I'll be back soon

Due to a family emergency I have been preoccupied with other things, I hope to be back within a week.

KA

The Economist Forecast - Venezuela

Forecast
Apr 20th 2007
From the Economist Intelligence Unit
Source: Country Forecast

A strong mandate in the December election has emboldened the president, Hugo Chavez, to start off his third term with a pledge to deepen the drive towards “21st-century socialism”. Complete control of the legislature and significant influence over weak and politicised institutions should facilitate this agenda, but obstacles remain, including the gradual decline of fiscal oil revenue, which, combined with a downturn in private investment, will produce an economic slowdown. The decline in fiscal revenue will raise pressure for devaluation, although the Economist Intelligence Unit’s baseline forecast is for the authorities to maintain the peg at current levels this year to contain inflationary pressures, before devaluing in 2008. Inflation is rising as a result of expansionary fiscal policy and exchange controls. A cut in sales tax will produce a one-off price drop, but inflation pressures will quickly re-emerge. Some relief will come by the end of the forecast period as domestic demand growth slows. Although this will slow import growth, the current-account surplus will narrow as oil export earnings fall.

Key changes from last update

Political outlook
Mr Chavez undertook a high-profile tour of Latin America in March, timed to coincide with (and overshadow) a visit of the US president, George W Bush, to the region. The Chavez government evidently intends to continue to use “oil diplomacy” to increase its political influence in Latin America.

Economic policy outlook
The drop in value-added tax (VAT) from 14% to 11% in March (it will be cut further, to 9%, in July) produced a one-off drop in prices, as expected. But the longer-term impact will be to increase inflationary pressures by raising aggregate demand. In the absence of a fiscal retrenchment, we continue to project inflation well into double digits.

Economic forecast
On the basis that tax cuts will support consumption, we have revised up our forecast for GDP growth in 2007, from 5.1% to 5.8%.

To see the financial forecast up to 2011 click here

Venezuelan News round up

The energy summit has been in the news during the past few days but there have been some other news that I thought were worth mentioning.

More toys

The commander of one of the largest military bases announced that the armed forces are considering the purchase of 600 armored vehicles mainly from Belgium and Russia including the BMP-3 tank. Including the possibility of manufacturing the tanks in Venezuela.


Again more weapons for a country that already is one of the largest arms purchasers, and with one of the highest murder rates in the world. Lets not forget the >100,000 Kalashnikov assault rifles (and the ability to manufacture them in Venezuela), 30 military helicopters (ie. Mi-17's), 50 Russian Mig-29 fighters, 4 corvette-class warships, 3 Russian Lada submarines, among many other military purchases or planed purchases.

Oh ya, poverty and insecurity? bien gracias

The Zeppelin
More frivolous spending, the city of Caracas has spent ~$1.5 million dollars on 3 zepplins that are meant to fight crime. Personally, I think this money could be spent more effectively by hiring more cops, increasing their salary and training, or even giving them bonuses for good work. Instead we will have blimps that won't work in bad weather or at night. Lets not forget that the blimps work best during large gatherings of people such as sporting events.


The new Chavista opposition
Apparently the governor of Sucre (Ramon Martinez) belonging to the Chavista political party Patria Para Todos said that he was in disagreement of forming a single pro-Chavez party because it is sectarian. Well, that didn't go so well with El Supremo who invited Martinez to join the opposition and that he (Chavez) didn't need him, and that he (Martinez) is an imperialist, among some other colorful language. Such is the revolution, either your with me or against me.

Freedom press
Reporters without Borders has expressed concern because the once stanch Chavez supporter Miguel Salazar is being sued by pro-Chavez governors claiming defamation for an opinion peice Salazar wrote on corruption and human rights abuse.

Remember VHeadlines? the once powerful pro-Chavez e-news website. Well they are no longer up and running because they didn't tow the Chavez paty line enough and got their funding cut. Who's next? perhaps Greg Wilpert of Venezuelanalysis, the Venezuelan government English e-news website?

Do we see a pattern here?

Thanks to VenezuelaToday for the RSF link.

Manuel Rosales
The opposition seems to be quite these days but the Un Nueno Tiempo marched to the OAS to hand in a document. In addition, members of the opposition have meet in the past few days with foregin representatives including with president Bachelet of Chile.

Latin American Energy Summit

Most of the South American presidents are currently attending the South American Energy Summit on the island of Margarita off the coast of Venezuela.

As Greg Weeks points some of the media headlines would have you believe that there is a major rift between Chavez and Lula over ethanol. In reality it is more of a disagreement on some issue pertaining to ethanol, but this is hard to convey in a sexy attention grabbing headline.

Boz, also has been covering the issue of ethanol and how this is playing between Brazil, the US, and Venezuela. Personally I tend to agree with his opinion that the meeting will be mixed. I also think that if Chavez doesn't tone down his anti-ethanol argument and jump on board he risks isolating himself further from the other countries. This doesn't mean Chavez can't express concerns about ethanol production but he has to do so diplomatically and with a moderate tone. Unfortunately, he is not diplomatic nor seems willing to moderate his tone.

It appears that Chavez is finding himself in a rather difficult position, his anti-ethanol stance did not play well for Latin American integration but his support for ethanol production (US-Brazil initiative) would be interpreted as supporting "US imperialism".

Ultimately, Chavez will go along with the ethanol initiative but continue his public criticism. He will also self appoint himself leader, when in reality it is Brazil that will lead the energy integration.

The Venezuelan newspaper El Universal has an on-line section dedicated to the summit (sorry spanish only). They do have an English news section (see link on the right).

Venezuelan scientists under free speech threat

Miguel has been covering for some time how the prominent Venezuelan physicist Dr. Claudio Mendoza has been demoted for writing an article poking fun at the Venezuelan government.

To read Miguels coverage click here.

Below is an editorial and news article that was published in the April 12, 2007 issue of Nature. For those who don't know Nature is one of the most widely read and prestigious scientific journals in the world. I expect the IVIC directors to write a rebuttal in next weeks issue.

Editorial click here.

News article click here.

When employees attack

Nature 446, 702 (12 April 2007) | doi:10.1038/446702a; Published online 11 April 2007

Editorial

Government scientists should be able to comment publicly — within reason.

Badmouthing one's government is a fashionable pastime in some parts of the world. Many US climatologists, even those who receive federal funding, have grave reservations about the White House's continued neglect of international climate agreements, and they aren't shy about saying so. In Britain, meanwhile, scientists as well as political analysts have been quick to criticize the government's plan to spend billions on renewing the national fleet of nuclear-weapons submarines.

Roll those two examples together, and transplant them into a society where freedom of speech is often seen as being under pressure from several directions, and you get the case of Claudio Mendoza. Until recently the head of a government physics laboratory in Venezuela, Mendoza has been demoted after making sarcastic comments about the government over what he regards as its tendency to ignore scientists and their advice (see page 711).

What infuriated Mendoza's paymasters most was probably his suggestion — made in a newspaper article promoting a play about nuclear weapons — that president Hugo Chávez might want to pursue a nuclear-weapons programme and that, if he did so, he was liable to fail because of this alleged disdain for expert advice.

Mendoza's comments were not made in any official capacity (his article was signed, with no affiliation given), raising the fraught question of whether senior government scientists should be free to make disparaging public comments about the state institutions that they serve, when they are away from work.

On a facile level, this is a disagreement about whether it is acceptable for someone to be fired because their bosses can't take a joke. In many countries, acerbic comments about the machinations of politics are a valid and effective mode of public discourse.

But, of course, a line has to be drawn somewhere. It is hard to escape the feeling that, in this case, it has been drawn in the wrong place. Many civil servants in other countries might expect a dressing-down if they behaved in this way, but might justifiably argue that they have a right to express a grievance. The message coming from Mendoza's bosses within the Venezuelan national research institute is an unsavoury one. His removal from a management position implies that someone who voices contrary opinions is not fit to be a lab head. What's more, Mendoza has been warned that he had better clam up if he doesn't want to lose his job altogether.

The play that Mendoza was writing about was Michael Frayn's Copenhagen, the international hit that deals with a crucial 1941 meeting between Niels Bohr and Werner Heisenberg, and their struggle to comprehend the feasibility and consequences of developing nuclear weapons during the Second World War (see Nature 394, 735; doi:10.1038/29431 1998).
One of the reasons for the play's success was general interest in what physicists of Bohr's generation thought about the issues surrounding nuclear weapons. Of course, these thoughts only became public some time after the United States had built and used the bomb. But times have moved on, and people in Caracas, as elsewhere, would benefit if their scientists were be able to participate openly in public debate on nuclear policy.

Venezuelan free-speech row goes nuclear

Nature 446, 711 (12 April 2007) | doi:10.1038/446711a; Published online 11 April 2007

Michael Hopkin

Physicist is demoted after criticizing government officials.

Freedom-of-speech groups have expressed concern at the treatment of a prominent Venezuelan physicist who has been fired as head of a government research lab after poking fun at the government over nuclear policy issues.
Claudio Mendoza was stripped of his position as head of a computational-physics lab in the Venezuelan Institute of Scientific Research (IVIC) in Caracas because of comments he made in an article written to promote a science-related play. He sarcastically suggested that Venezuelans should not worry about their country's growing alliance with 'rogue' nuclear states such as Iran, because Venezuelan officials do not listen to experts and so would not be able to develop nuclear technology anyway.

Although Mendoza is still a researcher in the lab, his dismissal as head after 10 years raises fears that his right to free speech has been infringed, says Juan Carlos Gallardo, chair of the American Physical Society's Committee on International Freedom of Scientists. The committee has written to Venezuelan officials to request details of the case. Although no other scientists there have reported similar harassment, the government has been accused of waging a campaign against freedom of speech in the media, and the fear is that similar repression is now extending to the research community. Gallardo has pledged to monitor the situation and take further action if Mendoza is sacked outright.

Mendoza says he has been accused of treason, even though his comments were meant to be witty and he was not writing in an official capacity. His remarks were published on 13 September 2006 in an article to publicize a production of Copenhagen by British playwright Michael Frayn. The play dramatizes a discussion between physicists Neils Bohr and Werner Heisenberg about the feasibility of developing nuclear weapons. Addressing fears that Venezuela might seek to join the nuclear club, Mendoza wrote: "Here bridges are built without engineers, diagnoses are made without doctors, oil is refined without petroleum experts, one can teach without being a teacher, you can govern without being a statesman. We will therefore explode nuclear energy while ignoring the physicists."

But it seems that nuclear policy is no joking matter. Although Venezuela has no nuclear programme of its own, it has significant reserves of uranium ore, and in 2005 Venezuela announced that it would join forces with Iran to develop domestic nuclear power. Venezuela is also thought to have endorsed Iran's controversial uranium-enrichment programme, although without a seat on the UN Security Council, it was unable to influence the council's unanimous vote in December 2006 to ban the project.

Four days after the article was published, IVIC's board of directors removed Mendoza as lab head, and gave him 30 days to provide evidence of his apparent insinuation that Venezuela might be planning to enrich uranium. Mendoza submitted a dossier of newspaper articles but this was rejected as sufficient proof. When asked to retract his article, he refused.
The article was "the last drop" in a series of altercations in which Mendoza has criticized his paymasters, says IVIC director Máximo García Sucre. In 2003, for example, Mendoza complained that the government was not giving enough financial support to IVIC — a claim denied by IVIC directors (see Nature 422, 257; doi:10.1038/422257a 2003).
"He has manifest many times his nonconformity with IVIC decisions," García Sucre told Nature. "In a certain sense he is an activist. In this situation it is not possible to be head of a lab — there must be a minimum of affinity with scientific politics." He adds that such personnel changes are routine, and that Mendoza still has all the rights of any IVIC staff member.
Mendoza says that he is unsure whether he will be dismissed entirely. "I don't think I will try to get reinstated as head. I am just basically trying to survive as a researcher," he says.

"I hope he will understand that the measure that has been taken is a mild one," says García Sucre, adding that in making fun of government officials, Mendoza has indirectly criticized president Hugo Chávez. Asked whether Mendoza will be fired outright, García Sucre says: "He should start to work in his lab instead of being in the newspapers all the time saying he is being victimized. Then I don't see any problem."

Is the International Monetary Fund (IMF) conspiring against Venezuela and Argentina?

Is the International Monetary Fund (IMF) conspiring against Venezuela and Argentina?


This is the conclusion of Mark Weisbort and David Rosnick at the Center for Economic and Policy Research in Washington D.C. stating:

As this paper shows, the IMF's public documents and statements regarding Argentina lend support to the idea that its errors [in GDP forecasting] were related to political considerations. The repeated underestimates of Venezuela's GDP growth raise further questions in this regard.

to read the full report click here

Below are my comments and what I consider a more logical reason for the large deviation from projected to actual GDP growth.

Argentina

Although I do not follow Argentina that closely I have read that Argentina has been playing with its statistics and how they measure things such as inflation (sounds like Venezuela!)

In early 2006, when inflation was estimated to be high, the government asked for the list of items measured by INDEC and established price agreements precisely for those items. Following a year of price controls, the cost-of-living official figures ended up standing at 10 per cent for the 12-month period.

The Economist has an article about this to.


Venezuela
Making predictions are of course a rather difficult process especially when you have an economy that is dependent primarily on a single export such as oil is for Venezuela, accounting for ~80% of its export revenue.

While Weisbrot acknowledge the decrease in GDP during 2002 to the oil strike he criticizes the IMF for failing to predict accurate numbers for 2003, '04, and '05. Consequently, claims that it is a conspiracy against Venezuela to destabilize it. Unlike Weisbrot I think that there are some very obvious reason for the IMF to underestimate Venezuelan GDP.

As most people can attest to oil prices have seen a huge increase between 2003-2006 primarily due to unforeseen events (even to the IMF). Geopolitical events such as a nuclear Iran, conflict between Hamas and Israel, North Korea, then we had a very active hurricane season (ie. Katrina) in 2005, OPEC having little spare capacity, and of course oil speculators. This all came together and driving up the price of oil. Since venezuela receives ~80% of its revenues from oil it is logical that GDP growth surged past IMF estimates.

Accurate IMF projections are further complicated due to Venezuela being one of the least transparent and corrupt countries in the world, Zimbabwe sores better than Venezuela. Where PDVSA accounting is no longer independently audited (since 2003) instead PDVSA is used as a piggy bank. Money is put into discretionary accounts from "excess" foreign reserves. In addition, political and economic decisions are announced with no pre-announcement, instead are announced by Chavez during his Sunday variety show (Alo Presidente). So how can an economist or anyone else provide somewhat accurate forecasting when you lack the information and the little bit of information you do get is announced during a weekly 3-5 hour television show or a 1 hour Monday-Friday radio broadcast. Does Mark Weisbrot expect the IMF to assign someone to listen to the Chavez's almost daily broadcasts? I sure hope not.

In the end it is a lack of information, economic plan and consistency, and unforeseen geopolitical events that likely caused the IMF to underestimate GDP growth for Venezuela, and not some conspiracy.

addendum
Alex brought to my attention that the government news site Aporrea.org published the Weisbrot report but they cited the wrong CEPR. They cited the highly respected CEPR.org based in England not the CEPR.net based in Washington D.C. (the one Mark Weisbrot works for). As a side note the reader may be unaware but Aporrea.org was founded by Matin Sanchez. Who after doing a good job with the web site was rewarded by being appointed as head of the consulate in Chicago, IL. It's all about loyalty! sounds strangely familiar.

The path to the Bolivarian Venezuela

Many outsiders to the Venezuelan saga routinely seem to be under the impression that Chavez led the his now famous 1992 coup against Carlos Andres Perez in disgust to the caracazo. Such impressions are not unwarranted since Chavez has worked hard to instill this impression among Venezuelans and foreigners. In reality Chavez worked for many years prior to 1992 and even before the caracazo to create his model of Venezuelan society. The only idea Chavez got from the caracazo was something to cloak his ideology behind while creating an ever more destitute society.

Documents from 1992 coup show Chavez's path

By Brian Ellsworth
CARACAS (Reuters) - How far will President Hugo Chavez press his effort to install Cuban-inspired socialism in oil-rich Venezuela? The answer may well have been written in his failed coup plans 15 years ago.
Chavez spent more than a decade conspiring with other leftist officers before leading the putsch in 1992, during which time he helped draft a set of decrees for a revolutionary government.
He has said he burned his copies of the documents just before his arrest for leading the attempt, but copies were published soon after.
The blueprints -- for a militaristic yet utopian government that would upend the South American country's corrupt politics -- now read like a road map for Chavez's drive this year to nationalize industries and put power in the hands of communities.
click here to read more