The Ongoing Scam

For Thursday, July 26, 2018. Translated by Javier Liendo.

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Photo: Prensa Presidencial

To celebrate Caracas’s 451 years, Nicolás made several economic announcement during a mandatory broadcast:

  • The monetary reconversion starts on August 20 (as if 16 days could make a relevant difference in its application) with the circulation of the sovereign bolivar.
  • The sovereign bolivar will have five less zeroes (not three as previously announced) and its value will be tied to that of the petro, a sanctioned and restricted currency, whose value is artificially decided by the government, allegedly based on oil prices.

  • He’ll send to the ANC a modification of the Law on Foreign Exchange Crimes, which apparently seeks to allow the circulation of foreign currency and eliminating barriers for them to flow freely in the country.

  • He handed the Orinoco Oil Strip’s Ayacucho 2 Block over to the Central Bank to be a part of its assets, although underground oil has no value, especially for a country with dwindling extraction capabilities.

  • He exonerated raw materials, spare parts, machinery, supplies and equipment imports from paying taxes for a year.
  • He announced a census on the entire vehicle fleet to cross that data with the carnet de la patria and create another channel for State dependency.

Nothing changes

Nicolás tried to excuse his administration’s economic results with the persecution of capital and the “economic war” and said that chavistas who have criticized his work are “pretenders” and traitors. He had an important revelation: “I can say that in the development of productive forces, we’ve failed, comrades,” considering that the State’s most important companies are bankrupt. And he restated the end of the rentier model, but minutes later he tied the sovereign bolivar to the price of the petro, whose value is itself allegedly tied to oil prices. Yesterday’s announcements show that they won’t change the model that has ruined us: depreciation will continue its course without another fiscal measure. Strictly, the sovereign bolivar will be 100,000,000 of normal bolivars, those that existed when el finado took power. The minimum wage will be BsS. 51.96 and with there won’t be any way to pay for fuel with the new monetary cone (the price is BsF. 6 thus far) so either they’ll scrap subsidies for good or end up giving it away. The same applies to the fees for public services. Only the Bs. 100,000 banknote will survive from the current monetary cone, but it’ll be worth BsS. 1. By the way, it’s impossible to apply the cone by August 20, since banks and shops adjusted their systems for three less zeroes, not five. We’ll see the circus today at the meeting with bankers.

218 minimum wages

According to the Venezuelan Teachers Federation’s Documentation and Social Analysis Center (Cendas), the price of Basic Food Basket for June was Bs. 654,214,674, demanding 218 minimum wages to pay for it. The price increased by Bs. 353,076,321 since May (117.2% in a month) while the yearly price gap between June 2017 and June 2018 was 37,538.6%. All products increased in price, with education showing the highest increase (656.9%), followed by clothing and shoes, with a 442.9% increase, and cleaning and personal hygiene products (88.5%), while the fees for public services report an average increase of 84.1%. Meanwhile, the remittance dollar keeps rising: Zoom and Italcambio will pay Bs. 2.9 million per dollar, Bs. 400,000 more than the amount announced on July 3, although the DICOM dollar remains at Bs. 120,000 and the black market dollar surpasses Bs. 3.5 million.

Amazing chavismo

A group of former Venezuelan officials and business executives, along with executives from other nationalities, were accused of laundering $1.2 billion from PDVSA in Florida, announced the U.S. Justice Department, which identified these “members of the Venezuelan elite” as “boliburgueses,” including Francisco Convit, shareholder of Derwick Associates; Carmelo Urdaneta, former legal advisor for the Oil Ministry and Abraham Ortega, former PDVSA executive. Believe it or not, the diplomatic body visited the “Expoferia Penitenciaria 2018” yesterday, to know the “government’s accomplishments in the broadening of rights for prisoners.” Minister Iris Varela thinks that the prisoners have become “the best workers and the best students,” and she believes her ministry will become “the first honey-exporting body in Venezuela.” Meanwhile, insurance activity superintendent Juan Carlos Cabello Mata announced that they’ll take actions against insurance companies that charge in dollars, explaining that sanction levels range from permanent inspections and interventions to liquidations.

Brief and serious

  • The National Assembly held a special session in Zulia State and called for a march this Thursday to demand authorities to solve the electric crisis. The plenary was attended by Fergus Walshe, head of Maracaibo’s Chamber of Commerce, who explained that the electric supply plan is a big farse, marked by constant and irregular blackouts.
  • The Rafael Rangel National Hygiene Institute reported on the order to remove medicines with Valsartan active compound issued by the Spanish Agency of Medicines and Sanitary Products, due to the contaminant detected in studies caused by a change during the production of batches. The institute urges patients to notify any problem or irregularity with the use of medicines with Valsartan.
  • In their protest, the health sector held a “Caravan for Life” and requested support from the Catholic Church, which promised to accompany the demonstration: “when the health of citizens is under attack, life itself is under attack,” said Saúl Ron, who remarked that the government must allow the opening of a humanitarian channel for the access of food and medicines.
  • Workers of the tire-producing companies Pirelli, Firestone and Goodyear started to protest to demand better salaries and working conditions, explaining that their staff numbers are declining as well as their productivity, and that they’ve had to cannibalize their equipment due to lack of parts.
  • Northern Santander is overwhelmed and can’t cover the services and attention needed by Venezuelan migrants. Regional authorities demand that the new government take measures to implement public policies to remedy this situation.

Italian researchers announced that, for the first time, they have proof of the presence of liquid water in Mars, in an underground lake below a layer of ice. The evidence was found thanks to the results of a radar installed in the Mars Express probe from the European Space Agency.

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44 COMMENTS

  1. “The sovereign bolivar will have five less zeroes (not three as previously announced) and its value will be tied to that of the petro, a sanctioned and restricted currency, whose value is artificially decided by the government, allegedly based on oil prices.”

    Sing along, gang!

    …and the wheels on the bus come off off off, off off off, off off off…

    • “…the sovereign bolivar will be 100,000,000 of normal bolivars…”

      Only six more zeros to match Zimbabwe! Yes We Can!!!

  2. Why even introduce the new currency if foreign currencies will now be allowed? No one will be accepting it, not that it is likely to ever actually be available nationwide.

    • Because in Chavismo, it is always about symbolism and never any substance.

      The Bolivar, then the “Strong” Bolivar, now the “Sovereign” Bolivar, soon to be replaced by the Super-Dooper Bolivar and later the Giant-Humungo Bolivar… It might as well be Monopoly money to them. None of the monkeys in the Chavismo circus knows fuck-all about economics. I dare say that if you asked Maduro to define the word VALUE, you might get, “These things are of no concern to us! Such terms only inflate the egos of the bourgeoisie and the oligarchs! We have no need for such things as VALUE in 21st century Socialism! Power to The People!

    • Perhaps the new sovereign bolivar is a face saving measure and a foreign currency, will be the de facto currency, I am guessing itcould be US currency

  3. Of note, it inspires a lot of confidence in me that I see Delcy, Vlad and Tarek and all of their swell Chavista pals planning out their next scheme to save the country from the clutches of Imperialism. I am sure, given enough time, they will be able to pull it off.

    “If nothing else, a total pigheaded unwillingness to look facts in the face will see us through!” Gen Melchett

  4. Northern Santander is overwhelmed and can’t cover the services and attention needed by Venezuelan migrants. Regional authorities demand that the new government take measures to implement public policies to remedy this situation.

    Which may help explain why of all of Colombia’s Departments, Norte de Santander gave Petro his worst results. Petro got only 18% of the vote in Norte de Santander. a href=”http://www.eltiempo.com/elecciones-colombia-2018/presidenciales/mapa-de-resultados-de-la-segunda-vuelta-presidencial-en-colombia-232010″>El Tiempo: Mapa de Resultados.

  5. Why use the term cone? Does it mean anything in English other that what we use to hold and eat ice cream?
    Surely there is a better choice of words other than monetary cone…..

    • Not sure about this but I am guessing that in using the term “cone” they mean that under the new system a 100,000Bs note enters the large end of “the cone” as 100,000 but exits the small end of “the cone” as a 1 Bolivar note. If this is indeed what they mean by “the cone” it is a clumsy use of the word to describe such a process and one that native English speakers would not use.

      • Even if unfamiliar, “cone” at least makes sense and is easier than “system of denominations” etc. But never mind, it’s just deck chairs on the Titanic. In hyperinflation only the largest denominations matter, if any.

        De facto foreign currency use is beginning and can only continue.

      • or “Cone of Silence”. Which might be the best phrase of all.

        A place where Bolivars go into to “hide” hyperinflation, but where everyone can see the futility. As with Max and the Chief, Maduro has the world audience laughing and rolling in the aisles.

    • The translation I found:

      Cono monetario 》 Currency related issues or facts

      However, I am still not grasping the metaphorical sense of “cono” in this context.

      • I saw the term used in a story on Dollar Today a few minutes ago but as Roy said , I don’t really get it either

  6. Gringo offered this in the Tougher Than War thread from yesterday.

    “What likely can’t be put back together again is the state oil company. “There is no money in the world that can bring that back,” Burelli said. “You might be able to rebuild an oil sector full of private players but not PDVSA.”

    Ultimately, Caracas’s bid to nationalize the oil industry and assert its sovereign rights to the country’s black gold has all but ensured that less and less of that wealth will be left for Venezuelans. With no other vibrant economic sector, the only way to fund the government is by increasing oil production — which would require investing up to $10 billion a year for a decade, Burelli suggested — and the only way to attract that kind of investment is by offering international companies favorable terms. That means a bigger cut for them and a smaller cut for the state.

    As Burelli put it, “To resurrect the oil sector, somebody will have to invest in it on their terms, not our terms, and that will not generate revenue. So, what will we live off?”

    https://foreignpolicy.com/2018/07/16/how-venezuela-struck-it-poor-oil-energy-chavez/

    That is a tough and very bitter pill to swallow. Is Venezuela up for that?

    • El Guapo,

      QUOTE As Burelli put it, “To resurrect the oil sector, somebody will have to invest in it on their terms, not our terms, and that will not generate revenue. So, what will we live off?”ENDQUOTE

      This is the most stupid comment imaginable. Most successful oil companies make about 10 to 20% return on capital employed in the long haul. Who does Burelli thinks takes the rest of the gross profit?

      Governments typically hit oil companies for royalty payments on gross production, corporation taxes on in-country profits, social charges, income taxes on in-country labour costs and customised windfall profits taxes as and when they see fit. Oil companies don’t squeal too loudly as long as they still see a decent return. Up to 1976, Venezuela had a thriving private oil industry. The oil companies paid taxes, set up social programmes, local schools, foreign scholarships, local clinics and extensive training programmes. (Not altruism, just good business.) They continually refreshed new technology to improve efficiencies, brought in meritocracy, management skills, ethics of the day and rigidly maintained clean tender processes. Just prior to nationalisation, Venezuela was the 4th richest country in the world on GDP per capita. This wasn’t because of the taxes on coffee, FFS!

      Nationalisation of the petroleum industry was introduced because of a combination of nationalistic sentiment in the early 70’s and absurdly simplistic, marxist, economic analysis. The latter consists mainly of the argument that anyone can dig a hole in the ground and carry the oil away in buckets – no skills required; therefore it is better for a country to take 100% of the gross profit (which is deemed to be fixed rather than created by technology and management), rather than ceding 20% of it to foreign oil companies. Between 1976 and the early 1990’s Venezuela had an opportunity to learn that real life wasn’t like that. The Venezuelan government took far LESS cash money from PdVSA than it had from the foreign oil companies because of a fall in production, poor cost control and stubbornly flat oil prices after a couple of spikes. There were additional factors. First, PdVSA did not have the management skills and technology to maintain production levels nor to maintain previous levels of cost on a normalised benchmark basis, especially for new capital investment; secondly, PdVSA became a political power in its own right frequently at odds with the central government over use of funds; thirdly, PdVSA was not immune to the increasing levels of corruption which invaded Venezuelan society over that period. Perhaps most importantly of all, PdVSA consumed a disproportionate amount of government time.

      Instead of senior government figures focusing on how to spend the oil money which should have been rolling in to build infrastructure, diversify the economy, and solve the burgeoning social issues, every man and his dog was trying to secure palanca with PdVSA for himself or family members. Good managers in PdVSA (and I knew a lot of them) were in despair at the complexity of the labarynthine decision-making processes and subterfuges because of political intrusion. Eventually, PdVSA with inadequate capital to pursue strategic aims and maintain production in the 1990’s started the process of introducing Operating Service Agreements with FOCs which, together with FOC-operated Strategic Associations, added 1.2mmb/d to PdVSA own production by 2006 (and masked the vertiginous loss of PdVSA production from 1999 to 2006).

      It is truly stupid to think offering deals to foreign oil companies “will not generate revenue”. If intelligently crafted, such deals should ensure that most of the revenue goes to the government while the FOCs carry all of the risk. Whether any responsible and respectable FOC would be prepared to make serious investment in Venezuela, given its political risk even after Maduro, is a separate question.

      • Burelli’s statement makes sense considering how every sector of the economy has been destroyed making Vz dependent on exports to eat, and that oil exports earn little or nothing. Totally reasonable to lament “So, what will we live off?” (They should have asked sooner.)

        Also, ROI comes out of gross profit but the link ends there. You could have 1% gross margin and 90% ROI or 100% gross margin and zero ROI, or any other combination depending on expenses. There’s the rub; PDVSA’s expenses likely exceed gross profit but they have to keep pumping to have any hard currency at all.

      • That’s some interesting supposed calculus surrounding expropriation, but really, it was just theft. Everything else was pantomime and propaganda.

        • Davy,
          If you are talking about 1976, I would have to disagree with you. It most definitely was not theft. It was a nationalisation, and one carried out in a decent and highly responsible way by the government of the day. Very few people would question the right of a government under international legal principles to nationalise a strategic industry. It is a different question whether it was a beneficial thing to do. It was the decision to nationalise itself which IMO was a very bad decision for Venezuela, and which led to a long-term diversion of government attention away from what it should have been focused on.
          What happened in 2006 and 2007 was completely different in character. Be my guest if you want to characterise the enforced takeover of the OSA’s and the Strategic Associations as theft. I wouldn’t argue about it.

      • Ignorance of how an oil industry operates is rampant among many of those who try to compare the pre nationalization oil industry (as great) and that which succeeded it after it became nationalized (as lousy) . because nationalization was coming international oil companies stopped investing for the future , they stopped hiring, they didnt want to spend money on investiments which profits would be produced after they were gone , so nationalization had to be stepped up before the concessions expired leaving an oil industry with no future , the oil industry refineries were designed to produce one thing fuel oil which was rapidly losing competiveness in the north american market , the refineries had to be upgraded in order to have a broader spread of more profitable products to offer , that meant investing a lot of money , the result was a resounding success , refining started producing many more products with higher prices and secure market , only one of the three main international companies tried having marketing activities which went for the end customers which had the biggest returns ( no middle foreign affiliate company getting a piece of the action) , Pdvsa build a marketing departament that could take the oil to the end customer at the best prices and also apply strategic policies so the heavier types of crudes which would be produced in future could find a customer ……..none of this was free , it required good management and a forward looking vision……as time passed political concerns did require bigger consideration in the industry plans but the general views of the Venezuelan view among the international experts was that it was one of the best managed in the world despite the enoromous resources it had to pay to the state in terms of royalty , in terms of subsidies , in term of taxes and in terms of shareholder revenues……. After 2002 a process started which ended up by ruining piece by piece the venezuelan oil industry leading to todays corporate wreck .
        !! In future bold action will be required to rescue what can be rescued and make the oil industry contribute what it can reasonably contribute in a rationally ordered economy , the participation of international oil companies will be required . One myth is that we have to recover production any way possible , thats BS , the aim is not just increasing maximum production , but increasing production which is maximally profitable even if the number of bls produced arent as large as those of the past ……

        • Bill,
          I agree with much of what you wrote about the pre-nationalisation loss of momentum and the development of strategic plans, and I am not wilfully trying to criticise PdVSA. In the 1990’s PdVSA typically was ranked among the top five National Oil Companies by the international industry, and there is no question that it had some very good people. The problem is that governments generally don’t run oil companies very well – especially when it comes to cash managment! Capital allocation is always a challenging and contentious problem in any well-managed oil company. It becomes a nightmare when a government is intent only on milking the cash-cow. In certain narrow areas, Intervep were THE world experts on specific production technologies. Nevertheless, PDVSA was desperately short of cash in the 1990’s and had fallen way behind international industry in terms of integrated technology and solutions, as well as a host of technical disciplines like drilling, MHF and seismic technologies where step-changes had occurred in the international industry.

          Any comparison really should be between where Venezuela would have been in the 1990’s if it had remained as (just) a tax-taker from the oil industry and prioritised the development of other areas of the economy VS where it actually ended up in the 1990s – too cash-strapped to pursue simultaneously its desire to access the full value chain and maintain production and in a state of permanent contention with central government over cash requirements. It is worth remembering that despite 20 years of expressed “strategic intent” within PdVSA, the first upgraders which enabled development of the Faja at scale, were all financed by FOCs in strategic association deals signed in the late 1990’s. PdVSA had neither the cash nor the technology nor the risk profile to be able to do this on their own especially with $20/bbl oil.

      • I don’t pretend to know anything about the oil industry, but I do know that you can’t siphon off every dollar of profit from your enterprise (no matter what it might be) and not reinvest it in some manner. It truly does take money to make money… and some more to keep making money and even more to inflate the bank accounts.

        China won’t throw more money down the Venezuela rat hole. Neither will Russia. Both have seen firsthand what happens when you deal with crooks and thieves. And PdVSA has NOTHING except a rotting infrastructure, some of which can be salvaged, but it will take “greedy Capitalists” to take that risk. Seeing what sort of people Venezuelans are, I would say that the terms of service better be pretty damn favorable for these entrepreneurs. I’d make damn sure I was getting paid first AND up front.

        Just my two Bolivars…

      • The other point (I neglected to make)

        When you let a known arsonist into your home, and he burns down your house (analogy to the Chavista voters and what Chavismo has done to PdVSA), you don’t get to tell the insurance company (transnational oil companies) how they should go about rebuilding your house. You have proven yourself to be incapable of making sound, logical and reasonable decisions. You voted for morons and crooks over and over. You cannot be trusted with making decisions for yourselves.

        Venezuelans have one of two choices. Swallow the horrible medicine of reconstructing your oil industry on someone elses terms and taking it in the shorts (10 years, possibly longer) or continuing on as you are with nothing as a future. Cuba 2.0.

  7. Iris is on-track-her Penitentiary System will be the first state institution to export Venezuelan “honeys”, who, until now, have been exporting themselves individually without state help.

  8. “The sovereign bolivar will have five less zeroes (not three as previously announced) and its value will be tied to that of the petro, a sanctioned and restricted currency, whose value is artificially decided by the government, allegedly based on oil prices.”

    Well the petro at the moment is worth squat. Or $17.5. Or $60. In fact, petros (PTR) face an existential problem. It is not clear that they exist even as a virtual currency – try finding a trading price.

    From El Nacional in June:-

    “El gobierno destituyó a Carlos Vargas, superintendente de Criptoactivos, y en su lugar designó a Joselit Ramírez. En un mensaje difundido por Twitter Vargas escribió: “Gracias al presidente Nicolás Maduro por haber confiado en mi persona para formar parte de este proyecto en la Superintendencia de Criptoactivos, así como reconozco la labor realizada por el equipo de trabajo que me acompañó en el trayecto de este hermoso reto”.

    Despite the grovelling, he was picked up by the Sebin. (A fitting end.)
    The irony is that, with even a modicum of competence, the regime could have made the petro work to deliver them a bunch of new money in hard cash – perhaps not the target $5bn, but certainly a significant chunk. I am really grateful for their incompetence in establishing a trading platform and in understanding due diligence/risk assessment by and in financial markets.

  9. Honestly why aren’t they waiting until Christmas for the new currency and take 10 zeros off? Would avoid having to take 5 zeros off twice 🙂

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