The Venezuelan mirage (part 1)

Blue skies, nothing but blue skies…

This could well be what Giordani, the Minister for economic coordination, Planning Ministry, would have us hum along when we go to work.

Today El Universal carries some stunning declarations (made on State TV, without any cross questioning, of course). There Giordani released a few pearls of which two are worth discussing:

The Venezuelan growing economy

We do not have a pretension to reach a yearly growth rate of nine percent or 10 percent during 10 years, but we do envisage sustained growth at five, six or seven percent. At those levels, (Gross Domestic) Product may double in almost 10 years. Therefore, the size of the cake increases twofold.

Of course, the first thing I did was to grab my little Excel sheet and plot a 6% average growth (quite good already) together with a 2.5% population increase and the ratio to get the per capita increase. Indeed in ten years the economy would have grown by 79% (still rather far for a conditional “may double”) the population by a 28% (even if birth rate decreases there would be immigration as such a growth rate will attract immigrants) and the end result is ONLY 1.4 fold increase is far from being a doubling of the cake share for the people.

That would be all fine and dandy except that if there is someone totally discredited in economical matters in the Chavez administration is Giordani. For those whose memory is short Giordani is the one of the nincompoop projects such as the “eje Orinoco Apure” where Chavez would be settling millions of Venezuelans who have refused to live there, and for good reasons, since our history began. But much more damming, Giordani was the guy in charge of Venezuelan economy through 1999, 2000, 2001, three full years which ended in the February 2002 devaluation which was arguably the flash point of all the political events of 2002. Under Giordani, the Venezuelan currency has gone from 600 Bs per USD to the current street value of 2 800 Bs. per USD. You may draw your own conclusions, but for me, Giordani is a used car salesman.

The investment question

“If some firms do not invest, others will come to invest," Giordani said confidently. "If Venezuelan entrepreneurs do not take action, they are going to lag behind.”

This comes from a man who presides to the regular irregular (forgive the tautology) seizure of land and industries from the private sector without adequate compensation. And he expects that people whose business are at risk from such arbitrary seizures to keep investing? The sectors affected by the current land and industrial actions represent roughly half of the private sector of Venezuela. We are not talking here of some marginal segments of the economy, we are talking about all of the agribusiness, most of the textiles and small mechanical industries, in short, all that is related with direct supply to the lowest economical sectors that compose the supposedly natural Chavez faction. In fact, Giordani even alluded to that in an implied contradiction to his own words. He spoke in glowing terms of Mercal which is a state system of food distribution:

“Mercal is doing great efforts in this particular area. Mercal has extended its scope. It supplies food not only at controlled prices, but also below regulated prices. This allows us to stop inflation. Mercal is growing up, thus letting us to prevent prices from continuing to soar, which is our major concern."

This is in fact the acknowledgment that the state is going to go head-on against the private sector in the food and distribution sectors, with an unfair advantage as Mercal is exempt of many of the regulations, taxes and duties that drain the private sector. Does Giordani realizes that within his own interview he contradicts himself blatantly? Who will dare to invest in the private gribusiness sector if s/he risks to face off with Mercal at some point? And for the ones that sell, say, blenders, how do they know that Mercal will decide to say blenders and wreck earnings, if not down right dumping of imported products?

That is why you need cross examination and private medias where public officials must go on occasion, to be able to unmask the phonies. Giordani is either stupid, naïve or a dysfunctional liar. And since he is the most sheltered of all of Chavez ministers, the one that never gives a press conference (something unthinkable in a functioning democracy for the guy who presides the economic destinies of the country), it is even more important to confront him to know what is really going on.

In fact, it was all a set up

But these ridiculous words of Giordani, words that not even we could qualify charitably of wishful thinking, seem to have been in fact the first punch of a charm offensive. Soon enough we heard the president of the Central Bank announce the fabulous results of 2005, forgetting of course some of the control numbers that would put a caveat on his optimism. At least he had the honesty to admit that the 9% growth of 2005 is spending driven as the outlays in direct grants to the population allowed for a spending boom. No words about how that boom benefited the creation of NEW jobs, as all serious observers estimate that the growth was based on recovery of some idle capacity, without job creations (the official decrease on the jobless rate has been shown to be a shameful cooking of the statistics where the government has shamelessly failed to consider the people that have stopped to look for a job!) This declaration deserves a post by itself, suffice to say for now that in fact Gaston Parra unwillingly confirmed that we depend more on oil than ever!

Feeling the sting of growing doubts about the benefits of Venezuela into getting in the MercoSur bed, the commerce minister chimed in. Gustavo Marquez asked (or almost demanded) that the private sector invest more, that Venezuela would benefit from the MercoSur as our new “internal market”. Thinking that Venezuelan companies without export tradition will be able in five years from now to export to the Mato Grosso strains credulity. I have been to Rio de Janeiro where there is money and taste. For the life of me, I do not know what we could sell there except for gas and crafts. Oh sure, eventually we will fond stuff to sell to Brazil, but it is not useless to recall the reader that even our oil based chemical industry is unable to supply the Venezuelan market.

What was funny was that Mr. Marquez pointed out that he had received “a lot of inquiries” from European companies wishing to establish facilities in Venezuela to enter the MercoSur through Venezuela. Besides the fact that in Europe there are many organizations whose job is to make “inquiries” everywhere, I wonder if he realized the implications of his words. Could it be that the Brazilian worker is already more skilled and better paid than the Brazilian and Argentinean worker? Are European companies that make such inquiries aware of the labor laws here, judicial insecurity, political intervention in the economy? In fact, does Mr. Marquez realizes that if in the oil sector and infrastructure projects foreign investment keep apace, in other sectors the tendency is to downsize or even to leave Venezuela?

No, what we are seeing these days is the crass opportunity to occupy the center field of the news preparing yet another populist electoral campaign for 2006. The lies to get the 10 million votes have started. Journalists and opposition are on leave until January, but a scared government is in place and is working double shift to recover the lost political ground of 2005. Fortunately for the opposition it is an incompetent government. And this blogger was watching.

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PS: This is part 1. Part 2 will come some day as holydays allow me to write. Then I will not only try to bring a reality check on what is going on in Venezuela, but even explain the economy "boom" of this year. Note by the way that for next year all predict growth but at much lower levels than now. Interesting, no?