Thursday, February 26, 1998

Speaking about trust and distrust

International financial risk rating entities are once again issuing their results for Venezuela. And once again, everyone begins to tremble. There is confidence! Ooops, there is no confidence! The debate is once again on the table and I take advantage of this to share some of my reflections on this issue with the readers.

It could be that I am not exact in my appreciation, but then again, when dealing with something as subjective as confidence, it shouldn’t really make much difference. In 1982, the then Minister of Finance decided that the country should be paying interest rates well below those being required by the international banking community in order to renegotiate part of Venezuela’s foreign debt. This decision blocked the restructuring of our foreign debt and together with the crisis in Mexico and other indebted nations combined to unleash the events which resulted in the devaluation of Black Friday of February 1983.

Obviously, the Minister was severely criticized. I considered this criticism to be unjust since, as far as I was concerned, the Minister was in reality a hero of the nation; almost enough so as to merit a statue in some important plaza. In my opinion, his actions, which generated international distrust, saved the country from billions of dollars in debt, which would have bloated the amounts actually accounted for after the disaster. Few heroes can be proven to have undertaken such important deeds for the good of the nation.

In reality, to inspire confidence in others should be of no concern for the country, while it has not been able to find or generate an economic and administrative model which inspires the confidence of its own people. Trying to do so simply confuses the search for in depth solutions. 

In addition, the persons for whom instruments of measurement are designed do not include those foreigners whose confidence we really seek. Rating agencies rank a country’s measure, principally the latter’s ability to service its debt. As such, their market is comprised of bankers and investors who simply wish to make a short-term financial investment. Nothing of special importance to the country.

Those foreigners who could really interest us are the ones who come to the country with resources, the ones with the intention of remaining here for the long-term, to put up factories, cultivate the land, generate employment and maybe even raise a Venezuelan family. That is to say, the one whose objectives are one and the same as those of the nation. The opinions and confidence of these people are not measured at all.

In addition, both the methods and measuring instruments as well as the professionals actually doing the measuring, probably continue to be the same. They are the same ones that not very long ago argued that it was impossible for a country to be bankrupt, thereby justifying stratospheric limits for indebtedness with such enthusiasm that both bankers (who by the way proved to be unprofessional in most cases) and the common Venezuelan, upon hearing this siren song, joined forces and created the mix-up of the century.

For those of you who may have any doubts about this, I suggest you look at the ranking of six months ago. In those listings, the majority of the Asian countries looked like nothing short of marvel of creation. Haven’t you recently heard all of the crying over the Asian financial crisis?

We must evidently listen to the opinions of the credit agencies. Their measurements reflect many variables of great importance for the well being of the country. Unfortunately they also are the principal source of information about the country for many foreigners. In other words, to lie awake at night worrying about ranking doesn’t make sense.

You may remember the story about the anguished debtor who could not sleep, but found a way of finally getting a night’s rest by transferring his insomnia to his banker with the simple words “I can’t pay you”. In this case, something similar occurs. I personally sleep better when Venezuela’s ranking goes down, since I am then sure that lenders will not be making additional resources available (in my name as well as in the name of my children, grandchildren, great-grandchildren and other future debtors) to governments that insist on misspending them.

The day the government, during electoral period, pays more attention to the opinions of its humble subjects that to those of the glamorous international agencies, we will finally stand a chance of making it out of our standard situation. The latter, according to all international norms I know of, can be objectively classified simply as “poor and moody”