Tuesday, December 23, 2008

Despite all of the improvisation there is still a ray of hope - maybe. 

Three events have dominated the news in Venezuela recently. The first is the proposed constitutional amendment which I have already given my opinion on and don't plan to further discuss. The second were some very sensible comments by the finance minister Ali Rodriguez which I definitely will discuss. And the third was a brain fart by Chavez last Sunday. I'll begin with the brain fart.

Last Sunday President Chavez apparently discovered, much to his horror, that a big new shopping mall belonging to the Sambil chain of malls, is being built in downtown Caracas. Never mind that the mall has been in the works for years. Never mind that you can see here from mid 2007 the mall was already taking shape. Never mind that it was widely reported on in papers such as Ultimas Noticias. President Hugo Chavez told the country on television that this mall didn't have community input, was in an already too congested area of Caracas, and that it fostered undesirable consumerism. So he instructed the local mayor to stop the project and take over the building.

Now the fate of some mall in Caracas is hardly earth shattering news. And Venezuela has had so many malls sprout up recently that one less will hardly be noticed.

Nevertheless this announcement is worth paying attention to precisely because it shows how dysfunctional Chavismo, or more precisely Chavez's management style, is.

Think about it. Years have gone by and surely millions of dollars have been invested in this project - and just NOW the government (read - Chavez) decides it wasn't properly thought out?!?!?!? Virtually no major infrastructure or construction projects that I am aware of have ever been subject to community review - yet now we are to believe that it is VITAL that THIS particular project be subject to such a review?!?!?!? Why, because it strikes Chavez's fancy? Then we are told that this structure in fact might be well suited to be a hospital or a university. Now I know the local pro-Chavez governments are often so inept they can't build hospitals but thinking that a building designed to be a shopping mall can readily be converted into any sort of decent hospital is - what is the word? - amateurish.

Now it would be one thing if this sort of off the cuff decision making were atypical. Anyone is bound to do some crazy things once in a while. Sadly, though, this seems to be Chavez's management style, just making things up as you go along.

The instance that immediately came to mind was the televised decision to get rid of the tolls on virtually all Venezuelan highways. Hey, if you spend billions subsidizing the gasoline for upper class Venezuelans cars what is a little more to subsidize their roads. But at least the government was considerate and decided to let all the toll collectors keep their jobs so that Venezuela likely has many thousands of toll collectors who get paid not to collect tolls.

And never was it mentioned how much revenue would be lost, where new monies to maintain roads would come from, or anything of the sort. It was all just decided right there, on the spot, on live TV.

Then there was the televised decision to send ten tank battalions to the Colombian border, followed within the week by a big hug for Uribe at a meeting in the Dominican Republic, and later the FARC getting publicly told by Chavez that their armed struggle was obsolete and they should give it up (those reversals were so fast, even by Chavez standards, that I felt sort of dizzy and nauseous after listening to them).

And of course, those are the least of what is improvised by the Venezuelan government. A good chunk of its economic policy is certainly unplanned, such as its practically suicidal exchange rate policy, its giving away of billions for luxury goods for the wealthy, and its curious policy of getting rid of taxes on rich such as the financial transaction tax.

Of course there are times when improvisation is a good thing, in fact even something vital. The original Missions of Mercal and Barrio Adentro are an example of sublime improvisation. They were a reaction to the seditious actions of Chavez's opponents and they helped the country get through some very difficult times.

But when improvisation becomes standard operating procedure, as it certainly seems to have become for much of the Venezuelan government, things aren't likely to turn out well in the long run. That may not have been so apparent when oil revenues were ever growing. But now when they are in rapid decline and a premium is therefore attached to efficiency such poor management and leadership technique will take a heavy toll.

Before leaving Chavez's remarks of last Sunday there is one further point I'd like to comment on. That is his assertion that "consumerism" is out of control in Venezuela.

Now, that very well may be true among some segments of Venezuelan society (most Venezuelans are too poor to partake in much "consumerism").

Thing is, the driving force behind the heavy consumption of some Venezuelans is nothing more and nothing less than the policies of the Venezuelan government. When you given billions and billions of heavily subsidized dollars for wealthy Venezuelans to spend on credit card purchases abroad guess what? They spend it - on trips to Disney World, designer clothes, and the latest electronic gadgets. Don't want them engaging in these "consumerist" habits? Then stop giving them the money!!

Wonder why middle and upper class Venezuelans pack all the new shopping malls and buy new cars like they were going out of style?? Because they are all in effect being subsidized by the government via cheap dollars. Want them to stop buying those things? Then stop giving them subsidized dollars. And while he is at it he could raise the IVA on consumer goods instead of constantly cutting it. And if it he got really, really desperate to cut down on people buying flat screen TVs he could raise the import duties on them.

But does he do that? No. He simply berates them once in a while on TV while still giving them every incentive (AND THE MONEY!!!!) to go on their spending sprees.

The point is, if Chavez is serious about wanting to change the habits of Venezuelan consumers then the first thing he should do is change the policies of his own government which ENCOURAGE the very behaviour he claims to be appalled by. Until he does that all his self-righteous lectures are just wasted hot air.

Fortunately, despite all this negativity there still is at least some hope for Venezuela's government - it comes in the form of Finance Minister Ali Rodriguez. But first a little background.

It will be recalled that almost exactly a year ago I wrote a series of posts on how the Venezuelan "revolution" had become flabby - that is, very wasteful. This waste was manifested through an out of whack exchange rate that favors imported consumer goods, the handing out of billions of heavily subsidized dollars for overseas travel, and other pointless expenditures that largely benefited the upper classes.

This waste infuriated me because even though the country was experiencing an oil windfall this was money that could have been much better utilized investing in new industries to help wean Venezuela off of its dependence on oil. But despite how obviously outrageous this policy was for a supposedly leftist government this policy continued - at least up until now.

Yet just last week Ali Rodriguez announced that the government will be reducing the amount of dollars given out for travel abroad.

Currently people are allotted up to $5,000 per person per year. This is a huge windfall for the rich who have credit cards and can travel abroad and all sorts of perverse schemes have been invented to make a huge profit with these subsidized dollars and that is precisely why I singled it out last year as something that should be cut.

How much it will be reduced has yet to be announced. Most seem to be guessing it will be reduced to $3,000 or $2,500. Personally I think $1,500 would be a much better number.

Nevertheless, this is a positive development and was quite surprising to me. The reason for my surprise is I didn't think they would take this type of action right before a big election such as the proposed constitutional amendment.

However, maybe they finally realized what I tried to point out last year in one of my posts - that these very expensive give aways go almost exclusively to Chavez's upper class opponents and they could be done away with at almost no political cost to Chavez given that the recipients almost never vote for Chavez anyways. As I wrote last year:

In the first post it was pointed out half a billion dollars were being sent overseas to family members, another half a billion was spent on airlines, and a whopping $4.2 billion was spent for dollar transactions on credit cards. I stated that it would be wise for the government to either eliminate or curtail these expenditures. From an economic point of view it would make a lot of sense as it could save the country billions of dollars that could be better spent other items or simply saved.

But would restricting these expenses be politically viable? Well the dollars spent on airlines and sent overseas to relatives would clearly only effect the heavy consumers - they are the only ones who travel abroad. Further, restricting the use of credit cards for dollar purchases would only effect the upper classes also. Remember, 38% of classes A,B and C- and 27% of class C- have credit cards while only 9% of social class D have them and a minuscule 3% of social class E have them.

From this is should be very clear, that reducing the dollars allowed for overseas travel and dollar purchases with credit cards should NOT present a political problem for Chavez as those measure will almost exclusively impact those who don't support him in the first place.

So from a economic AND political viewpoint it would seem a no-brainer to go ahead with these measures.

I quote those old posts not because I think I had any great insight. I think those observations were really rather obvious and I am sure lots of other people had them too. Rather, I repeat what I said because finally the Venezuelan government itself has clearly seen these things and even more importantly acted on them. Moreover, by doing this they are clearly acknowledging the most important part of what I said - that they won't pay much of a political price for this as it largely effects their opponents anyways. If that wasn't the case they certainly wouldn't be doing this right before an important vote.

I can only wish they had taken these actions a little earlier so that they wouldn't have pissed away another almost $5 billion on this non-sense this year.

Further, it probably is the case that these actions were taken only because Venezuelan oil is now selling for $27 per barrel when the measures would have been just as worthwhile if oil was selling for $200 per barrel. Venezuela is a poor country facing the very, very difficult task of trying to industrialize and as such it needs to use all its resources wisely. I can only hope this is the first of many similar decisions to come which should help eliminate the waste and address some of the imbalances that have built up in the Venezuelan economy.

Finally, I want to focus on the person who announced this decision - Ali Rodriguez. I have never met him or communicated with him in any way. Yet I have always been very impressed with him, to say the least. His leftist credentials are unimpeachable as he has gone from a guerrilla fighter to someone who fought political battles against an entrenched elite in the Venezuela congress. Given this he has Chavez's respect and, more importantly, Chavez's ear. Ali Rodriguez can probably do something an economic adviser such as El Troudi could never have done - tell Chavez things he doesn't want to hear and still get a fair hearing from Chavez.

Just as important Ali Rodriguez seems to be one of those rare leftists who realizes that competence is an important quality and that you are unlikely to accomplish anything worthy without a well thought out plan. I don't think it is any accident that Rodriguez was smack dab in the middle of what are arguably two of this governments biggest victories - helping revitalize OPEC in 1999/2000 and defeating the seditious oil strike of 2002/2003. Of course, Chavez himself was instrumental in those victories. Without his tenacity and sheer determination those battle may well have been lost.

Still, it has become very apparent to me that overseeing the day to day affairs of government is not Chavez's forte - no matter how many hours he works. Yet that is something that Ali Rodriguez seems to excel at. With some tough economic times ahead Rodriguez may well be the right man, in the right place, at the right time.

I certainly which him good health and a long tenure at his current position. With him taking the reigns of the economy (has anyone even seen El Troudi in the past couple of months?) even I will allow myself a little optimism that some of the many wrongs can be righted and that the Venezuelan government finally might more fully live up to its potential.


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