FOTD

In Iraq, a country with about the same population as Venezuela, there were 4,644 civilian deaths from violence in 2009, according to Iraq Body Count; in Venezuela that year, the number of murders climbed above 16,000.

Even Mexico’s infamous drug war has claimed fewer lives.

More here.

Why do governments buy companies when they could just steal them?

The WSJ reports Venezuela is negotiating to purchase a majority stake in French company Casino Guichard-Perrachon SA's local subsidiary, Cativen. Casino offered to sell a few weeks after Venezuela seized Casino's local grocery chain. So, the obvious (but ignored by the WSJ) question is why would Venezuela pay for a company it can seize?

Of course, international institutions could pay a role. Several multinationals are currently pursuing international arbitration to dispute what they deem unfair payouts, and Venezuela needs new FDI. Negotiating a buyout may be a way for Venezuela to reestablish a pro-investment reputation (though, given Chavez's domestic agenda, investors probably need a bit more than news of a fair buyout to make them more willing to invest in the country). But, if Venezuela is trying to reestablish its reputation, it probably wouldn't have seized Casino's grocery chain in the first place.

Perhaps there's a domestic interest group story at work here. I wouldn't be surprised if influential constituents of Chavez's have some sort of stake in a negotiated buyout.

The recent Venezuelan example highlights a failure of IPE scholarship in explaining political determinants of FDI and investment expropriation. Most of this literature (my MA thesis-in-progress included) focuses on institutional solutions to incomplete contracting problems associated with foreign investing. But, this framework for analysis often forgets that domestic constituents often have real interests in protecting the investments of certain foreign firms. The Casino-Venezuela case is particularly interesting because Venezuela has consistently refused to be constrained by international investment treaties in recent years. Yet, at least some firms can get some sort of compensation for expropriation even in an environment devoid of institutional constraints.

Institutions often matter, but there's another layer to the story.

Chavez: U.S. Purposefully Caused Haiti Earthquake (and a lesson in overcoming bias)

No joke:

Venezuelan leader Hugo Chavez Wednesday accused the United States of causing the destruction in Haiti by testing a 'tectonic weapon' to induce the catastrophic earthquake that hit the country last week.

President Chavez said the US was "playing God" by testing devices capable of creating eco-type catastrophes, the Spanish newspaper ABC quoted him as saying.

Evo Morales was only slightly more sane, calling US relief efforts a "gringo military occupation":

President Evo Morales said Wednesday that Bolivia would seek U.N. condemnation of what he called the U.S. military occupation of earthquake-stricken Haiti. "The United States cannot use a natural disaster to militarily occupy Haiti," he told reporters at the presidential palace.

"Haiti doesn't need more blood," Morales added, implying that the militarized U.S. humanitarian mission could lead to bloodshed. His criticism echoed that of fellow leftist, Venezuelan President Hugo Chavez, who said Sunday that "it appears the gringos are militarily occupying Haiti."

Robert Farley adds comment:

Now, I'm going to go out on a limb here and argue that Chavez' comment is substantially stupider than Pat Robertson's, if only because I suspect that God actually could cause an earthquake in Haiti if He so desired. I suppose we could debate the point, but I also find God's motivation (get back at the Haitians for their Satanic proclivities) considerably more plausible than that which Chavez and Morales attribute to the United States; the single last thing that anyone in the Pentagon wants to do right now is devote more troops and treasure to Haiti...

I'm with him, even though I'm an unbeliever. Robertson's quip is eminently more sensible than Chavez's (although I can understand Morales' skepticism of the U.S.'s intentions given our history in Haiti).

Chavez, Morales, and Robertson are interpreting current events through their ideological prisms. Their presuppositions are absurd, so this predictably leads to bias, and these biases lead to borderline-insane statements. Farley is right to poke fun at their expense.

Unfortunately, Farley's co-blogger Charli Carpenter recently made a similar -- though much less egregious -- mistake when she referred to the Haiti earthquake as a "climate disaster". I took umbrage in comments to that post, and she responded by posting this link as evidence that the Haiti disaster could have been related to climate change. But what does the author of that post conclude about the likelihood that the Haiti earthquake was caused by climate change?

Who knows.

I don't mean to pick on Carpenter, who is one of my favorite bloggers and who provides a unique and vital voice to the blogosphere generally and the IR blogging community specifically. I know that I regularly make the same mistakes in bigger ways. And her broader point -- that the U.S. and international community don't have a coherent disaster-response program, much less standards for infrastructure development -- is certainly well-taken.

But framing matters, and framing crises like the one in Haiti as a climate disaster can be counter-productive. Even people who acknowledge the reality of global warming can be skeptical that every natural disaster is a result of these processes, so claiming any particular crisis is a result of climate change can come across as opportunistic. That turns people off, as it did when similarly dubious claims were made about Hurricane Katrina. The fact is that no one can know, nor could they prove, that the Haitian earthquake or Hurricane Katrina was caused by climate change, and such needless spinning-of-wheels distracts from what's really important: improving and institutionalizing emergency responses to disasters, and improving global infrastructure so that the effects of disasters are not as extreme.

If it's counter-productive when Chavez or Morales or Robertson do it, it's no more productive when we do it. So let's not.

UPDATE: I can't believe it, but Chavez has just jumped his own shark:

In a recent speech against capitalism (South Americans must never get tired of them) Venezuelan President Hugo Chavez lambasted Playstation videogames because they encouraged violence, which is, uncoincidentally, just what capitalism wants. According to the babelfish translation of the spanish language article, Chavez warned that:

In those electronic warlike games “cities are bombed, pumps are thrown”, and are promoted by “Capitalism” to seed the culture of the “violence” that, is saying, guarantees that soon it can “sell arms”.

I’m going to assume that “pumps are thrown” is not a mistranslation, but rather some strange Venezuelan violence phenomenon. The best part of the article though is the picture juxtaposing it

Click the link for the pic; it's well worth it. When Hugo Chavez and Tipper Gore agree on something, you know it's wrong.

Not a Good Trend

The above picture is worth a thousand words, but here's some more:

Despite alot of incendiary rhetoric from the Chavez regime over the years, The United States secures alot of its just-in-time supply from Venezuela. (I’m not convinced that the power outages in the country’s grid will actually get the price of oil to 100 just yet). However, it’s instructive that along with geological declines in Mexico, hemispheric supply to the United States remains on a well-established downward path. It appears that Chavez is about to achieve dysfunctional petrostate status for Venezuela.

Via Felix Salmon.

Lessons in Bad Governance

Brad DeLong says "Electricity shortages in a country whose sole export is energy are truly a miraculous thing. It takes a very special government to produce them."

Which government do you think he's referring to? It could only be one:

This country may be an energy colossus, with the largest conventional oil reserves outside the Middle East and one of the world’s mightiest hydroelectric systems, but that has not prevented it from enduring serious electricity and water shortages that seem only to be getting worse. ...

“We’re paying for the mistakes of this president and his incompetent managers,” said Aixa López, 39, president of the Committee of Blackout Victims, which has organized protests in several cities. In some cities, protesters have left household appliances on the steps of state electricity companies.

In response, the president is embarking on his own crusade: pushing Venezuelans to conserve by mocking their consumption habits.

He began his critique last month with the amount of time citizens spent under their shower heads, saying three-minute showers were sufficient. “I’ve counted and I don’t end up stinking,” he said. “I guarantee it.”

Then he went after the country’s ubiquitous love motels and shopping malls, accusing them of waste. “Buy your own generator,” he threatened, “or I’ll cut off your lights.” He similarly laid blame with “oligarchs,” a frequently used insult here for the rich, for overconsumption of water in gardens and swimming pools.

Mr. Chávez is even going after his countrymen’s expanding waistlines. “Watch out for the fat people,” he said last month, citing a study finding a jump in obesity. “Time to lose weight through dieting and exercise.”

Blaming the fat people for an electricity shortage? Even by Chavez's standards, that's pretty crazy. So what are the real reasons?

They said the president encouraged consumption with a 2002 decree freezing electricity and other utility rates. A time-zone change by Mr. Chávez in 2007 that turned clocks back half an hour also led consumption to climb (the sun sets earlier here than before). ...

Most significant, though, may be the government’s failure to use its immense natural gas reserves, the second largest in the Western Hemisphere after those of the United States, to fuel existing power plants.

And so the downward spiral continues.

Is Chavez Losing His Grip?

Chavez's popularity is dropping. Why, you ask?

Hugo Chavez's support has declined in the polls as many Venezuelans say they are fed up with 27 percent inflation, a stagnant economy, faulty public services - and a government they see as incapable of doing much about it.

Despite that, Chavez still has a 53% approval rating, and just won a new mandate in February. And he is still the most popular politician in Venezuela, and he intends to keep it that way:

Yet Chavez still faces no strong political opponents with anywhere near as much support. To win back popularity, Chavez is likely to boost public spending in the coming months, especially on visible projects like fixing up hospitals and stocking state-run markets with subsidized food.

Chavez's mismanagement of the economy and state bureaucracy hasn't hurt him more because he is able to place blame for the poor economy on external enemies (i.e. the U.S.), and claim that he is working for the poor in Venezuela. And he has expanded access to education and health care.

Perhaps more importantly, Chavez has been able to consolidate power in the government while his opposition remains fractured and divided. None of Chavez's potential challengers are perceived as being viable to a majority of Venezuelans, and Chavez can always denounce dissident movements as extensions of U.S. imperialism.

So Chavez stays in power despite the fact that Venezuela is in a downward spiral and is likely to remain so unless oil prices spike again.

Small Change in Cuban Cabinet...

Cuban President Raul Castro moved today to consolidate his power and control over the island nation by reassigning cabinet ministers left over from his older brother's reign, and replacing them with new ministers he believes are more in line with his vision for the future of Cuba. Raul is no stranger to experimentation and is well known to be more sympathetic to capitalist reforms of the beleaguered Cuban economy than Fidel. 

With the Cuban economy hamstrung by the world economy, Raul Castro may have decided it is time for him to make reforms of his own without worrying about second-guessing by his brother or his brother's allies, she said.

Vicki Huddleston, who led the Interests Section during the administrations of Presidents Bill Clinton and George W. Bush, and is a visiting scholar at the Brookings Institution in Washington, speculated that the changes could portend the government once again allowing private enterprise to flourish in Cuba.

Raul made these changes:

Felipe Perez Roque, the 43-year-old foreign minister, was replaced by his deputy, Bruno Rodriguez Aprilla.

Carlos Lage Davila, an economist, lost his job as Cabinet secretary, but no mention was made of removing him from his other post as vice president of the Council of State.

Lage, who helped guide the nation through its "special period" of dire economic times in the aftermath of the dissolution of the Soviet Union and the loss of billions in subsidies, was replaced by Brig. Gen. Jose Amado Ricardo Guerra.

Last year, Raul legalized the purchase of cellular phones, home computers, DVD players, and other technological goods as well as lifted the bans on renting hotel rooms in Cuban resorts. He did this even though Cubans themselves can not afford these goods on their own, but that's another story. 

Cuba relies heavily on imports of Venezuelan oil, food and other goods to keep their economy somewhat alive. However, with the steep drop in oil prices over the last 8 months, Venezuelan aid has begun to dry up as Hugo Chavez has faced budget shortfalls and a myriad of other domestic problems at home. His ability to financially support Cuba may be fading, and seeing this happen before his eyes, it seems that Raul Castro has decided that something must be done to get the Cuban economy moving or face the possibility of domestic turmoil in the near future. 

So what new reforms could he be considering? Here are a few that I think are on the table: 

1) Liberalize certain portions of the Cuban housing sector, especially in major cities. An underground market in apartment trading has sprouted over the last decade or so in Havana and by liberalizing the housing market, the government could seek to extract resources from housing transactions rather than allowing the trades and transactions to take place under the table. If you want to read more about the underground market for housing in Havana, this is a terrific article. 

2) Increase the fee on currency exchanges within the country. The government takes 10% out of each exchange of American dollars for Cuban dollars at this point in time. Increasing this to 15-20% and simultaneously hoping that the US raises the ceiling on remittances would be another way to extract resources.

3) Open up certain sectors such as oil and natural gas exploration, agriculture and manufacturing up to partnerships with foreign firms. Cuba has already done some of this, teaming up with German and Norwegian oil exploration companies, to explore a relatively large underwater oil field that was found off of the island's northern coast. This was mainly done because Cuba does not have the technology nor the capacity to do it by herself. Allowing certain public/private partnerships in carefully selected industries would increase government revenues and spur some economic development.

Notice that I have focused mostly on areas where the Cuban government can extract more revenue for their projects. Don't expect massive overhauls of the economic system, the establishment of private property,  or the sudden appearance of small businesses anytime soon. Raul's main goal is to consolidate his power. He will only implement those policies that enhance this goal, rather than seek to increase Cuba's growth and prosperity for the benefit of the populace. He is weary that the growth of a middle class and wealth among the citizenry would be a threat to the Communist experiment that has consumed the island for the last fifty years. 

P.S. Cuban VP Carlos Lage also just so happens to be one of my great-uncles. Interesting connection I know. At least he is still VP and didn't get completely canned, so if I fail my regression and game theory mid-terms this week, hopefully he knows who the hell I am and can offer me a job because I know I won't be able to find one in the US!

The Natural Resource Curse

The NYT Sunday Magazine has a terrific piece on Chavez's oil-financed Bolivarism, highlighting all of the classic elements of the natural resource curse. What is most striking, as my excerpts below highlight, is how predictable it all is...

The Cash Spigot: "...Pdvsa is no longer an oil company...It now exists to finance Chávez’s transformation of Venezuela. The integration is illustrated by the fact that Rafael Ramírez, the minister of energy and petroleum, is also president of Pdvsa. “The Pdvsa that neglected the people and indifferently watched the misery and poverty in the communities surrounding the company premises is over,” Ramírez has said. “Now the oil industry takes concrete actions to deepen the revolutionary distributions of the revenues among the people.” If the Pdvsa of the 1990s thought it was Exxon, today’s Pdvsa amounts to the president’s $35 billion petty-cash drawer."

The Dutch Disease: "Oil caused the bolívar to be overvalued. Farms and factories are in trouble. They can’t export and must compete at home with products imported at the official exchange rate, which is now about a third of the market rate. And so the country is awash in artificially cheap imported products, from basic foodstuffs, like Brazilian cooking oil, to fancy cars."

Rent Seeking: "The disparity between the official exchange rate (2,150 bolívars to the dollar) and the black-market rate (6,200 bolívars at press time) has created a new class known as the Boliburgesía. Bankers, traders, anyone who works in finance or commerce, can get very rich manipulating the exchange rates. Buy all the imported whiskey and Hummers you want, is the message. Live a life of wild excess. Just don’t try to produce anything."

The Pattern: "This is classic oil curse, and Venezuela has seen it before. In 1973, and in 1981, Venezuela spent oil money wildly, without controls. Each time a boom ended, it left Venezuela worse off than before it began — per capita income in 1999 was the same as in 1960.

The Question: Are the gains sustainable this time around? And what happens if and when the spigot runs dry?

Chavez, the IMF, and Bond Prices

Hugo Chavez asserted his intention to pull Venezuela out of the IMF. The decision was apparently a bit "impulsive," that is, taken without prior discussion with anyone who knows anything about Venezuela's foreign bond situation. As it turns out, Venezuela has borrowed heavily against its future oil revenues ($21 billion) and its bond issues require it to remain an IMF member. "The conditions listed in all the prospectuses would suggest that Venezuela may have all of its global bonds accelerated and due immediately, given cross-default provisions across each issue, if it pulls out of the IMF," said RBC Dominion Securities Inc."

Bond markets reacted predictably; His withdrawal announcement sent debt prices lower this week, bucking a regional trend, and Venezuela's benchmark global bond due in 2027 fell further on Thursday to yield 0.081 per cent higher at 7.247 per cent.

Behind all of this lays the following: "In the past year, [Chavez] has been issuing billions of dollars of international bonds, assuring investors that the Opec nation's oil income would guarantee payments." Things did not turn out so well the last time Venezuela borrowed heavily against future oil earnings. I wonder how things will turn out this time around.

"Back to the Future?"

In a world in which the prevailing trend is to bend over backward to attract foreign direct investment, Hugo Chavez works across the grain by nationalizing the last privately-managed oil field in Venezuela. "The companies ceding control included BP PLC, ConocoPhillips, Exxon Mobil Corp., Chevron Corp., France's Total SA and Norway's Statoil ASA. All but ConocoPhillips signed agreements last week agreeing in principle to state control, and ConocoPhillips said Tuesday that it too was cooperating."

One must wonder what impact this will have on Venezuelan oil output. According to the IHT, "Multinationals pumping oil elsewhere in Venezuela submitted to state-controlled joint ventures last year because they were reluctant to abandon the profitable operations...Since those takeovers, Venezuela's overall output has declined by close to 4 percent, or 100,000 barrels a day, with some companies complaining they have not been paid for the crude they have been pumping. "I expect to see a repeat of that in the Orinoco," he said.

One must also wonder about the underlying motivations--is Chavez is really in this to help the poor, or to help himself?