and turn, and do anything to deny is the real explanation – that things are getting better under Chavez and that it is this improvement in their standard of living that leads most Venezuelans (over 70%) to support him.

Of course, talking to people in the popular neighborhoods of Venezuela this is all very obvious (of course, most opposition supporters assiduously avoid those areas). And there have been statistical indications that things were improving – the phenomenal GNP numbers and declining unemployment rate. Yet it was difficult to know how exactly those things impacted the most marginalized in Venezuela.

Yesterday, thanks to the good work by the people at Venezuelanalisis, we got to see this quantified. The information actually comes not from Venezuelaanalisis but from Datos, a polling and analysis firm that has been in business for 50 years. Recently they gave a presentation at the U.S-Venezuelan Chamber of Commerce (a highly anti-Chavez forum) where they presented some interesting data on the composition of Venezuelan society.

First some background. When analyzing the economic stratification of Venezuelan society Venezuelan’s break the groupings into different letters with A being the upper classes, B upper middle class, C middle class, D working class and/or poor, and E very poor. So in giving the presentation Datos used these categories and gave background on each of them, their size, income, common items owned, etc.

Knowing this lets look at some of their slides:



The first slide give background on groups A and B, which are upper class, and the upper part of group C, which would be upper middle class. This segment is made up of 1 million people (out of 25 million Venezuelans you can see it is quite small). They own large houses or apartments, vacation homes, and travel abroad. The appliances and goods that they own need no translation and you can see what percentage of these households have them.





This slide shows the lower part of group C, or the lower middle class. This group is made up of 3.9 million people. They live in fully appointed apartments and have some ability to save.

It should be noted that the two groups shown so far comprise most of the opposition. Together they are almost 5 million people or 20% of the Venezuelan population. Being such a small minority it is easy to see why they haven’t won an election in a while.





This is group D which is made up of 6 million people. It has a larger family size than the upper class, 5 versus 4. They tend to live in poor quality public housing and have a very limited ability to save.





This is group E which is the poorest segment of Venezuelan society but also far and away the largest being made up of over 15 million people. Households are big with an average of over 6 people. Household cash incomes are low at less than $200 per month.

However, this slide also holds the key to understanding Chavez’s high level of popularity. In the lower left hand corner it says:"Increase in the average household income versus 2003 53% (33% in real terms)". In other words in 2004 the people in this group saw their incomes go up by a third even after inflation.

How is that possible? Partly the economy grew at a very high rate of over 17%. But that doesn’t seem to be the whole story. The other part is the huge social programs, called Missions, that give fee medical care, inexpensive food, educational opportunities, and stipends to millions of people. The Missions were begun under Chavez and he has spent Venezuela’s oil windfall funding them with billions and billions of dollars. It is this cash and non-cash assistance that has undoubtedly played a major role in the dramatic increase in the standard of living of Venezuela’s poor.

Whereas before the oil wealth of Venezuelan was simply looted by the people in groups A, B, and C and wound up in overseas bank accounts now it is spent where it is most needed in Venezuela to the benefit of millions and millions of people. And with this the mystery of Chavez’s sky high poll ratings is solved
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For the past week or so the Venezuelan media has been full of news on the Organization of American States meeting that is currently taking place in Florida. The big to do was that the United States was going to push for changes to the OAS charter so that the status of each member states “democracy” could be monitored. The U.S. wants this because, according to the Bush administration, some governments which are elected democratically do not govern in a democratic fashion. In saying this they are in particular referring to Venezuela where they accuse President Chavez of being an “elected autocrat”.

Besides just being a thinly vailed attempt to attack a government that they don’t like it has never been explained what “governing democratically” means. Today, Secretary of State Condoleeza Rice to a stab at it. Lets look at what she said and how it applies to Venezuela:

“The question here is, what does it mean to govern democratically after a democratic election. In my opinion, and I think the majority of people would agree with me it means that the opposition has the opportunity to organize, to appear on television, to appear on radio, and to appear in the newspapers offering their platform.

It also means that there exist groups in civil society that can meet freely and can present ideas to the people. That there are independent unions”

I will say up front – I think this definition of “governing democratically” is fine. I would certainly agree with what she has said here. So the question is, how does this apply to Venezuela? Lets take one item at a time.

First, does the Venezuelan opposition have the right to organize? Absolutely. In addition to the old-line political parties every few weeks they are coming up with new organizations. No sooner than one organization becomes discredited they come up with a new one. Sumate, Gente de Petroleo, and the Coordinadora Democratico are but a few of many examples. So Venezuela meets this condition.

Second, does the Venezuelan opposition have access to television? Not only do they have access to television they control the vast majority of it. All major networks in Venezuela are owned by the opposition and broadcast almost exclusively pro-opposition news. All opposition meetings, opinion programs, press conferences, demonstrations, etc. get shown for hours on end. And if not for the state TV channel it is the government that would not have access to TV. It should also be mentioned that the only TV station to be shut down by the government was a pro-Chavez TV station, TVCatia, that was closed by an opposition mayor. Venezuela passes this with flying colors.

Third, does the Venezuelan opposition have access to radio? See the above answer on TV – it is the same for Radio.

Fourth, does the Venezuelan opposition have access to print media, i.e. newspapers? Absolutely. While the opposition has less of a monopoly on print media than it does with TV and radio to still controls the majority of it. The main reason for its decline in the print media is that as people have tired of opposition propaganda they have started buying more independent or pro-Chavez papers and the opposition papers have seen their circulation decline. Nevertheless, they still predominate even in this media segment and by no means have difficulty making themselves heard.

Fifth, does the Venezuelan opposition have the right to offer its platform? Here there is a glitch. As can be seen from the above the opposition has no problem making itself heard as it dominates the mass media. But it can’t get its platform across. Why? Because it doesn’t have one. The opposition doesn’t do anything beyond opposing Chavez and has never bothered to come up with an alternative program. But I don’t think the Venezuelan government should be held accountable for that. The ineptitude of the opposition isn’t the government’s fault.

Sixth, are there free unions in Venezuela? Again an unqualified yes. There are competing unions and labor confederations some of which support the government and some of which oppose it. One of the leading players in both the coup attempt against Chavez and the “strike” of 02/03 was the anti-Chavez labor federation the CTV. So here again Venezuela passes with flying colors.

Now that we have gone through this exercise we can see that Venezuela has a government that is elected democratically (numerous times at this point) but also one that governs democratically even by Ms. Rice’s standards.

So I guess that resolves that. Next topic please.
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A week or so ago someone named Cristina visited the comments section and was trying to convince me that many in the opposition didn't really support the "strike" of 02/03. Now of course I know better than to believe that as I saw first hand at rallies and on TV the Venezuelan opposition clamor for a strike to bring down Chavez. But there could be some skeptics out there such as Crisitina so for them here is a photo that pretty much sums up the sentiment of your average opposition person in November 2002:


Translation: If there isn't an idefinite general strike then don't count on me anymore


BTW, here is another photo from a couple of days later:


Translation: Chavez: why don't you give your life for Venezuela, shoot yourself

Gee wiz, aren't the opposition people so nice and genteel. Can't imagine how anyone could ever get upset with them. And its so bad that Chavez is rough on them - after all they are just trying to make the very reasonable types of requests that people normally make - that the president of the country kill himself.

Fortunately for the Venezuelan opposition they live in a very free country where they can say any kind of garbage they want and no-one so much as touches a hair on their head. I can think of countries where a poster like this would at the least get you a very personal interview with the police if not a good amount of jail time.
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