Monday, September 19, 2005

Hugo my man, you're gonna get yourself killed

/ market / values /
In a step that is bound to multiply calls for Chavez' assasination among the wacky right in the US:

>"...the Venezuelan leader said his country will soon start to ship heating oil and diesel fuel at below market prices to poor communities and schools in the United States. 'We will begin with a pilot project in Chicago on Oct. 14, in a Mexican-American community,' said Chavez, who was in town for the United Nations sessions. 'We will then expand the program to New York and Boston in November.'...
...Chavez said he can afford to sharply reduce Citgo's prices [citgo is owned by the government of Venezuela] by "cutting out the middle man." His plan is to set aside 10% of the 800,000 barrels of oil produced by the Citgo refineries and ship that oil directly to schools, religious organizations and nonprofits in poor communities for distribution. The same approach, he said, has worked in the Caribbean, where Venezuela is already sharply subsidizing oil deliveries to more than a dozen nations..."

Interestingly for a president of an oil producing country Chavez also warned that:

"Americans must reorder their style of life" because "this planet cannot sustain" our "irrational" consumption, especially when it comes to oil.

An obvious point certainly but rather impressive coming from Chavez, since Venezuelan GDP would certainly benefit from "irrational consumption".


Anonymous said...

Hehe, nice one.

What's your take on this guy, talos?

I didn't know what to make of him for quite a while, some of his moves seem too populist, and his mug is uglier than Maradona's.

OTOH, I haven't seen him put a foot wrong, all his moves seems right, and God knows he could easily have fucked up. But he hasn't. I've quite warmed to him, in fact.

I think he's probably juat a tough-as-nails old soldier with his heart very much in the right place.

But I wouldn't mind hearing your opinion...

talos said...

I like the guy. A lot. His speeches apparently make Fidel Castro seem downright laconic, and he has a rather annoying paternalism, but I can't think of another government that actually gives as much of a damn about its people as Chavez. He's lucky in that he's swimming in oil, but he has put to good use the country's resources (improving infant mortality, literacy, organizing food rations for the poor etc.) His support is solid and he depends on the loyalty of a majority of impoverished Venezuelanos who look at him as one of their own.

Yet it must be said that economic results are not as impressive as one would expect - apart from the bottom of the economic ladder. Hard-hit are the middle classes among which his support isn't exactly skyrocketing. The next few years are going to be crucial and he badly needs to gain some sort of raport with the middle classes.

I've written adoringly before - and I think that this is kind of emblematic of the man.

Anonymous said...

He's heading for trouble.

Not this year, and not next year. (Next year, he'll be re-elected in a landslide.) But the year after that, or -- if oil prices stay high -- the year after that, he's going to stumble badly.

Short version: he's very rapidly spending the country into a hole that it won't soon get out of. He's increased the budget for /everything/ -- schools and hospitals, yes, but also the army and the police.

Venezuelan government spending has more than doubled since he came in. Revenue has risen, but not by nearly as much. So the government has a huge and rapidly growing debt.

So far, this is OK, because oil prices have made Venezuela a good credit risk. But if oil prices fall, he's soooo screwed. And even if they don't fall, another four years of this will result in a major economic crisis. He'll either have to default (which will destroy Venezuela's banking system) or inflate (which will ruin Venezuela's middle class).

Meanwhile, Venezuela continues to suffer from a nasty case of "Dutch disease". Their economy remians utterly dependent on oil exports, with all other sectors neglected or stunded. Human development statistics have gone up, which is good, but the country is still one of the most corrupt in Latin America (which is saying something), and its Gini coefficient -- the measurement of inequality -- hasn't budged.

So, when the crisis comes, the country is not going to be well prepared for it.

I don't mind Chavez' rhetoric. And it's mildly intriguing to see a successful Latin American man-on-a-horse coming from the left rather than the right. (There have been a few others, most notably Torrijos of Panama, but they're pretty rare.) You could even say that I wish him well. But I'm much, much less optimistic than talos is.

Doug M.

kkk said...

> but I can't think of another
> government that actually gives as
> much of a damn about its people as Chavez

And that, at the end of the day, is the bottom line, isn't it?

I mean not every flippin govt in the world should concern itself SOLELY with upholding the mirage of our deeply flawed (read tortally screwed up) neocon economic model, should it? Nice to see some variety.


> So the government has a huge and
> rapidly growing debt.

So??? It never seemed to do the States any harm... :-D :-D :-D

> He'll either have to default [...]
> or inflate (which will ruin Venezuela's middle class).

OK, so that will sort out the Gini, then...
Serously, I think this downer on inflation is overdone. If the middle-class' inflation is the rest of the country's decent-standard-of-living, we have a HUGE problem here. It reminds the old addage, "I don't want to be rich, if everybody else is rich too - I must be rich and YOU must be poor" (What's the fun in being rich otherwise?)

So why call it inflation, and not more widespread wealth distribution, eh?

Because a few banks might feel screwed? Fuck 'em...

kkk said...

Btw, the first comment was mine, not sure why it came up as "anonymous"

Anonymous said...

kkk, the States can get away with it because it's (1) the world's largest economy, and (2) produces the world's reserve currency.

Also, the US debt -- while terrifying in absolute terms -- is not that big (yet) compared to the size of the economy as a whole. At the moment, it's around 65% of GDP. By way of comparison, Italy's is 105% of GDP. And Japan's is an astounding 155% -- the highest in the developed world.

Venezuela? It went from around 25% of GDP when Chavez was elected to around 45% today, and is growing by leaps and bounds. In another couple of years, depending on oil prices, it'll be between 50% and 70% -- roughly where the US is today.

This is particularly bad because (1) Venezuela is a small, one-commodity economy, and (2) investors will see that the *rate of increase* has been alarmingly fast... much faster than in the US or even Italy or Japan. To put it in context, the US has run up about 10% of GDP in debt in the last four years; Venezuela has run up about 20%. So while Venezuela's debt is still smaller, it's growing much faster, and will probably catch up and pass the US in the next two or three years.

Bankers are going to look at the trend and conclude, reasonably enough, that they're in danger of never being paid back. They'll refuse to lend unless they're guaranteed ever-higher interest rates.

What makes this interesting is that, so far, the majority of Venezuela's debt is held by Venezuelan banks. (Chavez doesn't like the idea of being beholden to foreign bankers.) So, when the Venezuelan banks stop buying Venezuelan government bonds... well, that's when things get interesting.

Chavez will then have several options, none of them good.

-- Nationalize some or all of the banks.

-- Force the banks to lend the money.

-- Repudiate some or all the debt.

-- Crank up the printing presses and try to inflate his way out.

I suspect he'll try all of them, which means Venezuela will end up with two or three separate but linked economic crises at once.

Note, BTW, that Venezuela came within a few days of a default crisis in early 2003, when the PDVSA strike crippled oil revenues. Now PDVSA is fully back online and revenues are higher than ever... but Venezuela is far more exposed.

Since I don't think oil prices are coming down soon, I pick 2008 as Chavez' Year of the Jackpot. I might be off by a year, but I doubt it will be more than that.

Doug M.

talos said...

Venezuela? It went from around 25% of GDP when Chavez was elected to around 45% today, and is growing by leaps and bounds. In another couple of years, depending on oil prices, it'll be between 50% and 70% -- roughly where the US is today.

Doug the numbers are a tad less ominous and they look to be improving. Indeed Venezuela is actually buying up debts around the region (Ecuador as mentioned in the previous link and Argentina) - while buying influence around the region.

All this while keeping up the good work.

Anyway - corruption is indeed a huge issue and he will have to start doing something about it fast. The good news is that I haven't heard any charges of him being personally corrupt.

Anonymous said...

Dude. When the Bush administration says it's going to cut the federal deficit, we laugh. Chavez makes Dubya look like a model of restraint and discipline.

/All/ governments say they're going to cut debt. Let's see whether this translates into any action. I'll be surprised.

Buying up modest quantities of other countries' debt is pretty meaningless. Buying up large quantities... um. That means betting on something (Ecuador's continued financial and political stability) over which you have no control. If the other guy defaults, you're screwed.

The report doesn't say what interest rate he's paying. If market, then it's just a gesture. If below market... oh dear. There's a reason those rates are what they are.

Buying influence: yeah, that's just it. From here, it looks like he's getting hooked on making expensive gestures.

Doug M.

kkk said...

While we're on the subject here's another link for your perusal...

Chavez offers medical cover for the poor of the US!

Now, truth to tell, it is fairly obvious that as well-meaning as some of Chavez's gestures are, they are not exactly realistic. As the article says you can't just go to Cuba, even with a promise of free healthcare upon arival, there are "issues" involved...

For me though, what is really interesting is how APPALING they show some recent US legislation to be, completely contrary to any notion of freedom, or any other supposed American ideal. Seems the medical lobby is running the place. Bloody Frankensteins...

What do you mean it is a CRIMINAL OFFENCE to bring in cheaper medicine from Canada??

What do you mean you get 10 years and/or a 250 grand fiine for visiting Cuba without "authorisation" or for "spending" money there.

To me these are simply the spasmodic reactions of the groupies of a supposed "free" economic model, who suddenly realised that their system was only "free" while it was assured there was no meaningful alternative, that their emperor is now revealed naked, and that they are basically on very thin ice.

Otherwise it is both unfree and bankrupt, physically and ethically.

So, in a way it is a bit daft trying to paint the US system and its decisions as "sensible", while the Venezuelans are portrayed as irrelevant opportunists.

In this case the exact opposite is really true.

hollowburton said...

I think Mr. Chavez is possibly the MAN OF THE CENTURY The world needs him, we cannot allow him to be hurt. Poop on all the right wing garbage----medical care, housing, literacy, how can you argue with THAT?