Thursday, May 8, 2014

Venezuela Begins Rationing Electricity

from Bloomberg
Venezuela’s government announced the start of electricity rationing in western Zulia state as well as water rationing in Caracas to reduce demand on the power grid, a day after Ford Motor Co. (F) halted production in Latin America’s largest oil exporter.

The second-largest U.S. automaker joins competitor Toyota Motor Corp. (7203) and Dutch truck-maker CNH Industrial NV (CNHI) in suspending assembly in the South American country because of the difficulty of obtaining dollars to import parts from the government.

Shortages of everything from water to car parts and flour to pregnancy tests come after three months of protests against the government of President Nicolas Maduro that have left at least 41 people dead. The government yesterday said it will start rationing electricity and water as drought drains hydroelectric reservoirs and water tanks.

“This is another acknowledgment that the country is not working,” Michael Shifter, president of Inter-American Dialogue in Washington, said in a phone interview yesterday. “If this spreads to the rest of the country and becomes a nationwide rationing of electricity, it will significantly cut into Maduro’s support.”

Colombia stopped natural gas sales to Venezuela last week to preserve fuel during the periodic regional dry spell known as El Nino. The last electricity crisis prompted by El Nino in 2009 contributed to six straight quarters of negative economic growth in Venezuela.

“We’re running the risk of living a new electricity crisis like the one that started in 2009 if water levels at the Guri dam do not recover in the next four months,” Miguel Lara, a former president of Venezuela’s grid regulator, said yesterday in a telephone interview.

Economic Contraction

Venezuela’s economy will shrink 1 percent this year, according to a median estimate of eleven economists surveyed by Bloomberg last month. This compares to 0.5 percent growth they forecast in February.

Venezuela, which has the world’s largest oil reserves, suspended a nationwide electricity rationing plan in June 2010 after it increased investment in thermoelectric capacity.

The energy-saving plan follows measures to ration water in the capital, where residents are struggling with shortages of basic goods including toilet paper and bottled water.

More than one in four basic goods was out of stock in Latin America’s fourth-largest economy in January, the most since records began, according to the central bank. The bank stopped publishing up-to-date scarcity data in March.

The Dearborn, Michigan-based Ford, which took a $310 million charge in the first quarter for the sharp devaluation of the Venezuelan bolivar, had already cut production in the South American nation because a shortage of hard currency made it difficult to purchase parts.

Ford, GM

“Ford’s production operations have been suspended in Venezuela due to material shortages,” Kristina Adamski, a company spokeswoman, said in an e-mailed statement May 6. “We have received a commitment from the Venezuela government to help resolve the issues and to get our production up and running by the start of next month.”

General Motors Co. (GM), the largest U.S. automaker, has two factories in Venezuela.

“Production in Venezuela continues at a reduced level given low availability of material,” Dave Roman, a GM spokesman, said yesterday in an e-mail. “We are working with Venezuela government representatives and discussions have been constructive. We have no further information to share at this time.”

GM in April reported a $419 million one-time loss for Venezuelan currency devaluation as part of its first-quarter earnings. Lower production during the first quarter in Venezuela contributed to a decline in GM’s South America market share, Chuck Stevens, chief financial officer of Detroit-based GM, said in April.

“We like Venezuela when it’s running normally,” Stevens told analysts in April on a conference call. “It hasn’t run normally for the last three quarters. Clearly that’s weighing down our results. We see no resolution in the near-term.”
Shortages, Inflation

Dollar shortages have depressed car sales in Venezuela by 86 percent in a year to March, according to Venezuela’s Automotive Chamber of Commerce. Only 1,674 new cars were sold in the country of about 28 million people that month.

The decline of industry and dollar shortages pushed inflation to 59 percent in March, the highest in the world.

State water utility Hidrocapital posted on its website yesterday a rationing plan for Caracas. No part of the metropolitan area will go completely without water, and the government is preparing rationing plans for other parts of the country, Environment Minister Miguel Rodriguez said yesterday on state television.
‘Critical Time’

The eastern business district of Chacao, home to office towers, restaurants and shopping malls, will not have water service on Tuesdays and Saturdays, according to the plan. On the remaining five days of the week, water service will only be available in the evenings, Hidrocapital said.

The rationing plan will be in place until the wet season starts and water levels stabilize at major reservoirs, Rodriguez said yesterday.

Approval for Maduro fell to a record low 37 percent in April, according to a poll from Caracas-based Datanalisis published by newspaper El Universal May 5. Datanalisis President Luis Vicente Leon declined to confirm or deny the poll.

The utility “crisis has arrived at a bad moment for the government, as it comes at a critical time for the country” Leon said by telephone from Caracas yesterday. “The problems of shortages of medicines and food are perceived much more acutely by people who are having their water or lights cut off.”

Tuesday, May 6, 2014

Where Does Venezuela's Oil Money Go?

from Reuters
CATIA LA MAR, Venezuela (Reuters) - The neighborhood of El Chaparral began receiving cash from the Venezuelan government in 2005. The windfall came courtesy of the late socialist leader Hugo Chavez's plan to fight poverty by transferring billions of dollars in oil revenue to communities around the country.

Within a year, auto mechanic Juan Freire was urging authorities to cut off El Chaparral and its sister community of Los Pinos, with a combined population of 250. The money wasn't going to the needy, he says, and it wasn't sowing growth. Instead, Freire alleges, leaders of the community council in this mountain suburb were using some of the cash for personal expenses and to build houses for family members. He and neighbors filed complaints with nearly a dozen state agencies seeking a halt to the transfers.

Yet the money kept rolling in: In 2008, the council received close to $1 million - equal to about $40,000 a resident.

"When we filed complaints, the responses would always be something like, ‘We'll send some recommendations,'" said Freire, 57. "They never gave us answers."

The unsupervised spending in El Chaparral is symptomatic of a vast community aid effort with lax financial controls. A network of more than 70,000 community groups has received the equivalent of at least $7.9 billion since 2006 from the federal agency that provides much of the financing for the program, Reuters calculates, based on official government reports.

The money is part of a broad government effort called the "communal state" that steers funds to communities, primarily through an outfit called the Autonomous National Fund for Community Councils, or Safonacc. But exactly how much money passes through this system, who gets it and how it's used are largely a mystery.

The communal revenue-sharing program was championed by the late Chavez. The charismatic former military officer wanted small neighborhood groups to form "communes" that would define civic life and anchor a citizen-driven socialist democracy. In one of his last speeches before dying of cancer in 2013, Chavez tasked his handpicked successor, Nicolas Maduro, with advancing the plan.

"I entrust this to you as I would my life," he told Maduro, a former bus driver who narrowly won election last year.

The most common of such organizations are the community councils, which number about 40,000, according to a 2013 Communes Ministry study. The study also identified another 30,000 such organizations, including networks of community councils.

Maduro has been beset by three months of violent opposition protests that have left dozens dead. He shows no sign of stepping down - and has vowed to advance Chavez's community financing plan. He has described the communes as the embodiment of Chavez's movement to reduce inequality through generous spending of oil revenue. Many communities have successfully founded community centers, repaired roads and opened small businesses.

"Without the communes, this would all end. The commune is the epicenter of solidarity, of truly human life, of socialism," Maduro said in November.


But the Venezuelan government doesn't publish an official accounting of how the community-support funds are spent. The Finance Ministry didn't respond to questions about the financing of community groups for this article. Safonacc is overseen by the Communes and Social Movements Ministry, which promotes "participative social development." An official at the ministry said she wasn't authorized to provide any information.

Some officials have raised red flags about the spending. The comptroller of Venezuela in its 2011 annual report singled out Safonacc for scrutiny. That report concluded Safonacc has no centralized system to track outlays or follow up on projects.

The comptroller's office said it does not keep a tally of total transfers to community groups; it only tracks the finances of the councils it audits. In spite of the irregularities it identified at Safonacc, the office said in an email, the complaints "do not allow objections with respect to the relevance of the existence of these social and community groups. On the contrary, (the complaints) illustrate the need to cooperate in the development and consolidation" of the community councils.

Political rivals say the government is using the system to finance its base while bypassing opposition mayors. They note that the Interterritorial Compensation Fund, which uses federal funds to help poor regions close the gap with wealthier ones, has for three years given more to the community groups than to the country's 337 municipal governments. The ICF funds Safonacc and also directly finances community groups. It has set aside $1.38 billion under the 2014 budget for community groups and $1.29 billion for municipalities.

"The communal state lacks the fiscal controls that would apply to state and municipal governments, meaning there is no way to guarantee the appropriate use of resources," said Jose Vicente Haro, a professor of constitutional law at the Universidad Catolica Andres Bello in Caracas. "At the same time, there is a clear tendency toward using these groups to reduce the resources available to opposition politicians, which violates constitutional principles."

The Reuters calculation of $7.9 billion in payments to the community groups is based on figures in the Communes Ministry's annual reports to congress and information posted on the Safonacc website. Some of the data on the Safonacc site was taken down after Reuters began inquiring about the spending.

The Communes Ministry issued a statement in January reporting that Safonacc only transferred the equivalent of some $733 million to community groups between 2009 and 2013. That statement appeared to contradict the ministry's own annual reports to the Venezuelan congress showing it has transferred more than that in a single year. The ministry didn't respond to requests for clarification.


Chavez for decades dreamed of creating a nationwide network of self-governing community groups. His vision was laid out in the plans for a revolutionary society he and military comrades hoped to create through a 1992 coup.

"Popular democracy will be born of communities, and its beneficent wisdom will spread throughout the social fabric of the nation," he wrote in the early 1990s, in one of a series of texts calling for the creation of a "concrete utopia."

Chavez's 1992 putsch failed but made him famous, and he catapulted into the presidency in 1999. A decade-long oil boom followed, financing lavish spending that guaranteed electoral support for his brand of socialism. During his 14-year rule, World Bank data show, the poverty rate fell by nearly half - to 25.4 percent of the populace in 2012, from 48.7 percent when he took over.

Oil revenue is the mainstay of the Venezuelan economy and a key component of the federal budget.

State oil company PDVSA last year paid a combined total of close to $44 billion in taxes, social spending and contributions to a national development fund known as Fonden, according to preliminary figures published in the oil ministry's 2013 annual report.

But tracking where and how the oil money is spent has grown more difficult over the years with the rise of opaque state-run funds that don't disclose their finances. Among them is the behemoth $100 billion Fonden. The secretive state fund in some years accounts for half all investment in Venezuela. As Reuters detailed in a 2012 article, Fonden is not subject to congressional oversight and provides no detailed description of its outlays.]]]

A similar pattern has played out with the community councils, originally created in 2006.

Some localities appear to use the money as intended. At the Jose Felix Ribas Commune, which comprises 24 community councils in the Caracas slum of Antimano, neighbors transformed an abandoned lot filled with junked cars. It is now a three-story community center with an internet cafe, a textile workshop and a study center for neighborhood kids.

"You see, this can be done," said 34-year-old Aura Aguilera, who works full time on community development. Since 2006, she says, she has helped manage some $150,000 to build the textiles business.

Authorities have made some efforts to fight waste and fraud.

The state prosecutor's office in 2011 said 1,500 people were under investigation for abusing community council resources. Prosecutors in September 2013 announced the arrest of three people. One was an employee of a federal agency that funds community groups, accused of making off with some $110,000 earmarked for boats to be used by fisherman. The comptroller's office has offered management training to more than 80,000 people, and has published audits showing irregularities. Reuters learned of the problems in El Chaparral through a comptroller's annual report.


Officials at the comptroller's office say they have no way of auditing each council. Instead, they say, irregularities can be detected through "social auditing" - in which citizens denounce fraud. In many cases, though, residents say they don't have enough information to convince authorities to open an investigation.

Victor Gonzalez, an auditor, in 2010 joined the board of his neighborhood council in the poor Caracas neighborhood of La Pastora. Through contacts in a Caracas municipal government, he says, he discovered the group had received 330,000 bolivars, equivalent to $153,000 at the time it was disbursed, to repair a retaining wall in the neighborhood. The previous board left no documentation.

Gonzalez, a staunch follower of Chavez, says the prior board spent the entire amount but only covered the wall with a thin layer of cement rather than fixing the structural problems. "Can you see 330,000 bolivars in that?" he asked, pointing out the wall, adorned with slogans celebrating the communes. "I can't."

The comptroller's office said it had received a complaint about the situation but dismissed it for lack of proper documentation.

"Of course I didn't have the documents - the board didn't leave anything behind," Gonzalez said when informed of the comptroller's response. "What was I going to do?"

The previous members of that council were unavailable for comment. The municipal government did not respond to an email seeking comment.

In the rural slum of Saman Mocho, outside the city of Valencia, resident Jesus Diaz says he was pushed from the council board in 2007. He was ousted through a recall referendum in a hastily convened assembly that did not reach quorum. Neighbors complained he was slowing a home construction program. He confirms there was a delay. But he says it was because he refused to transfer funds to a contractor's personal account, which would have been illegal, rather than to the construction company itself.

Saman Mocho's council in 2006 and 2007 received transfers totaling $1.3 million to build 40 houses. But by 2008, Diaz says, the contractor ran out of money after partially building only 10 homes. Residents later completed those houses with their own money. The national comptroller told Reuters the case was being handled by a local office of the comptroller and that it was "in the evaluation stage."

Before the comptroller completed the investigation, Saman Mocho was approved for more funding. A government housing program gave the council another $465,000 in 2011 to build 30 homes, including one for Diaz's daughter. This time, Diaz says, the project was successful. "It's a demonstration that the people can build homes, it's marvelous," said Diaz.


In El Chaparral, the community in 2005 built some 20 houses through a pilot of the communal-funding program. In time, complaints arose. The community directors withdrew money meant for development projects and distributed it among relatives, allegedly for safekeeping, said Freire, the auto mechanic. He said the community often did not know what projects the council leaders had proposed and how much the group had received in financing.

He and several neighbors filed complaints against three women who controlled the council's finances. In 2007 a community assembly voted to recall the trio from the board. The deposed leaders disputed the vote and won the support of Communes Ministry officials, who annulled the recall, according to Freire. He said he attended one meeting in which council leaders were seeking help from Communes Ministry officials to obtain $100,000 to buy heavy construction equipment, a purchase the community did not know about and would not have benefited from.

Ana Mercedes Salazar, one of the three council members, denied wrongdoing. "No, no, absolutely not. At Chaparral-Los Pinos all the projects that received funds were carried out," said Salazar. She says the council completed all of its projects by the book.

The comptroller's office disagreed. In its 2011 annual report, it found that the council failed to document expenditures, made out checks to a member of the council's board, and made expenditures unrelated to council projects. The comptroller found no evidence the Communes Ministry had inspected the projects it financed.

Salazar said she had not seen the report, which does not name her. Asked what actions it took after its investigation, the comptroller said it drew up recommendations for the Communes Ministry, Safonacc and the local community council.

El Chaparral residents say they see few signs of the several million dollars the community received. The council bought a house to be used for meetings, but it was in "terrible condition" and acquired at an inflated purchase price, according to an official complaint filed by a neighbor. On a recent visit, a hand-written sign on the door said a meeting scheduled to be held there had been moved because the house was too small to fit everyone.

Freire says micro enterprises were financed with $140,000, including an auto workshop, several catering businesses and a small cinder block factory. They are nowhere to be found, he says.

Five hundred avocado trees, purchased to create an orchard, were left to wilt and die, according to another neighbor. A planned medicinal garden is a now a fenced-in patch of weeds, strewn with trash.

Freire says the community councils system was no match for residents who know how to game it.

"Projects that are not supervised never work out," he said. "Some people see this and take advantage of it for personal enrichment."

Sunday, May 4, 2014

Democrats Look to Venezuela for Economic Policy?

from IBD
President Obama has vowed to "punish" the GOP at the ballot box for thwarting his proposed 39% minimum-wage hike in Congress this week. All he's really doing is plugging Venezuela's banana-republic economics.

Lashing out against Republicans who filibustered a Senate bid to jack up the minimum wage to $10.10 on Wednesday, the president vowed to make it an election issue come November.
"If there's any good news here, it's Republicans in Congress don't get the last word on this issue," he declared. "You do. The American people. The voters."

And it's true — polls show that about two thirds of Americans do support raising the minimum wage.

While there's little doubt the president will try to milk that political momentum, he can't change the economic reality of a rising cost of living that is fueling the public perception that wages have to rise.

The only reason raising the minimum wage has any traction at all in the political sphere is that the cost of living has risen sharply in the Obama years. Obama likes to blame employers for not paying workers enough.

But it's Obama's pattern of big-spending policies that have hurt the lowest-wage earners the most.

Purchasing power has fallen 8% in the past decade, a result of inflation for everyday goods. And such erosion hits the working poor the hardest.

The consumer price index suggests a 2% to 3% average annual rise in prices over the past decade. But the real picture is far worse.

Big-ticket purchases like homes are overcounted in our inflation data — while the mundane things people eat and wear each day are undercounted. Food, clothing, water, electricity, gasoline have all risen sharply.

The latter goods get lost in the averaging. But for some, they make up the bulk of their purchases. That's precisely why those at the lowest end of the pay scale — about 4% of American workers — are so severely squeezed in the Obama economy.

Combine all this with a record five-year buildup of public debt, and the net result is an incredible tax on the working poor to pay for big government.

Understandably, people want the lowest-wage earners to see some relief. But the private sector can't do much to alleviate this pain except lay off workers to pay for a wage rise. The Congressional Budget Office says up to 1 million workers will lose jobs if the minimum wage rises to $10.10. So much for worker solidarity.

It just goes to show the cynicism of governments who create high living costs and then blame the private sector for reacting, as they must, to their profligacy.

Skip Obama for a minute and take a look at the shambling country to our south, where raising the minimum wage is done easily by dictatorial decree as a matter of policy, with no opposition — Venezuela.

As the Senate Republicans halted the arbitrary rise to $10.10 on the eve of the Marxist May Day holiday, the Caracas government raised its minimum wage 39% to ease the pain that the orgy of government spending and 59% inflation rate have inflicted on Venezuela's poor.

Having Chicago-ized the electoral system, the government is less concerned with elections than with the poor man's means of protest — riots. Since February, Venezuela has been engulfed by them.

Venezuela's wage hike follows a 10% rise in January and several hikes the year earlier — all in an increasingly futile bid to keep up with government-fueled inflation. Now, Venezuelan sources tell IBD, as things unravel, the next stop may be a political coup.

Luckily, the U.S. isn't in such a dire position. But that doesn't mean the misery isn't real for our poor. It is. And that leaves us vulnerable to demagogues and despots.

As we've noted before, minimum wage hikes are a political tool. They don't create wealth or boost incomes. They merely kill jobs.

We hope Congress refuses to follow the failed Venezuelan model of Caracas-style economics.

Thursday, May 1, 2014

The Forester's merry men are calling!

May Day Morris Dancing anyone?

On tracing possible origins...