Armen does Cuba

Armen Kouyoumdjian has been featured on this humble corner of cyberspace several times, as his weekly e-mailed newsletter is one of the best open secrets of the LatAm analysis scene. He visited Cuba recently and his missive on the subject sent today is really worth reading. He's kindly given permission to reprint here, so without further ado.....

PERSONAS MUY GRATAS

A Few Days in Cuba

By Armen Kouyoumdjian kouyvina at cmet.net

July 10, 2010

From June 18 to 22nd, I spent 4 days in Cuba as a guest of UNIFRANCE, the French organisation in charge of promoting cinema from France round the world. It was for the inauguration of the XIII French Film Festival in Havana, an event which attracts some 150,000 spectators every year. I am obviously better considered as a film critic than a country or defence analyst, because such invitations are not exactly showered on my person (man, I cannot even make National Day receptions at many embassies, even though they have no scruples in receiving my material for free).

It was my first visit to Cuba, very unexpected, and at short notice. I had always wanted to go there to see things first hand in a way other than an all-inclusive resort hotel in Varadero. After my return, wiser and with a clearer mind, I did write up about the cinematographic aspects of my trip, but I hesitated for over a fortnight as to whether I should write about my impressions of the country in general.

The reason for my hesitation is that almost everyone has a preconceived idea of the place, and as almost none of them have been there, they are just happy to mouth the received ideas put across by those with a real agenda. I can already imagine some of the reactions I am going to get (please abstain and do me a favour). Anyway, I have decided to go ahead and there it goes.

METHODOLOGY Three weeks short of commemorating the 40th anniversary of starting a career as a Country Analyst, which is equivalent to a diagnosis doctor, one cannot but have “déformation professionnelle” on arriving into a new place. As some know, I have written and lectured at length about the methodology of country analysis over the years, and there are some basic principles of modus operandi that you have to adopt. Among those is never start your analysis with the trip. Going there has to be the end of the process, with the twin aim of checking your prior conclusions with reality, and filling in the holes that could not be tackled at a distance.

I would be the first to admit that four days is very insufficient to carry out such a task, even more so when a good deal of the time is taken on by other commitments. However, like an experienced doctor, if you know where to look, you can advance more quickly. In this case, though it was an invitation, we were not guests of the Cuban authorities, nor the French government. There was a full programme, but no obligation to attend all the events (I did because I thought it was the minimum of courtesy that UNIFRANCE deserved). We had no chaperones and could roam freely anywhere we wanted, apart from the fact that many of the activities included mingling informally with the population. To the extent that we had to attend happenings in many parts of town, we also drove extensively through Havana (also take the window seat and look at what is going on in the streets you pass through). We spent a day on a beach 30 minutes from town, where we appeared to be the only foreigners with the added bonus of being able to see the outskirts. I also managed to have some additional input from personal sources. All this to say that my observations are not based on looking at a country from a window in a Sheraton hotel.

THE REGIME PEOPLE LOVE TO HATE Together with Chavez’s Venezuela, a relatively latecomer to the hate list, Cuba has been on top of the critics’ targets for decades. Nobody seems to worry much about unsavoury governments in other places as far away as Central Asia, the Middle East, much of Black Africa, etc..They all have it in for Castro’s Cuba. I suppose, quoting Truman (was it him?) it is because they are “our sons of a bitch”).

In the case of criticism from Chile, this used to be the prerogative of the Right, a description in which I include the Christian Democrat party, but the Left has recently joined in, because it seems to be cool to criticise Cuba. Never mind that many of the critics were taken in, saved from death or torture, fed, clothed and given a job by that same regime they now vilipend. They are as ungrateful as in the Turkish proverb (“You take them on your lap, and they pull your beard”). The “source material” for Chilean critics is two autobiographical books: “Persona non Grata”, by writer and diplomat Jorge Edwards, who at least makes some attempts at objectivity along the line, and “Nuestros Años Verde Olive”, by Roberto Ampuero, which is a pure hatchet job about the time he spent there as an exile. More recently, a Havana-based female Cuban blogger , Yoani Sanches, is widely reproduced in the Chilean media, as the source of all wisdom on Cuba. I can just imagine, in a country where officials suggested that the national soccer team’s Argentine manager should be expelled from the country because he saluted president Piñera rather unenthusiastically, how the locals would take to someone blogging regularly about all the ills of Chile.

Of course, nobody has read History either, so they do not know what sort of rulers the country had in the pre-Castro years. The Chilean Right also has a cheek to point the finger at anyone as far as Human Rights violations are concerned. It is the classic case of the pot calling the kettle black.

Finally, and as an illustration of the one-sidedness of comment about Cuba is the matter of hunger strikers. In 1981, 10 IRA political prisoners in British jails starved themselves to death. Why wasn’t the same protest directed at Britain? Hunger strikes are a personal decision of the striker, and the resulting death is their own responsibility only.

THE BAD NEWS FIRST Let us mention the negative aspects one could see and hear during this short trip. No, Cuba is not a Western-style democracy. It is an avowed Marxist state. There is only limited access to private property (though running private businesses is increasingly accessible), and everything is tightly controlled. The choice of consumer goods is limited (and so it was in Armenia during the first post-USSR days), and the price/wage ratio is discouraging, as salaries are very low (even though many basic needs are taken care of and should be considered as an additional wage).

There is no open freedom of expression, and in fact there seems to be a shortage of even the official press, as I could not see a single kiosk selling newspapers or magazines. Access to internet is limited by price rather than censorship, as the few net cafés in Havana always have queues similar to those at Banco del Estado at a quarter to two on a Friday. In the hotel, internet access cost U$ 7 per hour.

Running a business for a foreign entrepreneur means walking a very tight rope, but the better part of town is filled with offices of many multinationals, so it can be done (and by the way have you tried doing business in Uzbekistan, Burkina Faso or even China?).

Though levels of service are more than adequate (and anything that goes wrong is swiftly put right), there is obviously a relaxed Caribbean attitude about opening hours. The food, which is available plentiful and varied, is rather bland in taste. A gastronomical paradise it is not.

I have heard complaints about the fact that Cuba is drab “and there is nothing to do”, particularly outside Havana. Sure, if you are going there expecting football louts’ beach parties Costa Brava-style, it is not a destination of choice (though some of our party went to a mega disco in Havana at 1 AM and reported the next morning that it was full of local youth salsa-ing away). As for the provinces, have you checked the village night life in Bangladesh?

FALSE LEGENDS ABOUT HAVANA The positive experience started even before I left. I needed to get a visa (well, actually a tourist card). In rang the consulate in Santiago, and checked their website. U$ 15 if you collect it the next day. Double for immediate delivery. My schedule did not allow me two visits, so I went there with my U$ 30 and all the supporting documentation, expecting to be grilled as to the motive of my visit. I was not even asked where I lived in Chile, or where I was to stay in Cuba. I gave across the U$ 30, but the girl returned back half the money. ”It is not fair for you to pay for fast service, as we are not busy and we can do it immediately anyway”. Just imagine that happening in a Chilean office..

On arrival at Havana, nobody asked me anything except if I was staying in a hotel or private accommodation. The name of the hotel was on my entry card, which was not even collected! Nobody bothered about any subversive literature I might have in my luggage. It was untouched.

“Expect a country in ruins, where nothing works”, I was told. “Take ball point pens, stationery, etc..You will be pestered for them wherever you go”. I took 15 ball point pens, and brought them straight back. Nobody ever asked for one. We passed several schools on our travels on foot and motorised. I could see neatly dressed schoolchildren in uniform going about their business. I did not enter any hospital or clinic but there were plenty about and from the outside they looked spick and span,

Over the 4 days, I was approached by three beggars in the street (less than in most Western European towns), and the only “dissident” voice was an oldish lady who shouted at us “they give us no clothes- no shoes-they give us nothing”. I thought it might be cruel to tell her that in Chile, Felipe Larrain and Rodrigo Hinzpeter do not stand at street corners handing out free shoes and clothes to the population either.

The streets and roads we took in and out of town were in perfect condition. Not only clean but devoid of potholes. All traffic lights had a big screen advising the length of wait the change in colour. Not a single stray dog around. The other legend about the shortage of public transport and the few antediluvian buses with long queues, turned out to be as untrue as other stories. The buses were modern articulated ones as for Transantiago, and the queues at the stops much shorter.

Yes, there are a number of vintage American cars from the 1950’s, but they are the exception and most are used to take around nostalgic tourist. The rest of the vehicle population appeared to be mainly from the 1980’s, with a few 1960’s models around.
In fact, its composition looked very much like the one in Chile when we arrived in 1991. Most people wore seatbelts, and taxi drivers insisted that their front-seat passengers do the same. You can rent a car and roam freely through the island, hardly the stuff with which “dictatorships” are made.

We took a three hour walk in the old town with two other journalists, one Colombian and the other Mexican. Public buildings were both impressive and in a generally good state of repair. We went first through the main shopping street. I had been asked by my son for a Cuban national team soccer shirt (fat chance in a baseball-crazy country- he had to settle for a Che Guevara one). I entered three well stocked sports shops (so much for the shortages). They were cafés, restaurants and food stalls, mainly frequented by locals. We had lunch in a small place. They had air conditioning but no paper napkins.

We wandered away from the more historic district into genuine backstreets. I wanted to carry on, but my companions, probably traumatised by the situation in their own countries felt (for no obvious reason) that it might be risky. I regretfully abandoned my quest, but not before noticing that yes, there were dilapidated buildings, but they were the minority. Have you ever walked the non-touristic back streets of Valparaiso? Nearly all tourist service providers had a professional badge clearly visible, and there was a discreet but real presence of police.

We went to two movie houses (it was, after all, a film festival that took us there). The air-conditioning was bad or non-existent (as it was in most of Chile even a decade ago), but the old-fashioned large houses (of over 1,000 seats) were in pristine condition, and the sound system excellent. Again, full of Cubans. If all these Cubans who seem to be able to go about, study, eat and entertain themselves are just the Nomenklatura, well it must be a very big universe.

As mentioned before, we went to the beach. Playa del Este, a beach area half an hour out of Havana. Spotlessly clean sand, crystal-clear water, and again, mostly surrounded by Cubans. Small beach restaurants, parasols and chaise-longues for rental (U$ 2 per day), plenty of staff both to attend to your needs and provide security.

The Havana hotel where we stayed, a large 4-star establishment, worked pretty well by any standards, and what went wrong was soon put right. The staff were plentiful and courteous, with a feeling as if they meant it rather than the American plastic smile variety. Many spoke English, which is more than could be said about the waiter in the swanky W hotel of Santiago de Chile, who was unable to communicate with non-Spanish speaking guests and when asked for an English menu written in such small print that it looked more like a microfiche stolen from the KGB. There did not seem to be any restrictions on Cubans entering the establishment. Anyone who is about to comment that it is all very well but most Cubans cannot afford it, ask yourself how many Chileans can afford an 18,000 peso breakfast buffet at the Ritz-Carlton in Santiago.

On leaving the country, formalities and controls were again minimal (even allowing for the fact that staff may have been distracted by the World Cup match being played).

The above observations not only show how one can get taken by totally biased misinformation, but going further than that, if you cannot describe faithfully the sort of things obviously plain to the eye, then even if you have real points to criticise, you totally lose your credibility.

Chile earthquake: A must-read analysis

The best analysis on the Chile earthquake by the best analyst in Chile is yours for the reading here (permission granted by the author). Published yesterday evening, it's Armen Kouyoumdjian at his incisive, irreverent and politically incorrect best. Enjoy

HERE, SEBASTIAN, IT IS ALL YOURS TO FIX
Big Earthquake in Chile, Many Reputations Killed

By Armen Kouyoumdjian (kouyvina at cmet dot net)

March 2nd , 2010

It is my habit to react quickly to major events, but an 85-hour power cut in our neighbourhood made me incommunicado by any electronic means, also cutting me off from TV coverage. We were also without water for much of that time. My main source of information were the two groups of radio stations which worked in chain and provided an excellent way of keeping in touch with what is going on. Now that services have been restored, here is my first look at the events of the past 4 days. I am glad to say that both myself and my family, as well as our house, suffered no consequences to speak off.

I am not a seismic engineer, but some years ago I undertook a fairly extensive study about the possible effects on Chile of a major natural phenomenon, for the InterAmerican Development Bank, so I am fully aware of various technical aspects. I even think I mention there the particular risk of the Concepción area, (I have to find the file, but I just want to prevent the Roubini-type aparecidos, who will claim they all forecast it. An Israeli-born Turk! No faltaba menos. How much lower can you get?). However, this paper will mainly concentrate to other aspects.

THE QUAKE AND ITS COVERAGE From what we hear, the strength at the epicentre of this quake was the fifth most powerful since records have been kept. Also, the extent of the areas touched was unusual, ranging from the capital and central coast down to the south-central area of Concepción, the country’s third largest town, and surrounding areas where the main thrust was.

For many journalists, both Chileans and foreign, the whole exercise for evaluating the damage was the body count. With the Chilean toll so far under 800 (but due to augment as many Tsunami victims have yet to be accounted for), when set against the 300,000 deaths of Haiti, the conclusion should be that “we’re OK, then”. With all respects to those dead, they have no more links to this valley of tears, and it is better to concentrate on those alive, and the physical damage.

The self-serving conclusions that came out of this misreading were amazing. Several publications talked about the “little damage” due to the quality of Chilean management. One publication even headlined “Milton Friedman Saves Chile”. All forecast “a quick recovery”. Well, let us look at the truth, starting with just the earthquake damage.

On an early estimate, half a million dwellings may have been damaged beyond repair, leaving some 2 million people (one in eight of the population) homeless. Luckily there is still three weeks to summer, though the weather down South knows no seasons. Another million houses may have been damaged. Only 7 % of dwellings in Chile are covered by earthquake insurance.

Much of the road infrastructure in the epicentre region is in a bad way. Unfortunately, it is where forestry and other activities take place. The country’s main harbours have had their moorings and jetties damaged, and are operating at best at half capacity. The wine industry has suffered an estimated U$ 600 million of damage, just as the grape harvest was starting. This is equivalent to half a year of exports, for a sector already beleaguered by competition and an overvalued peso. The fruit export industry is also in dire problems as power shortages and transport difficulties will affect the massive export trade.

With the US and several EU countries having advised against travelling to Chile, where the airport is unlikely to be operating in both directions until Friday, seminars, business and tourist trips have been cancelled and more will follow. Many tourists used to head towards the epicentre zone, but even in our neighbourhood Valparaiso, 400 kms from the centre of the quake, no less than 17 hotels have been damaged. The airport terminal building, operated by Vancouver airport, is a disaster area, and passengers are being processed in a tent on the tarmac. That is how it happened in the 1920’s. The fuel tanks are also damaged. There used to be another airport in the south of Santiago, but it was dislodged to favour some property speculators with links to some high officials.

In Viña del Mar, no less than half a dozen high rise buildings of recent construction have to be demolished, as will several in Santiago too. Even dwellings which are OK from the outside have suffered major damage to the contents, which not everyone can afford to replace. In my son’s bedroom, a printer flew from a shelf onto the bed at the other side of the room, one of the few such examples we suffered, but most others were not so lucky.

Public buildings gave not fared better. Shopping malls, theatres, historic buildings and even the Congress building in Valparaiso (where the March 11 change of government is to take place) and the seat of the foreign ministry in Santiago are in doubt. The newly built legal centre is close to collapse. Remember all this is 400 km away from the epicentre. You can imagine the state of houses and public buildings in the south. An 84 km underground water pipe supplying much of the Valparaiso area has a long stretch of damage, and we will have to be without water for a new bout of 48 hours when they decide to repair it.

In a country where most of internal merchandise moves by road, the situation of the roads is bound to affect the flow of the supply chain at all levels.

In all the country, 17 hospitals are heavily damaged of which 11 probably beyond repair.

THE DAMAGE’S CAUSES Chile has strict anti-seismic construction norms, but much of the damage in the south, and older properties in general, were built before the norms, or from materials such as adobe (sun-dried mud bricks), which do not resist well. Inspection quality is not that good either through municipal personnel, and that of concessioned infrastructure either. Two stretches of the new Santiago ring road collapsed. These types of constructions were built under the “supervision” of 22-year recently graduated female Spanish civil engineers who were sent to Chile by the company actually holding the concession, but were more interested in spending time in Bellavista night spots picking up who they would shag that night. They had neither the experience nor authority to impose proper quality control on the already careless Chilean worker. A disaster waiting to happen.

THE OFFICIAL CALLOUS RESPONSE Except for the foreign journalists writing rubbish from their desks in Brooklyn and the aptly named Foggy Bottom area of Washington, there is a consensus that the official management of disaster relief has been, to put it mildly, seriously lacking.

There are various reasons. One is laziness, particularly because there was less than 2 weeks left of their tenure, so ministers, undersecretaries and other non-established employees basically did not care much. Many were on their last days of summer holidays, and they would be damned if they were going to explain to their wife and children that they had to get home 48 hours early because 2 million people were homeless and hungry. Applying this warning to the likes of France, Spain and Italy (referring to August), this habit of closing down the fucking country, office or institution for a whole month and go away has to stop. IT HAS TO STOP!”. You can take holidays in the Summer only one year out of two, and the hell with what your spouse and children think. Government officials, senior staff, medical personnel and other such important people will have to be obliged to work one summer out of two, and those who are away be locumed by someone of their own level. No minister to be replaced in the interim by a director general (that would be lucky!), no admiral by a Lt. commander, etc..You don’t like it, become a beach bum. Life does not stop because you are in Gstaad, Cancun or Buzios. When people ask me if there could be another Allende in Chile, I generally answer that I do not think so, but I do wish there is a Pol Pot.

Specific ministers showed where they priorities lay. The Defence minister delayed his first press conference because “I need a smoke first”. He might as well have smoked the whole packet because he then spoke to say that “a tsunami in Chile is the same as a tsunami in Burundi. “. Burundi being a country with no sea-shore, it would have been a difficult contest, but I could not write to El Mercurio to point to the failures of the teaching of geography in the country. It took four days for another reader to do so.

René Cortazar, minister of transport and telecommunications, two areas particularly crucial to the situation, was seen jogging near his house a few hours after the quake, instead of being in his office. Possibly the prize goes to the Interior Minister for commenting: “24 hours after the quake is too early to start looting in despair”.

It is not that nobody was expecting them. Emergency “committees” were organised years ago. Coastal cities have signs (bilingual if you please) advising the “tsunami evacuation route”. I think it was Von Moltke who said that “no battle plan survives the first contact with the enemy”. I would add, “particularly in Latin America”.

The same specialist fire teams which were sent to Haiti only a few weeks ago, were ready to fly to look into a Concepcion building where 90 people were trapped. It took over 2 days to fly them out, and when they arrived to Concepcion airport, they found out that no ground transport had been arranged to take them into town. Once they started working, their equipment became useless but there were no replacements. There was also no fuel.

THE VIOLENCE On April 6, 2008, nearly two years ago, I wrote a futuristic paper about a Chile overtaken by uncontrollable violence, in 2010! Though it was kindly translated in Spanish too and widely circulated, nobody took it seriously. If you apologise for your past indifference, you can have a copy, but let me cite an extract (written TWO YEARS AGO).

“However, the most serious situation was in the Eastern residential suburbs. The protesters had reached 100,000, and it was not a demonstration, nor a riot. It was an uprising. The crowds went through district after district, looting, raping, burning and killing, but not before asking for the keys of all the cars parked outside, which they filled with all the goods they could carry. Police forces were sent in quantities, but they had neither the numbers, nor the equipment (and even less the enthusiasm) for a pitched battle of such proportions”

Armen Kouyoumdjian Chile 2015: The Alternative Scenario (The Uprising of Winter 2010)

The year 2015 being the finality of the events was taken in parallel with a very optimistic paper (in fact written in a psychedelic trance) by a Chilean academic economist, which predicted that in 2015 Chile would be like Switzerland whereas the rest of Latin America, dressed in rags, would be fighting over stray rats to eat. I wanted to give the alternative scenario. Interestingly, the economist lives in the USA.

For nearly three days, all law and order broke down in Concepcion and surrounding small towns. Gangs of several dozen started by looting supermarkets, initially to look for food, but then moved on to more expensive goods like electronics and clothing. Then they looted the chemist shops and the petrol stations. When there were no more businesses to loot, they started to enter private houses, both abandoned and occupied, and took away anything which had survived the quake. This then extended to parts of Santiago, not just the suburbs but some central parts of the capital.

The authorities thought they could control the situation by trebling the number of police, but the looters hardly took notice. In one area the police intervened not to arrest the culprits but ask them to queue and loot in an orderly fashion in order to avoid a stampede (I am not inventing this, I assure you).

It is only on the third day that the military, initially 6,000, now up to 14,000, entered the area, and imposed a curfew, but as far as business is concerned, most of the damage was already done. It is not clear if the insurance held by the large companies whose premises were affected includes riots and such public disorder. An initial estimate of their exposure (which is not the same as the amount of damage) by Chilean insurers is for U$ 2.6 bn of claims. Many if not most small businesses are not insured against anything.

As a result of the violence, many people (including 90 % of the staff at the country’s largest public hospital, which happened to be in Concepcion) have stayed away from work to protect their family and belongings. This causes many other problems.

THE INVOLVEMENT OF THE ARMED FORCES Many people were surprised as why the armed forces, whose every purchase from the satellite to helicopters is described as designed to help with natural catastrophes, took some three days to get involved.

Before that, there was the incident about the tsunami alert. There is the old American joke about the sign hanging over a bar, which read: “we have an agreement with the banks : they do not sell beer and we do not cash cheques”. It is not clear why in the XXIst century the navy should be in charge of civilian coastal matters, but quite frankly friends (and many are well known to me), please stay away of meteorology and seismology . I often laugh when in the early morning the local radio says the Navy weather service is predicting a cloudy day with no sunshine, when I see a bright blue sky from my window. As for earthquakes, there are just 7 specialists in Chile, and their number should be increased and a separate service set up.

This being said I do believe the Navy’s version that they did warn of a possible tsunami, and it is probable that the authorities decided to ignore it (“we did not understand it” was their excuse, although it was pretty clear), in order to avoid a “panic” (obviously considered worse than many deaths), but even more probably because they could not be bothered with all the logistics of an evacuation.

Now to the involvement of the military in relief logistics and maintaining order. On the first aspect, they cannot take initiatives of that kind without civilian orders. The air force said it was ready with all its available aircraft (what there is of it, how long are we going to wait before the Russian helicopter contract is signed? What were any helicopters doing when so many towns and coastal villages were isolated by road?), soon after the quake, but nobody told them to transport anything.

On law and order, the matter is more sensitive. The analysis that follows is my own for which I take sole responsibility. With states of exception and curfews imposed, and a shoot to kill policy, and despite the different circumstances, the similarity with the Pinochet years makes them nervous. In recent years, hundreds were prosecuted and many jailed for abuses, true enough, committed during the military government. However, the judges’ wrath was limited to the uniformed executors whereas the civilians who gave the orders are prosperous politicians, businessmen, or consultants (or all the above). The military once again were made to carry the can for protecting the private sector from the “Bolshevik hordes”, and got a kick in the back as a thank you. It is very easy to kill innocent people in the midst of looting and rioting, and I can quite understand that they were reluctant to be involved. On the other hand, their strong participation now has allowed them to show that far from being obsolete, they are still very much needed institutions.

The Navy and the Air force have particular problems. The navy’s major base in Talcahuano, the port city of Concepcion, including its ASMAR shipyard, were heavily damaged. ASMAR repairs and builds vessels for other countries too. The Air Force has to decide if it cancels or maintains the FIDAE 2010 air show, due that the end of march. There is no news if the ad hoc installations in the base next to Santiago airport were damaged to any extent, and the slow return to normality of the airport itself is a hindrance. On the other hand, preparations by organisers and exhibitors alike are very advanced and a cancellation may mean a loss of credibility and put at risk the whole future of the show.

THE REACTION OF BUSINESS A lot of businesses (in some small towns near the epicentre, and in Concepcion itself) have been pillaged, so the shortage of supplies has been accompanied by a rise in price, just in areas where people lost everything. From bread to public transport, prices have as much as doubled.

Big business has also been its usual heartless self . When asked by the government to donate food for distribution, Horst Paulmann of CENCOSUD, the Gauleiter of retail in Chile, answered that they would sell it to the authorities and it was up to them if they wanted to donate it. He also insisted that the press should not cover lootings because “it encouraged others”.

THE END OF MODERNITY AND OTHER CONSEQUENCES Thank heavens for small mercies, at least the quake happened before any nuclear power stations were built. With the same approach to security, we would all be irradiated by now.

The Piñera administration will have to reshuffle its whole game plans and instead of progress and modernisation, will mainly have to reconstruct and heal. The only way they can show they are different is to build real houses rather than shacks. Prospects are not good, as it has not been done in other earthquake zones when only a few thousand people were involved. What about two million?

Let this tropical striptease by the “modern” country the OECD thought it was giving its membership card to, be a lesson to all the blind analysts and journalists. I am also appalled that all these countries who always claim they have no money to pay for modest consultancy fees suddenly find millions to help a country’s inept management, on top of inviting them to freebie trips abroad. Just wait until you ask me for help next time. I will shake more than a terminal Parkinson patient.

HUEVADA DE LA SEMANA To all the useless idiots who thought life was limited to mobile phones, Facebooks and Twitter messages. The emergency and police services who replaced their old fashioned radios by mobile phones, were left high and dry like eunuchs at an orgy. Now people use their mobiles to communicate, to take photographs, to listen to radio or loaded music archives, as an alarm clock, a torchlight and even as a sexual stimulator, they should realise that once the power runs out you have NOTHING. If I had no power for 85 hours in an undamaged house 400kms from the epicentre, just imagine how easy it is to communicate in the Concepcion area.

This was another warning by the Gods to those who think they have dominated the elements nad all aspects of life.

FROM PSALM 5:5-6 “Thou shalt destroy them that speak leasing”

Armen's superb rant

The Kouyoumdjian Weekly hit my mailbox this morning, and even by his high standards he knocked one out of the ballpark today with the rant. I've been given permission to reproduce here, so with no further ado here's the script. Excellent stuff.

LEAVE THOSE LEADERS ALONE!

And Tie Up Your Own Sharval!

By Armen Kouyoumdjian
kouyvina (AT) cmet.net


December 5, 2009


If you are disappointed that this is not a report about the first round of the elections in 8 days’ time, just be patient. The next one will treat the subject a couple of days before the polls, but I have to warn you that it will be mainly structural rather than topical. The only valid electoral analysis will be the one written after the January second round, when we know for sure who the winner is and what sort of congress he has to work with.

This week therefore, I am referring to a subject that has increasingly bothered me over a long period, and which is now getting out of hand. This is the propensity not only to criticize the way other countries are run, which anyone has the right to do (as long as they get their facts right), but without being a citizen of such places, actively working for the said government to be overthrown, if necessary by violent means. This ranges from virulent media campaigns to sneaky subversion and if all else fails, unashamed military action.

I know in advance that many people will disagree, accuse me of all sorts of hidden allegiances and agendas, and God knows what else. The only allegiances I have is to Truth, Justice and the Armenian cause. To those who disagree I say, please visit a Mexican village called La Chingada, which is in a region called La Punta del Cerro, and book a room for a long stay in a hostelry called La Chucha.

The “Sharval” I am referring-to in my subtitle is a type of light trouser worn by both sexes in many parts of the Middle East and the Indian subcontinent. Its characteristic is that it is held in place not by an elastic band or a belt, but by a tie-up lace. In Turkey at least, when someone speaks out of order, it is customary to tell them to “tie up your own sharval”, meaning that make sure you are behaving correctly before criticizing others.

WHAT RIGHT TO INTERVENE? Interestingly, the subject of criticism coming from the man or woman in the street, the media, politicians and business leaders always tends to be “Leftist” or “Radical” regimes. These same people sitting in judgment obviously had no such qualms when unappetizing dictatorships were in power, committing the worst atrocities. A common butt of such criticism is “Islamic” regimes, though the problem goes much beyond that.

I was at a national celebratory dinner at an elegant Viña hotel, more out of obligation than enthusiasm. It was by no means cheap, and though we were in the same room eating the same food as the other guests, our party was given miniscule paper napkins, whereas other guests had proper ones, and they initially insisting on serving only Pisco Sour (to a group including many Moslems) as aperitifs.

However, it is not yet another expensively disappointing dining experience in Chile I want to talk about (I have touched upon the problem several times in the past, and concluded that it had no solution). One of the fellow guests asked me what party was in power in Armenia. Unflinchingly, I answered “the Corruption Party”. For her, that was irrelevant. “Are they Right or Left”? she insisted (a silly question to ask about a former Soviet Republic, but the lady, despite being wealthy, had no culture- Nie Kulturny- as the Russians say. Not only she did not find anything wrong with the fact that we were treated like second class citizens by the hotel, but she had never heard of Pol Pot, or the Peter Principle).

“What do you think of Chávez?”, was her next question. I knew it was a trap, but could not care less. “I am fed up of people always criticizing him without knowing anything about the country, his predecessors, and the present reality”, I answered. “I do not like him”, she said, “he is a threat”. “In what way do you personally feel threatened by Chavez?”, I asked. “Not me personally, but others are”, was her feeble explanation.

We shall talk more about Chávez later, but in a general fashion, who has the right to decide which person or party another country’s citizens elect or support, particularly in democratic elections? Coming from people who have never even visited that country, looked at a single newspaper published there, do some background research, etc..They take their view first and foremost from their own prejudices, and lean on that country’s voluble opposition who get a more sympathetic ear at home than abroad. How did you conclude that Iranian or Saudi women are in a majority unhappy wearing the veil or the Burka? From reading Persepolis by that promiscuous drug addict author Marjane Satrapi? How would you like it if the Iranian air force or the Taliban bombarded your wedding party, because they do not like the tangas worn by your promiscuous daughters (who in Chile, according to a study financed by the French embassy, are all penetrated by the average age of 14 years and 2 months), the ugly sight of their brassiere straps, their disgusting piercings and tattoos, not to mention their big bumsand ugly bare midriffs? Who are you to decide how they are going to run their lives in the Middle East, or in Caracas, Santa Cruz or Guayaquil? Have you talked to foreign Western women accompanying their husbands on postings to the Gulf, saying they never felt as cared and respected as women in their lives as during the time they spent there?

Despite all its failings which are soon bringing it to the level of a mediocre Third World country, at least there is some decency left in Britain. The current Chilcot enquiry is leaving no stone unturned in revealing how the Blair administration, lied, cajoled, threatened and even drove officials to suicide in order to join the US attack on Iraq.

Though I myself have only been there twice (when I was 7 months old the first time, and 5 years the second time), two branches of my family lived there for some 350 years, as businessmen, company executives, landowners and senior civil servants (my father’s eldest brother was Chief Executive of the Baghdad Electricity Company, and one of his cousins the Director of Exports at the Oil Ministry). None are left there now, but we have enough collective experience of the place to know when it was well run and when it was not. At least when I write about something, I know what I am talking about, and I do not get my sources from Rupert Murdoch’s publications or the Israeli embassy cheque books.

Let us now look at two specific cases of demonisation at two opposite extremes of the world: Iran and Venezuela.

IRAN Since the creation of the Islamic Republic of Iran thirty years ago, that country has been among the favourite whipping boys of the West. “Ayatollahs in the backyard”, as The Economist headlined just before the president of Iran visited Latin America, as if only American navy vessels and Hillary Clinton were permitted to come to the area. Things in that direction reached their paroxysm with the coming to power of president Ahmadinejad, who was recently re-elected after an election deemed controversial. If anyone bothered to follow closely the last few elections in Iran, they would have noticed a diversity of policies and options on offers among the candidates which the more-of-the-same Chilean (and other) electorate would love to have. Those “oppressed” women are much more present at top jobs, both in public and private life ( a former World Bank executive told me how the chief lawyer on the Iranian side, in a loan negotiation he undertook many years ago, was not only a woman, but also Armenian, which goes to prove that minorities even Christian ones, are not excluded).

Ahmadinejad may indeed sometimes be a loose cannon in terms of what he says and does, but this is no reason to lie about him. The attacks on the president and his country became more virulent after accusations that he denied the Jewish Holocaust. In fact, if you read his exact words, he did no such thing, but just to please the ignorant masses, let us assume that he did. We Armenians find that accusation fantastic in its partiality. What about all the countries (the USA, Britain, etc..) who join Turkey, itself shamefully supported by no less than Israel, and the Anglo-Saxon Zionist gutter press (such as The Economist and the BBC to name but two). Why isn’t world public opinion being “outraged” at the killing of over half our race 95 years ago, and instead suggesting (like the Swiss) to name a “commission to look at the facts” ? Where are the demonstrations by the Yiddische restaurant owners in Copacabana against the Turkish consulate, or do they only go out against Ahmadinejad?

Now to the second accusation against Iran, that of attempting to build a nuclear arsenal. Last year, at a talk he gave in Flacso, I gently cornered Mr El-Baradei on the matter of proof. He had to admit that he had been asked by others to find it, so far with nothing concrete. This does not stop others to continue lying. Some weeks ago, the dean of an obscure German university, who is also a political scientist, gave a talk at a Viña university. He described both Chávez and Iran as threats, insisting on the latter that the IAEA had discovered “proof” (it has done nothing of the kind). One wishes that when Israel illegally started building up a nuclear arsenal now amounting to several dozen warheads, the world had been so keen to stop them (and there, contrary to Iran, we HAVE proof).

Oh yes, the parallel accusation that Iran “threatened” Israel. Wow, what a sin. It does not matter that Israel not only threatened but destroyed both the economy and social fabric of Lebanon, starves the Palestinians, threatens Iran itself, but nobody says anything, even when they elect war criminals as leaders.

HUGO CHAVEZ In February 1989, a few weeks into his second presidency, the then head of the Venezuelan state Carlos Andrés Pérez (C.A.P.) had to face massive protests from the urban shanty town dwellers against high inflation and low salaries. He sent the troops against them and even the official admission is 276 dead (though to this day there are 2,000 disappeared from whom nothing more was heard again, a figure marginally lower than in the 17 years of the Pinochet regime).

During his first mandate, C.A.P. had managed to rob half the country’s wealth and he was now going for the second half, in the most corrupt regime the country had ever seen. Nobody mentions that when criticizing Chávez, who has democratically won all but one poll he has faced. Maybe because he cared for the less favoured among the population, always a sin among the local elites (viz. Arbenz, Allende, etc..) ? As a country risk analyst, I would be the first to admit that he has made many errors on the economic side. Too many hopes on the price of oil remaining high, and an over-extended fiscal commitment, with heavy reliance on debt whilst lending to others. A public services infrastructure falling apart, and a currency policy which has miraculously survived longer than logic would expect (though no Chilean is in a position to criticize another country’s handling of the exchange rate, when its own currency is subject to the vagaries of a team of manic-depressives).

All the above be as it may, the Venezuelans have elected Chavez, and will unelect him when they feel like it. It is not a job for the USA, the SOFOFA, El Mercurio or The Economist. A recent reportage by Chilean writer Rafael Gumucio, supported by my own findings on reading an opposition Venezuelan paper every day, reflect a free press and debate which Chileans have not seen in nearly 40 years in their own country. Public talk about politics is the national hobby, and on every week-end and holiday, roads and travel agencies are clogged with travelers going to resorts at home and abroad. The real threat to stability in the region is not Chávez but Colombia’s Uribe, with the millions of Colombian refugees of whom some 400,000 have escaped to Ecuador and Venezuela. As Gumucio writes,” this is neither a Socialist country nor a bloody dictatorship. But nobody wants to know what it is”. So, let the well-run Latin American countries tie up their own sharvals and let Chavez swim or sink on his own, but you have no moral, ethical or legal right to actively undermine his regime from abroad.

OTHER LEADERS Of course. Chávez is not alone as a regional whipping boy. Every time a country elects or reelects a popular leader who wants to change things, the missiles start flying. Bolivia’s Evo Morales, who is a shoo-in for imminent re-election, is just finishing a first term during which his country had the highest growth in 30 years, and government revenue as a percentage of GDP has risen by 20 percentage points (over double the US figure).

Ecuador’s Rafael Correa may not be everyone’s cup of tea, but I was quite impressed at a recent presentation their investment office gave in Santiago (less impressed by the Chilean businessman whose only worry as expressed during question time was the power of unions). His 42 % popularity is higher than Gordon Brown’s government. Paraguay is admittedly a mess, but then it has always been so. Uruguay’s second Frente Amplio government takes over a country which has managed even in 2009 to have positive growth and lower unemployment. Tie up your own sharvals.

Bringing Brazil Down to Earth, by Armen Kouyoumdjian

There are many reasons to love Armen Kouyoumdjian. The way he knows LatAm better than any other economic/political analyst I know, the way he speaks his mind with eloquence and wit, the independent nothing-is-sacred attitude, the way he recently threw Andres Oppenheimer off his mailing list due to the moronic bullshit published by Schloppenheimer on the region. The list continues.

But here comes another reason to love the dude. Published last week, the following analysis on Brazil gives a much-needed counterweight to the permabull, Brazil-Is-Economic-Miracle sheep bleating of our current era. Kouyoumdjian's view is essential reading for anyone interested in Brazil's economic (and political, for that matter) future. I have been given permission to reprint his analysis here on the blog. I also recommend that you use the mail address included in his title line, shoot the great man a mail and ask nicely if you can join his free mailing list.

BRINGING BRAZIL DOWN TO EARTH
As the “Hadji Yatmaz” Country Inflates its Image

By Armen Kouyoumdjian
kouyvina (AT) cmet.net
October 2, 2009

Once again, Brazil is riding the top of the wave in terms of world consideration. Comments one reads describe it as leading the recovery in Latin America in the short-term, flexing its regional and international muscle on the diplomatic stage, and even on the road to becoming a “new Saudi Arabia” for oil production. When you point out that in a 33-year career covering Latin America, you have all heard it before, several times over, your cynicism is countered by the comment: “ah, but this time, they really have got it right!”. How many times I have heard that one as well. Unfortunately, many of the analysts and journalists behind this enthusiasm were not even born when I started looking at Latin America in November 1976.

This is one of the main problems in not only analysing, but also putting across any contrary views on Brazil. The fan club is so large and militant that they will not hear anything against the subject of their undying love and admiration. Moreover, even with the evidence under their nose, they will not even look at it. “A virtuous circle” as one London analyst described it to me some years ago. The other problem is that, fully conscious of this goodwill, Brazilian authorities themselves take advantage and put across a positive image in an unparalleled decades-old exercise in cosmetic dressing-up.

Though I am fully capable of it (once I see the colour of your money), I am not planning here to undertake a detailed Country Risk analysis of Brazil, but just to underline some cautionary aspects which are always ignored.

WHAT IS A HADJI YATMAZ? I normally do not translate foreign expressions used in my reports, because even though I have little faith in the cultural level of much of my readership, I think it is a job for foreign embassies in Santiago. After all, there is something they should spend their time on, because updating their websites, managing their invitation lists and organising proper catering does not seem to be much of their concern. However, in this case, the concept of “Hadji Yatmaz” is fundamental to this report, so I shall have to explain it.

In the Beirut of my childhood, before it was destroyed by the invading vandals of the territory to the South, there used to be a toy called a “Hadji Yatmaz”. Probably a result of the Ottoman occupation, the expression used is Turkish. It means roughly “the Hadji that won’t lie down”. It consisted of a small plastic figure, with a piece of lead in its base. If you bent it downwards, it always stood up again, because of the heavy lead base. Such a toy was probably available in other countries, though nowadays the lead content would be illegal because it is poisonous. I had several of them, and my playing with lead probably led to the imbecility with which I generously send my reports for free.

So most people regard Brazil as a “Hadji Yatmaz", which will quickly stand up after falling down. The problem with the toy, as with Brazil’s image, is that it was made of very cheap plastic, and it was completely hollow inside.

INFLATING THE PRESTIGE Having had two emperors (Pedro I & II) for a total period of 67 years after independence (1822-89), and contrary to Haiti (Dessalines and Faustin) and Mexico (Iturbide and Maximilian), whose flirtation with imperial status was shorter and unedifying, Brazil never recovered psychologically from losing that status. In fact, soon after a military coup sent Pedro II into exile, they sent a delegation to woo him back (which he refused to do). So the country had to make do with its own imperial size, embassies that are palatial (the one in Santiago has its own chapel), and flexing its muscle from time to time among its smaller neighbours (it shares a border with all but two of South American countries, Chile and Ecuador).

Flexing your muscle is not difficult when you are the size of an elephant. Brazil is only 11 % smaller than China (though it has less than a seventh of its population). Elephants have small brains but powerful muscles, and their mere presence is intimidating. One has to say that Brazil has used its size in a generally benign and certainly “softly softly” fashion, rather than in an openly aggressive way.

Following a long period of crises, and after thinking that their economy had been “stabilised”, the country actively embarked on making its mark on stage. This has gone into overdrive in recent years. It started modestly enough with a bid to represent Latin America in a potential permanent seat of an enlarged Security Council (a UN debate that is far from being resolved anyway). Its only likely contender, Argentina, though pretending that it is still in the running, does not appear to have much of a chance, to put it mildly.

As this matter was dragging on, Brazil thought up another role for itself, closer to home. It convinced the USA, busy killing babies in Iraq and Afghanistan, that it could be its proxy “regional stabiliser”. That was not really Brazil’s real intention. It did not want to be a proxy for anyone, but have a role for itself. So it thought up UNASUR, making sure membership was limited to countries south of the Panama Canal, and more importantly, its offshoot, the South American Defence Council (or CDS). The latter had a double purpose: give a military dimension, and provide an outlet for its growing defence industry. Massive acquisitions of modern weaponry mainly from France, at various stages of confirmation, all insisted on “technology transfer” clauses. One hopes that the quality of training in their armed forces has improved to the point of handling nuclear submarines and U$ 200 million a piece state-of-the-art combat aircraft. During WWII, the Brazilian Navy had the dubious record of a destroyer sinking itself (a badly positioned machine gun fired a “training burst” into ammunition stored on the deck below, causing an explosion from which only two crew members survived to tell the story). There is no limit to the ambitions. Vice-president Alencar recently expressed the wish that Brazil would become a “nuclear power”. Contrary to people’s attitude to Iran, not a single voice protested around the world (not even when the country’s authorities refused access to an IAEA inspection team to an army facility known as IME, where nuclear research is carried out).

Among its immediate neighbours, Brazil played godfather to the start-up Bolivian gas industry, and put pressure to stop a break-up of that country sponsored by local business interests with Israeli help. With Paraguay, after playing an unusual game of toughness and carrying out live ammunition exercises on its borders, it accepted to renegotiate iniquitous agreements on revenue from the joint Itaipu hydroelectric project, trebling the sum paid to its small neighbour.

More recently, Brazil became even more proactive in terms of diplomacy by the crucial role it is playing in trying to restore democratic rule in Honduras, having arranged for the deposed president to return in secret and take refuge in their embassy of Teguchi-galpa (as French TV called the Honduran capital, probably thinking it was a provincial town in Japan). Though the gathering was held in Venezuela, Brazil was a strong voice in the recent African-Latin American summit. It had previously flirted actively in the continent, particularly with the Portuguese-speaking former colonies like Angola and Mozambique. It has also nibbled at the Palestinian problem, the G-20 group and the Doha trade round. Last April, in another fit of panache, the country lent U$ 10 bn to the IMF.

Brazil is not a member of the OECD, but holds observer status there since 1994, and some time ago became the first OECD country to join a trade pact norm with its members. Last but not least, Rio de Janeiro’s just became the seat of the 2016 Olympic Games, the first to be held in the region. This is despite the fact among the four finalists, it had the lowest “suitability” score in the evaluations. The honour will cost the country another U$ 5bn in investments.

POLITICS AND THE LULA PHENOMENON There is exactly a year to go until the October 3rd 2010 elections, which will mark the end of two terms of Lula presidencies. That day will also mark the renewal of all the Lower House and part of the Senate. Lula cannot stand again on this occasion, but he is said to be already eyeing the one election after next, in 2014.

In the meantime, his personal popularity still stands at an incredible 65 to 70 % or so, a score only bettered by Chile’s Ms. Bachelet, also coming to the end of her single term. What can the explanation of such popularity be, after years in power and in the midst of a severe crisis? Unassuming agreeable personalities, trying to stay above daily occurrences (”blindaje” as they call it in Chile), whilst appearing like the person next door (which in a way they both are).

The problem with such popularity is that it does not rub off on an heir, anointed or not. Lula has hand-picked his rather dour chief of cabinet Ms. Dilma Rousseff, a Bulgarian from his own PT party, as heir apparent. It did not help that soon afterwards she was diagnosed with cancer, but the fact is that, exactly a year ahead of the polls, she has only 15 % backing in the polls, running virtually in third position in a field led by the PSDB’s Jaime Serra.

One eyebrow raiser has been the formal announcement on September 30 that Central Bank president Henrique Meirelles would bid for the governorship of Goias state, in alliance with Lula’s PT party, thus putting a question mark on the real independence of the Central Bank ( a concept which in any case rarely goes beyond the theory in Latin America)..

THE DEBT OVERHANG I have often referred to the conspiracy of silence, for there is no other word, surrounding Brazil’s fiscal situation, which everyone appears to wantonly ignore, to the great joy of the authorities. Whereas it might be true that the way their finances currently look, France, Spain and the United Kingdom may declare bankruptcy sooner than Brazil, it is amazing that on September 22, Moody’s joined Fitch and S&P to give the country an “investment grade” rating.

Brazil is very good at pulling the wool over the eyes of the average analyst and journalist, concentrating on the totally irrelevant “primary balance”, and the size of the debt as a percentage of GDP. Debt is a precise figure, which your creditors can calculate down to the second decimal. GDP is a nebulous concept. A quotient of the two is meaningless. In any case, debt is not serviced with GDP (nor with trade surpluses), but with fiscal revenue over and above other needs.

With the just published fiscal results for January-August (the amazing thing is that these figures are available for anyone to see on the Central Bank’s website), we have the following results:

The treasury generated a primary surplus of U$ 23.5 bn over 8 months, but this only covered 40 % of an interest bill equal to U$ 58.5 bn (U$ 241 million in interest per calendar day, or U$ 10 million per hour). The resulting overall deficit was U$ 35 bn in 8 months, nearly SIX TIMES the figure for the same period of 2008. If that is an “investment grade”, I’d hate to see the figures for a junk bond issuer. Total debt as of August 31st stood at U$ 1,055 bn.

The most worrying aspect of this is that the deterioration of public finances took place in a context of falling interest rates, and in particular the benchmark SELIC rate at which around a third of the debt is denominated. A year ago, SELIC was at 13.75 %. It is now at 8.75 %, down by over a third in just a year, but a reversal is expected, with some local forecasters thinking it may go up by 4 points by the end of 2010.

Relax, more statistical games are planned in the cosmetics field (it is time that L’Oréal transfers its corporate headquarters to Brasilia). The authorities, having already taken out a U$ 10 million an hour interest bill from its fiscal deficit calculations, they are now pondering whether to also exclude the cost of reactivation packages.

In late July, Brazil managed to place a 28-year bond issue for U$ 500 million, with a coupon of 7.125 %. Admittedly this is more than Citibank is paying us on our time deposits, but at least these are guaranteed by Uncle Sam (why are you laughing?). There was actually demand for U$ 7 bn and the bonds were placed at 108.63, still giving a yield of 6.45 %. The question is whether they can keep up the coupon and pay the principal in 2037. Look at the past 28 years and you may find the answer.

SOME OTHER STATISTICS Brazil was the Latin American country with the largest stimulus programme, much of it unfortunately directed to consumption, with some going to housing. Credit card use is at a record level, and bank credits for that purpose are up. This will add debt accumulation to the population. Even though they are at a 14 year low, average interest rates on consumer credits are at an average of 7 % A MONTH (that is 125 % per year, unless you are a Chilean economist, and think it is actually 84 %).

In fact, one wonders where this lead in recovery that Brazil is supposed to be taking in Latin America can be seen (“The Clear leader of the region’s recovery”, as JP Morgan described the country in late July). One would have hoped that the shit they put us in over the past year would shut up all these investment bank twits. No, they still talk, write, get invited to speak at seminars and even insist on getting bonuses! Only retail sales and car sales recently showed positive growth, helped by all sorts of incentives. Passenger car sales to September rose by 5.5 %, but the lack of real investment is better reflected by the 20.2 % drop in truck sales over the same period. Industrial Production in the first 8 months was down 12.1 %, and second quarter GDP was a negative 1.2 %, after a first quarter drop of 1.8 %. Passenger car output to August was 10.7 % lower and that of trucks 34.6 % down. The August urban unemployment rate of 8.1 % was the same as in June, and 0.5 points above a year earlier.

On the external front, the 8 % rise in the January-September trade surplus (to U$ 21.28 bn), was only due to imports (-31 %) falling faster than exports (-25.9 %). Capital goods exports alone were down 46 % in January-August. This helped shrink the first semester’s Current Account deficit (- 52.5 % to U$ 9.56 bn).


External reserves as of end September were at a comfortable record of U$224 bn, so at least (thank heavens for small mercies) we do not have to fear a good old fashioned external sector crisis (which used to cause most Latin American disasters in the past, hence the fact that for many psychologically frozen analysts), Country Risk is limited to a study of the external sector.)

Inflation is also under control (under 3 % in the first 8 months, accumulating a 12-month total of 4.4%).

SAUDI ARABIAN MIRAGE? Those familiar with the works of French fabulist La Fontaine, himself inspired by older writers of morality tales going back to Greek literature, may remember the one about Perette et le Pot au Lait. In it, Perette, a carefree milkmaid, is walking with a pot of milk on her head and she starts daydreaming about how she is going to benefit from the milk she is transporting, ending up as the head of a major farming operation. Unfortunately, she fails to see an obstacle on her way, so absorbed she is in her fantasies, that she stumbles and all the milk is spilt, putting an end to her dreams.

No long ago, Brazil announced with great panache (no faltaba menos) that it had found a giant oil field under the sea bed, with such potential as to make the country a new Saudi Arabia. “A passport to our future”, described it presidential hopeful Dilma Rousseff . The money was going to go towards developing the country and eliminate poverty (why didn’t they do it when they had rubber or coffee, one wonders). Heated discussions started as to how it was going to be exploited, by whom and which proportion of earnings would the various stakeholders get. There was even talk of the “Norwegian model” in managing the bonanza.

Back in 1974, Brazil claimed similarly (soon after the first oil shock) that it had found major deposits that would make it self-sufficient in oil over the short-term. In fact, it took over 30 years and several more finds to barely reach that aim. In fact, strictly speaking, the country is not as yet self-sufficient in oil, gas and derivatives, as the sector’s trade balance in the first 8 months of 2009 was still in deficit to the tune of U$ 3.5 bn. Even if we grant the fact that the new deposits, known as “Pre-sal” exist in the quantities mentioned, there are a number of strong doubts and reservations.

-The deposits are some 5,000 metres below the sea-bed. Though the technology to extract at that depth does exist, it is very specialized and expensive.
-There is no single mega-deposit, but a series of “pockets” of oil, which have to be exploited separately. They are also spread over an area measuring 160,000 Km2. Each will need its own expensive perforation and production installations (only two companies in the world currently manufacture them), at a cost of between U$ 80 and 90 a barrel (the figures vary, and they are probably impossible to gauge until you actually get on with it.
-Due to the nature of the deposits, the recovery rate of the oil “in situ” is likely to be below 15 % of what is actually there
-There are some legal problems related to the proximity of some of the Pre-sal to existing concessions held by other firms.

Even if it is true that the new discovery doubles the size of Brazil’s oil reserves, it will require a tremendous investment and technical effort to exploit it, in order to sell at a price which may or may not be economic. Hardly a boon considering the previously described fiscal constraints, particularly as in order to keep control, the authorities seem keen that most of the work will be done by the state firm PETROBRAS.

According to the company’s president, they will invest no less than U$ 111bn to develop Pre-sal by 2020, to which one has to add nearly U$ 300 bn that the private sector would have to invest as suppliers of goods and services. There are strong fears that such sums will crowd out the availability of capital for other needs in both the state and the private sectors. Before Pre-sal became the talk of the town, there was another pharaonic fantasy of building 60 nuclear power stations. Petrobras estimates that it will need 40 rigs by 2017 (there are only 80 similar ones in service today all round the world), of which it insists 28 must to be built in Brazil itself. Is it the best way to spend U$ 400 bn when the rest of the world is trying to reduce dependency on fossil fuels?

STILL AN UNDERDEVELOPED COUNTRY If Brazil wants to emulate Saudi Arabia, it might better consider a policy of cutting the hand of thieves. Even by Latin American standards, the levels of corruption and mismanagement in the public sector are abysmal, as are business manners. In the past two years, I have sent umpteen messages to various Brazilian entities ranging from the Rio Film Festival to the Defence Ministry. Not a single one has ever been answered.

The national infrastructure is seriously lacking in many ways. Ports are a big problem, and recent accidents have also turned up a disastrous situation in airports and air traffic control. Here again, the announced action is on prestige projects. The prime example is the high speed train link between Rio and Sao Paulo, originally estimated at U$ 11 bn, but now expected to cost from U$ 15 to 20 bn. If such a proven technology is difficult to cost up, imagine what can happen to the calculations for Pre-sal investment. Only a third of roads in the country are considered to be in good condition. Energy shortages also loom in the medium-term.

To that, one has to add the worst income distribution on the continent, and abject levels of poverty. Farmers, over and above the 8 % drop in output estimated for this year, have seen concentration of ownership actually worsening in the past 20 years. No less than 30 % of Brazil’s farmers are illiterate. Though some poverty-reduction programmes such as Fome Zero and Bolsa Familia have brought-in relief, rural poverty is still a huge problem.

One day, the Hadji Yatmaz may not stand up after all. If you circulate this report to third parties, I am not interested in their baseless debunking comments. This paper was very well researched, and contrary to their impressionistic opinions, is based on facts and figures, goods which are often in short supply among other scribblers. Also anyone complaining that I did not mention “the good aspects”, should remember that I am a diagnosis doctor, not a publicist.

Chile: It helps to have smart friends

Armen Kouyoumdjian is the dude in question and when it comes to analysis of Chile's macro situation (or any other South American country when he put his mind to it, for that matter) there's no better independent voice out there. Armen's been kind enough to allow me to reproduce his weekly missive on the blog here today. If you want to join his list send him a mail (address below) and tell him Otto sent you...and say please, cos I consider being on his list a privilege, not a right.

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CRISIS IMPACT ON CHILEAN FISCAL RESULTS

An Analysis of the First Quarter 2009 results

By Armen Kouyoumdjian

kouyvina (AT) cmet.net

June 12, 2009

The news that Chile’s GDP was negative for two quarters and fell even sharper during April means that the country is in recession according to the generally accepted principles of economic analysis. However, the authorities have refused to use the term, adding another element to my description of “management by negation”.

There is one aspect where figures do not lie, because contrary to many other vague macro-economic statistics (such as GDP, Unemployment or Inflation), it reflects a more or less precise accounting exercise. This refers to the fiscal accounts, for which first quarter 2009 figures were published in late April, and I have only now gotten round to processing them.

PARTICULAR FACTORS Even though budgetary figures may be precise, their presentation has become exceedingly hard to fathom in recent years. The reasons include combining current, fixed and financial transactions in the final results, and allow Hacienda advisors to come up with somewhat distorted final figures. Still, the raw material is there and it can tell us a lot. Another statistic which tells us a lot about the crisis in Chile, but is not financial, are the 20,000 homeless people who seek shelter each night in Santiago alone, and that figure only relates to those staying in the hostels of one such charity, the Hogar de Cristo.

The first quarter of 2009 figures should not be projected for the full year, because they incorporate some aspects which are unlikely to persist for the whole of the year. They include the impact of the exchange rate on both revenue and expenditure denominated n foreign currency. In the first quarter of 2008, the exchange rate averaged 454 pesos per U$. The equivalent figure for 2009 was 581 pesos. Discounting inflation, the real peso value of the dollar increased by 22 % on a year-on-year basis.

The other variable which marked a strong change was the price of copper. From an average of U$ 3.54/lb. in January-March 2008, the price dropped 56 % to just U$ 1.56 this year. It has averaged U$ 2.03 in April/May and is now over U$ 2.30.

One aspect which does look as if it will continue all year is the increase in expenditure, because it is an electoral year. One has to take this with a pinch of salt as announcements and actions are separated by the Chilean bureaucratic Colorado Canyon (the U$ 1 bn capitalisation of CODELCO, part and parcel of the U$ 3bn “stimulation plan” announced ages ago, is still under discussion).

There is not much point comparing the first quarter results to the draft budget for 2009 announced at the end of October last year. This is not so much because we only have one quarter’s figures, but the hypotheses contained therein on growth, inflation, copper price and the exchange rate have long since lost their meaning.

REVENUE SIDE Looking at current revenue, which consists mainly of taxes, these plunged by 37.3 % in the first quarter, to a total of U$ 7.64 bn. Though some of the drop was due to temporary reductions or suspension of taxes on fuels and stamp duty for instance, other items truly reflect a very sick economy in terms of growth.

No tax reflects economic activity better than VAT. Revenue from that source accounted for no less than 38 % of current income, and fell by 20.5 % in real terms (all percentages mentioned in this report, in accordance with Chilean accounting principles, are in real terms).

Revenue from copper and other mining activities saw the sharpest drop, falling by 92 %, and ending up at just 3.4 % of revenue. In fact, they reverted to form, and maybe now people will believe me when I say that in most years, the Chilean state gets more out of the nasty habit of smoking than from copper. No wonder, in the country with the highest per capita expenditure on cigarette and drink, as previously mentioned. In fact, tobacco taxes brought in $ 248 million during the quarter, 70 % more than copper, and bucked the trend with a 6.5 % increase. A combination of less driving and lower taxes meant that on the other hand, fuel duties brought-in 13.9 % less, at U$ 314 million. Lower imports and statutory reductions under Free Trade Agreements meant that customs revenues dropped by 48.6 %. Income tax, another good measure of economic activity, and which accounted for 29.5 % of revenue, saw its yield reduced by 25.2 %.

There is a puzzling increase of 8.4 % in the revenue from state social security contributions, which at first glance does not square up with the increase in unemployment. The only explanation I can think of is the move of lower paid workers from private health coverage to the less expensive state FONASA scheme.

Non-current revenue only brought in an additional U$ 57 million.

Some time in the near future, if it has not already been said, some (or several) authorities will insist that the deterioration of public finances is mainly due to the fall in copper. This argument, which is older than the Tibetan Book of the Dead, once again stands no scrutiny. In the first quarter of 2009, the Treasury received U$ 2.2 bn less from copper. This represents less than half the total loss in revenue (U$ 4.54 bn).

Like all of us stupid savers, public finances also bore the brunt of the drop in interest rates on the country’s savings. These dropped by 77 % to U$ 257 million. As of March 31^st, consolidated Treasury savings amounted to U$ 23.4 bn.

EXPENDITURE SIDE The analysis of the expenditure side of the equation is more complicated, because we have an important element of non-current items. Starting with current expenses, these increased by 15.3 % in the first quarter, with all items showing an increase, led by purchases of goods and services (+ 20.5 %) and subsidies & donations (+ 17.7 %). The 14.9 % increase in the interest bill (itself a modest U$ 255 million, almost exactly equal to the revenue on savings), is most probably due to the higher peso cost of servicing dollar debt, as mentioned earlier.

To the U$ 7.18 bn of current expenditure, one has to add U$ 1.55 bn of non-financial investments and transfers. The amount of investment, at U$ 922 million, jumps by 57.3 %, though transfers to other entities also shows a 57.5 % increase. It remains to be seen how much of that money has actually been spent at the receiving end. The official report mentions a 73 % increase for housing, 52 % for public works and 45 % for public security.

Combining current and investment outlays, total expenditure increased by 21.3 % in the first quarter.

BALANCE AND OUTLOOK On the basis described above, there was a quarterly deficit of U$ 1.1 bn or 0.7 % of GDP. Under the circumvoluted methodology of Hacienda, they still aim for a balanced budget for the full year.

Chile: The Viña del Mar Progressive Summit: A Special Report

Ever wondered what happens behind the scenes at these fancy Summit Conferences? Well here's your chance to find out. Below follows a special report written by renowned LatAm economics and politics analyst Armen Kouyoumdjian on the so-called "Progessive Summit" that has just happened in Viña del Mar, Chile.

I have asked for and received permission from Kouyoumdjian to reprint this essay which went out today on his mailing list (I'm one of the fortunate names). As LatAm analysts and commentators go, he's as good as they get (yeah, all creepy I know, but it's also true) and his take on what went on in Chile these last few days is both educational and highly entertaining.

For those suitably interested, he's contactable at the e-mail address .

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ORGANISING THE “PROGRESSIVE” SUMMIT
More like a Regressive Hole

By Armen Kouyoumdjian: kouyvina (AT) cmet.net

March 30 , 2009

There was not supposed to be any more papers from me until after Easter, but I cannot rest until I pass on my experiences and observations related to the gathering described as “the progressive summit”, which took place in my adoptive home town of Viña del Mar over March 27 & 28. I would strongly urge the journalists on my list to spread its contents, translating them if necessary, so that the whole world knows how such things are handled in Chile. They might ponder twice on any future occasion before agreeing to take part in such a gathering again on Chilean soil, until the natives come to their senses and grow up. Those who expected (and I had been asked to report beforehand) an analytical view of the proceedings will be disappointed, but as you shall see, the fault was not mine.

THE GENESIS The events of March 27 & 28 were divided in two parts. The first day was dedicated to a seminar on “Progressive Governance” (full name: Responses to the Global Crisis: charting a progressive path). It was organized, under the auspices of the Chilean Government, by a UK-based international think tank, Policy Network . This was set up in 2000 during the Blair years, and its chairman is Labour Peer Lord Radice, with the colourful cabinet minister Peter Mandelson as president. Its stated aim is “promoting progressive policies and the renewal of social democracy”. The Chilean partner was the Socialist party’s think tank, Instituto Igualdad, dating from 2005 and chaired by Sen. Ricardo Nuñez, who will be retiring at the next election. Its stated aim is to “develop and project democratic, socialist and progressive values and ideas within Chilean society”.

You may have noticed the “nuance” between the two definitions. Whereas Policy Network does not utter the word “socialism” (at best, its literature refers to Centre-Left), Igualdad makes no qualms about its allegiances (though those of us who follow Chilean politics are aware that even within the Socialist party, there are several often violently opposed trends).

The conference “merged” on the evening of the 27th with the next day’s real summit, as the last plenary session involved president Bachelet and some of the heads of state and government attending. The 28th in the morning was devoted first to ad hoc bilateral meetings between some of the senior guests, followed by two round tables of leaders. Those included US vice-president Biden (who was not initially considered-quite frankly as any psychiatrist will tell you, “America” and “Progressive” do not automatically come up in word association exercises). UK PM Gordon brown, who preceded his arrival in Chile with a gruelling tour of several other countries, Spanish leader Rodriguez Zapatero (who had to be dragged to Chile kicking and screaming and needed two persuasive phone calls from Bachelet to finally turn up), the prime minister of Norway, and the regional backing group made up of the presidents of Argentina, Brazil and Uruguay (the latter being the only real “progressive” of the whole lot). Calls as to why the other “real” progressives of the region had not been invited were dismissed with the lame excuse that “they had not attended the previous ones” (such as the April 2008 London meeting at which Ms. Bachelet extended an invitation to hold it on the shores of our little Pacific resort town). She let the act out of the bag in her closing remarks at the press conference where she defined being “progressive” as synonymous to “economic freedom”. Say no more. We know where that freedom got us.

TAKING PART So much for the background, and on to my personal experiences and observations. We do not get important conferences or summits every day in Viña del Mar, and considering that I am the only international analyst, City of London veteran, Latin American expert, etcetera, etcetera, I thought that it may be natural for me to take part in the conference.

Rightly guessing that the real movers and shakers in the organization were Policy Network, I contacted them by phone and email, explaining who I was, even offering my friendly practical services on the spot (which it seems were sorely needed as it was reported to me that their staff manning the information desk in the hotel “knew nothing”), and obviously sent in samples of my writings (which are as “progressive” as you can get. The single response I had was a semi-polite dismissal. I then turned to the Chilean side, hoping for more luck, because I happened to know some people linked to Igualdad. It took no less than three attempts to exact a reaction, even then, which was that they were “full up” (closed circuit TV images of the meeting rooms subsequently indicated that there were always plenty of spare seats). In fact, the real reason was that the invitations depended not on your intrinsic qualities or professional activities, but the fact that you were, or had been, a “figure”. Chileans oh so love to fill-in rooms with “faces” that can be recognized.

Thanks to a mole at the conference, I was able to obtain a copy of the list of attendees (which Policy Network specifically refused to let me have when asked). Predictably, it included sitting ministers, ex ministers and undersecretaries, high profile researchers and the economist. You were supposed to be “recognisable”. The Chilean audience laughed dismissively when one of the (non-Chilean) panel chairs asked OAS secretary-general Insulza to “identify himself”, obviously for the benefit of all those who were not Chileans. Obviously, attendees such as the spokesperson for the Bucharest social Democratic Party was expected to know who the man was without him having to humiliate himself by a self-presentation.

Not being one to give up easily, I decided to use my plan “C” and register as a journalist. Though I do contribute to several publications round the world, I am not a journalist per se on a full time basis, but there was no other option. I shall spare you the tribulations of the accreditation process, whose ministry-in-charge changed 3 times over a two-month period, but on the eve of the first day of festivities, I had my credentials.

SECURITY SYSTEMS AND FAILURES To this day I do not know which is the institution or person (s) directly responsible for organizing press and security arrangements for this summit, but may all the plagues of Egypt fall upon them for eternity.

At some stage, it was decided that the only potential danger that the delegates were exposed to was the press corps, so all the security concentrated on keeping journalists as far away from the proceedings as possible. This belies a total lack of understanding of what these gatherings were all about, and why many members of the international press travelled for 24 hours to be here. A badly written 5-page set of instructions, if you read it carefully several times, brought you to the conclusion that unless you were a still or TV cameraman, you had no business being anywhere near the event. The fact that whatever is said in public could be watched online from a bed in Oslo or Timbuktu and would be common knowledge the next day, and that the real journalistic work at these events was to be able to informally address delegates, private or officials, in the corridors and at coffee breaks, soak-in some atmosphere, etc. was totally alien to the organisers.

The Carabineros in charge of security, when they saw your badge a mile away, would direct you straight to the fenced-in corral. Mind you, if you had a good story, and in typical local fashion, you could talk your way past them. A shabbily dressed young couple said they were going to use the hotel’s gym and were let through without even beingasked for ID. Conference and summit delegates had a badge which said “Policy Network” (easily forgeable, I thought) and at no time was any attempt made to check that they were the rightful owners of that badge. Some journalists, obviously more “progressive” than others, had managed to be invited to the proceedings.

Some journalists who had made the trip with government leaders could not get anywhere near them inside the hotel. From time to time, some second division personality or official spokesman would deign to come over to the fence and say a few words to those hacks lucky enough to be waiting patiently under a freezing foggy Viña del Mar autumn day. Because it was in the open air, and windy, not to mention six feet away from a busy road nobody had though of closing off, the only way you could hear the speaker was to be so close to him as to run the risk of being arrested for sexual assault. Some of those spokespeople for some reason refused to be photographed.

Occasionally, some journalists managed to arrange an interview inside the hotel by telephone, but when they tried to actually go in to record it, they were not let through. I witnessed the episode when the press secretary of British minister and Policy Network president Peter Mandelson went to fetch from the press corral a team from Sky News. The carabineros said that only some “liaison” ladies from the organisers (they were only two of them) had the right to escort them in, and none of them could be found. Strangely, as the (authorised) Economist correspondent was walking by, the cops told her to take them in (obviously a senior ministerial servant has less clout than a weekly magazine, as long as they are both British, of course). I saw many other cases of totally arbitrary decisions as to who gets in, but then as readers know, I am fully conversant with the partiality of police and legal institutions here, even towards psychopaths.

After several hours of playing the paparazzo, I suddenly realised that notwithstanding the harassment of the press, the navy commandos patrolling the sea opposite the Sheraton Miramar, and the helicopter patrol which made listening to the impromptu press conferences-in-the-street even more difficult, there was a major open flank in the security of the summit and all those inside. It is very difficult to describe precisely where the weakness lay, unless you know that particular spot of Viña. Basically, if you drove up Avda Marina from the centre towards the hotel, in a solid vehicle laden with explosives, you could easily rev up the engine and through the driveway between the plastic cones and without bollards or metal barriers to stop you, smash the glass entrance doors bang into the lobby. There were not even foot carabineros on that side of the hotel’s flank (they were too busy keeping those murderous journalists away). I am surprised that the two plane loads of Biden’s entourage did not realise that (next week the same location hosts the regional meeting of Interpol- say no more). As I mused my surprise aloud, two Chilean TV crews nearby asked who I was and I put my security and defence analyst hat on, giving a scathingly critical interview of the vulnerability of the venue (well folks, yours truly is a guy you should have inside pissing out, because if you keep him outside, he shall piss-in, and it was your decision this time).

Another ridiculous security lapse was the delegate accreditation office which was under a tent within the press concentration camp. As even ministers had to go through there before being allowed-in, it exposed them to all sort of risks. The last ignominy was the closing press conference of the leaders at lunchtime on Saturday March 28. By now, I was quite prepared to hear that the press conference would take place without the press being present. No, we were assured that we could finally go in. Hallelujah! Nearly an hour after the scheduled time, and after both Ms. Kirchner and Lula had departed, we were escorted to the hotel, in a manner of speaking. The fact that we were third-class citizens was not forgotten, and we were directed to a staircase from the street to the underground car park. We started being submitted to a search vaguely based on that of us airports but without having to take our shoes off and no body searches by big black mamas. This was soon interrupted because Lula had decided to drive off at that same moment, and the two flows were in opposite directions. We also walked past Biden’s armoured SUV (so much for security), up the stairs again and straight into the conference room (which had three doors, and though it was an event FOR THE PRESS, we were clearly told that “journalists through the third door”.

Six questions were to be drawn by lot, and as I was not present at the draw, would not wish to speculate on whether this was carried out fairly or not (some local hacks expressed surprise that El Mercurio always seems to draw a question). In fact, in the event, only four were asked, if I counted well (by that time I was so hungry that, sitting in the front row, I made eye contact with Zapatero, who appeared as fed-up with the whole show as I was ). On the way out, a local friend kindly gave me a lift home up my hill.

FACILITIES A word about how the press corps were treated in terms of physical facilities. A prefab dome had been set up on the hotel car park, at least one hundred yards away and could not even be seen from the hotel due to a tree line. Inside, there were a lot of computers, though the signal often broke off, many screens froze and the keyboards were in bad conditions.

There was supposed to be an image and sound feed from the conference, but that was not on until lunch time (and of course no facilities available to distribute copies of the speeches). If there were toilet facilities, I did not see them.

From time to time, in good concentration camp fashion, a food and drink trolley arrived from the hotel, with a couple of coffee mugs (tea was not an available option to non-coffee drinkers, though some overthick orange juice appeared on the last day). The first of these deliveries was not until 2 PM on the first day, by which time the press corps was getting frantic and those who had Chilean currency were relying on a private kiosk in the corner which did a roaring business. Sometimes it was accompanied by something to eat (small sandwiches, and at lunchtime the second day, Madeleine cookies, arguably a strange choice for lunchtime fare), but far less than our accumulated hunger needed. Journalists assaulted the few trays like refugees at a Dharfur camp and they were quickly cleared. The area where the venue is situated has no other cafés or restaurants nearby, another detail which was overlooked by the organisers. Those with delegate batches were meanwhile eating for free in the Sheraton.

The local press, generally docile and resigned, know that it cannot complain because they will not be accredited next time, and might even lose their jobs. The foreign press were livid. I hope they write about it, as I am tired to be the only one denouncing such abuse. As one international news chain’s correspondent remarked when we were being herded back through the car park under orders of “periodistas abajo” by the kapos, “what they really mean to say is ‘abajo los periodistas’). Shame on you Chileans, and shame on you foreigners who were accomplices to such behaviour.

As for me, I still managed to pick up quite a lot of information despite all the restrictions, because I have nearly 39 years’ experienced of conferences in positions ranging from chairing them to being a lowly journalist, and I know all the tricks and some. I pity the jet-lagged foreign journalists who made the long journey, after much pondering from their bosses in these times of budgetary austerity, only to be treated like this.