When compared to Venezuela’s oil reserves, Citgo is nothing.

Sir, Colby Smith refers to Citgo as “the last-remaining crown jewel of Venezuela” “Stakes rise for Venezuelan assets stateside” Alphaville May 17.

Frankly, Venezuela has what has been reported as the largest oil reserves in the world. What is Citgo compared to that? Absolutely nothing!

What’s valuable for Venezuela is its oil, but the value of it has been greatly diminished, first and foremost because the government handles the redistribution of all net oil revenues, but then also because way too many have wanted to profit from doing something with our oil, for instance refining it, abroad.

In 2000, in an interview in the Daily Journal of Caracas I said:

“Until someone convinces me of something different, I insist that anything else the Venezuelan state tries to do with oil, means a loss or a net reduction of the benefits brought by the first phases of the operation, [its extraction].

Because of that and the fact that I have seen the corporation's reports, I still can't understand the economic reasons for having bought and kept Citgo. There is evidence in the reports that it is being subsidized by PDVSA. 

And, for those who argue so much in favor of privatizing PDVSA, I challenge them to make an IPO for Citgo, subject to their obligation to purchase oil products at market prices."

Sir, we have millions of our young growing up undernourished and still some try to hang on to a very high hanging fruit as Citgo, so my current tweet sized proposal is: 

So that Venezuelans can eat quickly, hand over Pdvsa (and Citgo) to Venezuela’s creditors quickly, to see if they can put all that junk to work quickly, to see if they can collect something quickly, and pay us Venezuelans, not the bandits, our oil royalties quickly.

The Iraq Study Group established by the U.S. Congress, reported in 2006 the following: "There are proposals to redistribute a portion of oil revenues directly to the population on a per capita basis. These proposals have the potential to give all Iraqi citizens a stake in the nation's chief natural resource." Sadly it came to nothing

Sir, if that were to be implemented in Venezuela, then Venezuelans would live in a truly independent nation, and not just in somebody else’s business.

PS. A couple of years ago I gave a speech to transfer price specialists in Washington recounting the very curious thing of Venezuela´s state PDVSA that sold petrol at lower than market prices to their then recently acquired refinery subsidiary in the US, CITGO, paying unnecessary taxes to another than their own tax man, probably just because they wanted to show the Venezuela public that Citgo was such a good investment. Crazy? Yes of course, but that´s life in a tropical country.

@PerKurowski

We sure have a major problem with central bankers that seemingly haven’t the faintest about what they’re doing.

Sir, Matthew C Klein writes “Rightly or wrongly, most central bankers think their mission is to keep the growth rate of consumer prices slow and stable. Even in places, such as America, that also ask the central bank to promote “maximum employment”, the inflation mandate is paramount.” “Central bankers have one job and they don’t know how to do it”, Alphaville October 18.

And the Klein proceeds to describe the existing confusion with respect to how to measure inflation, how to generate it if it is so good, and how to fight it if it is so bad. 

But equally, when central bankers have anything to do with bank regulations, they think their mission is solely to keep banks from failing, without giving a single thought to the fact that banks are supposed to allocate credit efficiently to the real economy.

And even in this their silly limited objective they fail; that because they have not understood that what is really dangerous to the bank system, is not what is ex ante perceived as risky, but what is ex ante perceived as very safe and which therefore can generate dangerous excessive exposures to what might ex post turn out to be very risky… all this currently aggravated by the fact that regulators allow banks to hold especially very little capital (equity) against what is perceived as safe.

Sir, do we have a problem!

@PerKurowski

Could the Venezuelan National Assembly sue Goldman Sachs on behalf of Venezuelans for aiding and abetting a dictator?

Sir, Mitu Gulati writes: “a judge could find that the holders of Maduro bonds must have known that they were transacting with an unrepresentative or illegitimate agent of the people… Agency law goes beyond merely voiding the contract between the principal and the third party; a third party who suborns a betrayal of trust by the agent may be answerable in tort to the principal”, “Maduro bonds” Alphaville July 8.

So, could the Venezuelan National Assembly sue Goldman Sachs on behalf of Venezuelans for aiding and abetting a dictator and the violation of human rights?

Gulati also writes: “It is the Constituent Assembly itself and all of its works that the post-Maduro government must argue are unauthorized, invalid and illegitimate. And the longer that the Constituent Assembly stays in power, and makes the laws of the country, the more it begins to look like the real legislature”

That begs the question, if a President of USA, like Donald Trump had managed to create something as odiously farcical as Venezuela Constituent Assembly, how long would it take for it to begin to look like the real legislature? 100 years?

PS. A simple but complex question from a humble Venezuelan economist to an outstanding Venezuelan international lawyer

@PerKurowski

Banks were instructed to abandon risk and compete with pension funds, widows and orphans for “safe” sovereign bonds.

Sir I refer to FT Alphaville “This is nuts — all the eurozone bonds have gone” March 4.

Of course it is nuts. More than 10 years ago, in November 2004, before some egos got in my way, you published a letter in which I stated “bank supervisors in Basel are unwittingly controlling the capital flows in the world…how many Basel propositions it will take before they start realizing the damage they are doing by favoring so much bank lending to the public sector”

And after the crisis left banks with less equity and the regulators with more requirements that has only gotten worse.

The truth is that banks were told to abandon what they usually did and compete with the most risk adverse for whatever little “safe” there was and those “safe” havens are, as a result, becoming more dangerously overcrowded by the day... and those though more risky much more productive bays are becoming less explored by the hour.

If used as geopolitical weapons beware, credit ratings can be more dangerous to your homeland than to your enemies

Sir, FT Alphaville should be commended for bringing up a discussion on what credit ratings can signify and which, even though it could have a fundamental impact on our future, has been so irresponsibly neglected, “Credit ratings warped by geopolitical pressures”, February 4.

Alphaville quotes Guan Jianzhong, the president and CEO of Dagong Global Credit Rating Company of Beijing saying:

“The global credit crisis has shown us that credit rating concerns the safe development of the human society… The current international credit rating system is favourable to the countries behind it, who apply their value and ideologies to the rating standards… It becomes the origin of the crisis and is no longer able to shoulder the credit rating responsibility for the world… However, the human society in the credit economy stage needs fair and just credit rating.”

That puts the finger on a thousand aspects… like for instance what is “fair and just credit rating”?

And it is completely in line with what I argued in a letter published by you in January 2003, namely: “Everyone knows that, sooner or later, the ratings issued by the credit agencies are just a new breed of systemic error to be propagated at modern speeds”… and all this made so much worse in June 2004 when Basel II’s credit-risk weighted equity requirements for banks, exponentially leveraged the dangers of credit ratings.

But let me here just focus on “credit rating concerns the safe development of the human society” in order to repeat to FT, for the umpteenth time, the following warning:

Risk-taking is the oxygen of any development, and so there is nothing as contrarian to a safe development of the human society, as an excessive risk aversion… such as that one imposed by the Basel Committee on our banks.

Now you may observe “What about all those excessive risks banks took and which caused the crisis?” and to which I would respond, again for the umpteenth time: “This crisis, as all bank crises in the past, have been caused not by excessive exposures to what was considered risky, but by excessive exposures to what was ex ante considered safe but that ex-post turned out to be risky”.

Sir, I have been arguing for years that since the information contained in credit ratings is already cleared for by banks, in interest rates and size of exposure, it is sheer lunacy to reuse that same information when setting capital requirements… something which should have much more to do with the possibility of the credit risks having being wrongly perceived.

And I have also argued that to distort the allocation of bank credit to the real economy, based on perceived credit risk, serves absolutely no social purpose. If regulators absolutely must distort, it would better of they did it with for instance ethic-ratings, sustainability-ratings or potential-of job-creation-ratings.

Alphaville introduces Guan Jianzhong’s comments with “It is no joke the way modern finance is being warped by geopolitical pressures and ambitions”. Indeed, but careful, the use of credit ratings as weapons can easily turn out to be more dangerous to your own homeland than to your enemies.

PS. The article is a consequence of Fitch Ratings placing a BBB minus, barely investable rating on [Russian] Gazprom. Beware, good ratings can also take some down, ask Greece.

The riskiness of country risk