Oil Wars

There has been a shake up in the executive cabinet for the better, The VP Jorge Rodriguez was replaced by the housing minister, and William Lara was replaced by previous minister Izarra (Something I demanded in June), among 13 others. The reason given was the need to give ideology a rest and simply do a better job governing, I must say I am pleased as last year's shake up was stated as an ideological push that led to 07 being a general mess.

Socialism is more than just intellectualism and fancy theories, it is about actions and results, it is about the people. I have been quite pleased by the govt's reaction post referendum and feel validated in my decision to reject it even if at the last moment.

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To ring in the New Year President Chavez announced a sweeping amnesty of people who stand accused of "political" crimes. That is all cases against people having participated in the April 11th coup - including those who wrote the Carmona Decree, those who signed it, those who stormed government offices in an anti-Chavista witch hunt in states like Tachira, and those who shut down the VTV television station - and who participated in the oil strike of later that same year are being dropped.

So presumabely Pedro Carmona and Carlos Ortega can walk any Venezuelan street and not have to worry about being arrested.

Now, of course, Chavez himself benefited at one time from a presidential pardon. So maybe he feels he owed this to these people.

Ok, well if he wants to feel that way he can, and he is president so his opinion is the one that counts.

Still I would think there would be an awful lot of Venezuelans out there who have loyaly supported this government - no, who have loyaly supported the DEMOCRATICALLY ELECTED government and Constitution of Venezuela - and who have shed blood, sweat and tears defending it who would be more than a little perturbed by this pardon. I know I sure would be (but hey, I'm a gringo and as you know we gringos have a hang up with the "you do the crime, you do the time" notion).

But in reading through Aporrea today I noticed that indeed some Venezuelans were in fact very upset about this. Although I just don't have the time or energy to translate it right now I found this article by an Aporrea reader to be, as they say, spot on.

I too wonder, as the writer hints, if Chavez isn't now concerned more with others, be they Colombian hostages, wealthy Venezuelans to whom he can't seem to give away money fast enough, or in this case with people who had no compunction about shedding blood and creating great hardship on their fellow Venezuelans to overthrow his government, than with the welfare of his own supporters.


What gives, Hugo, what gives?
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A few days ago the Venezuelan government announced that it was cutting the allotment for people to make Internet purchases in dollars with their credit cards from $3,000 annually to $400. As I pointed out previously, Venezuela is wasting way to much money funding a middle class consumption boom when that money could be better directed towards necessary social programs and industrial development.

In so much as this measure is a recognition of that problem and will cut down on at least some of this waste it is welcome.

However, because it is a half measure, doesn't get to the heart of the problem, and possibly worst of all, has been incorrectly explained it is possible this could wind up doing more harm than good.

First, here is Finance Minister Rodrigo Cabezas's explanation phoned into a TV talk show:



Now, Cabezas's did say at least one thing right - that the interests of the country as a whole are more important than any particular interests and that it is the government's job to look out for the good of the entire nation. He also pointed out that the country needed to prioritize its social programs, the importation of food, and industrial development over other consumption (Bravo!!). But unfortunately everything else he said was either wrong , undercut those points or simply served to confuse.

For example, in justifying the reduction in credit card dollar purchases he said that they had climbed to unacceptably high levels (absolutely true) because some mafiosos had been abusing them (silly, stupid, wrong and VERY, VERY scary if he really believes that). The use of credit cards to purchase things in dollars has skyrocketed for the same reason all other ways of spending dollars have skyrocketed - the dollar has been pegged at a fixed level even though inflation is high in Venezuela so dollars have become very cheap relative to everything else.

Bolivares spent on taking a vacation to Margarita Island don't buy nearly as much as they did three years ago. But Bolivares used to buy dollars (and in turn spent on buying things from abroad) get the same amount that they did 3 years ago. Consequently, people are spending more money getting dollars and buying imports than they are on buying Venezuelan made products or vacations to Margarita. This has absolutely nothing to do with any Mafia and everything to do with people acting completely rationally based on incentives the government is giving them. The only reason that silly and stupid "mafia" reason is given is Cabezas and his boss are probably afraid to tell the Venezuelan public the truth - that they are simply consuming too many imported consumer goods and they all need to cut back.

By giving such an absurd and false explanation of what the problem was Cabezas's has simply created confusion and anger where what the government really needs (and would get if it explained things properly) is understanding and support. When people are told that a few criminals are causing the problem the thought that pops into their mind is "why am I being punished and prevented from buying what I want because of a few criminals, why not just catch the criminals?"

Of course, the real problem isn't criminals but just average Venezuelans who are buying too many imported consumer goods and that consumption needs to be cut back if the country is to progress. If that were properly explained, the people like Luigino Bracci would understand it and support it. But because of Rodriguez's silly statements they think they are being treated unfairly.

And if the explanation of this measure weren't bad enough it is also being done as a half measure which will only impact some, mainly middle class, while leaving the more affluent unaffected. The reason is that it is only Internet purchases that are being reduced. If you are lucky enough to get a visa to the U.S. and can afford it the government will still give you up to $5,600 dollars to travel abroad. So those folks will still make out like bandits as they snap up what are for them inexpensive consumer goods in malls in Miami while people who can't leave Venezuela are now cut off from those same goods.

That of course creates bitterness and resentment among middle class Venezuelans as they are in effect asked to make more sacrifices than the rich. And it doesn't help that pro-Chavez National Assembly Deputy Calixto Ortega was photographed just the other day shopping for gifts in the MCM Grand Casino in Las Vegas.




No $400 spending limit for this "revolutionary"!!

So much for leading by example.

Finally, Cabezas was emphatic that there will be no devaluation of the Bolivar in 2008. That is certainly not good, given that a overvalued currency is what is at the heart of this problem to begin with.

To defend THAT bad decision he simply stated that Venezuela had enough revenue to keep the current exchange rate. And that is true, if they are only interested in "sowing the oil" in shopping centers. But if they actually wanted to have the resources to develop the country....

Needless to say he also never mentioned the impact that such an overvalued currency has on any potential Venezuelan exports and even on local industry.

So when seeing the anger and confusion surrounding these measures among the Venezuelan public you can't blame them. It's not their fault. It is the fault of the government because it hasn't properly explained what is happening and why.
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As it does every year the Venezuelan Central Bank came out with a year end report summarizing the state of the Venezuelan economy.

Although it was full of upbeat numbers, as it has been for the past few years, I thought what was left unsaid was more important that what it did say. No mention of the status of the Venezuelan currency, the effects of it on the Venezuelan economy and when it might change. Worse, there was no meaningful discussion of the future of the Venezuelan economy and how it will progress when the price of oil is no longer serving to push it forward. So on the whole, the report was bland, deficient, and not all that worth reading.

However, there was one table of worthwhile statistics and it is worth looking at it here:



On the top we see how the economy and its different sectors grew in the past year. Overall GDP growth slowed from 10.3% to 8.4%. Probably the determining factor in why growth overall declined was that oil production also declined - 5.3% according to this table. That is not unexpected, Venezuela had to cut back in response to OPEC quotas and there were some operational difficulties in the Orinoco oil operations immediately after Venezuela assumed operational control of them. This decline in oil production in part offset an increase in prices and as a result oil revenues were fairly flat for the first part of the year.

There is nothing concerning in that - oil production has been increased as OPEC raised its quotas and prices are now at record levels. If that keeps up 2008 could be another very strong year for the Venezuelan economy.

However, look at the break down of growth by sector and you can see some REAL cause for concern. Note how in key sectors growth dropped off significantly:

Mining growth dropped from 4.5% to 1.4%

Construction growth dropped from 35.6% to 10.2%

Manufacturing growth dropped from 9.7% to 7.5%

In a growing economy that was well balanced and where investment was at appropriate levels growth rates in things like manufacturing and mining should be growing, or at least holding steady, not declining (and note commerce and communication held up much better). While one year does not make for a hugely worrying trend if these numbers continue to decline into 2008 it will show there is something really amiss with the Venezuelan economy its current boom notwithstanding.

On the positive side, the job numbers are certainly VERY good and dispel some falsehoods that have been consistently peddled about the Venezuelan economy. It has often been said that no, or few jobs, have been created during the current boom and that they have been disproportionately in the public instead of private sector. At least in 2007 that was not the case.

Year over year private sector formal jobs increased from 4.13 million to 4.39 million for an addition of almost 260,000 new jobs. Clearly the private sector is creating jobs. This represented an increase of 6.2%

Next we see government jobs went from 1.86 million to 1.92 million year over year for an increase of almost 70,000 new jobs. This represented an increase of 3.6% and we therefore see A) lots of new jobs are being created and B) they are being created significantly faster in the private sector than the public sector.

Certainly that is good and dispels some myths. But of course, what is key is getting something than just the price of oil holding all this up.
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