Evolution of a Crisis: When Dictators run out of your money

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Posted on Friday, August 14, 2009
Chavez taking control of Venezuela's media, according to report

By Juan O. Tamayo | The Miami Herald

An unclassified U.S. intelligence report says Venezuelan President Hugo Chavez is "moving forcefully" to stifle media criticism by closing scores of radio stations, tightening controls on one TV station and maneuvering to seize control of another.

"Chávez's government is moving forcefully to silence critics," the Open Source Center wrote in a report dated Aug. 3. Part of the office of the Director of National Intelligence, the nation's intelligence czar, the Center provides analysis based on public information such as newspaper, radio and television reports.

The two-page Venezuela report — labeled "Unclassified/FOUO" or For Official Use Only — listed seven well-known examples of Venezuelan government efforts to crack down on or seize control of media outlets.

Although its conclusions echoed the complaints voiced in recent months by Venezuelan opposition groups as well as freedom of expression activists in and outside the country, its wording seemed unusually direct. Requests for comments left with the Venezuelan embassy in Washington were not answered.

"Silencing his critics would allow Chávez to completely control the media message, but it would also deprive him of his long-standing scapegoat,"

the report noted. "He may be willing to give this up in order to clamp down on the negative news reporting and commentary, which have been hammering away at the country's economic problems and Chávez's increasing authoritarianism for the past year."

To read the complete article, visit www.miamiherald.com.


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Venezuela Bolivar Plunges as Chavez Threatens Bank Seizures

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By Daniel Cancel and Andrea Jaramillo



Dec. 3 (Bloomberg) -- Venezuela’s bolivar sank to a two- month low and bonds tumbled as President Hugo Chavez’s threat to seize more banks prompted investors to pull their money from the financial system and move it overseas.

The bolivar plunged as much as 9 percent to 6.30 per dollar, the weakest since Sept. 9, in the unregulated parallel market, traders said.

The currency traded at 6.1 at 5:20 p.m. in New York. Venezuelans buy dollars in the parallel market when they can’t get government authorization to purchase them at the official exchange rate of 2.15 per dollar.

After seizing four banks and a brokerage on charges that their owner diverted deposits and failed to show the origin of funds, Chavez said yesterday that he has another group of banks on his “radar.� He vowed to nationalize the private banking industry if lenders don’t follow Venezuelan law.

Chavez’s “comments on intervening in other banks has sparked even more uncertainty regarding the financial system,� said Alejandro Martinez, an economist at Veneconomia, a research company in Caracas. “People get scared and seek dollars as refuge.�

Chavez, a 55-year-old former paratrooper and self- proclaimed socialist, has said banks aren’t doing enough to promote development with loans for housing, agriculture or construction. The government’s purchase of Banco de Venezuela from Banco Santander SA for $1.05 billion this year hasn’t created enough competition for private banks, Chavez said.

Venezuela’s benchmark 9.25 percent dollar bonds maturing in 2027 dropped 3.6 cents on the dollar to 66 cents, the lowest since July 22, according to JPMorgan Chase & Co. The yield surged 77 basis points to 14.67 percent. A basis point equals 0.01 percentage point.

‘Face Value’

The extra yield investors demand to own the country’s dollar bonds instead of U.S. Treasuries swelled 67 basis points to 12.37 percentage points, according to JPMorgan.

“We should take his statements at face value,� Goldman Sachs Group Inc.’s Alberto Ramos said. “It’s one of the key sectors of the economy that the government hasn’t yet taken substantial control of.�

Chavez said yesterday he personally ordered the seizure of Banco Canarias de Venezuela CA, Banpro Banco Universal, Banco Confederado SA and Bolivar Banco CA on Nov. 20 and that their owner, Ricardo Fernandez Barrueco, is being jailed for not proving the origin of funds used to buy new banks.

Attempts by Bloomberg News to reach Fernandez Barrueco or lawyers representing him were unsuccessful.

Exxon, Ternium

Chavez said today that while the government is studying irregularities in some banks, most of the financial institutions in the private sector are complying with regulations. Two of the banks seized, Confederado and Bolivar, will be nationalized and absorbed into the public banking sector, he said.

Chavez’s comments today were “less hard-line, more conciliatory,� said Asdrubal Oliveros, a director at Ecoanalitica, a Caracas-based economic consulting company. “He was calling for calm.�

Chavez has seized assets from U.S. oil giants Exxon Mobil Corp. and ConocoPhillips, and nationalized the country’s largest steel mill from Luxembourg-based Ternium SA. Venezuela is in talks with Cemex SAB, the largest cement maker in the Americas, over compensation for the takeover of its local subsidiary.

This year, Chavez created a ministry of public banking, increased directed lending percentages for so-called productive sectors and boosted the government’s stake in the banking industry to 21 percent with the purchase of the Santander unit.

Deposits

At least four international banks have a presence in Venezuela, including Spain’s Banco Bilbao Vizcaya Argentaria SA, Amsterdam-based ABN Amro Holding NV and U.S.-based Citigroup Inc. Banesco Banco Universal, Banco Mercantil and BBVA Banco Provincial control about 33 percent of the banking system.

Venezuelan banks had 248 billion bolivars ($115.5 billion) in deposits among 50 institutions at the end of October, according to Softline Consultores, a consulting firm in Caracas.

Venezuelans concerned about the safety of their deposits after Chavez’s comments may move their money to bigger, established banks, Goldman’s Ramos said. Eventually, depositors may flock toward state institutions seeking safety because of an “implicit blanket government guarantee.�

The “financial oligarchs� spread capitalist values of greed and riches in the population and are trying to provoke a run on banks to try to topple the government, Chavez said yesterday.

“If the oligarchs think that the attacks that began to provoke a run on the banks is going to topple Chavez, the private banking sector will fall,� he said.

1994 Crisis

Chavez will likely proceed gradually in seizing smaller banks that fail to comply with regulatory capital and lending requirements rather than nationalizing the larger, more solvent banks, Jose Guerra, a former central bank director, said in a telephone interview.

While Chavez has created “uncertainty� among depositors, the situation is less severe than the country’s 1994 banking crisis, former Central Bank Director Domingo Maza Zavala said in a phone interview in Caracas. Venezuela took over 18 banks in a credit crisis that began in 1994, two years after coup attempts -- including one led by Chavez -- sparked capital outflows that prompted the central bank to ratchet up interest rates.

“You can’t compare what’s happening now with four banks with what happened in 1994,� Zavala, 87, said. “That was a true systemic crisis that affected more than half of the financial system and almost destroyed the Venezuelan economy.�

Still, the central bank should provide liquidity to financial institutions facing a sudden drop in deposits, Zavala said.

“This is a delicate situation and the government has to be careful in containing it to avoid a run on banks,� said Maikel Bello, an analyst at Caracas-based economic consultant Ecoanalitica. “The parallel rate will likely continue to weaken as the deteriorated confidence in the banking system leads people to seek dollars.�

To contact the reporter on this story: Daniel Cancel in Caracas at dcancel@bloomberg.net; Andrea Jaramillo in Bogota at ajaramillo1@bloomberg.net
Last Updated: December 3, 2009 17:44 EST


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• DECEMBER 5, 2009

Chávez Seizes Three More Banks, Stoking Fears

By JOSé DE CóRDOBA and JOHN LYONS

Venezuela's government took over three more banks Friday, adding to a growing list of smaller banks in the oil-rich country that have been seized by the government this week on charges that its owners illegally used deposits for their own enrichment.

The growing scandal has unnerved depositors about which banks are safe, posing a threat to the broader banking system. It has also become a potential political liability for President Hugo Chávez, because the owners of the seized banks were seen as close to top officials.


Associated Press Employees of a bank seized earlier this week seek severance pay.

Finance Minister AlÃ* RodrÃ*guez said the government would take over operations at Baninvest, Banco Real and Central Banco, saying the banks had violated banking rules. He didn't offer details. He said the government would shut the banks temporarily to "rehabilitate" them.

Speaking on national television after banks and financial markets closed for the weekend, Mr. RodrÃ*guez tried to reassure Venezuelans that there wouldn't be a full-blown banking crisis: "We're not in front of a crisis in the Venezuelan banking system."

The troubles began Monday when the government shut four banks owned by billionaire Ricardo Fernández, who has been jailed on a host of charges including the illegal use of depositors' money. Mr. Fernández made his fortune thanks largely to government contracts, and is seen as close to many top Chavistas, including Mr. Chávez's older brother Adan.

Mr. Fernández's lawyer Antonio Guerrero says his client is innocent of the charges. Adan Chávez, currently the governor of Barinas state, was unavailable to comment.

The three banks intervened on Friday were all controlled by Pedro Torres, a close associate of Mr. Fernández and another Venezuelan businessman who has grown rich during Mr. Chávez's years in power. Arné Chacón, a brother of Science and Technology Minister Jesse Chacón, is listed in Banco Real's Web site as president of the board of directors at Banco Real.

Neither Mr. Torres, reported to be in Miami, nor the Chacóns could be reached to comment.

Many analysts say the interventions aren't a reflection of a larger banking crisis, since most of the financial system assets are held by a handful of big banks that are seen as sound. Pointing to Friday's recovery in Venezuela's dollar-denominated bonds and its bolivar currency -- both suffered losses Thursday -- these analysts say investors appear to believe Mr. Chávez is targeting a limited group of banks.

Mr. Chávez has taken control of about 10% of the banking system this week, analysts say. He is likely targeting about a dozen banks that together represent around 20% of the banking system, says Royal Bank of Scotland economist Boris Segura.

However, a policy of nationalizing banks can get out of control if not handled with care. Venezuelans, who remember the nation's devastating 1994 banking meltdown, could be startled into pulling deposits from even sound banks if Mr. Chávez isn't careful.

"By themselves, these banks are not big enough to be a problem," said Alberto Ramos, a Goldman Sachs economist who follows Latin America. "But I do not trust this government to manage the process well."

Appearing to recognize the dangers, Mr. Chávez -- who twice this week threatened to nationalize all banks, if necessary -- toned down his rhetoric during a Friday television appearance. Exchanging his habitual army outfit for a suit and tie, he called the moves "prudent interventions."

Analysts say the government has long known about irregularities at some of the country's smaller banks, and question why Mr. Chávez acted now. Some say the moves are a purge of some of the government's most corrupt elements ahead of what could be key midterm elections next year. Others say the crackdown reflects a shift in the alliances of groups that have profited during the Chávez years.

"Chávez has purged, Cuban-style, the first and most powerful economic group that has formed under his government," said Juan Carlos Zapata, a columnist for El Mundo newspaper who has written several books on Venezuela's new power structure.


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Venezuelan President Chávez Announces Currency Devaluation


1/9/2010 1:18 AM ET (RTTNews) - Friday, President Hugo Chávez announced a sharp devaluation of Venezuela's currency, bolivar, in order to revitalize oil production in the country, whose economy is governed to a large extent by the commodity's export, said media reports. The country is currently facing financial distress as the global slump drove down both oil prices and output.

Chavez noted that the bolivar will now exchange at dual rates, 2.60 per dollar for for essential imports like food and health, and 4.30 per dollar for other transactions, including imports.

Venezuela had last devalued its currency in 2005, to 2,150 bolivars to the dollar from 1,920 bolivars.

by RTT Staff Writer

For comments and feedback: contact editorial@rttnews.com

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Venezuela Opens New State-Run Bank After Nationalizations


CARACAS (Dow Jones)--Venezuela's government on Monday opened the doors of a new state-run bank as the administration of President Hugo Chavez parlays the shuttering of several small banks amid graft allegations into a bigger government presence in the country's beleaguered financial sector.

State-run Banfoandes bank and former private-sector banks Bolivar, Central and Confederado are now one large institution with 390 branches nationwide, the government said in a statement Monday.
The new Banco Bicentenario will hold an estimated 20% of all deposits in Venezuela.

Bicentenario is designed to serve "all those Venezuelans who traditionally were not granted access to the services offered by private banks," according to the statement.

The three small private banks which were nationalized were among eight that the government took over in recent weeks during a purge in which nearly a dozen bankers were arrested.

Socialist President Hugo Chavez said bankers weren't making loans to small businesses and the poor, but instead were taking depositors' funds and using them for personal enrichment.

Of the five other banks that were taken over, two were liquidated, while the government continues to evaluate what to do with the other three.

Chavez led a ceremony for the new bank by handing out mortgage loans to some of the employees who now work for Banco Bicentenario.

The government already controls a roster of public banks that includes Banco de Venezuela, which Chavez purchased from Spain's Banco Santander SA (STD, SAN.MC) for $1.05 billion.

The government is also taking control of Seguros La Previsora, an insurance company linked to three of the seized banks, which will be used to launch a state-run insurer. La Previsora is the fourth-largest insurance company in the country by premium revenue.

The government is bolstering its role in the financial sector even as the banking crisis that led to the takeovers remains to be resolved.

"The banking crisis does not seem to be over," said Russ Dallen, of Caracas-based BBO Financial Services. "Depositors' reactions to the reopened banks will be critical in determining future events."

Data compiled by Dallen shows that the largest banks in Venezuela have gained market share as more depositors move their money to bigger banks, which are seen as safer.

-By Dan Molinski and Darcy Crowe, Dow Jones Newswires; (58) 414 249 6821; darcy.crowe@dowjones.com


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Nervous Venezuelans panic buy TVs after devaluation

Sat, Jan 9 2010

* Shoppers fear sharp price rises for imported goods

* Opposition fuels shopping spree with warnings

By Eyanir Chinea

CARACAS, Jan 9 (Reuters) - Shouting "buy, buy, the world is going to die," Venezuelans went on a frantic shopping spree on Saturday following a sharp currency devaluation that is expected to drive up prices.

President Hugo Chavez announced a dual system for the fixed rate bolivar on Friday night while much of the country was watching a baseball game.

But on Saturday, word spread quickly as people read the morning papers and listened to the radio in Caracas cafes.

Shoppers crammed into electronics stores, eager to snap up imported televisions and computers ahead of the anticipated price hikes.

"I've been lining up for two hours outside to buy a television and two speakers because by Monday everything is bound to be double the current price," said Miguel Gonzalez, a 56-year-old engineer standing in the tropical sun outside a popular store.

Opposition politicians seized the opportunity to criticize Chavez's economic management, with Caracas Mayor Antonio Ledezma saying standards of living would drop.

"If you need to buy a refrigerator for your house tomorrow, it's going to cost you twice as much as it did up till Friday, Ledezma said.

The government acknowledges prices will rise after the devaluation, but say the upward trend will be more gradual.

State run television and radio stations avoided using the word "devaluation," preferring the word "adjustment." One pro-Chavez radio station responded to critics of the measure by playing a popular Argentine song called "Imbecile."

With oil crowding out other sectors of the economy, Venezuela heavily relies on imports for consumer goods, leaving it subject to big price swings depending on the exchange rate.

Older Venezuelans are accustomed to sharp losses in the value of their money, with numerous devaluations and currency regimes over the last three decades of economic turmoil.

Inflation, the highest in the Americas, at 25 percent last year, reached 103 percent in 1996 after a previous president lifted exchange and price controls.

Chavez's high-spending policies during an oil bonanza fueled a massive consumer boom and fast growth that shuddered to a halt when oil prices plunged a year ago.

The sharp drop in oil revenues also undermined the bolivar and made a devaluation inevitable at some point. (Additional reporting by Ana Isabel Martinez; Writing by Frank Jack Daniel; Editing by Xavier Briand)

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Venezuela soldiers shut shops accused of profiteering


State television was on hand to show the alleged rises in prices

Government inspectors backed by soldiers have shut more than 70 shops in Venezuela accused of trying to cash in on last week's currency devaluation.Soldiers have been on the streets to check prices as people queue to buy imports, fearing prices could rise.

Devaluing the bolivar by at least 17% will aid competition and cut reliance on imports, President Hugo Chavez says.

On Sunday he warned that businesses engaging in what he called speculation would be shut down or taken over.

As soon as trading started again after the president's comments a series of supermarkets and other businesses across Venezuela were taken over by government tax inspectors.

State-run news agency ABN said food, car parts and other businesses were temporarily closed "for changing the price of products and for speculation".

The National Guard stepped in at three superstores belonging to the Exito supermarket chain.

State television showed the alleged rises in prices on everything from plasma television screens to packets of cereal.

The bolivar's official exchange rate, which is set by government decree, had been held steady at 2.45 to the US dollar since the last devaluation in March 2005.


Chavez said the devaluation would limit unnecessary imports

But on Friday, President Chavez announced that it would now have two rates - 2.60 to dollar for "priority" imports, and 4.30 to the dollar for other items considered non-essential - a 50% devaluation.

The BBC's Will Grant, in Venezuela, says that since the devaluation was announced long queues have formed outside outlets selling electronic goods and technology.

Customers fear that significant price rises are on their way.
Venezuela already has the highest rate of inflation in Latin America - currently at about 25%.

President Chavez says that these measures will rein it in but many economic analysts predict that it will only get worse in the short term.
Oscar Meza, director of a Venezuelan economic think tank, Cendas, predicted the move would push annual inflation above 33%.

'Irresponsible policy'
"It's impossible for prices not to be adjusted," he told the Associated Press. "If they aren't adjusted, they'll disappear."

President Chavez dismissed the criticism on Sunday on his weekly television and radio programme, Alo Presidente, saying there was "no reason for anybody to be raising prices".

He urged his supporters to "publicly denounce the speculator" and warned business owners that he had asked the military to formulate an "offensive plan" that would see them "take over any business, of any size, that plays the bourgeois speculation game".

Luis Ignacio Planas of the opposition Copei party said the government was "acting like a pickpocket, sticking its hands in the pockets of Venezuelans, taking their money to continue financing and paying for an irresponsible economic policy".


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Venezuela imposes electricity blackouts

Venezuela has imposed an electricity rationing programme which will lead to four-hour blackouts every week across the country.

Published: 10:58AM GMT 13 Jan 2010


Police officers control traffic during a partial blackout in Caracas Photo: REUTERS

President Hugo Chavez said the rationing was necessary to combat an energy crisis.

The cuts will take place in different areas around the country every other day, adding to blackouts which often affect the south.

The announcement came days after Mr Chavez devalued Venezuela's currency.

The government recently reduced the hours of electricity supply for shopping centres and required businesses and large residential complexes to cut energy use by 20 per cent or face fines.

Water levels in Guri Dam – the cornerstone of Venezuela's energy system – are threatening to fall to critical lows, causing a widespread power collapse.

Drought has cut the flow of water into the dam, which feeds three hydroelectric plants that supply 73 per cent of Venezuela's electricity.

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Venezuelan consumers fear inflation, dump cash after Chávez devalues bolivar

By Juan Forero
Wednesday, January 13, 2010; A08

Venezuelans mobbed stores this week to buy imported electronic goods after the government's sharp devaluation of the currency heightened fears that prices would soon skyrocket.

President Hugo Chávez's decision, announced Friday, comes as Venezuela's sputtering economy grapples with energy and water shortages. Now in his 12th year in power, Chávez has the support of half of the country's 28 million people, polls show, but rising inflation would most hurt the lower classes that are the pillar of his movement.

The first devaluation of the bolivar since the introduction of currency controls in 2003 quickly spurred a shopping frenzy, as Venezuelans rushed out to buy televisions, computers and other goods that would hold their value.

"The typical Venezuelan is saying, 'My savings are going to be worthless,' " said Robert Bottome, editor of the business newsletter Veneconomia in Caracas, the capital. "The store shelves are pretty much empty right now."

The energy shortage has affected industrial hubs and far-flung hamlets. On Tuesday, the government announced rolling blackouts in big cities to prevent what Electricity Minister Angel RodrÃ*guez called "a total shutdown of the country."

With a prolonged drought lowering water levels in the country's mammoth Guri dam, Chávez has already restricted the hours of operation for malls and casinos and instructed Venezuelans to limit showers to three minutes.

At the same time, Venezuela's relationship with the Obama administration has worsened in recent weeks as Chávez has warned that the United States might be planning an invasion from military bases in Colombia and Dutch-held islands in the Caribbean. The Obama administration has denied the accusations, which Chávez's critics say are part of a ploy to deflect attention from problems at home.

In announcing a measure he said would spur the economy, Chávez said the exchange rate, which had been 2.15 bolivars to the dollar, would rise to 2.6 bolivars for essential items such as food and medicines. The exchange rate for non-essential items, including airplane tickets and cars, would rise to 4.3 bolivars to the dollar.

Among those who quickly went shopping was Rafael RodrÃ*guez of Caracas, an architect who snagged a television set Saturday and a Nintendo game system for his kids Tuesday.

"People always feel that prices are going to rise, and that is what happened here before, so everyone went to the stores," RodrÃ*guez said by phone from Caracas. "In theory, prices should go down. But that never happens."

Chávez responded angrily this weekend to predictions that merchants would soon raise prices, warning that businesses that did so would be closed. By Tuesday, the Venezuelan Institute for the Defense of People in Their Access to Goods and Services had inspected and closed dozens of stores.

"There is no reason for anybody to be raising prices," Chávez said Sunday on his national television show. He explained to listeners that the "bourgeois" in Caracas society would plan price increases but that they would fail.

"People, do not let them rob you," he said. "Denounce it."

The government's measures were met with market approval. Bonds rose Monday as investors determined that Venezuela had immediately improved its ability to meet its financial needs. Many economists had long contended that Venezuela's currency had been heavily overvalued, hurting the country's finances and crippling exports outside the vaunted oil industry.

Ricardo Sanguino, a pro-government deputy in Venezuela's Congress, told state television Tuesday that the measures would spur domestic industry. "We are in a new phase, a phase to increase national production," he said.

But the devaluation, which permits Chávez to ramp up spending ahead of congressional elections in September, is expected to lead to an inflation rate of as much as 60 percent this year, according to some economists. Last year, inflation stood at 25 percent, among the highest in the world.

A former director of Venezuela's central bank, Domingo Maza Zavala, said in a phone interview from Caracas that he predicts inflation will hit nearly 50 percent.

In a healthy economy, he said, a devaluation could be beneficial. But he said that Chávez's management of the economy, which includes widespread nationalizations and other regulations, has sapped investor confidence.

The economy contracted 2.9 percent last year, and Maza Zavala said he expects it to shrink at nearly the same rate in 2010, even as other economies in the region are expected to post healthy growth.

"This year, with the devaluation, the economy will not recover," Maza Zavala said. "The recession that began in the third quarter last year will continue."

Antonio Ledezma, the mayor of Caracas, said at a news conference that he expects Venezuelans to put their money in durable goods and dollars.

"What can a citizen do but conclude that his money is best invested in a toaster he really doesn't need?" Ledezma said.

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Chavez Threatens to Seize Businesses, Devalues Currency by 50%

January 12, 2010

Turn out the lights. The collapse of Venezuela is well underway. It will not be long before the country completely stops functioning, assuming you think Venezuela is functioning now.

Please consider Chavez Devalued Bolivar 50 Percent:

Venezuela devalued its currency by half yesterday, the first such action since March 2005, as President Hugo Chavez seeks to pull the economy from recession amid falling oil revenue.

Chavez said the bolivar will be devalued to 4.3 per dollar from 2.15 per dollar for most imports. A second, subsidized peg of 2.60 bolivars per dollar will be used for importing food, medicine and machinery intended to boost the economy’s competitiveness.

The government, which restricted foreign currency trading in January 2003 following a two-month general strike intended to oust Chavez from power, last devalued the currency by about 11 percent in March 2005. The bolivar was also devalued in 2004.

Chavez Threatens to Seize Businesses
Inquiring minds are reading Chavez Says He’ll Seize Businesses That Raise Prices:

Venezuelan President Hugo Chavez said that businesses have no reason to raise prices following the devaluation of the bolivar and that the government will seize any entity that boosts its prices.

Chavez said he’ll create an anti-speculation committee to monitor prices after private businesses said that prices would double and consumers rushed to buy household appliances and televisions. The government is the only authority able to dictate price increases, he said.

The government also will “attack� the so-called parallel exchange rate, which Chavez called “illegal.�

The bolivar traded at 6.25 per dollar on Jan. 8, traders said.

“They put the value of the dollar at more than 6 in an arbitrary and illegal manner,� Chavez said. “We have to organize to reduce and attack that speculative, illegal dollar that hurts the Venezuelan economy so much.�

Official Rate vs. Black Market Rate
Official Rate: 4.3 bolivar per dollar
Previous Official Rate: 2.15 bolivar per dollar
Black Market Rate: 6.25 bolivar per dollar
Virtually no one in private business will exchange at the rate of 4.3 bolivar per dollar. Banks will not do it either, otherwise there would be no need for a black market.

Massive Shortages Coming
Chavez just effectively announce a government takeover of all private enterprise. The government has already taken over the oil and telecommunications industry. Other businesses are sure to follow. When government mandates prices that are too low, shelves empty.
Massive shortages are coming soon to Venezuela.

Venezuela Risks Devastating Power Collapse
If the above problems were not bad enough, Venezuela faces risk of devastating power collapse from a massive drought affecting the country's biggest hydroelectric dam.

Venezuela is at risk of a devastating power collapse as drought pushes water levels precariously low in the country's biggest hydroelectric dam, posing a serious political threat for President Hugo Chavez.

Chavez on Friday said his government is determined to keep Guri Dam from falling to a critical level where the turbines start to fail in the next several months. He has also imposed rationing measures that include penalty fees for energy overuse, shorter workdays for many public employees and reduced hours for shopping malls.

The entire South American country of 28 million people depends to a large degree on the massive Guri Dam, which holds back the Caroni River in southeastern Bolivar state. It supplies 73 percent of the country's electricity by feeding the massive Guri hydroelectric plant — the world's third-largest in power output — along with two other smaller plants. ...

Experts say the amount of water reaching the turbines could eventually decrease to such an extent that they would no longer feed the power grid.

Chavez wants to reduce imports but is rationing electricity and shut partially down state-run steel and aluminum plants. Good luck with that. Price controls compound the problem by orders of magnitude.
The Venezuelan economy will soon be toast, burnt toast if the price of oil sinks again.

Collapsing Venezuela
Flashback January 21, 2007: The Washington Times nails it with Collapsing Venezuela.

If Venezuelan President Hugo Chavez President Obama deliberately intended to sabotage his nation's economy, he would be hard-pressed to do anything different from what he is now doing to his country.

It has been widely reported that Mr. Chavez President Obama has been increasingly taking control of the oil, telecommunications and energy housing, banking, auto, and insurance sectors, as well as the media. What has not been reported is the full extent of the corruption in Venezuela the United Statesand how this ultimately will destroy the economy.

The financial scandal taking place is far bigger than Enron, and may ultimately even exceed the U.N. "oil-for-food" scandal, the biggest financial disgrace of all time.

Since 2004, the Venezuelan Central Bank Fed has transferred about $22.5 billion untold $billions to accounts abroad by the Chavez government held by foreign governments, and about $12 billion all of that remains unaccounted for. It has also been reported that the gold reserves have been removed from the Central Bank.

While the rest of the world has been moving away from socialism for the last quarter-century for good reason, Venezuela the United States is becoming socialist. We know governmental use of central banks to basically print money to cover expenditures results in rising inflation and eventually monetary meltdown.

And, finally, we know that when a state becomes totally corrupt an economic collapse always follows. Mr. Chavez President Obama and his cronies had already been spending far more than they were taking in and you can bet the blood from the innocent Venezuelan people United States citizens will be drained long before those on the take from Mr. Chavez President Obama agree to have their looting stopped.

The original Washington Times article was extremely good, but a few minor changes would have made it the most prophetically accurate post the world had ever seen.

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Venezuela Slipping Into Socialist/Statist Darkness, Figuratively and Literally

By Tom Blumer (Bio | Archive)
January 10, 2010 - 18:33 ET



Four recent stories out of Venezuela each give readers brief glimpses at how Hugo Chavez's brand of authoritarian socialism is critically wounding what could be a resource-rich, financially prosperous country:

1. January 9, Associated Press -- "Venezuela weakens currency for 1st time in 5 years."
2. January 10, Bloomberg -- "Chavez Says He’ll Seize Businesses That Raise Prices."
3. December 22, AFP -- "Chavez announces new discount 'socialist' stores."
4. January 9, AP -- "Venezuela faces risk of devastating power collapse."

Collectively, however, they depict a country in the early stages of a headlong free-fall into Cuban-style financial ruin. No U.S. establishment media enterprise appears interested in making the accelerating decays in financial well-being and personal freedom in that country understandable to the average person.

AP's headline at the first item noted seems designed to avoid attention. This isn't a mere "weakening" of the currency; instead, it's a bizarre bi-level devaluation of up to 50%:

President Hugo Chavez' decision to devalue Venezuela's currency for the first time in nearly five years aims to stretch his government's oil earnings further and counter a recession by increasing spending.

The devaluation of the bolivar lessens a wide gap with the black-market exchange rate for dollars and will unavoidably push inflation - already the highest in Latin America at 25 percent - to even higher levels.

Opposition leaders on Saturday called the devaluation a blow to Venezuelans that will make them pay through inflation while letting the government instantly convert its oil earnings into more cash domestically to boost spending ahead of congressional elections.

.... With the devaluation, Chavez also set a new two-tiered exchange rate in an attempt to hold down prices of priority imports like food to counter inflation.

The currency's official exchange rate had been held steady by the government at 2.15 bolivars to the dollar since the last devaluation in March 2005. Chavez said the bolivar will now have two government-set rates: 2.6 to the dollar for transactions deemed priorities by the government, and 4.3 to the dollar for other transactions.

The wire service's Jorge Rueda never specified the percentages of devaluation (about 20% and exactly 50%, respectively, for "priority" and "other" transactions).

Chavez's threats identified in the Bloomberg item, to the extent they are successful, are destined to keep businesses from fully replenishing their stocks of goods for sale:

Venezuelan President Hugo Chavez said that businesses have no reason to raise prices following the devaluation of the bolivar and that the government will seize any entity that boosts its prices.

Chavez said he’ll create an anti-speculation committee to monitor prices after private businesses said that prices would double and consumers rushed to buy household appliances and televisions. The government is the only authority able to dictate price increases, he said.

“The bourgeois are already talking about how all prices are going to double and they’re closing their businesses to raise prices,� Chavez said in comments on state television during his weekly “Alo Presidente� program. “People, don’t let them rob you, denounce it, and I’m capable of taking over that business.�

If jawboning and intimidation are fully effective, most retail businesses will only have half-empty shelves and rising overhead costs -- circumstances likely to put many of them out of business.
Now there's a coincidence (/sarcasm). The December 22 AFP item reveals that the Chavez is going with a so-called "public option," if you will, for everyday goods and services:

President Hugo Chavez on Tuesday announced a new chain of government-run, cut-rate retail stores that will sell everything from food to cars to clothing from places such as China, Argentina and Bolivia.

"We're creating Comerso, meaning Socialist Corporation of Markets," Chavez said at the opening of a "socialist" fast-food location for traditional Venezuelan arepas (cornbread).

"They'll see what's good. We'll show them what a real market is all about, not those speculative, money-grubbing markets, but a market for the people," said Chavez in his drive to change Venezuela from a market-based economy to a socialist one.

.... We're going to defeat speculation. Private individuals in sales can still sell, but they'll have to compete with us and with a people who is now fully aware," Chavez said.

.... The socialist retail outlets will serve the public alongside the Mercal supermarket chain, which sells subsidized food in Venezuela's working-class neighborhoods.

So it would appear that Chavez is setting up his state-run enterprises just in time to fill in the devaluation-caused breach. How convenient.
One also expects that Comerso will have all kinds of built-in advantages over Mercal and other competitors, like exemptions from taxes, more lax regulation, the ability to get government subsidies for losses incurred.

These and other advantages, by the way, are also reasons why the so-called "public option" for health insurance included in many versions of statist health care being considered by the U.S. Congress is nothing but a ruse to eventually and inevitably put private insurers out of business.

Meanwhile, the AP's Fabiola Sanchez, in describing the "devastating power collapse" in the final listed item above, wants to create the impression that it's happening because of the whims of Mother Nature. But the reporter at least gives voice to the more likely culprits in later paragraphs:

Chavez has blamed the electricity predicament on the El Nino weather phenomenon in the Pacific Ocean, along with global warming. But critics blame the government, saying investments in infrastructure haven't kept up in spite of Venezuela's bountiful oil earnings.

(Economics professor Victor) Poleo said investments have been hobbled by a lack of planning, waste and corruption, and that based on his research only about 25 percent to 30 percent of the funds approved for infrastructure upgrades have reached their intended uses.

The government's electricity minister, Angel Rodriguez, was not available to respond to the accusations.

Earlier paragraphs from Sanchez indicate that the government is already imposing power rationing, including limiting the hours of operation of .... shopping malls. Imagine that. Will Comerso have to abide by such restrictions? Will it also get the "priority" purchasing rate while its competitors are stuck with the "other" rate?

Sanchez also identifies a clear overdependence on one power source, namely the Guri hydroelectric dam, which supplies 73% of the country's electricity. Fine, but Chavez has had every bit of 10 years to do something about that, and is sitting on a veritable ocean of fossil-fuel resources that could have been called into play if the related electricity-generating capacity had been built.

Put these four stories together and you see a country that is not at all far from being in a situation of forced misery with the state as sole provider of many if not most of the basic necessities of life. One wonders if it isn't already too late to keep Venezuela from becoming Cuba writ large. If America wakes up one morning to find that this is indeed the case, an establishment media elite that has been all too sympathetic to Chavez from the get-go and has failed to paint an accurate picture of what has been happening to economic and human rights in that country for years will deserve a large share for that "surprise."

Cross-posted at BizzyBlog.com.

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Glenn Beck - 1/26/2010 - Obama vs. Chavez

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Venezuela Chavez nationalizes French-owned retailer

Mon, Jan 18 2010



CARACAS, Jan 17 (Reuters) - Venezuela's socialist President Hugo Chavez on Sunday nationalized a chain of supermarkets controlled by France's Casino on charges of price gouging after the government devalued the bolivar currency.

"Because of multiple violations of Venezuelan laws the Exito chain will now belong to the republic, there is no way back," Chavez said on his weekly television show.

In his 11 years in office, Chavez has nationalized large swathes of the economy, including major oil projects along with electricity and telecommunications companies.

The leader who calls Cuba's Fidel Castro a mentor has recently declared himself a Marxist and wants to build a socialist society in one of the world's top oil exporters.

He said the Exito supermarkets had increased prices without justification. Exito has stores in Caracas and several other cities.

Chavez devalued the bolivar on Jan. 8 to boost government finances and revitalize the recession-hit economy, but risks boosting already high inflation.

Aware a price surge could anger his mostly poor supporters, Chavez ordered troops to monitor shopping districts. Authorities had already temporarily closed stores belonging to the supermarket chain on charges of price gouging.

The stores are run by Colombian retailer Alamcenes Exito , which belongs to Casino.

Chavez said legal reforms were under way to take over companies accused of speculation. He said those reforms will have to be finalized to complete the nationalization of Exito. (Reporting by Ana Isabel Martinez; Writing by Frank Jack Daniel; Editing by Maureen Bavdek)

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Venezuela's private retailers targeted as Hugo Chávez declares 'economic war'

As election looms, president blames rising food prices on 'capitalist' retailers while critics accuse him of scapegoating

Rory Carroll in Caracas

• guardian.co.uk, Sunday 27 June 2010 23.33 BST
• Article history

Rory Carroll reports from Venezuela where, in an effort to sustain food production based on government-subsidised stores and restaurants, Hugo Chávez is criminalising shopkeepers who want to set their own prices Link to this video You could call Omar Cedeño many things: a class traitor; a tool of international capitalism; a criminal suspect; even an enemy of Hugo Chávez's socialist revolution. You could also call Cedeño, who sells meat from a cramped shop, a butcher.

He has been a fixture in the Candelaria district of Caracas, Venezuela's capital, for 20 years, flapping in and out of his shop in a grubby white coat, arranging cuts of beef, pork and chicken in a display case, joshing customers.

There are fewer jokes these days. Military police recently seized Cedeño and dozens of other butchers on suspicion of overpricing. Cedeño was handcuffed, stripped, interrogated at an army base and charged with speculation. If convicted he faces up to six years in jail.

"I'm not a capitalist or a socialist, I'm just a worker. People are being arrested for doing their job," said the 47-year-old, now back at his shop but obliged to report to a tribunal every 15 days until the trial.

Cedeño's alleged crime: selling beef for £4 a kilo, well above the regulated price of £2.58. He does not deny it – prices are marked on a white board behind the counter. "I've got to cover my costs. What business doesn't? Yet eight officials came here to arrest me. It's an abuse of power."

Most economists attribute Venezuela's soaring inflation to loose monetary policy, exchange controls, devaluation and anaemic domestic production, dynamics that show no sign of abating.

"The government has boxed itself in with a misguided policy mix of rampant spending and price and foreign exchange controls that has resulted in a growing output gap and galloping inflation," said Patrick Esteruelas, of Eurasia Group political consultancy. He added that the government, unwilling to risk austerity measures in the run-up to September's congressional elections, was deflecting blame. "It has found it highly convenient to persecute private food retailers."

Venezuela's authorities disagree. They say private firms are cheating customers with unjustified price rises that are driving 30% inflation, Latin America's highest. Food prices are rising even faster, at 40%.

According to Chávez, it is part of a plot by US-backed "fascist oligarchs" to destabilise his leftist experiment.

"Do you know why capitalist prices are so high? Because they are thieves, stealing from the people. Don't let them trick you," said the president during a TV broadcast last week. He promised to crush speculators and lower prices in what he termed an "economic war".

The stakes are high. After 11 years in power the former tank commander's ratings have slumped amid a recession, leaving his petro-state mired in stagflation, while the rest of South America booms. With legislative elections due in September, the president is offering socialism as an economic cure.

The strategy is to boost state-backed food production and sell output at subsidised prices, while curbing the private sector and capping its prices for staples such as milk, beef and coffee. "They know where we are headed, we are going to take from the Venezuela bourgeoisie," the president told cheering supporters.

But problems are mounting. In the name of "nutritional sovereignty" the government seized 6m hectares (about 15m acres) of farmland, expanded cultivation and set up socialist co-operatives. Results are poor: beef, sugar, coffee and fruit production plunged. Grain and rice output initially rose, but fell last year.

Food imports soared to $7.5bn (about £5bn) last year, by some measures a sixfold increase since Chávez took office. Partly that was because an oil boom and anti-poverty policies increased people's spending power, but mainly it was for want of domestic production, according to Cavidea, the food industry body.

Record oil revenues funded a government chain of subsidised grocery stores and markets, a pillar of Chávez's popularity. At an open-air stall, shopper Maria Clemente, 60, said: "I've just stocked up on rice, sugar, corn, milk, all at rock-bottom prices." The government also opened a chain of fast-food restaurants selling arepas – cornbread sandwiches – at bargain prices. Quotes from leftist thinkers line the walls and red stars adorn toilet doors. Recently in Parque Central's restaurant, three TV screens showed Chávez, broadcasting live from another location, tucking into an arepa. "Mmmmm, this is Fidel's favourite," he said, referring to his Cuban ally.

But critics are exercised by another odour: that of 80,000 tonnes of imported food discovered rotting in government warehouses, a scandal that prompted the arrest of senior officials. Some government-run stores are showing strain: bare shelves and scarce meat. "No chicken, and they make you buy tomato sauce with everything," grumbled one shopper, Elvira Sierra, 54.

Undeterred, the government has pressed ahead with the takeover of farms, processing plants and supermarkets and threatened to nationalise Polar, Venezuela's leading beer and food company. Troops have seized company land, impounded "illegally stored" food and made hundreds of inspections. It is a risky target given that Polar is to Venezuelans what Cadbury, Hovis and Carling are to Britons. The company declined interview requests.

The authorities also continue to prosecute smaller fry for selling above regulated prices. "It's becoming impossible," said Cedeño. "I'm supposed to sell meat at what it costs me to buy. How do they expect me to cover costs and stay in business?"