If Venezuela’s social compact shared out all oil revenues directly to citizens, it would better resist lower oil prices

Sir, with respect to the possibilities of lower oil prices you write: “The real dangers… lie in emerging markets that rely heavily on oil exports and have large young and restive populations. Austerity will strain the social compact between rulers and ruled in the Gulf states. It will inflame existing conflicts in Nigeria and Venezuela.” “A sustained oil glut can have unsettling effects” June 23.

No! To refer to lower prices inflaming conflict in Venezuela is to ignore the true origins of the problem. The higher the oil prices the less do oil-regimes take notice of citizens… when oil revenues are large the citizens are mostly a nuisance to those in power… and the citizen’s mind-frame is set on how to get the largest share possible out of those revenues. That only guarantees a rotten to the core social compact. That only guarantees that sooner or later the nation fall into the hand of rotten to the core regimes, like the current one.

So in fact lower oil prices could help is it forces real changes. For instance if the net oil revenues were shared equally among all Venezuela’s citizens, we would have a much better and sustainable social compact. Not only because the real source of needed austerity would be more easily identified, but also because the decisions of millions about what to do with their share of the oil revenues, responding to their private and individual needs, would allocate resources more efficiently than what the well-intentioned or dark interests of some few would do.

Venezuela has the immediate need to get rid of its current government. But when that happens, then, immediately, its immediate interest becomes how to rebuild a devastated nation… before the next conflict breaks out. Nothing better than to completely rearrange how the natural resources not produced by granted to Venezuela by the providence is shared.

PS. Britain too would do better sharing out all revenues derived from taxes on petrol equally to all its citizens.

@PerKurowski

http://theoilcurse.blogspot.com

http://petropolitan.blogspot.com

Should/will the holders of Venezuela’s “Hunger Bonds” have priority over the hungry?

Sir, John Dizard, in reference to the current financial difficulties of the state of Illinois points out that Judge Joan Lefkow of the Federal District Court in Chicago made the point of “Bondholders do not have priority over welfare recipients”. That according to a muni portfolio manager would signify that the judge “is starting the process of reprioritizing the primacy of debt service under state law and the state constitution.” “Illinois’ journey to junk credit is sending shockwaves through the muni industry” June 17.

Let me apply that to Venezuela. Would that judge order that those many Venezuelans, including children, who die because of lack of food and medicines would have the same pari-passu rights as the holders of what Ricardo Hausmann has named “Hunger Bonds”?

It really does not sound so farfetched, or unjust, considering that the holders of those “Hunger Bonds” must be, as reflected in the risk premiums, perfectly aware of the tragedies in Venezuela resulting from widespread corruption and violations of human rights, including the current violent repression of those demonstrating against the government.

Sir, many have argued that the world urgently needs a Sovereign Debt Restructuring Mechanism, SDRM. I agree but for more than a decade I have held that must start by defining clearly what credits are clearly bona-fide, doubtful or plain odious.

Dizard writes: “One of the key questions to ask about distressed sovereign credits is whether the paper is owned by locals. Even during Nigeria’s troubles in the 1970s and 1980s, the central bank continued to pay its promissory notes, even as its bank loans went into default. Nigerian officials owned some of the notes.”

Clearly in a case like Venezuela the Venezuelans should have a right to know exactly who were the financiers of their malign regime, and of how they came into holding these credits.

The “need” for holding Venezuelan paper so as to conform to some Emerging Market portfolios might have entrapped some investment funds. In such cases no much shame falls on them but of course they should voluntary submit their investments to a debt to food and medicines conversion program, and the product donated to the poor.

Personally I am trying to motivate a constitutional reform in Venezuela that would assign the property of its natural resources directly to the citizens. I wonder what judges would then authorize the embargo of a tanker that carried oil to be exchanged for food and medicines for the hungry owners of the oil.

I do that not for the purpose of getting away from onerous financial commitments but for the much more important mission of not having future Venezuelan governments to have a chance to do, ever again, what this XXI Century Socialistic revolution has done to my homeland.

Whether this would make it “more difficult and expensive to sell bonds if the state wants to fund pension obligations or fix its highways” is of little or no concern to me. In fact, the more I look around in the world and read of unfunded pension obligations that might be satisfied with debt to be paid by future generations… those limitations sounds like great news.

@PerKurowski

If a citizen of an oil-cursed nation, like Nigeria, would you like a FT lending support to its central besserwissers?

Sir, you write “If the government were to reduce its stakes in the oil joint ventures to a minority it would not only raise some $20bn towards achieving other objectives. It would liberate the oil companies to invest, providing the country with a more realistic chance of raising production” “Nigeria’s recovery plan gives grounds for hope: A burst of reform will help Africa’s most populous nation to fly again” March 9.

Is that really so? Could it not be that its government would then just waste the $20bn obtained now against the loss of future oil revenues; and that a future populist could easier come to power exploiting a re-nationalization platform? By the way, for how long is the extraction of a non-renewable natural resource be described as “production”

Sir, you know that Nigeria, like Venezuela, are oil cursed nations in which oil exports represent 90% or more of all the exports, and the revenues governments receive from oil 70% or more of all fiscal revenues. And yet you seem to indicate that with a correct recovery plan, which means centralized government bureaucrats still calling the shots, perhaps with somewhat less ammunition, there is “grounds for hope”. 

Sir, if you were an oil-cursed citizen, I am sure you would not like a renowned international financial paper lending such support, to those powerful local oil bureaucrats, vulgar redistribution profiteers, that insist they should manage oil revenues, since they are much more experts and therefore know much better than you what good for you and your family.

Or is it perhaps that you are too beholden to all governments that do the oil-revenues spending?

@PerKurowski

Give money to entrepreneurs in Nigeria… but be extremely careful when lending to British entrepreneurs and SMEs

Sir, Tim Harford writes about “a development program… give $50.000 to Nigerian entrepreneurs… while entrepreneurs in other countries are held back by corruption, red tape, poor roads and patchy electricity, they are also constrained by a lack of the funds needed to get their ideas off the ground.” “Development needed? Just give cash” October 17.

Great! Perhaps Harford would now do himself a favor by asking one of his many banker friends the following: When you give a £40.000 loan to an English entrepreneur how much capital does your regulator require you to hold against that loan, when compared to a similar loan to someone with an AAA credit rating?

Regulators, by means of their capital requirements based on the perceived credit risk, that risk banks already clear for with interest rates and amounts of exposure, have ordained that ex ante credit risk perceptions should have a 200% weight in banking. And of course that impedes “risky” SMEs and entrepreneurs to have fair access to bank credit, and so they are also constrained by a lack of the funds needed to get their ideas off the ground.

Mr. Harford you write here favorably of giving money to entrepreneurs while in your own homeland bank regulators are hindering banks from even lending to these. There is some sort of incongruity in the air…isn’t it? 

@PerKurowski ©

An oil cursed country deserves more than "get-rid-of-these-to-have-these-instead”

Sir, in Venezuela in an article I quoted extensively from Tom Burgis’ “Nigeria unravelled” February 14. And I ended with the following:

Friend, compatriot, reading about Nigeria, is seeing our own country. Accept that it is impossible to compete with oil, and so if we don’t do something drastic about it, we are doomed to live from oil, with all the economic and political degenerations that implies.

What shall we do? As you know I have for more than a decade, and before I was censored by the new owners of El Universal, published over 100 articles suggesting that at least to get rid of the political and social curse of oil, we should hand over directly to the citizens their share of the net oil proceeds.

But perhaps what we should do, is simply to destroy 80 percent of our oil extracting ability, so to allow for a nation of free and not subjugated citizens; and whose future would depend on their own personal abilities, and not on the occurrences of their ever always new-rich Chiefs.

Unfortunately, at present, in Venezuela, we lack a plan different from the "get-rid-of-these-to-have-these-instead”

http://theoilcurse.blogspot.com

Reading WikiLeaks in the mirror

Sir it helps to place the WikiLeaks in perspective as well as being real fun to imagining what would be the reactions to many WikiLeaks, if they stated the opposite.

For example, December 9 Silvia Pfeifer reports that a WikiLeak indicated that “Shell knew ´everything’ in Nigerian ministries” What would shareholders and the world think of a “Shell knew nothing”? Would that not really be a newsworthy WikiLeak?

If I was a Nigerian minister, would I prefer doing business with companies willing to do as good a due diligence they possibly can, or would I prefer those who do not? If I decide for the later group would that mean I could let my guard down?

It is impossible to fight graft when its origins are in the centralization of a big oil income

Sir you write in “Nigerian graft”, August 12, that “the most important battle at home looks likely to be lost” and yes, at current oil prices, the battle was lost before it even began. Any country where the oil revenues are centralized in the hands of government and where they come to signify more than for instance 5 percent of GDP and thereby make the government wealthy, independently of its citizens, will be swamped by graft, in whatever shades or colours it comes, whether open, hidden, informal or de-facto, whether in pseudo-democracies or real autocracies, whether in Nigeria, Russia, Saudi Arabia or Venezuela.

What an opportunity was missed in Iraq when someone decided not to implement an oil revenue sharing plan for its citizens! That way Iraq was condemned to a non functioning democracy and to living in graft.

What an opportunity we seem to have missed!

Sir, Daniel Smith writes that “Politicians cannot control Nigeria’s corruption crusade”, April 12, and of course he is right, since absolutely no one could do that, at least not while oil prices are high. He writes about Nigeria saying “its politics remains a stark scramble for power in which elites compete for domination of the state apparatus to reap the benefits of control over enormous oil revenues” and as happens, the population then elects a government to whom hand over the oil revenues that in reality belongs to themselves, only to thereafter have to spend the next couple of years licking boots in order to get some of that same oil money back, while the elected government officials, arrogantly, not in need of other tax income, couldn’t care less about them. It is only when you get to understand this that you really get a feeling for what a wonderful opportunity the world seems to have lost in Iraq. Can you imagine what having helped to channel the oil revenues directly to the Iraqi citizens in a transparent way could have done? That could really have been called democracy building, and setting a great example for the citizens of Nigeria, Venezuela and all the other oil cursed nations to follow.