Venezuelan Inflation: Structural or Self-Generated?

Seems pretty clear, but for some reason they just can't get their heads around the fact the inflation is simply a monetary phenomenon, as uncle Milton used to say….

an excellent piece from The Devil's Excrement

Venezuelan Inflation: Structural or Self-Generated?

The Devil's Excrement

March 24, 2011

We were told by Minister of Planning and Finance Giordani, who has been in this Government over ten of the last twelve years, that Venezuela's inflation problem was "structural" and in the never changing strategy of blaming the "previous" Government for everything, he accused the IVth. Republic of this problem. I guess twelve years is not enough in his mind to solve this problem, ignoring the fact that in those twelve years, the most insidious influence on inflation, that of the world, almost magically vanished, with most countries not only having single digit CPI's, but many in the low single digits.
As a famous true and real economist said, inflation is simply a monetary phenomenon. Such a simple concept that is so poorly understood in inflationary and populism-ruled countries like ours. You see, if this were not true, Governments could just spend and make everyone rich. Life would be as simple as Chavez and Giordani want it to be.
But money does not imply wealth. Money is how we exchange things. We went from barter to money, to create a neutral way of transacting. In the beginning of commerce, you had one good and exchanged it for another or for a service. Too many mangoes on the trees and nobody wanted to give you anything for a mango, too much supply. By the end of mango season, you could probably get a lot for it, not enough supply and probably some demand.
But I digress…
If the Government "creates" too much money, without the underlying productivity or supply of goods and services increasing, the money will lose value, there will be inflation and it will be worth less. So, that is what Central bBank's are supposed to do, try to fine tune the amount of money to balance it out with the supply of goods and services.
Thus, if you want to see why there is inflation, you have to look first at monetary liquidity, the so called M2, which measures all of the money available out in an economy. This number is supposed to be made public weekly by the Venezuelan Central Bank under "Agregados Monetarios" here. Lately, there is some delay to have this number published, but more ominously we no longer see its components, it has been over a year since we can see what is increasing faster in all the parts of M2. I will not bore you with the technicalities.
When you look at M2 since Hugo Chavez became President, the picture is quite scary at first and at second sight, as seen in the plot below:

As you can see, since Chavez became President and Giordani Minister of Planning (He has been in the Board of the Central Bank ever since he was named the first time in 2001 or 2002) M2 has gone from Bs. 8.9 billion to Bs. 302 billion. That is an increase of a factor of 33! Or there is 3,200% more money floating around in the Venezuelan economy, than there was when Chavez became President. (This is all Bolivares Fuertes BTW)
Clearly, someone has not been doing their fine tuning job and to call it a "structural" problem is cynical at best and as we will see, simply an outright lie.
Because in the graph above you can see that for at least the first three or four years of the Chavez Government, the growth in M2 was slower than it became at around 2003-2004.
But when a number changes so much in time and at such different rates, it is better to change the scale of M2 to a logarithmic scale. Why? Because with a log scale, all changes of say a factor of ten are the same. If a variable goes up from 1 to 10, it will look the same as when it goes from ten to one hundred, a ten fold increase. The changes look the same, not like in the above curve, where the change from Bs. 10 billion to Bs. 100 billion can barely be discerned and it is the largest and fastest in the plot.
In a logarithmic scale, M2 looks like this:

You can see in the above graph that there are three very different periods in this plot. First, there is one slope from 1998 to 2002, then from 2002 to about 2007, M2 grows much faster and then it slows down to something that looks more like the first stage, even if with a higher slope.
Basically, in the first stage M2 increased by about 66% in four years, in the second one, it increased by about 666% in five years and in the latest one, it has increased by 162% in four years.
These are really bad, awful numbers, simply because the Venezuelan economy has not grown at a comparable rate during any of this periods. In fact, the increase in M2 during the first four years is larger than the growth of the economy in all of the twelve years of Hugo Chavez. Certainly this means that inflation is induced by this mismanagement of monetary liquidity, there is simply too much money chasing basically the same goods.
There is nothing structural about this, it is structurally unstable to allow M2 to grow this way, except there are elections, of course.
Even worse, all of this money has almost the same backing in foreign currency than it did in 1998. In 1998, when Chavez came to power, there were almost US$ 18 billion in international reserves, today there are US$ 26 billion, barely a 44% increase when the number of Bolivars has changed by a factor of 3200%. This says that when Chavez got to power, there was a half a Bolivar per US$ in reserves (roughly), while today there are eleven Bs. for each dollar in international reserves. Oh yeah! Modern economists believe in "fiat currencies" . But that concept stops working in the face of such irresponsible economic policies. People stop believing in the "fiat" part, they tell their Governments: "Show me the money!" In Venezuela, there has been little "fiat" since 1982.

And the reason reserves are so low, is that some Chavista economists created the concept of "excess reserves", allowing Chavez to withdraw every year some billions of dollars so that he can spend this as petty cash and without control. We are talking about US$ 64 billion so far removed from reserves. If they were at the Central Bank, inflation would be lower as that bank would have a cushion to control M2, imports, capital flight, etc. as needed. To date, it has so little room for maneuver, so much that it even carries those US$64 billion in its balance sheet (most of them have been spent!), to avoid showing that it is bankrupt. But that is another story.
Finally, if you look at month to month inflation, you can see why the "structural" argument holds no water:

Between when Chavez took over and Dec. 2001, twelve month inflation was actually going down! This happened for two reasons: M2 was being controlled and extra income from oil was being saved in the Economic Stabilization Fund (FIEM). But then, oil went down, and none other than Jorge Giordani decided it was time to use the FIEM, which was drawn down very fast. So fast, that in February 2002, Chavez had to allow the "devaluation" of the currency, which up to that point was only allowed to trade within some bands set by the Government. It was a "light" form of exchange controls, and as expected, it failed to work.
After that, the one to one correspondence between inflation in time and M2 breaks down because of exchange and price controls. Initially, M2 was allowed to increase like crazy, all those bolivars were chasing dollars and inflation jumped up as the currency and devaluation expectations devalued sharply the currency in a country with so many imports. Then in January 2003, the Government began to totally control the exchange rate, introduced price controls, all of which drove inflation down for a while.
Why?
Because at the beginning the Government became very stingy with its dollars, refused to allow price increases and like exchange and price controls everywhere, there is an initial positive effect, but it always breaks down. Markets are like that!
Holding the currency constant delays inflation adjustments. That is why inflation first went down and even as the Government reduced the increase in M2 in 2007, inflation has not gone down, because prices and the exchange rate were held back by artificial controls.
But in 2006, the increase in M2 was so large that all the positive effects of controls disappeared and inflation began to grow. And the Government decided to not allow M2 to increase as fast, but inflation did not go down.
Why?
Because it did not allow for devaluations, holding back the currency, subsidizing everything and eventually, even that became unsustainable. Thus, even though M2 has not increased as fast, inflation is at the same levels because the Government has to adjust prices and the currency periodically when things get really tough.
Now, that is really structural!
It is built into the absurd system of controls that Giordani, who is not an economist, has built around this Government. And as long as the controls are in place, inflation will not go down for the simple reason that there will be periodic devaluations, periodic price adjustments (This week it was wheat and bread) and the risk of higher inflation is probably higher than that of lower inflation.
Thus, it is all self-generated and is becoming structural, but by structures that were not in place twelve years ago. This is not a chicken and an egg problem. Giordani laid the egg and Chavez allowed him to do it and out of it came this weird chicken who nobody can control.
And if nothing is done, which will be the case as long as Giordani is where he is, inflation, the worst tax on the poor, as the cartoon shows, will remain as high as it is today, if not worse.

       
Read more…

PDVSA, its Pension Funds and the SEC freezing a US Investment Fund « The Devil’s Excrement

PDVSA, its Pension Funds and the SEC freezing a US Investment Fund



This post dedicated to Setty. My friend, if this stuff was fiction, nobody would believe it…

I will not bore you with the details, Setty has done an outstanding job in covering (and uncovering!) them, but basically a fund in the US, a very capitalistic hedge-like fund, is halted from operations by the SEC. It turns out that 90% of the money in the fund is money from PDVSA's employee pensions funds. Then, it turns out that the fund was involved in illegal foreign exchange operations. But with whose money?  PDVSA or the PDVSA pension funds? And when the investment funds are stopped from functioning, two private companies in which the funds invested (the very reason for the SEC intervening) need money that was coming to them, but the money is trapped in the funds.

Who comes to the rescue?

None other than PDVSA, who is willing to "help" on demand, just like that

So, what gives?

The funds are managed by a Venezuelan, Francisco Illaramendi, who acted as an adviser to PDVSA in the past. But these days, he seems to be a vehicle for PDVSA acting. Except that initially PDVSA was hiding behind its pension funds. Or so it seems.

This leads me to ask a simple question: Who was PDVSA acting for, the funds or PDVSA? Who made money from the deals, PDVSA or its employee funds? Why did the funds invest in a company developing small nuclear reactors? Was Illaramendi simply acting on PDVSA's orders? How was he being paid? (Other than getting US$ 482 million into his funds)

The funny (not funny ha, ha, just weird) thing is that Minister Ramirez said last week in the National Assembly that PDVSA had nothing to do with the managing of the funds. Union workers and pensioners say they have seen no information on how the funds are managed for years, ever since PDVSA's Treasury Depratment took over its management.

And Ramirez looked very uncomfortable answering these questions. And he should. What the funds/or PDVSA/or Illaramendi were doing was simply illegal in Venezuela and the details of the flow of money could be even more illegal.

But nobody knows. Nobody answers, nobody says anything. Nobody questions it. The Comptroller is nowhere to be seen. Ditto the Prosecutor.

But this memo from the fund's lawyer shown by Setty is simply priceless, almost as good as a suitcase with $800,000 in cash, opened at customs in a Buenos Aires airport.

It reads:

"As MKG has indicated, in order for STLF (Short Term Liquidity Fund) to conduct Venezuelan currency transactions in the permuta market, it must furnish its own Bolivars…"

Except the permuta market has been illegal since May, so what the hell is this lawyer talking about?

Gadhafi's Pal In Venezuela

Weekly Standard: Gadhafi's Pal In Venezuela

by VANESSA NEUMANN

EnlargeJuan Barreto /AFP/Getty Images

Libyan leader Moammar Gadhafi and Venezuelan President Hugo Chavez, greeting sympathizers in northwestern Venezuela in 2009. Recently, Chavez offered to mediate the dispute between anti-Gadhafi rebels and the Libyan leader, a proposal that was flatly refused by the rebels.

March 7, 2011

Vanessa Neumann is editor-at-large ofDiplomat magazine and a commentator on Latin American politics for Caracol radio.

If Washington is apt to see the recent uprisings in the Middle East — against U.S. allies like Egyptian president Hosni Mubarak as well as adversaries like the Islamic Republic of Iran — in terms of challenges to and opportunities for U.S. strategic interests, Venezuelan President Hugo Chavez sees nothing but an opening to boost his own Bolivarian brand.

Consider Chavez's stance toward his OPEC colleague Moammar Gadhafi. Early during the fighting in Libya, there were rumors, maybe even floated by Chavez himself, that the Libyan dictator was about to flee to Venezuela. The government-friendly Venezuelan press speculated that when Gadhafi arrived he would be bearing with him the replica of Simon Bolivar's sword that Chavez gave him in 2009 when he bestowed on his "revolutionary brother" the Order of the Liberator, Venezuela's highest civilian honor. "What Simon Bolivar is to the Venezuelan people," said Chavez, "Gadhafi is to the Libyan people."

When Gadhafi started bombing the Libyan people, and showed that he was not going anywhere, the Venezuelan ruler adjusted accordingly, offering to mediate between the colonel and his rivals. Aides to Chavez said Gadhafi accepted the proposal, though his son did not, and, not surprisingly, the rebels rejected his offer, as has the entire international community. But Chavez is hardly finished meddling in the Middle East, for the relationship between that region's state sponsors of terror and the countries under the influence of Chavez's Bolivarian Revolution is more than just a puppet show. The irony is that if the Venezuelan strongman isn't careful, those Middle Eastern revolts might come back to haunt him.

Of course, Libya isn't the only rogue state under internal pressure that Chavez has warmed to. Venezuela has assiduously nurtured its relationship with Iran such that the Caracas-Tehran alliance may now represent the greatest threat to stability in Washington's direct sphere of influence.

Chavez and Ahmadinejad call each other "brothers" and last year signed 11 memorandums of understanding for, among other initiatives, joint oil and gas exploration, as well as the construction of tanker ships and petrochemical plants. Chavez's assistance to the Islamic Republic in circumventing U.N. sanctions has got the attention of the new Republican leadership of the House Foreign Affairs Committee. Ileana Ros-Lehtinen and Connie Mack (both R-FL) have said they intend to launch an investigation into the Venezuelan state oil company Petroleos de Venezuela, S.A. (PDVSA). In July, the EU ordered the seizure of all the assets of the Venezuelan International Development Bank, an affiliate of the Export Development Bank of Iran (EDBI), one of 34 Iranian entities implicated in the development of nuclear or ballistic technology and sanctioned by the Treasury Department. In the meantime, Tehran and Caracas have announced that PDVSA will be investing $780 million in the South Pars gas field in southern Iran.

Another key aspect of the two countries' strategic relationship is uranium exploration. Iran is reportedly helping Venezuela find and refine its estimated 50,000 tons of uranium reserves — a deal modeled after Caracas's arrangement with Moscow, which has already signed agreements to build two 1,200-megawatt reactors in Venezuela.

And then there's terrorism and the role that Hezbollah, Iran's Lebanese-based asset, plays in the relationship. Hezbollah's past work in Latin America includes its alleged involvement in two Buenos Aires bombings — the 1992 attack on the Israeli embassy and the 1994 bombing of a Jewish community center. And now, reports are surfacing that Venezuela has provided Hezbollah operatives with Venezuelan national identity cards — a concern raised in the July 27, 2010, Senate hearing for the recently nominated U.S. ambassador to Venezuela, Larry Palmer.

Elsewhere in Latin America, Iran has developed significant relationships with Chavez's allies and fellow Bolivarian Revolutionaries, Bolivia's Evo Morales, Ecuador's Rafael Correa and Nicaragua's Daniel Ortega. For instance, in December 2008 the EDBI offered to deposit $120 million in the Ecuadorean Central Bank to fund bilateral trade, and Iran and Ecuador have signed a $30 million deal to conduct joint mining projects in Ecuador through the Chemical-Geotechnical-Metallurgical Research Center in Ecuador. Even as that deal carefully avoids mentioning uranium, the IAEA's March 2009 plans to help Ecuador explore its vast uranium reserves were largely intended to highlight and preclude Iranian involvement. In February 2010 the Paris-based Financial Action Task Force, a multilateral organization that combats money laundering and terrorist financing, placed Ecuador on a list of countries that failed to comply with its regulations.

The problem for Chavez and the Bolivarians is that in aligning themselves with Middle Eastern rogue states they may have made a bad bet. To be sure, even if Chavez loses Tripoli and Tehran as allies, instability in the Middle East will raise demand for Venezuela's higher-sulfur heavy crude, and the spike in price will help solidify his hold on power as he approaches the 2012 elections. But insofar as Middle Easterners have been inspired by the examples of their peers — from Tunisia to Bahrain and Libya to Iran — there is no reason that Latin Americans should not be similarly moved to go to the streets to demonstrate against their own repressive regimes. Indeed, the signs do not augur well for the Bolivarians.

Recently, 63 Venezuelan students went on a hunger strike to protest Chavez's human rights record, his repression of the country's opposition parties, and his gutting of independent state institutions. They campaigned for international pressure to support the release of high-profile political prisoners, including judges, opposition officials, and members of the national assembly.

As another representative from Venezuela's National Assembly, Maria Corina Machado, recently told me:

"The building of the society we dream about will be done by us Venezuelans, but we do ask the world not to make it more difficult for us, not to legitimize a regime that consistently violates human rights. Venezuelans have a right to raise their voices in protest and demand that other countries not be complicit. What we want is for the true nature of the Venezuelan regime to be recognized, that they have violated all the pillars of a democratic system: There's no respect for human rights, no separation of powers, and recurrent violation of the constitution."

Chavez and his Bolivarian colleagues are on notice — if an Arab tyrant in exile disdains refuge in Venezuela, there's plenty of space for Latin American despots alongside ousted Arab rulers in the deserts of Saudi Arabia.

Share this |

________________________

Venezuela Inflation reading Island Canuck inflation Index closes at 59.7% in 2010

Venezuela Inflation reading via The Devils Excrement:

Island Canuck inflation Index closes at 59.7% in 2010The MasterBlog

Island Canuck inflation Index closes at 59.7% in 2010 moctavio | January 23, 2011 at 9:26 am | Categories: Uncategorized | URL: http://wp.me/ppwPU-35e

Our friend and reader Island Canuck sent me a while back his final numbers for inflation in 2010. Recall that at the end of June the expat sent us his numbers and inflation was running at a 30% clip for the first half of the year. Well, despite the fact that there was no devaluation in the second half of 2010, his food and beverage index essentially doubled in 2010 as you can see in the table below. Note that most vegetables had triple digit increases in the year (They are mostly produced locally). Note also that things that are not available had small increases. Any insights by readers are welcome.

Add a comment to this post

Venezuela: Bolivarian bravado FT.com

venezuela in the news this week... we'll see what comes of it...

this is the latest one from the Financial Times.
(Note: Highlights in bold and italics, MasterBlog)

Venezuela: Bolivarian bravado

By John Paul Rathbone and Benedict Mander

Published: August 5 2010 23:20 | Last updated: August 5 2010 23:20

The giant Pepsi globe that once loomed above Plaza Venezuela in the traffic-clogged heart of Caracas had long been a landmark of the South American capital’s skyline. Now it is gone, dismantled piece by piece in June.

Much like the demolition of a statue of Christopher Columbus in the same square six years earlier, its removal was a crude symbol of President Hugo Chávez’s self-appointed role as the region’s anti-US, anti-capitalist and anti-imperialist standard-bearer.

It was also a reminder of faded hopes that relations would improve either with the US under President Barack Obama, following the mutual antagonism of the George W. Bush era; or with America’s closest ally in the region, neighbouring Colombia. If anything, Mr Chávez has raised the volume of his nationalist-Marxist rhetoric as his problems have grown both at home and abroad.

In July, when Colombian leaders again accused Venezuela of sheltering Marxist guerrillas intent on destabilising their country, and were confident enough of their case to present it to the Organization of American States, Mr Chávez promptly called it an act of US-inspired “aggression” and broke off relations with Bogotá. Havana, which receives subsidised Venezuelan oil in return for medical services, lent Caracas rhetorical support: “We strive for peace and harmony,” said President Raúl Castro. “But ... let no one have the least doubt on which side Cuba will stand.’’

Meanwhile, with the country in recession, red-hued government propaganda in multiple media hails Mr Chávez’s “Bolivarian revolution”. The president has taken to expounding how it is “bad to be rich” – though one graffito snipes back from a grimy Caracas wall: “If it’s bad to be rich, it’s worse to be poor.”

All this might otherwise be ignored as the bitter internal politics of a volatile tropical republic were it not for Venezuela’s strategic importance and fears that Mr Chávez might consolidate his grip on power at legislative elections next month.

“Elections are of great importance for Chávez. They give him legitimacy both at home and abroad – they give him an air of respectability,” says Teodoro Petkoff, a garrulous former leftist guerrilla who now edits the Caracas-based newspaper Tal Cual.

A clear victory for Mr Chávez’s United Socialist party of Venezuela at the September 26 polls would be likely to herald further radicalisation of his socialist project, ease the way for his election to a third six-year term in 2012 and thus boost worries elsewhere about regional tensions.

Watching the results most closely will be neighbours in the Andes – a regional tinderbox, given the prevalence of clashing ideologies, well-equipped troops and armed guerrilla and paramilitary groups – and Cuba, as Venezuela’s closest ideological ally.

A further geopolitical consideration stems from Venezuela’s role as transshipment point for what is said to be more than half the cocaine shipped across the Atlantic to Europe every year. The country’s trafficking situation is deteriorating, the UN warns in its latest World Drugs Report.

Also watching the election closely will be those energy importers who ogle the country’s vast crude oil reserves, the largest outside the Middle East. As those reserves are easily accessible and use proved technologies, BP’s deep-water oil spill in the Gulf of Mexico has heightened their strategic value still further. That is as true for the US, which remains Venezuela’s biggest single oil market, as for rising energy users such as China, which recently curried favour as well as securing future oil supplies with a $20bn soft loan to Caracas.

With term limits abolished following a referendum last year, Mr Chávez has frequently expressed a wish to remain in office until 2021 – the 200th anniversary of independence from Spain – to see through his revolution. Yet, after 11 years in power, the extent to which he has succeeded in instilling in voters a mindset compatible with what he calls “21st century socialism” is debatable. (For example, he has condemned a widespread fondness for whiskey and Hummers.)

The government has therefore been working to boost its chances of maintaining in September the two-thirds majority necessary to push legislation through the National Assembly.

Changes to the electoral system this year mean rural areas will return more deputies than before, hindering the metropolitan-based opposition. State-owned media can meanwhile drench the country in pro-government propaganda. (While newspapers such as Mr Petkoff’s are highly critical, private sector broadcasters have been largely cowed into submission.)

Most unsettling of all is the possibility that Mr Chávez’s party might lose the vote yet still maintain effective control. In 2008, for example, the president res­ponded to the election of an opposition candidate as Caracas mayor by inventing a more senior post and ap­pointing a candidate of his choosing.

Another possibility, much discussed in the capital, is that he could rule by decree during the 100 days between the elections and the new deputies taking up their seats, changing irrevocably the legal landscape to his liking. A recent 40 per cent pay rise ensures the army’s loyalty.

“Chávez will not leave power voluntarily,” says Diego Arria, a leading opposition figure and former governor of Caracas. “This is a president whose motto is: ‘fatherland, socialism or death’. When they say death they mean us, not themselves.”

Such drastic outcomes may never come to pass. Despite the recession, crumbling public services, a series of damaging scandals and rampant violent crime, Mr Chávez still commands the support of about two in every five Venezuelans – roughly the same ap­proval rating as Mr Obama in the US.

In large part, this is due to his emotional bond with the poor, who in 2008 made up 28 per cent of the population, according to the UN. “Even with hunger and unemployment, I’m sticking with Chávez,” runs one refrain popular in the capital’s slums.

Gregory Wilpert, editor of pro-Chávez website Venezuelanalysis.com, emphasises that many have benefited from the government-run social programmes. “The process of devolving local governance to communities via the communal councils and other forms of participation also gives many people a real feeling of being a part of the political process,” he adds. Critics say such councils usurp the power of elected municipal governments.

. . .

Either way, to gain a decisive victory, Mr Chávez will need to win over undecided voters – the ni-nis, or neither-nors – who account for about one in three of the electorate, according to polls.

In 2006, when he was re-elected at the peak of both his popularity and the oil price boom, that problem was partly solved by throwing money around. The trouble for “chavistas” today is that there is less to spend. This year, for example, while the rest of the region is expected to grow by 5.2 per cent, Venezuela’s economy is forecast to shrink by 3 per cent, the UN Economic Commission for Latin America estimates. Inflation, meanwhile, is running at about 30 per cent.

Paradoxically, because oil prices are hovering around $80 a barrel, a healthy level historically, government finances are not in perilous shape. Rather, the main cause of the continuing recession is mismanagement – the biggest rock on which Mr Chávez’s revolution has floundered.

PDVSA, the state-owned oil company that is the dynamo of the economy, has been leached to fund social projects with cash that otherwise would have been used for much-needed investment. The non-oil economy has been hobbled too.

Capital flight has been propelled by the nationalisation drive Mr Chávez has launched in a range of sectors, including energy, finance and telecommunications. Attempts to prevent such flight have made matters worse. The rationing of foreign exchange has made importing harder, fuelling scarcity, inflation and a flourishing black market – dollars sell for about four times the cheapest official rate.

The multinationals that once made the country their regional base, attracted by its relative stability and large internal market, have upped sticks. A web of regulations has tightened around those private companies that have remained – most publicly at Polar, the food and beverage company that is an emblem of Venezuelan popular culture, which Mr Chávez has threatened to nationalise against union wishes. Private investment has slumped amid the deteriorating business climate. As for nationalised companies, the state has been unable to pick up the slack.

Since nationalisation in 2008, production in the cement sector has fallen 20 per cent, and in the steel sector by as much as 80 per cent, according to Caracas-based consultancy Ecoanalítica. Most embarrassing of all were the 100,000 tonnes of food found recently rotting in the warehouses of state-run food distribution network PDVAL. Mr Chávez blamed “US-backed fascist oligarchs”.

The opposition has failed to capitalise on such problems. One reason is that much of the electorate remains distrustful following early at­tempts to unseat the president including a botched coup in 2002 and a national strike that paralysed the economy.

. A final factor is that many of its candidates are drawn from two discredited parties, Democratic Action and the Social Christians, which once dominated the country’s politics.

Dissidents from Mr Chávez’s party and former personal allies pose a potential threat. But some of the most prominent opponents have been hounded out of the country or imprisoned. General Raúl Baduel, a former close friend who called the president a “traitor” has been controversially jailed for corruption.

. . .

All this has devalued Mr Chávez’s reputation abroad. He still enjoys occasional celebrity support, from Argentine footballer Diego Maradona and Hollywood film producer Oliver Stone, for example. Oil also ensures Caracas secures the odd multibillion-dollar deal – most notably an arms agreement with Moscow, after the US stopped selling weapons to Venezuela in 2006. Caracas and Havana remain locked in a symbiotic embrace. But the president’s vision retains little credence with the region’s leftwing, and many of the area’s leaders and diplomats are embarrassed by his virulent rhetoric and off-colour jokes.

Mr Chávez has thus failed to bring closer to reality the Latin American union he espouses in evocations of his 19th century independence hero, Simón Bolívar. Sometimes, as when he closed the frontier with Colombia, he has worked against it.

Yet his command of Venezuela – its economy, army and institutions, including the judiciary – has never been stronger. There is therefore every chance that Mr Chávez, whose political style tends towards confrontation rather than negotiation, will endure. ¡Venceremos! – “we will conquer” – as the former tank commander is fond of saying.

Copyright The Financial Times Limited 2010. Print a single copy of this article for personal use. Contact us if you wish to print more to distribute to others.

"FT" and "Financial Times" are trademarks of the Financial Times. Privacy policy | Terms
© Copyright The Financial Times Ltd 2010.

see related post from the same FT piece:

A lake of leaks reflects problems that stretch to the Orinoco

FT.com / Comment / Analysis - Venezuela: Bolivarian bravado

________________________

Caracas Journal - Building a New History By Exhuming Bolívar - NYTimes.com

Caracas Journal

Building a New History by Exhuming Bolívar

By SIMON ROMERO

Published: August 3, 2010

CARACAS, Venezuela — The clock had just struck midnight. Most of the country was asleep. But that did not stop President Hugo Chávez from announcing in the early hours of July 16 that the latest phase of his Bolivarian Revolution had been stirred into motion.

Enlarge This Image

Meridith Kohut for The New York Times

Venezuelans waiting under a banner of Bolívar to buy reduced-rate food at a government office in Caracas.

Enlarge This Image

Meridith Kohut for The New York Times

Museum visitors looking at the box that Bolívar had been buried in.

Marching to the national anthem, a team of soldiers, forensic specialists and presidential aides gathered around the sarcophagus of Simón Bolívar, the 19th-century aristocrat who freed much of South America from Spain. A state television crew filmed the group, clad in white lab coats, hair nets and ventilation masks, attempt what seemed like an anemic half-goose step.
Then they unscrewed the burial casket, lifted off its lid and removed a Venezuelan flag covering the remains. A camera suspended from above captured images of a skeleton. Insomniacs here with dropped jaws watched live coverage of the Bolívar exhumation on state television, with narration provided by Interior Minister Tareck El Aissami.
For those unfortunate enough to have dozed off, there was always Twitter.
“What impressive moments we’ve lived tonight!” Mr. Chávez told followers in a series of Twitter messages sent during the exhumation that were redistributed by the state news agency a few hours later. “Rise up, Simón, as it’s not time to die! Immediately I remembered that Bolívar lives!”
Even Venezuelans used to Mr. Chávez’s political theater were surprised by the exhumation, which pushed aside issues like a scandal over imported food found rotting in ports, anger over an economy mired in recession and evidence offered by Colombia that Colombian guerrillas are encamped on Venezuelan soil.
With all this going on, Venezuelans have been scratching their heads in recent weeks over the possible motives for Mr. Chávez’s removal of Bolívar’s remains from the National Pantheon.
The president offered his own explanation. It involves the urgent need to do tests to determine whether Bolívar died of arsenic poisoning in Santa Marta, Colombia, instead of from tuberculosis in 1830, as historians have long accepted. A commission assembled here by Mr. Chávez has been examining this theory for the past three years.
Their work is based on claims among some Bolivarianólogos, as specialists here on the history of Bolívar are called, that a long-lost letter by Bolívar reveals how he was betrayed by Colombia’s aristocracy. By deciphering the letter using Masonic codes, they suggest the conspiracy was even broader, including Andrew Jackson, then president of the United States, and the king of Spain.
Findings presented at a medical conference this year in the United States have encouraged Mr. Chávez further. At the conference, Paul Auwaerter, an infectious disease expert at Johns Hopkins University, said Bolívar likely died of arsenic ingestion, an assertion seized upon by state media here to support the claim that Bolívar was murdered.
It matters little that Dr. Auwaerter says his research has been misconstrued, since an ingestion of arsenic could have been unintentional through arsenic-containing medications common in that era or contaminated drinking water. “I do not agree with President Chávez’s theories,” he said by e-mail.
Undeterred, the government here says it will get to the bottom of Bolívar’s death. The attorney general attended the exhumation, making it clear that the authorities view the mystery of Bolívar’s bones as the equivalent of a crime scene and a matter of national importance.
The exhumation could serve multiple purposes. If Mr. Chávez can say Bolívar was murdered in Colombia, he could try to use that against Colombia’s current government, with which Venezuela’s relations are cold, while reinforcing his longstanding claims that Colombians and others are plotting to assassinate him.
It would also allow Mr. Chávez to rewrite a major aspect of Venezuela’s history. The president already closely identifies himself and his political movement with Bolívar, renaming the country the Bolivarian Republic of Venezuela, his espionage agency the Bolivarian Intelligence Service and so on. Portraits of Bolívar hang alongside Mr. Chávez’s in federal government offices.
This country’s intelligentsia fixates on Bolívar’s legacy and the use of Bolívar not just by Mr. Chávez but by rulers stretching back to the 19th century.
Slip into a bookstore and titles like “Divine Bolívar,” “The Cult of Bolívar,” “Thought of the Liberator” and “Why I’m Not Bolivarian” line the shelves. Scholars argue over how it was possible for one 20th-century dictator, Juan Vicente Gómez, to have conveniently shared the dates of his birth and death with Bolívar’s.
Some of Mr. Chávez’s top aides have begun using the exhumation as a method for attacking his opponents. Last month, the culture minister, Francisco Sesto, chastised Baltazar Porras, a Venezuelan archbishop, for “verbal desecration” for contending that Bolívar was, in fact, dead.
Political movements drawing strength from the remains of the dead are not new here or elsewhere in Latin America. One recent example came from Carlos Menem, Argentina’s former president, who returned the remains of the 19th-century warlord Juan Manuel de Rosas from England for burial in Argentina in 1989.
“Disputes over bodies are disputes over power, power over the past and power in the present,” said Lyman Johnson, a historian at the University of North Carolina who specializes in Latin America’s body cults. “These powerful meanings force new life into long-dead bodies.”
Mr. Chávez, with his removal of teeth and other bone fragments from Bolívar’s skeleton for DNA testing, may be taking the appropriation of the dead to new levels. The authorities here have ignored requests from descendants of Bolívar’s family (Bolívar himself is not widely believed to have had children) to leave the remains alone.
“The exhumation was one of the most grotesque spectacles I have ever seen,” said Lope Mendoza, 71, a prominent businessman here who is a great-great-grandnephew of Bolívar’s.
Still, the authorities here say they are far from finished. They plan to build a new pantheon for Bolívar to be completed by next year in which the bones will be deposited in a golden urn instead of a lead sarcophagus.
Next up for exhumation, said Vice President Elías Jaua, is Bolívar’s sister María Antonia Bolívar, whose remains lie at the Caracas Cathedral. Mr. Jaua said DNA testing must be done on her skeleton as well to determine whether the bones found in Bolívar’s tomb are actually Bolívar’s.
“Once we are certain that these are the Liberator’s remains,” Mr. Jaua said, “we will prepare a documentary in order to bestow testimony to history.”

María Eugenia Díaz contributed reporting.

A version of this article appeared in print on August 4, 2010, on page A7 of the New York edition.

Caracas Journal - Building a New History By Exhuming Bolívar - NYTimes.com

________________________