Clearly, 30% is not too bad.
However, what would really make these numbers interesting, would be to have them for different sectors (e.g. for agriculture) and the share of which is private and public.
"However, what would really make these numbers interesting, would be to have them for different sectors (e.g. for agriculture) and the share of which is private and public."
If and when I find those numbers (if they exist) I'll post them.
OW,
But is this investment in general, does it include foreign investment?
I think what the media usually says is that foreign direct investment is way down in Venezuela, which apparently is the case?
What do you know about that?
Hello all,
Talking about investement, I was wondering how the agrarian reform was doing this last year or so.
Recovering the land (public or private-owned) for productive purposes could be considered, in my sense, as a form of investment.
I remember two or three years ago when this subject was rather a center of attention, but I haven't heard of any new land-recoverings as of late.
Thank you for your enlightenment !
No, it is only domestic investment. This does not include foriegn investment. However, domestic investment has always been much bigger than domestic investment and so the trend of investment now going way up would not be effected. Also, Venezuela clearly has enough investment to sustain growth, and that too would not be effected. If I can get the foriegn investment numbers as a percent of GDP though it would be good to include them in a graph like this.
Foriegn investment is way down - it is actually negative now as people have taken money out of the country.
There are two main reasons for that:
1) foriegn investment for obvious reasons was concentrated in the oil industry. That has now stopped as Venezuela no longer really welcomes it as they are limiting production to OPEC quotas. Plus if you allow foriegn investment than you have to share the profits with them which Venezuela also doesn't want to do. In my view that this investment is down is good news.
2) Venezuela has also bought out investors in some other sectors like telecommunication - ie CANTV. Those investors then take the money out of the country which gives Venezuela a negative investment in this. As I've stated before I think this is a mistake by the Venezuelan government to have bought out these non-oil companies because this is not the best use of the governments money and also because that foreign investment, which was helpful, then leaves the country.
3) The deteriorating investment climate in the country.
"3) The deteriorating investment climate in the country."
I don't know if that can be said with certainty given that investment over all is up. To know for sure we'd have to know how much of this investment that is currently 30% of GDP is private.
The foriegn investment itself I think it mainly explained by the two factors I gave.
"As I've stated before I think this is a mistake by the Venezuelan government to have bought out these non-oil companies because this is not the best use of the governments money and also because that foreign investment, which was helpful, then leaves the country."
I'm actually really glad they nationalized CANTV. The service totally sucks, and they charge way too much. That's one of the things I have said since I got here to Venezuela, that the government should just nationalize the stupid company, and make it more accessible to ALL Venezuelans, not just the middle class.
Now, I know, a lot of people will say that it was national back in the 80's and that the service was horrible because of state bureacracy. Well, let's hope this government can do a better job, but I don't see the sense in allowing U.S. corporations make money off exploiting poor Venezuelans in their phone service.
The fact that this government is going to provide free internet service to schools, and consejo comunales (I think?) is pretty cool, and shows one advantage of having a national phone service as opposed to one owned by U.S. multinationals like Verizon.
Venezuela es el país menos atractivo para la inversión privada
Venezuela es el país con menor atractivo para invertir, superado sólo por Bolivia y República Dominicana.
http://buscador.eluniversal.com/
...is_265231.shtml
Gringo:
State companies have historical records of inefficiency, mismanagement and bad service. That's an empirically proven fact.
Just look at where communications services are comparably cheapest: indeed, in the countries where there is lots of competition and that have completely liberalised their telecommunications sector.
- "in allowing U.S. corporations make money off exploiting poor Venezuelans in their phone service."
They invest in Venezuela and thus should also be able to charge for their services. Compare the situation with CANTV in the 80s and nowadays - hardly anyone would say it has not considerably improved.
When it comes to you, everything should be free for everyone - this is just not going to work as incentives to do so disappear, cf. USSR for example.
Frenchy: Here are two reasonable articles about land reform:
(i)
Clash of Hope and Fear as Venezuela Seizes Land:
http://www.nytimes.com/2007/05/1...&
pagewanted=all
(ii)
LAND GRAB: Farms Are Latest Target
http://venezuela-documents.blogs...est-
target.html
"State companies have historical records of inefficiency, mismanagement and bad service. That's an empirically proven fact. "
Really? Where has that been proven? Was it proven in the liberal media?
You see, that's exactly the message they want to sell you. Because the big corporations who also own most of the media want be able to buy up these state companies. They want privatization. So they try to sell you this concept that anything state-owned is corrupt and inefficient, and anything privatized is better, more efficient.
Is that the truth? Surely there are some examples of this. Does that mean the only answer is to privatize everything and allow our entire society to be owned by private multinational corporations that function basically as dictatorships and do not allow any public decision making or influence in their operations, who operate only in the search of profits which results in the exploitation of workers, high prices, no accountability.
That seems to be what you are promoting here. Sounds like a pretty terrible idea to me.
So, would you support privatizing PDVSA for example? Would that be good for Venezuela?
You might ask the Chileans why they don't privatize the copper industry that they rely on. Or why there is so much opposition to privatization in Mexico's state enterprises.
"They invest in Venezuela and thus should also be able to charge for their services. Compare the situation with CANTV in the 80s and nowadays - hardly anyone would say it has not considerably improved. "
Improved for who? Certainly it is better for the middle class. Is it any better for the majority of the country who doesn't have access to the internet because they can't afford it? Or who can only make 10 second long phone calls because of the ridiculously high fares?
And who cares if they invest in Venezuela? So what? So Verizon buys up CANTV, what good did that do for the majority of Venezuelans? Did that help anyone? Why should Verizon be making money off poor Venezuelans? Isn't that just directly taking money out of the barrios of Venezuela and depositing it in the bank accounts of Verizon CEOs? Is that a good solution?
private companies got the reputation for efficiency when they were small in comparison to over sized government operations. large private firms are as messed up as large government firms. plus private monopolies or cartels serve their wealthy owners exclusively. state companies sometimes serve the people. (not always due to corruption, nepitism, etc.)
keep up the good work ow and gringo
regards,
It seems you are a bit too rapidly believing in all kinds of conspiracy theories.
Going back to the privatisation matter: the efficiency gains, etc I have referred to have been proven many times in empirical studies.
Compare for example the cost of a transatlantic phone call under a state monopoly and in a free, competitive environment.
I am not in favour of any rigid "privatise-all" solution. However, I believe that in most cases, private entrepreneurship is preferable to state companies or, worse, monopolies.
Besides, the “race to the bottom” theory has no fully credible evidence. Multinationals for example usually pay slightly higher wages than their local competitors do.
The PDVSA matter is obviously a complicated one. For some national resources, state-dominated exploitation may make sense. However, this is generally more fructiferous in environments with good accountability, integrity and strong institutions.
Services are improved for everyone. However, they are still not as cheap as they should be. Broadband is about as expensive as in Europe (!). What good it did? Improved service and investment!
You're wrong John. Many very big private companies are very efficient. If they were not, they would quickly be put out of business or their management changed.
That's exactly the problem with state companies. They are not accountable to shareholders, they can make losses the State will have to deal with, they lack many times competition and do thus not innovate. The country overall loses.
I do not remember to have advocated cartels or monopolies, but the contrary: competition.
Sire, See that is why I don't go for those international polls funded by who (often the NED). Check out how that would seem to be contradicted, not just by the actual investment going way up, but by these internal polls by VenAmCham:
http://i6.photobucket.com/albums.../
venampoll5.jpg
http://i6.photobucket.com/albums.../
venampoll4.jpg
"So as it turns out, lack of investment is another one of those imaginary problems that exists mainly in the heads of people who don’t bother to look up the actual statistics."
This is not true.
Private investment is key and the numbers on the account are not too great. FDI is negative and private investment is lackluster (below other countries in LA and much lower than the Asian Tigers) according to the sources I've read.
Government spending is boosting investment, but its hard to know whether this investment is money well spent...like the stadiums for instance...
"But it is also likely that a fair amount is going for new factories "
this is speculation. One could also argue that the high inflation indicates that investment is not high enough to keep up with demand. Naturally there is time-to-build (investment takes time to start increasing capacity), but without seeing private investment numbers it is hard to know for sure.
Naturally a booming economy will boost investment (all else constant), but it may not increase enough in Venezuela. Why? Think about the incentives to invest. Lots of prices are controlled. Price of raw materials are controlled. Labor laws are restrictive and you can't even officially fire workers. Exchange rates are controlled and subsidize imports. Crime and traffic is out of control. Chavez gives fire-breathing speeches about nationalization, price controls, hoarders, cooperatives and socialism and we all know uncertainty depresses investment. Sure, growth is booming, but it is heavily dependent on oil prices alone. Would you expect investment to increase under these conditions? Think about investing your own money in a project (say a posada or an upscale supermarket or nightclub). Do Chavez's policies make you more or less likely to invest?
...the bottom line is you can't make the main claim in this post without better data (and most credible press - that presumably has seen better data - disagree with you).
It's not NED funded and based on data from various sources. You can find details here:
http://www.weforum.org/pdf/
Globa...enchmarking.pdf
By contrast, the data you give has no source whatsoever, seems to be just a survey of VenAMC members and does not specify what investment it is, or where it is to be realised.
What's more, on the 2007 trend according to the first slide would be to invest *less* in 2007, thus reflecting a decline in investment attractivity.
You can also consult other sources, such as the ease of doing business, of paying taxes, competitiveness, etc. and you will see that Venezuela has been doing badly there. Not to speak ok CADIVI which is also a major obstacle to investment.
Tor, I could not have said it better. I fully agree with the second last paragraph you wrote.
" "So as it turns out, lack of investment is another one of those imaginary problems that exists mainly in the heads of people who don’t bother to look up the actual statistics."
This is not true."
It absolutely is true. Those are teh numbers which I sourced from the BCV. Investment is significantly higher than when Chavez came to power - unless you want to say the BCV is lying
"Private investment is key "
Not true. Investment leads to growth even if it is public sector. For example, under the Soviet Union (not that I advocate following that example 
) there was high investment and high growth for decades (30s, 40s, 50s, and 60s) that led to the country being industrialized. Alll that investment was public rather than private but it still led to growth. So although it would be nice to know the private numbers you are setting up a false dichotomy here.
"Government spending is boosting investment, but its hard to know whether this investment is money well spent...like the stadiums for instance..."
This is true and I mentioned it in my post. But it was also true of prior governments. For example I would bet a lot of the investment in 97 and 98 was in the oil sector and that led to some not very good consequences for Venezuela. But again, investment as a whole is up significantly.
"Naturally a booming economy will boost investment (all else constant), but it may not increase enough in Venezuela"
I've seen plenty of articles asserting investment is flat in Venezuela. Clearly that is false as shown by these numbers.
"this is speculation."
Not entirely. It will be in a future post but just as a heads up you can look at the categories of imports. The importation of factory equipment is way up.
"Would you expect investment to increase under these conditions? Think about investing your own money in a project (say a posada or an upscale supermarket or nightclub). Do Chavez's policies make you more or less likely to invest?"
This is the point of the post. You may think this, for the proceeding reasons you gave. But that notion and your reasons are contradicted by the actual numbers. So it must be some of those reasons are not true or not as important as you might be inclined to think. When your hypothesis is contradicted by data then you have to revise your hypothesis.
"...the bottom line is you can't make the main claim in this post without better data (and most credible press - that presumably has seen better data - disagree with you)."
The claim was investment is way up. That is absolutely true, again unless the BCV is dummying up numbers. There are other things to discuss, but until those numbers are come up with your just speculating.
"credible press"?!?!?! I don't know that there is such a thing. After all the hatchet jobs I've seen with the oil numbers, with Fonden, with the budget and a myriad of other absolute false statements they make I want to see the actual
BTW, and before we get into a long back and forth on this maybe it would be beter if we see if the BCV does have the investment numbers broken out by public versus private. When I have a chance I'll look ... that would be better than circular arguements on something that we are just guessing on right now anyways.
Take a look a Wood Staton's remarks some days ago (he's the CEO and Chaiman of the Board of Arcos Dorados, the company that bought the McDonald's franchise in Latin America.
"A su turno, Woods aseguró que “en Colombia hay potencial para operar cien McDonald’s” destacando que “Colombia es, junto a Venezuela, México y Brasil, uno de los mercados más importantes, no sólo por su tamaño, sino por las garantías jurídicas y el progreso que vienen mostrando las operaciones de McDonald’s".
http://medellinstyle.com/2007/05...para-inversion/
That's consistent with what appears published in the same El Universal article Sire linked:
"No obstante, Venezuela registra un récord de inversiones "sorprendentemente bueno", lo cual le ubica en el mejor desempeño de la región, en términos de proyectos en desarrollo, por montos equivalentes a 14 del PIB."
Funny how the neolibs resort to the old canard "private investment is key" without showing any hard data that supports their assertion. I bet you they think it's so self-evident it doesn't need further explanation.
Investment is KEY. Period. It doesn't matter if it comes from the U.S., the Venezuelan Government or the Martians. I don't see any reason to assume private investment is more reliable because it happens to be private. If anything, it 's probably more reasonable to assume it is more fickle and opportunistic than state investment.
"That's consistent with what appears published in the same El Universal article "
Yeah. That 'sorprendentemente" bueno shit appears in El Universal and Bloomberg every day when reporting on Venezuela. The tenor of their articles goes like this: " Venezuelan economy seen unravelling soon. Blah blah. Blah blah blah. Corruption. Incompetence. Anti-Business government measures. Blah Blah. Scarcity. Land Grab. Seizure of private companies. Blah blah.
(5 paragraphs of this. Then, at the end of the article:
"Surprisingly enough, the level (of investment, GDP, consumption, trips to Miami) is up and growing".
And by the waythe people who write the financial and economics news at El Universal are so fucking incompetent is not even funny. Can they get one person at least that might know what the fuck a percentage is and at least some basic economic concepts?
Pepito, government investment alone is just not sufficient. No economy with solely government investment has done well. Period.
In a climate as well-described by Tor, a private investor will just have many second thoughts before investing. You can see this exactly in agriculture, for example.
The risk is just very high. What is redeeming to some extent is that due to the oil bonanza you probably can indeed make money. However, the dismal climate subsisting may make that prospect less attractive...
Sire:
I don't know that things are that simple. First off, there are definitely private companies making very big investments in Venezuela. Just for an example, Sambil has at least 3 (maybe 4) new shopping centers under construction and I could go on and on (if you want pics I can get those too ). So it would seem that they aren't afraid.
However, I don't really care about investments in shopping centers. From my point of view that doesn't really generate new wealth for Venezuela. I want to see investments in new factors geared towards exporting.
Now, in the past the Venezuelan government did that, building up a good size aluminum industry for example.
So by your reasoning the shopping center is good (because its private) and the aluminum mill is bad (because it is government investment). yet I would argue the aluminum mill is better for Venezuela.
"Funny how the neolibs resort to the old canard "private investment is key" without showing any hard data that supports their assertion."
Can you name one country that has enjoyed high sustained levels of growth where investment has mostly been by the government? Sure, the government has to invest (courts, infrastructure, schools etc.), but most of the investment in productive assets needs to be done by the private sector.
"I bet you they think it's so self-evident it doesn't need further explanation."
No it is not it is just that that is what the evidence shows. The level of private investment is correlated with economic growth (I'll cite papers if necessary).
"Investment is KEY. Period."
No. Investment has to be the right type of investment. Not all investment is created equal. The extreme example is public works like roads to nowhere that are started just to create jobs...kind of like paying a bunch of guys to dig holes and refill them again and again...
"private investment is more reliable because it happens to be private. If anything, it 's probably more reasonable to assume it is more fickle and opportunistic than state investment."
Private investment tends to go to the best projects and be more efficient. The state at any given time has finite resources and the private sector is better at exploiting those resources (assuming you have competition in the industry). Governments often investment in the wrong thing (lots of examples here) and tend to stick with it to the end.
Private investment is more fickle, but often this is a good thing. Some projects fail and it is better to release the capital to more productive uses than to have it tied up in a money losing venture (throwing good money after bad). State investment tends to be static and not adjust fast enough to trends and innovations.
Hey, the gringos are thinking about slapping price controls on gasoline:
http://news.yahoo.com/s/ap/
20070...prices_congress
Forget the economics of this for a second. What is funny is that when stuff that effects poor people mostly, like food, gets expensive the government doesn't do much. But if it hits middle class Americans driving their god given SUVs then by golly, something must be done 
I don't say there is no private investment. As pointed out, there are considerable rewards, that's why people are still investing, despite the bad investment climate.
Companies are too investing in Russia and Iran for example, but not for the good climate, but just because returns (still) outweigh the risk.
Overall, however, a bad investment climate will dry up private investment, as it's happening in agriculture for example.
Also, I don't say government investment is bad. As Tor points out, they need to provide infrastructure, education, security, a judicial system, etc. However, it's not sufficient if you have only government investment (which tends to be less efficient than its private counterpart, as stated above).
"First off, there are definitely private companies making very big investments in Venezuela. Just for an example, Sambil has at least 3 (maybe 4) new shopping centers under construction and I could go on and on (if you want pics I can get those too ). So it would seem that they aren't afraid."
Ancedotes will never prove private investment is sufficient (or a big chunk of the 30%). Maybe Sambil would have built 6 shopping malls if Chavez's rhetoric and policies were different. In addition, all the shopping malls you speak of (Bar, SC and CCS) were announced before 21th Soc really got going. Further, consumption is through the roof. Sambils are just a way of facilitating consumption, it is not an investment in productive assets for exports or to compete with imports. Come to think of it Venezuela has always had really nice malls despite Dutch Disease and bad times so more Sambils does not indicate that anything is changing. Heck, they even built CC Tolon in the middle of the 03 recession and the first Sambil during the miserable late 90s (completed in 99).
"However, I don't really care about investments in shopping centers. From my point of view that doesn't really generate new wealth for Venezuela. I want to see investments in new factors geared towards exporting."
Opps...should have read this first
"So by your reasoning the shopping center is good (because its private) and the aluminum mill is bad (because it is government investment). yet I would argue the aluminum mill is better for Venezuela."
Bad example. The point is that private industry would have built up the aluminum industry if it was viable. Government could have facilitated this by building up infrastructure in the area, training workers etc. In addition, how much was Venalum (and all its other sister companies in Puerto Ordaz) really worth at the end of the day? Where those good investments by the state?
"The Venezuelan government has tried twice, with no success, to privatize the aluminum sector. Such sector is formed by: Alcasa and Venalum, aluminum refiners; Bauxilum, bauxite mine and alumina plant; and Carbonorca, production of electrodes.
The base price originally proposed by consultant Merrill Lynch was between 1,6 and 1,7 billion dollars. This price was set at $1.55 billion for the auction scheduled for 7-15-98 due to the drop of aluminum prices worldwide, to large debts and to requirements for environmental protection.
Two consortia were to participate to obtain 70% of ownership: Aluminum Consortium Venezuela and Venezuela Aluminum Partners. Close to the auction date these two consortiums joined into one, with some participants dropping out and undergoing several changes.The same day of the auction the privatization process stopped because the consortium could not get finances ironed out among themselves.
The government indicated that they will try for a third time to privatize aluminum before the year ends."
FT sept,1998
How mu
How much do you think the government invested in these companies?
"Corporacion Venezolana de Guayana was once the show case of Venezuela's industrial prowess and the cornerstone of the state's development strategy.
But now the industrial complex in Venezuela's south-eastern Guayana region is a financial burden that will be largely privatised, the government says.
Assembled 35 years ago to supply Venezuela's petrol industry with steel and aluminium, CVG swelled into a state within a state. Its 38 subsidiaries cover activities from mining and forestry to housing and hydro-energy, including the 10,000MW hydroelectric plant, the world's second largest. On some estimates, CVG accounts for as much as 5 per cent of GDP, or more than one-third of all non-petroleum exports.
Yet ambitious state development plans gave way to corruption, inefficiency and debt, eroding CVG's comparative cost advantage. Strapped for cash, CVG is to shed all but three of its subsidiaries. "
1997, FT
"It "would harm consumers, the very people the bill is touted to protect," said a White House statement to lawmakers. It said price gouging legislation would amount to "price controls and in some cases bring back long gas lines reminiscent of the 1970s."
It will never go anywhere and if it did Bush would veto it (good to know he can actually do some good once in a while). But you have got to love the populist (and know democratic house) comptemplating such measures...scary indeed.
this is populism pure and simple. It tries to appeal to the irrationality of voters (oh...cheap gas...cool, dude) without explaining the long term effects or side-effects of such a measure...and sadly, these gambits often work in democracies...
The way to think about the investment problem is like this:
Most companies use an easy investment rule called the NPV rule:
It is equivalent to the following: companies invest if the projects gives them a rate of return that justifies the risk of the project (hurdle rate).
Lets take a company that has 20 potential projects. Calculate the projected returns from all of these and sort them in excel. The booming economy will increase these returns, but companies are likely to extrapolate lower growth rates in the future (i.e. see the recent IMF forecasts).
You then compare this rate of return to the required rate of return (hurdle rate). All the projects with higher rates of return are undertaken (assuming you have sufficient capital) and the rest rejected.
What happens if Chavez starts scaring investors? They assess the environment to be riskier and increase the return than demand on their projects (to compensate for the increased risk i.e. the hurdle rate). So the required rate of return increases and fewer projects are undertaken...
ok, got it. Not the actual private investment numbers - but an very good proxy from the BCV. And it shows private (and probably productive) investment going way up and being much larger than before Chavez came to power.
More when I have time.
Where did you get the stats from exactly? I just opened the "fomación bruta de capital fijo", but it only goes up to 2003; it offers a breakdown public/private though..
Aah I saw the source. from the oferta/demanda global. Curiously they have not updated the "fomación bruta de capital fijo"...
I linked to it in the post. Here it is again:
http://www.bcv.org.ve/excel/5_2_..._2_7.xls?
id=341
I think I've seen what you are looking at but it was 1984 series stuff that they don't publish any more.
BTW, if you find good stuff you can put the link - you actually can link to the excel files
But, it's just what we need. Sadly, some of the most interesting statistics are not published any more..
Yeah, it would make our lives easier. But maybe they just moved it. Plus I will check that year end presidential report that we had fun with last week. That had gobs of data.
Regardless, there are other numbers on BCV that show private investment seems to be kicking butt in Venezuela.
I searched the document for "bruta" and "capital", but it seems not to be there.
So what numbers are indicating this?
Nice post Tor, btw.
- "Bad example. The point is that private industry would have built up the aluminum industry if it was viable. Government could have facilitated this by building up infrastructure in the area, training workers etc."
One little addition: sometimes it can make sense for a government to help (the infant industry argument: in some industries, countries have an advantage just because they were first movers; there, a little government help could let them gain the scale where the cost function is more favourable and perhaps more advantageous that the one of the incumbent).
"One little addition: sometimes it can make sense for a government to help (the infant industry argument: in some industries, countries have an advantage just because they were first movers; there, a little government help could let them gain the scale where the cost function is more favourable and perhaps more advantageous that the one of the incumbent)."
I agree and South Korea/Taiwan have successfully applied this concept. That being said this can be slippery slope. Initially the aid may be temporary, but can easily become permanent if the project fails. It is easy for special interest groups to steer such support there way and use political influence to maintain it.
In addition, such support may crowd out more productive investments if the government picks the wrong horse (i.e. project). Finally, there are many ways government can help. It does not have to be direct in the form of tax cuts or subsides or protection. Government can build helpful infrastructure, subsidize the right education, improve security, improve the courts etc. to reduce the cost of doing business. At the end of the day the government should facilitate the growth of national industry and investment, and picking winners (by select subsidies for example) may not be the best way for the government to invest its scare resources.
ow,
Congrats...you are on Venezuelaanalysis.com
This from EIU. They are very reputable and their reports very pricey. They have access to good data that we sadly do not have...
"Private direct investment has also declining for several years, and this trend is apt to be exacerbated since January (2007). Foreign direct investment was negative last year. The reduction in investment will further lower GDP growth over the medium term."
I probably should not copy large parts of this, but you may find some more parts of the EIU report (May 8th) interesting:
"With a windfall in oil export income in recent years—oil brought in nearly US$59bn in 2006—and bulging foreign reserves, the Chávez administration has funds to spare. However, when combined with its other spending obligations, especially costly social programmes and subsidies, this will put further pressure on an already widening budget deficit. The deficit was equivalent to 1.8% of GDP in 2006, and the Economist Intelligence Unit projects it will grow to 4.9% of GDP this year. (The true fiscal picture is worse, because some spending is channelled off-budget via the state-owned oil company and the national development fund.) GDP growth itself is slowing—to 5.8% this year and 3.2% in 2008, according to our forecasts.
The radicalisation of policy under Mr Chávez, combined with signs of growing strains on the economy—evidenced not only in the deterioration of public finances and slowing growth but also persistent double-digit inflation, the highest rate in Latin America—are generating more fears among investors."
"Despite these negative trends, there are few obstacles to the government’s current policy mix—given its complete control of the legislature and significant influence over weak and politicised institutions. However, the government determination to radicalise its economic programme has the potential to destabilise the political environment, by provoking renewed objections from the opposition political class and also some discontent among more moderate or pragmatic members of the broad pro-Chávez coalition. With no presence in the legislature and little confidence in the impartiality of institutions, the opposition will express its discontent with the direction of economic policy via public demonstrations, keeping the risk of unrest high.
...while a lack of checks and balances will raise the risk of heightened corruption and mismanagement, particularly in the context of the current huge expansion in public investment programmes. These risks do not present a challenge to Mr Chávez as yet, but could do so in the medium term. In particular, failure to deliver on issues such as crime, corruption, housing and inflation will eventually erode support for the government."
- "That being said this can be slippery slope."
Yes, I fully agree. See Brazil's car industry disaster. It needs to be temporary and the government needs to have the courage to pull support in case of failure, which may not be the easiest thing to do: losers lobby hard.
You're right as well that governments may not have the best information so as to be competent enough to pick the best potential winners. What's more, they are sluggish, more sluggish than the private sector at least. Ease of doing business goes a long way obviously. And there, recently, Venezuela has been deteriorating, unfortunately...
Thanks Tor. You're lucky to have access.
Do they have any numbers (on the private investment) too?
As mentioned in a previous post, do these GCF numbers include the buying and selling of Bonos del Sur and PDVSA bonds? If it does, then it would be seriously distorted as those "investments" would actually have a negative impact, no?
"However, when combined with its other spending obligations, especially costly social programmes and subsidies, this will put further pressure on an already widening budget deficit. The deficit was equivalent to 1.8% of GDP in 2006, and the Economist Intelligence Unit projects it will grow to 4.9% of GDP this year. (The true fiscal picture is worse, because some spending is channelled off-budget via the state-owned oil company and the national development fund.) GDP growth itself is slowing—to 5.8% this year and 3.2% in 2008, according to our forecasts."
Tor, I hope you don't have to pay money for that because they aren't very good. Venezuela ended up with a budget surplus last year (albiet very small) and as we've already seen GDP this year looks to be easily beating their forecast of 5.8%.
From Wilkipedia:
"Capital formation is a term used in national accounts statistics and macroeconomics. It basically refers to the net additions to the (physical) capital stock in an accounting period, or, to the value of the increase of the capital stock; though it may occasionally also refer to the total stock of capital formed. Thus, in UNSNA, capital formation equals fixed capital investment, the increase in the value of inventories held, plus (net) lending to foreign countries, during an accounting period. Capital is said to be "formed" when savings are used for investment purposes, often investment in production."
So it would include assets, but not debt. So no they would not count. But when the foriegn reserves go up or if Venezuela bought US savings bonds that would count.
BTW, SUMATE uses the same data I do (although somehow they convert it to US dollars).
http://i6.photobucket.com/
albums...einvestment.jpg
Curiously, as soon as investment under Chavez starts to pass what it was under the previous governments they stop the chart. So mine is a couple years more up to date
ow,
"Tor, I hope you don't have to pay money for that because they aren't very good."
I don't and sadly I don't have full access. If I did I would cough up the investment number which they provide in the reports (I've seen earlier editions).
"Venezuela ended up with a budget surplus last year (albiet very small)"
Really? This seems to contradict many reputable sources out there. What is your source? Not only EIU uses these numbers, but also a prominent academic (on Venezuela) and Morgan Stanley.
"Venezuela last year ran a budget deficit of more than 2per cent of GDP, despite the fact that oil prices were five times as high as when Chávez reached office"
academic Francisco Rodriguez on FT early 2007.
"Venezuela has been much more reckless in spending its oil windfall. Last year alone, public spending grew 43%, widening the gap between total government income and outlays to about 1.5% of the total economy, according to estimates by Morgan Stanley, the New York investment bank."
WSJ in January 2007.
Brief aside: One of the main reasons you get the spike in investment:
"Government spending shot up to 41% of gross domestic product from 33% the year before, according to the Institute of International Finance"
USA Today in March, 2007
"and as we've already seen GDP this year looks to be easily beating their forecast of 5.8%."
You are just assuming 8% continues. Will it? We can still get 5.6% if growth moderates in the remaining 3 quarters. Even Cabezas does not expect 8% (I recall him saying 7% last week).
"So it would include assets, but not debt."
Assets are financed by either equity or debt. This basic accounting. So you are right.
"But when the foriegn reserves go up or if Venezuela bought US savings bonds that would count."
depends on exactly how investment is being measured. At the firm level academics only consider PP&E (property, plant and equipment) as capital (investments in liquid assets i.e. bonds or equity is excluded). Investment is how much the capital stock grows (depreciation is taken out). Check the BCV site and figure out exactly how they measure investment.
"Foriegn investment is way down - it is actually negative now as people have taken money out of the country. "
Sigh it is negative because the government bought back the cooperating agreements, there are no numbers of fdi, just net fdi that is fudged with the nationalizations, the year before it was 3 billion positive.
"Sigh it is negative because the government bought back the cooperating agreements, there are no numbers of fdi, just net fdi that is fudged with the nationalizations, the year before it was 3 billion positive."
That is true in part but I've seen a report of NEW foreign investment for 2006 and it comes up to something like $73 million, which is tiny, any way you cut it.
Of course, Venezuelans are investing a LOT more in themselves, which is more important.
"Really? This seems to contradict many reputable sources out there. What is your source?"
Here is a one source:
http://www.asambleanacional.gov....cial%
202006.pdf
From cuadro I-17 (towards the back of the document) total expenditures were 126,955,015 million bolivares. Then head on over the cuadro I-31 and you get total income of 127,917,113 million bolivares (this is all for 2006).
Now you will note there is "financing" in the revenue so you could say "aha - a deficit". But note they include amortorization and other payments on debt in the expenses. And if you look at all the tables on debt (which are in between those two tables) the payments on the debt was greater than the new debt and net debt was reduced.
So they ran a surplus, albiet a very small one.
Tor, don't be so quick to take at face value what journalists, academics and other so called experts say. Sure they are often right. But they are also very often wrong. Even if we never agree on anything regarding Venezuela we should both agree that you should always have a healthy dose of skeptacism and adopt the Missiouri state motto: "Show me". This is especially true of situations like Venezuela that are polarized and where almost everyone has taken sides.
I don't know if you saw this post but this would be one example of why skeptacism is in order:
http://oilwars.blogspot.com/2007...body-
write.html
And if that isn't bad enough there is even worse out there. I've been delayed on my big post on PDVSA but it will come in the next few weeks. And it will reference an article written by professors for a major think tank that totally screws up basic things. For example, they couldn't even find PDVSA financial statements on the SEC server - I kid you not. Yet that paper is published by a think tank and has been referenced in a number of major newspaper articles and the professors quoted all in spite of the fact that if a high school student wrote a term paper as full of basic errors as they did they they'd fail.
So I'll when it comes to this stuff I'll never accept that "XYZ, distinguished professor at XYZ univeristy says it" as evidence.
By the way, Flanker, go to the same link I gave Tor for the budget information. In Cuadro I-49 they gave all new foriegn investments by economic sector for 2006. It came up to $77 million. In agriculture it came up to (I'm not kidding) a grand total of $1,865. I wonder if that is the money I loaned my wifes cousin in Barquisimeto cause he wanted to buy some land (just kidding on the loan, not on the amount of investment).
"A budget deficit occurs when an entity (often a government) spends more money than it takes in. The opposite is a budget surplus.
An accumulated deficit over several years (or centuries) is referred to as the government debt. Often, a certain part of spending is dedicated to paying of debt with certain maturity, which can be refinanced by issuing new government bonds. That is, a fiscal deficit leads to an increase in an entity's debt to others. A deficit is a flow. And a debt is a stock. Debt is essentially an accumulated flow of deficits."
Thanks for the info and link.
The deficit is simply the inflows - outflows. You can not include financing in the deficit (otherwise there would never be a deficit). In fact, you only get your small surplus if the state issued debt i.e. increased its debt load; in other words ran a deficit. Interestingly, debt was not issued until August when funds started running short of expenses.
The deficit is not supposed to include depreciation since this is a non-cash expense (same for amortization). Is 'dismunuicon de otros pasivos' straight up depreciation?
In any event, the three reputable sources I cited have no doubt studied the same numbers as us. They are more familar with the intricacies of the Venezuelan budgeting process than we are, so I trust them. I'd second guess one of them, but not three. It would be fun to try and reconcile this though, and given the inclusion of D&A and inclusion of financing in income that should be possible.
Expenditure = 127-10.3 = 116.7
Income = 127.6-11.3 = 116.3
so that is a small deficit, but its not quite 1.5% so I am probably missing something...
"Of course, Venezuelans are investing a LOT more in themselves, which is more important."
referring to the earlier discussion about to what extent this is driven by government investment check out I-17.
Government invest (gastos de capital) increased from 12.5 to 29.5 in two years. This is way above inflation. That explains a large chunk of the increased investment by Venezuelans themselves.
As for the increase in government spending from 31.7 to 126.9 in five year leading to an increase from 21 to 87 in direct government consumption. You think that had something to do with record growth. Is it sustainable? Well, the oil price stopped increasing and stagnated, and production has recently been cut so revenues will at best be constant assuming the Seniat has milked everything it can. So government cannot keep increasing at the same rate. You think this will hurt growth? Maybe a 5.6% growth rate is not unreasonable...
none of this adjusts for inflation but the increases are so big that they will remain huge despite adjusting for the double digit inflation during the whole period.
"So I'll when it comes to this stuff I'll never accept that "XYZ, distinguished professor at XYZ univeristy says it" as evidence."
Mistakes are made all the time, but some sources are better than others. In addition, if we have three independent sources they are unlikely to make the same mistake.
EIU has a rock-solid reputation and is an extremely expensive database - because they provide valuable and accurate information. People would not pay $$$ otherwise. In addition, both Morgan Stanley analysis and Rodriguez back this up.
If I just had the NY Times I would also be more sceptical...
As for PDVSA often the conflicting accounts on production have been due to misunderstandings about what is oil. PDVSA defines oil in its own odd way (that conflicts with international norms and agencies such as OPEC and IEA). The press uses the IEA numbers without bothering to try and reconcile the two. The truth is often much more subtle than: that source is wrong, lying, sloppy etc. Often they just define things differently or make different assumptions.
Also sometimes research papers stop gathering data at some point. So maybe the newest SEC reports were not out when they submitted the paper for publication...
I tried to look at the MinFinanzas page, but it does not work ATM.
However, wouldn't it be right to make the folowing claculus?
income-expenditures=primary surplus.
Primary surplus-debt service=overall budget surplus/deficit
How do you get the 10.3 here? Expenditure = 127-10.3 = 116.7.
- "Sigh it is negative because the government bought back the cooperating agreements, there are no numbers of fdi, just net fdi that is fudged with the nationalizations, the year before it was 3 billion positive."
Not really. It was positive, but 1.400 million.
10.3 is the last part of I-17. I am assuming it is depreciation + amortization, but I am no expert on Venezuelan accounting although I know US accounting rules very well (not that I am an accountant..
)
http://english.eluniversal.com/
2...24A873637.shtml
if in doubt regulate...and if the regulation fails, regulate again....here is another attempt to deal with the fallout from price controls...on doubt it incentives agricultural investment...
"You can not include financing in the deficit (otherwise there would never be a deficit). "
I think you mean to say here that you cannot count financing as regular income. My response would be that depends on whether there is net financing or not.
It may be helpful to take an example. The U.S. government runs a deficit and sells bonds to finance it. That is a real deficit and that financing adds to the total debt of the government - ie the debt is increasing.
However, in the 1990 a miracle happened and for a few years the goverment had a surplus - that it is was bringing in more revenue than it had in expenses. However, it was still selling bond to people - eg getting financing. Does that mean the surplus was not real? No.
What happens is that the US government has a HUGE debt of many trillions of dollars. That debt has all different due dates of when it has to be paid. In any given year the government has to pay hundreds of billions in debt. But even in the 90s when there were surpluses the surplussees weren't big enough to pay all the debt coming due. So the portion they can't pay off they just "roll over", that is they issue new debt to replace it and pay the debt that is do. That itself isn't new debt or a deficit - it is just maintianing existing debt and has no effect on the amount of debt outstanding.
It is whether you are having a net ADDITION to your total debt or a net REDUCTION to your total debt that determines if you have a surplus or deficit. The U.S. had a surplus and was paying down debt so that the total debt of the government was being reduced - even though it couldn't pay off all the debt coming due and had to still issue bonds.
That is the same situation with Venezuela. Last year they both took out new debt and paid off old debt - but when you net it out they paid off more debt than they bought. And we see that in the budget pages. The only curious thing is the debt paydown isn't completely reflected in these budget numbers.
That could be either because we are still missing something or because of another factor that may actually explain what people are referring to when they say Venezuela had a deficit - FONDEN. FONDEN is outside these budget numbers and because some comes from in effect using BCV dollars twice some economists may not considere that legitimate income and may therefore count THAT as the budget deficit.
Just making up some numbers (which are probably at least in the ballpark) lets say FONDEN spent $10 billion last year. Not all of that comes from the BCV double dipping - some comes directly from PDVSA which is money only spent once. So maybe they think $5 billion is in effect a deficit which would be in the ballpark of what the numbers are that they give.
That is the only thing I can think of because the formal budget they give is effectively balanced, even after the calucations you did.
"As for the increase in government spending from 31.7 to 126.9 in five year leading to an increase from 21 to 87 in direct government consumption. You think that had something to do with record growth. Is it sustainable?"
Actually, we should be clear here on what we mean by sustainable. Do we mean is the GROWTH RATE sustainable (ie the country having 9% growth per year going foward) or is the current level of GDP sustainable (ie, growth may stop or slow but the economy doesn't outright decline).
I think sustaining a 9% growth rate as things are right now is NOT possible. Oil revenue will not continue to increase or certainly not at the rate it has recently so the growth rate will clearly slow. The only way around that is to get other sectors of the economy growing which is why I want to see more policies geared to helping non-oil exports grow. I am not happy that I am still not seeing such policies.
Do I think GDP can be kept at the current level? Yes I do. OPEC seems to be in good shape, the US is getting its tail kicked in Iraq, and demand for oil is rising. So I think keeping oil at $50+ should be possible and even probable. The Venezuelan economy does now have some momentum that will keep it expanding for some time and even if growth come to be quite slow in a few years, say 1% or 2%, it should be able to avoid any significant decline (maybe a mild one but nothing major). So I do think all the recent gains in Venezuelan's standard of living - which as we have seen are quite large, particularly for the poor, ARE sustainable.
So I think we have to be clear when we are talking about sustainability - are we talking about growth rates or are we talking about already realized growth. I think the growth rates are not sustainable, but the growth already accomplished is.
Which makes it a mixed bag: clearly Chavez has accomplished a lot and way out performed the governments that preceeded him. However, there is still a lot to be done to get Venezuela where it needs to go and it is not at all clear that he will be the person to do that.
"Also sometimes research papers stop gathering data at some point. So maybe the newest SEC reports were not out when they submitted the paper for publication..."
Nope, in foot notes and end notes they reference sources up to late January early February. Yet a PDVSA statement that went up on the SEC server November 20th, several months before, they claim didn't exist. Not good.
Here it is:
http://www.mf.gov.ve/archivos/20...%D1O%
202006.pdf
Yep, and that shows the tiny surplus. But was that budget or actual?
"I think you mean to say here that you cannot count financing as regular income. My response would be that depends on whether there is net financing or not."
No I don't. I meant the stuff that related to debt that was recorded as revenue:
Form I-32...Fuente de financiamiento. B2. is debt service, but this is recorded as income. It seems like this is the source of financing (i.e. a cash inflow) in the form of debt that is being used to finance the budget.
Debt is not a plug btw. You seem to imply that a surplus/deficit is immediately substracted or added to debt. That does not have to be the case. A country can invest abroad in liquid assets for example. Norway has a huge development fund (built up with surplus), but still has some debt.
As for Fonden, EIU states that FONDEN is not included in their estimates and that FONDEN actually makes it worse (because it and PDVSA increase spending even more).
"So I think we have to be clear when we are talking about sustainability - are we talking about growth rates or are we talking about already realized growth. I think the growth rates are not sustainable, but the growth already accomplished is."
We are talking about both. Oil is likely to remain in the 50-60s in the medium term, but to maintain 8% growth Chavez needs to keep increasing spending (and that will not happen if prices stagnate). In the medium term Venezuela will probably not recede or suffer contractions, but high inflation and the overvalued exchange that results are eroding the gains (i.e. if the exchange rate goes down, GDP per cap will be much lower for example). Mediocre growth rates of 2-4% are unlikely to sustain Chavez's political support in the medium.
Economies that are mostly motivated by government spending boosts quickly loose momentum unless continually boosted...
"It seems like this is the source of financing (i.e. a cash inflow) in the form of debt that is being used to finance the budget. "
It is debt being rolled over. It clearly is not NEW debt as total debt in 2006 was reduced. So they had a surplus.
"Debt is not a plug btw. You seem to imply that a surplus/deficit is immediately substracted or added to debt. That does not have to be the case. A country can invest abroad in liquid assets for example. Norway has a huge development fund (built up with surplus), but still has some debt."
Yes, this is true. I should have said something like "improvement in net financial position or increase in assets and/or reduction in liabilities. Personally, I think you should always pay down debt first but not everyone thinks like me.
"(i.e. if the exchange rate goes down, GDP per cap will be much lower for example)."
Not true. THis is a big misconception. You only lose purchasing power for things bought in other currencies. For all your other consumption things remain the same.
If this were true than I've had a big deline in my standard of living because the dollar is way down against the Euro over the past 5 years or so!
Further, a devaluation will reduce imports, help local industry and boost exports - the type of sustainable development you are supposed to be in favor of.
The single best thing Venezuela could do right now is devalue.
"The single best thing Venezuela could do right now is devalue."
Wow. Any other supporters of Chavez on this board agree with that? Slave? Elliv?
Here is an exmple of why they need to devalue:
http://www.nytimes.com/2007/05/2...r=1&
oref=slogin
NEW DELHI, May 23 — Concerned that the rising value of the Indian rupee is threatening to limit the country’s economic growth, especially in the lucrative outsourcing industry, monetary policy experts here have started putting pressure on the Reserve Bank of India to stem the rupee’s rise.
So far the central bank has taken no action, and some critics say it is also under pressure to keep inflation down.
“In the past, the R.B.I. intervened in the currency markets,” said Manika Premsingh, economist with Edelweiss Capital in Mumbai, referring to the bank by its initials. But recently the bank “seems to have gone through a policy change and is now allowing the rupee to appreciate,” she said.
The rupee has climbed 9 percent against the United States dollar since the beginning of the year, sharply in April. On Wednesday, it reached a nine-year high of 40.58 to the dollar.
The currency’s value may be affecting India’s trade balance, according to preliminary reports. Merchandise exports grew at a slower-than-expected 8.8 percent in March, according to Commerce Ministry data. The trade deficit grew 38 percent during the month.
“India is just beginning to gain competitiveness, and exports had been doing very well,” said Ramgopal Agarwala, a former World Bank economist and senior adviser to the policy research organization RIS here. The rupee’s rise has been a “negative shock that is very unwise.”
A strong rupee may stifle India’s growing manufacturing industries, which are trying to compete with those of China, and threaten one of the pillars of India’s success — outsourcing. Wages in India have risen as much as 25 percent a year in some sectors, as demand for skilled professionals starts to outstrip supply.
Yes, on second sight, it seems it's the budget, not the final results..
"It is debt being rolled over. It clearly is not NEW debt as total debt in 2006 was reduced. So they had a surplus."
Rolled over or not, debt financing should not be included with revenues...and it is if you look at the document (unless I am misinterpreting what this item is)
Commenting by HaloScan
