December 25, 2005

Massachusetts, please show some dignity!

Sent to Boston Globe and Boston Herald, December 2005, destiny unknown

Late in 1998, the price of a barrel of oil fell under 7 US$, but we never heard anyone volunteering to help out Venezuela’s poor. In December 1999, Venezuela suffered some horrendous mudslides, but, when the US sent some well-equipped engineer corps to help out, Hugo Chávez, the president of Venezuela, refused them. Massachusetts has a yearly per capita income of US$ 41,801, while Venezuela has slightly less than a tenth of that, US$ 4.020

The ad in which Citgo, the oil company in the United States owned by PDVSA, the Venezuelan state owned oil company, announces the program shows a picture of a large, two-story, typical Massachusetts detached house, with a small garden and a big tree in front, beautifully decorated with what looks like Christmas ornaments, and a completely lit up porch. Please compare that house with our shanty towns in Venezuela. Of course it is a wrongly chosen photo, and your Massachusetts poor do live in bad conditions, but, in fact, that they were not even able to choose the right picture just adds salt to our national injury.

The same ad, spelling out the partnership between PDVSA and the government of Hugo Chávez, ends with the statement: “The fuel assistance program isn’t about politics. It’s about offering humanitarian aid to those who need it. What could be more American than that?” The radical leftist Noam Chomsky recently described this as “one of the more ironic gestures ever in the North-South dialogue,” but I, as a Venezuelan, can only classify it as a gesture of utmost cynical insolence.

Many Venezuelans are upset with Chávez giving away money all over the world, while our own country has so many very much poorer people but, currently at least, there is very little we can do about it and much less so after the elections for congress held on December 4, 2005. Although everyone knows that Venezuela is a country where opinions are highly divided, the result was that 167 representatives who favor the government of Hugo Chávez were elected, and none, zero, zilch, of who differ with him. There are many explanations for these results, but, at the end of the day, they are all irrelevant since a 167-to-0 ratio is plainly not acceptable. Just as Democrats would not stand for a United States Congress made up 100% of Republicans, and just as Republicans would not stand for a Congress made up of 100% Democrats, this principle is just as true in Venezuela.

In these circumstances, I wonder, would it be too much to ask for some dignity in Massachusetts? Do you really take any gifts from anyone? Where is the limit?

December 18, 2005

What is the financial world to do with a Venezuela?

Sir, In Venezuela, as in most other countries, Congress is supposed to exercise control over the executive branch and its Constitution establishes that ‘No contract in the municipal, state or national public interest s determined shall be entered into with foreign states or official entities, or with companies not domiciled in Venezuela, or transferred to any of the same, without the approval of the National Assembly.’

Now, even though Venezuela is currently known as a very polarized nation, after the elections of December 4, 2005, its Congress includes 167 members who are in favor of and obedient to him who wishes to be called ‘Commander’, and none, zero, zilch, of those many who are not in the least in agreement with Chávez´s confused vision of a twenty-first-century socialism. This should pose some serious questions about the Congress legitimacy and therefore serious challenges for those who issue those opinions needed by the financial sector.

For instance, what are legal counselors or credit-rating agencies to do after they might receive a letter from a Venezuelan citizen (or perhaps even read this letter in FT) informing them that sooner or later the debts now contracted by Venezuela might be questioned as ‘odious debt’, as they are not duly approved by a legitimate congress (167-0), nor are they needed, as can be evidenced by the many donations Venezuela, with its own so many very poor, has recently made, among them, to the somewhat poor of Massachusetts.

Sir, if a company like Nike has to worry about the labor conditions in the factories to which they outsource their production, why should the financial world be allowed to ignore civil representation issues in those countries it helps to finance?

Sent to FT, December 18 and December 28, 2005

December 07, 2005

Fuel advertisement rubs salt into Venezuelans' wounds

Published in FT, December 7, 2005

Sir, Andy Webb-Vidal got it absolutely right when he pointed out the incongruence of Venezuela, with its abounding extreme poverty, distributing subsidies through cheap heating oil to the less well-off in a Massachusetts, US, that has more than 10 times its per capita income.

But as Mr. Webb-Vidal most probably did not see the advertisement that ran last week in some US newspapers, he left out some details about what really rubs salt in the Venezuelans' wounds.

First, the picture in the ad, which is the one to be compared with the shanty towns in Venezuela, depicts a large, two storey, typical Massachusetts self-standing house, with a small garden and a big tree in front, beautifully decorated with what looks to be Christmas ornaments, and completely lit up, porch included.

Second, the ad ends with the statement: "The fuel assistance program isn't about politics. It's about offering humanitarian aid to those who need it. What could be more American than that?"

November 20, 2005

Remittances and their cost of transfer is only the tip of the tip of the tip of the iceberg.

Sir, in your weekend editorial about computers being no silicon panacea for developing countries, you make a comment with respect of the remittances to the developing countries saying they “are weakened by the crippling cost of transfers that cost as much as $30 per transaction.” This is truly looking at the tip of the tip of the tip of the iceberg.

For many immigrants having to pay thousands of dollars to get smuggled to an opportunity in life just because no functional temporary immigration programs have been enacted; being easily cheated in their new surroundings because no one cared about teaching them a foreign language; paying fortunes in phone calls to communicate with their families; having to live in cramped quarters paying exorbitant rentals; incurring many costs just because they are not allowed a drivers license; and making all type of other sacrifices in order to send some help home, the fees they pay for that might indeed be high, but, frankly, they are among the least of their problems.

Trying to understand the economic effect of immigration by looking at the remittances is a bit like trying to understand the world’s economy by looking only at the cash dividends paid out by corporation.

Development banks have looked more than enough at the issue of remittances fees and it will be solved, in due time, with competition among service providers. It is now high time to move on.

Sent to FT, November 20, 2005

November 18, 2005

Careful with the growth of the market for illegal and illicit products

Sir, let us hope that Moises Naim’s book Illicit: How smugglers, traffickers, and copycats are hijacking the global economy, Doubleday, 2005, and discussed by Martin Wolf, November 16, opens up a long overdue debate on some issues that have been considered almost sacrosanct.

For instance, when society awards intellectual property rights and is thereby expected to invest scarce resources enforcing them, there is an implicit assumption that these rights are to be reasonably exploited. When then one of these manmade properties rights is violated, like through pirated CDs, this might be the market answer to a lack of regulatory control over the monopoly. In this respect, under some circumstances, pirates and counterfeits could indeed perform a useful regulatory service to the society, like when vultures do the cleaning.

As the temptation-ratio to use a pirated good, defined as the potential savings in relation to the income per capita, is obviously larger in poor developing countries than in the rich developed countries, does this fact mean that the poor countries should have to invest relatively much more in fighting piracy?

Also though you need an original to create a fake parasite, who is to tell us that the original is not sometimes well served by the existence of its fakes? Might not the value and the number of buyers of truly original Louis Vuitton in fact be larger because all the rest of the world has to settle for fakes? Should then the pirates get a fee?

Another related issue and that needs much discussion is whether society is well served by criminalizing behaviors that are the subject of any significant social sanction, as in these Intellectual Property Right matters hypocrisy is truly rampant.

Finally, every time something is declared illegal or illicit by society an economic feasibility study should be required, not only to see if we can afford the enforcement, or if the protected should have to pay for the protection, but also, mucho more important, that we do not stimulate those markets to grow faster than our legal economies, as they could then turn into the more powerful.

Sent to FT November 18, 2005

November 13, 2005

Does going local outperform going global?

Sir, recently, November 9, The Lex Column presented a very interesting value adding exercise with respect to the shares of Altria. It was easy to understand how two such different businesses as Philip Morris (tobacco) and Kraft (food) could benefit from splitting out and being able to play to each of its market but, to hear about value creation from separating PM-USA from PM-International, truly stopped us in our tracks. Is it really so that going local these days outperforms going global?

November 08, 2005

Disasters in waiting with banks playing hide and seek

Ivar Simensen in his report on November 4, "CDS leveraged loan hits the market" describes the appeal of the product as follows. “Many [bank portfolios] have exposure to names they may not be entirely comfortable with but hold in order to maintain business relationships. Now this exposure can be hedged out”.

Sir, I ask, if the banks with their credit analysts and their direct business relationship do not feel entirely comfortable with the risk, who should? This is exactly what is wrong in the current development were markets are allowed to play hide and seek with risks, with big disasters just waiting to occur. On the contrary, it could be much healthier for the financial system if the banks were simply not allowed to hedge at all their direct lending risks, except perhaps by the sale of participations to other banks.

November 06, 2005

Chavez 21st-Century social vision! My oh my!

Sir, if Mugabe’s Zimbabwe had Venezuela's oil, would he perhaps also be associated with a “vision” of “21st-century socialism”? When writing about Chavez promoting his vision, don’t forget that we Venezuelan citizens would all be much happier if indeed Chavez really had a vision, of any sort? Then we would at least know where we were heading, and what to do about it. What we now have is just plain confusion, ineptitude and corruption financed by the mother of all oil curses, and that is as far away from a vision as you could possibly be. To really understand the Chavez phenomenon you need to think of him as the most fabulous stand-up improvisators ever; performing in front of an audience with an immense and justifiable appetite for hopes about a better future; and finally drawing most of his material from the traditional anti-Americanism tree, and which as you know has lately been able to provide unusually much energy for its parasites to munch on. Under such favorable conditions, can you doubt Chavez’s success?

Outside “objective” observers though, like FT, would also do good to also reflect upon the media’s huge capacity of inadvertently advancing the voice of figures like Chauncey Gardiner in Jerzy Kosiński’s Being There. Chavez is a haunted man, running ever faster forward and, any day now, the majority of his followers are going to suffer an immense deception. Honestly, they don’t need or deserve that.

November 04, 2005

China does not take away anything in the World Bank from sub-Saharan Africa

Sir, Desmond Lachman, November 3, asks for the World Bank to withdraw from lending the majority of its resources to a handful of middle-income countries, e.g. China, instead than to the really poor, like those in sub-Saharan Africa. It all sounds very reasonable but perhaps he should ask himself whether his proposed change of strategy would result in more effective assistance to the very poor. Indeed, it could mean less. As is, China and Mexico and other middle income countries do not take away anything from the World Bank and on the contrary they provide the volume of operations that allows the bank to keep in place an impressive cadre of development professionals, able to generate that type of technical assistance capability that as he correctly implies should perhaps also benefit the victims of the Hurricane Katrina. Finally since in calling for his reforms Lachman argues that this would result in more “bang for its taxpayers’ buck”, it might be timely to remind him that in reality there is unfortunately an immense lack of taxpayers’ bucks going for development.

October 13, 2005


Sir, With respect to Company X’s pension woes you inform that the company recorded a return of 5 per cent in the first half of the year, putting it on track for its assumed annual return of 9%, but, that if X’s pension funds produced the same poor returns as equity and bond markets this would of course have a dramatic negative impact. What is thereby implied makes a case for developing a formula that calculates how much arrogance a X and so many others must need in order to put forward an assurance of being able to earn 9% on funds over a lifespan, and/or that it will continuously be able to beat the market.

September 30, 2005

A de-facto USA enlargement

When we read that in the greater Washington metropolitan area alone, there already are 550.000 persons who come from El Salvador, there can be no doubt whatsoever that the Central American countries are already a de-facto part of an extended USA Commonwealth. Put another way, the USA—surreptitiously perhaps—has gone through its own European-style enlargement. This demographic fact shows that the current debate in the USA on immigration reform could benefit by being split into two parts: immigration reform as such; and a debate about some laws and regulations affecting cohabitation in a commonwealth. Doing so would allow urgent reforms to proceed more constructively and keep the debates from being taken hostage by extreme proposals like building new Maginot Lines or Berlin Walls.

Not long ago, some enemies of the recently negotiated CAFTA agreement started spreading rumors that, through it, the United States had accepted conditions that in effect bypassed current immigration laws. This is not true, far from it. However, perhaps the CAFTA negotiations were indeed the perfect opportunity to start open and transparent discussions about what I call the de-facto enlargement of the USA. As it is, trying to look for solutions to some huge but still quite particular problems through a general immigration law is really picking the wrong instrument of change.

By the way, if I were a truly desperate builder of a wall to surround the United States, looking at the map, I would perhaps have to settle with some water barriers such as the Bering Strait and the Panama Canal.

Sent to Washington Post, April 2005, destiny unknown

September 27, 2005

Today, unfortunately, I am truly disappointed with FT

Sir, I am absolutely flabbergasted with Andy Webb-Vidal’s report “Chávez puts chocolate factories back on map” and that praises a “cocoa revolution” and concludes that for a “small chocolate factory in the tropics, life has never been sweeter.” I cannot understand how a sophisticated paper like FT would fail to identify that this is but another perfect example of how haphazardly leaders of developing countries, especially when their egos are insufflated by a well endowed checking account fed by the oil, can come to consider themselves as visionary economic planners and perfect substitutes for the decision making process of the private sector. You’d be surprised by how many exact replicas of this chocolate project you could find over the last five decades in Venezuela and, in fact, when we read about “reopen a derelict chocolate factory”, it could very well be referring to a project that might initially have been advanced in exactly the same way, by for instance a Carlos Andres Perez government, 1974 - 1978. It is so sad that you fell for the anecdotal Willy Wonka cuteness of the story, instead of writing it from the perspective of a country in desperate need of some rational economic behavior. The need for a strong and effective government that helps to create a climate propitious for investments cannot be satisfied by a government making the investment themselves.

Sent to FT, September 27, 2005

September 08, 2005

Europe, you need electrical, not financial engineers (like me)

A couple of years ago when the hundred-year-old private electric utility company that served my hometown (a South American city) was taken over by an international player, it became within a short time leveraged up to its hilt in debt, and I suspect also poison pills and golden parachutes, and I knew we were heading into the wrong direction. When I now read about all the consolidations in Europe, which can only distance consumers from their day-to-day local electrical engineers and place their needs in some distant foreign trading rooms, I feel the same, although clearly, if Europe is now an all-of-the-same Europe, I could be wrong. What I do know, though, is that all those high valuations paid by financial wizards purchasing utilities will, sooner or later, need to be repaid by all those European electricity consumers who are currently living in blissful ignorance.

Sent to FT, September 8, 2005

August 31, 2005

It’s an oil boom stupid!

Sent to The Economist, August 30, 2005, destiny unknown

Sir, In March 1999, in “The next shock?” The Economist wrote that “in today’s conditions the price [of oil] would head down towards $5 [per barrel]” Now again, for the umpteenth time, The Economist, so serious and clearheaded in most issues, loses it all when it comes to oil. In “Counting the Cost” of August 27 and even while assisted by a clear chart of the real prices of oil in 1980 terms, your editorial staff insist on labeling an oil crisis when the index is getting close to 100 and not when that index in 1998 dropped to only 20. That was the real oil crisis, and that is what the world is paying for today!

To top it up, The Economist seems also to be preparing the terrain to blame oil for the collapse of the high property prices that they duly classify as a “boom”, instead of looking at much more plausible culprits. Come on, we expect more from you.

July 13, 2005

Take note, the Cold War might be back in town!

Sir, On July 13th the House Armed Services Committee in Washington held a hearing on the potential national-security implications in the possible merger of the China National Offshore Oil Corporation with Unocal Corporation. It is not our role to qualify what was discussed but hearing so many arguments about energy survival, rumors of cadres of spies and of bad and conspiratorial intentions all so eagerly and emotionally juggled around, we wish to advance the possibility that, as of this date, the Cold War is back in town. Take due note!

Sent to FT, July 13, 2005

June 14, 2005

What is lacking in the Sarbanes-Oxley Act

Sir, Requiring all senior management and board members of companies to disclose publicly what they understand and what they do not understand of the business they are in charge of would do wonders for corporate governance, especially when we start hearing so many cries of ‘I did not know’. For instance, when using sophisticated financial instruments such as derivatives, we could suddenly realize that no one upstairs has a clue of what they, the experts downstairs, are up to, and this could be a quite instructive for the market and the credit-rating agencies when they assess the risks of a corporation.

By having clues I do of course not refer to any specific know-how needed to take apart and put back a carburettor, as very few would be able to do that, and in fact I am not even sure carburettors any longer exist. No, what I refer to is whether they to have a good working knowledge of some basics, like how a car drives, how it brakes, how much petrol it consumes, and what to do if a tyre explodes or an airbag suddenly inflates.

To oblige recognition and acceptance of where the buck really stops both in theory and practice and before mishaps occur could also be useful for shedding light on some systemic risks that, like lava in a volcano, might be building up dangerous pressures underneath the world of finance. It could also provide immediate relief to all those executives living out there, burdened with the constant stress of having to feign that they are in the know.

June 10, 2005

Migration is much more important and transfer fees much less so!

Sir, in today’s editorial, June 10, The Global Workforce when mentioning that it refers to 3 percent of world population you are really underestimating the importance of current migration since, in some countries, more than 40% of their able workforce has migrated. Also you fall into the trap of making a big fuss about financial institutions “creaming” off large commissions on the remittances sent home by migrant workers. Honestly, in the life of a poor migrant these commission are just the smallest of their problems and had many developing agencies not spent fortunes navel-gazing this particular issue, they would have been able to advance much more in solving real problems and in helping to develop know-how about workable temporary legal migration programs. The expensive transfer fees that do not only affect migrants will be taken cared of in time by the time-honored tools of competition and technology.

June 08, 2005

Come on Europe, wave away gloom

Published in FT, June 8, 2005

Sir, For those who believe that the world needs Europe more than ever, the latest events are very disconcerting, not so much because of the No votes themselves but more so because of the ensuing reactions. What a gloom! After the incredible advancements of a Europe over past decades it is unbelievable how this little setback could create so much fuss. The votes on a messy, too voluminous, uninspiring and basically unreadable document, was an as- good-as-it-gets opportunity to grunt a bit about bureaucracy, but now they allow the same bureaucrats to deflect this perfect valid criticism by equating the votes with a rejection of Europe. Europe, pick yourself up! Just wrest whatever Delacroix’s flags are waived from the current bearers, and keep moving on. We will be cheering.

May 13, 2005

We need a more win-win CAFTA

Sir, You rightly lend your support to the Central American free trade agreement, CAFTA, especially since not doing so would make it seem like you are joining the ranks of those opposed to free trade and also because in today’s world any relations are always better than none. Nevertheless, you need to reflect more closely on the reasons why it is so difficult for CAFTA to gain general acceptance and why, if finally approved, it might not be able to deliver on its promises.

CAFTA, as all trade negotiations in vogue, concentrates basically on how to split the ever shrinking cake of manufacturing and agriculture; how to impose a stricter respect for the intellectual property rights of the developed nations; and how to be able to enforce it, but, as often happens, it shies away from treating the issues that really seem to matter for the future. When currently 40% of Central America’s workforce works abroad, mostly in the US, mostly in services, it should be clear that it is really in the area of services and immigrations that these two partners need better and more generous free trade pacts. For instance instead of exchanging a few textile jobs that could soon anyhow be lost to other places of the world, why do not the partners look for economic growth and jobs in areas such as health and attending the needs of the rapidly aging population. That seems much more like a win-win CAFTA to me.

May 09, 2005

Market risks and counter-party risks, they all live in the same world.

Sir Mr. Greenspan recently reminded the participants in the derivatives markets that the counter-party risks are still linked to the market risks, one way or another, which is true, whether you wish to ignore it or not. As we all operating more and more in one single world market it behoove us to remember that if you insure your office property against fire with an insurance company that happens to own the building where your office is located, then, if fire breaks out, your insurer might be in much worse shape than you.

April 02, 2005

A sensible country would raise tax on petrol, so what is US waiting for?

Sir, it is hard to understand the United States of America!

It has a huge fiscal deficit; it has a huge current-account deficit; it is by far the world’s biggest oil consumers both in absolute and in relative terms; now willing to explore for oil and gas in Alaska, it shows itself to be aware of the difficult energy outlook the world faces; it seems aware and resolute about the environmental problems (ignore the Alaska part) as it imposes other expensive environmental regulations, such as recycling—which, as no one likes to do it, requires the hiring of Salvadoreans; it speaks all over the place about having to reduce the vulnerabilities of its oil supplies. 

As any other sensible country would, in similar circumstances, increase the taxes on petrol consumption and substantially help to solve all the above-mentioned problems; and as the US has always shown willingness to pull together as a nation, recently even to the extent of going to war on shaky grounds, the big question remains: why is it that the leaders of the US do not even want to talk about a substantial tax on petrol?

February 06, 2005

Give us a dam index!

Most of the recent discussions around the proposed Nam Theun 2 hydroelectric project in Laos have been centered on the income it might generate and how it is to be distributed. These are indeed important issues but we should also to consider whether the project could have a positive environmental impact in as far as it replaces other more contaminating energy sources… regionally. I am no expert in dams but having had the luck of being able to visit and fly over this particular site, I must say it seemed a good site for a dam, when compared to other places. Let my be clear, I am absolutely not an expert on these issues, not even an engineer, but sometimes I trust more my layman eyes than those experts who are looking through glasses colored by interest.

That said and as an ordinary citizen who just wants to be able to understand, I surely miss the fact that the experts have not been able to develop an index that classifies prospective and existing dams in terms of the harm they can do to environment. With such an index it would be easier for all us to know when we should not waste time fighting against a new project and when we, in compensation, should instead ask for the decommissioning of an old dam. Behaving like green bullies or environment chasers, hindering developing countries from accessing hydro power, just because we can, is not how the world is going to solve its extremely urgent environmental problems.