About indexes and their disclosure

I remember that a few years ago I argued the thesis that lack of information actually could be valuable as a promoter of development. On some occasions, ignorance of certain matters kept alive the dreams of finding the greener valley. These dreams are the ones that drove Americans to invest in Italy, Italians to move to Venezuela and Venezuelans to find work in the United States. This generated economic growth all around.

The increasing speed of today’s information flow raises some doubts. Although it is certainly advantageous to insure that correct and relevant information as well as good news is transmitted rapidly, it is also certain that this same speed is usually applied when propagating incorrect and irrelevant information as well as increasing volumes of bad news. For some not totally identified reason, I feel that the magnifying effect of speed upon bad information is somehow greater that on good information. Making peace, for example, requires much time that is often not available. Provoking war is often a matter of seconds.

Some of the previous concerns plus the fact that we continuously observe how media can make so much of so little have made this whole evolution of jumping from blissful ignorance into urgent pseudo certainties a quite important issue to me.

The Riskiness of Country Risk

 How horrible it must be to work as an air-traffic controller! Any slight error can provoke an unimaginable human tragedy. No wonder these professionals burn out so rapidly. I “suppose” the same must happen with the country-risk assessors, those people who carefully pass judgment as to what the country risk is for any given nation.

The all important mission of these risk evaluators is twofold. The first, that for which they are actually paid, consists of analyzing whether or not the debtor nation will ultimately be able to honor its obligations. This determines whether or not pension funds, banks, and insurance companies will be willing, or even allowed, to invest in that country’s sovereign debt instruments. The second, even more important than the first, is to send subtle signals to the governments of these nations in order to help them improve their performance.

What a difficult job this is! If they overdo it and underestimate the risk of a given country, the latter will most assuredly be inundated with fresh loans and will be leveraged to the hilt. The result will be a serious wave of adjustments sometime down the line. If on the contrary, they exaggerate the country’s risk level, it can only result in a reduction in the market value of the national debt, increasing interest expense and making access to international financial markets difficult. The initial mistake will unfortunately turn out to be true, a self-fulfilling prophecy. Any which way, either extreme will cause hunger and human misery.

What a nightmare it must be to be risk evaluator! Imagine trying to get some shuteye while lying awake in bed thinking that any moment one of those judges, those with the global reach that have a say in anything and everything, determinates that a country has become essentially bankrupt due to your mistake, and then drags you kicking and screaming before an International Court, accused of violating human rights. If I were to be in the position of evaluating country risk, I would insure that the process is totally transparent, even though this takes away some of the shine of the profession and obligates me to sacrifice some of my personal market value.

How lucky we are that we are neither air-traffic controllers nor sovereign-risk evaluators! However, since we can easily become victims of their missteps, it behooves us, if only because of our survival instinct, to make sure that both do their jobs correctly.

We have seen in recent Country Reports how, after having introduced a myriad of information into the black box of methodology, as if by magic, a credit qualification is produced. Many of these reports seem to me like the pronouncements of film critics. It would seem that, more often than not, the individual evaluator is determining more how much he likes the ways or forms the Directors of a nation try to honor its obligations than on producing an honest and profound financial analysis of the country’s capacity for servicing its debt correctly.

In his book The Future of Ideas: The Fate of the Commons in a Connected World (New York: Random House, 2001), Lawrence Lessig maintains that an era is identified not so much by what is debated, but by what is actually accepted as true and so is not debated at all. In this sense, given the risk that the perceived country risk actually becomes the real country risk, it is best not to assign an AAA rating blithely to the risk qualifiers—perhaps not even a two-thumbs-up.

From The Daily Journal, Caracas, September 27, 2002

Thou shall not PowerPoint

· Dear Colleagues,

· When we were small, our fathers taught us never to FingerPoint anyone, and today we also need to teach kids not to PowerPoint one another. 

· Yes, I have seen some splendid use of PowerPoint presentations, but, in general terms, the world is not a better place for it.

· PowerPoint has empowered so many people with so little to say with a deep belief that the world is waiting for them to predicate, for hours. 

· PowerPoint is little by little replacing all decent readable issue papers with thick bundles of copies of PowerPoint sheets, each one containing less than 15 words, in beautifully irrelevant colors, except when replaced by thin bundles containing miniature unreadable copies of aforementioned sheets. 

· PowerPoint is forcing the world to structure its whole thinking process in terms of bulletpoints. 

· NO, thou shall not PowerPoint me and I promise not to PowerPoint you … too much. 

· Happy Holidays

· Per 

· December, 2003

Today, let us talk about the bribers

On the 26th of October, Transparency International, TI, published its annual index ranking the Perception of Corruption that exists in various nations. As usual, Venezuela was somewhere down at the bottom of the list. However, for the first time, TI also published an index related to the Bribe Payers (BPI).

This index ranks the 19 countries with the most exports and is based on the perception of how corporations from those countries use bribes to generate business. 

A professional firm interviewed 770 high-level executives in 14 emerging markets with geographically diversified imports. Venezuela was not included among the interviewed parties, since most of its imports come from only one country, the United States.

The executives interviewed belonged to large firms, banks, chambers of commerce, auditing firms, and law firms. A result of 10 points means no bribes are used while 0 means, naturally, that bribing is used as a norm. The countries with the highest ranking were Sweden (8.3), Australia and Canada (8.1) and those at the bottom of the ranking were China (3.1), South Korea (3.4) and Taiwan (3.5). The ranking of some of our main trading partners were England (7.2), Germany and the United States tied at (6.2), Spain (5.3), France (5.2) and Italy (3.7).

Just like the Corruption Index, the Briber’s Index will create much argument and rebuttal, especially from those that were not favored by their ranking within the index. 

Among the traditional arguments, we are sure to find that many will maintain that the index is not really objective, but is really all about perception and that therefore, before being an ethical problem it is really more an image problem. 

We will perhaps also hear technologically inspired arguments, such as accusing the better-positioned countries of using advanced versions of corruption, something like the stealth planes that do not appear on the radar. Sometimes when I read about the lobbying in the United States, I can’t avoid a nagging feeling that corruption has just been institutionalized.

I have often seen how citizens of many developed countries shed their shackles and truly enjoy as tourists the perhaps humanizing experience of trying to avoid a traffic ticket by negotiating avidly with the particular foreign public servant who has accosted them. 

On the other hand I have also seen people who behave better away than at home. We see it over and over again when Venezuelans, who, although notorious tax evaders at home, become exemplary citizens when overseas—to the extreme of not using readily available and popular loopholes. 

Because of those contradictions it could be interesting to compare the two indexes side by side, and find out whether there are some significant inconsistencies. It does not look that way as with the exception of 5 countries, all those that have been ranked in both indexes, are basically in the same relative position. As it were, Sweden is first in both indexes while China is last.

The two main exceptions to this rule are Singapore which, in this group of 19, appears as 3rd in terms of the least corrupt nations but as number 11 in the Bribers Index and Belgium which, contrary to Singapore, ranks as number 15 of the least corrupt nations, but comes out somewhat better as number 8 among the Briber’s. Let us speculate a bit about the meaning of these results.

On Singapore the results would indicate that it behaves very well at home, but goes haywire and is a menace when abroad. Without a doubt, a country like this must be a formidable competitor in foreign trade and one would entreat the OECD to insure that it is also enrolled among those countries that have recently signed the OECD Anti-Bribery Convention.

But what about those Belgians? Surprisingly they seem to behave better abroad than at home. Could this be some kind of special “stealth” technology at work? Could it be that they on purpose wish to be perceived as corrupt at home, in order to enhance belief in their human nature? Or could it be that they simply have decided to invest in a change of their image abroad, and that this was ultimately successful?

We shall see what gives next year when new investigative technologies tackle the inexplicable.

 

From The Daily Journal, Caracas, November 4 1999

The index of perceived Corruption

Transparency International (TI) has developed an index by means of which it ranks countries around the world according to their perceived levels of internal corruption. I have a Danish friend who recently came to me for the umpteenth time with this list clutched firmly in his fist, proudly crowing over the fact that Denmark once again tops the list as the least corrupt country while Venezuela once again comes in toward the bottom, beaten out for the basement spot by only seven countries among which we find Colombia and Nigeria.

As a Venezuelan, I immediately went into a defensive mode. I argued that since the index is based on the perception of corruption, it could be that the results merely indicate a serious problem of exactly that, the perception, not the reality. Additionally, should this actually be true (evidently not the case), I told him that although I did lament the fact that Venezuela was not mentioned in the top half of the list, I was at least satisfied that we were definitely not occupying any “not too human” first place.

My good friend, observing my discomfort, realizing that I have some Swedish blood in my veins, and in a sincere effort to console me, blurted out that in reality he also did not understand why Denmark had been ranked first while Sweden was ranked third. My immediate reply was “Chico, Denmark must simply have paid more for it.” 

Jest aside, the index is the result of a serious effort on the part of professionals of diverse backgrounds who, using the few tools available, have managed to develop a system of evaluation which is useful and of great support for every citizen wishing to combat this age-old plague. 

Its importance is of even greater significance when we hear that Transparency International suggests that we don’t attribute more accuracy than necessary to its index. Venezuela’s ranking on this list of 85 countries is such that it is evident, to say the least, that the country’s level of corruption is far greater than average. This is bad enough!

Any debate over whether Venezuela should be ranked higher could be perceived simply as a strategy aimed at discrediting the index. Only the beneficiaries of corruption could possibly have an interest in doing this. A true patriot would not waste one single second of his or her valuable time in debating why people speak poorly of our country. On the contrary, he would dedicate all his time and energy to correct the reality instead of objecting to the perception.

This debate on corruption is truly difficult and complicated. Even though we should be pleased that such an index exists, I am worried that the mere fact that we are trying to reduce corruption to terms of a measurable dimension may lead us to oversimplify the problem dangerously.

The index, in principle, only measures the perception of corruption in general terms. This is defined in ample terms as “the abuse of public office for private gain.” In this sense, and because of the nature of the problem, I am sure that when using the term “gain” we are referring mostly to a monetary benefit. This avoids measuring other aspects of corruption that could be just as important or more.

For instance, I believe that the appointment of someone to public office for reasons other than his or her capacity or professional integrity is a corruption that is even more pernicious and costly to the country than the sum of all monetary corruption put together.

An example of this is our recent banking-sector crisis. The costs caused by the poor administration of this crisis are far and above the costs attributable directly to the bankers involved. It’s not that the bankers are free of guilt. They did undoubtedly start the fire. But whose fault is it that the financial firemen were caught napping and did not hear the alarms, and that once they finally got to the scene of the disaster they tried to douse the flames with gasoline instead of water?

I make these comments to remind all that the monster of corruption has a thousand heads. I would be sad if all the result of the efforts to slay this monster would simply be the elimination of the traditional offers of discounts for prompt payment, right then and there, and that we frequently receive when fined for a traffic violation.

Let me make one last comment on this quite tortuous subject. In Venezuela, perhaps more than in any other countries, there is more than sufficient evidence of the total administrative ineptitude of the state, and all of our governments have absolutely no results to show, considering all of their income. Nonetheless multilateral agencies, such as the International Monetary Fund, frequently come to the country and recommend an action that could only mean allowing the state to squander even more resources. For whom then is the IMF working? For the politicians? Could we then be staring at another unknown dimension of this monster called Corruption?

From The Daily Journal, Caracas, November 4 1998

AIDS vs. Malaria

There we sat listening astonished to the Minister of Health describing that what she most needed was help in fighting the malaria that was killing more people in her country than the AIDS, but AIDS was what donors mostly prioritized. How sad! The high mortality rate of the malaria came as a surprise to me but from what I deducted the malaria strain in most of Africa is much worse that what we are accustomed to in South America. We were informed that the anti malaria drugs we have been supplied by the bank for the trip were not allowed in this country as they could create an even more drug resistant strain. Answering some nervous questions the Minister informed us EDs that the malaria mosquito attacked exclusively at night and only if the victim was still and that’s why the protective nets are so important. 

Malaria is a tragedy, and so you have to forgive me but I cannot refrain from telling you that after the minister’s mosquito comments, I detected immediate incipient salsa-like movements in my colleague’s limbs (mine as well) and that grew stronger as night approached. 

Giving away Bouncing Balls

During a previous trip I had learned from a grand lady colleague from the richest country to bring some bouncing balls to give away. I threw them at the dozen young kids standing there and only two of them moved. The rest did not even acknowledge it in their poverty and misery-filled glazed eyes. Per, what are you doing here? This is so far away from your realities that there is no way you could really add something useful. Yes. I know! But then again that is perhaps exactly what I needed to see … with my own tear-glazed eyes.

A new breed of systemic errors

(A letter Financial Times did publish)

Sir, except for regulations relative to money laundering, the developing countries have been told to keep the capital markets open and to give free access to all investors, no matter what their intentions are, and no matter for how long or short they intend to stay.

Simultaneously the developed countries have, through the use of credit-rating agencies, imposed restrictions as to what developing countries are allowed to be visited by their banks and investors.

That two-faced Janus syndrome, “you must trust the market while we must distrust it,” has created serious problems, not the least by leveraging the rate differentials between those liked and those rejected by our financial censors. Today, whenever a country loses its investment-grade rating, many investors are prohibited from investing in its debt, effectively curtailing demand for those debt instruments, just when that country might need it the most, just when that country can afford it the least.

Everyone knows that, sooner or later, the ratings issued by the credit agencies are just a new breed of systemic errors, about to be propagated at modern speeds. Friends, as it is, the world is tough enough. 

Financial Times, Letters, January 2003

A too long C.V. or a too short memoir, and acknowledgements

My mother Ingrid is from Sweden and my father Tady was from Poland, and I was born in 1950, in San Cristóbal, Venezuela, close to the Colombian border. By the way, if you would end up thinking I am having an adventurous life let me assure you it’s nothing when compared to that of my parents.

Sweden: After Venezuela, Sweden is undoubtedly the country that has had the most influence on my life, and I will always harbor an immense gratitude to it. It is a truly amazing country, and I pray its future generations really get to understand and appreciate what it has been able to achieve and why they need and should defend their way of doing it over and over again. I am certain that our best chances for the ongoing globalization of the world to end in something good lies completely in the hands of being able to use Sweden (and their neighbors) as shining examples of roads worthy to follow.

Poland: Even though I do not know it (yet), and I do not speak a word of Polish, I have always felt very much identified with my father’s homeland. My third name is Stanislaw, and through it I feel connected to the rebellious spirit and freedom urge of my ancestors. It was indeed one of my proudest moments when I and my daughters received our Polish passports.

The United States of America and I: In a world where everything is radicalizing and so many believe that if you are not 100% for, you have to be 100% against, I need to make a very personal comment about the United States, because I refer to it frequently in this book, given its importance in the world.

My father, as a Polish soldier taken prisoner of war by the Germans, spent five years in concentration camps, from the last of which he was liberated by American soldiers. I was brought up on a pro-American diet and for many years counted To Hell and Back, the 1955 movie that recounted the life of Audie Murphy, America’s most-decorated soldier in the Second World War, among my favorites. There is no way on earth that I could suffer from any sort of real anti–United States of America phobia. If I criticize, make recommendations, or observe some things that I believe could be improved in the United States, I always do so as a sincere friend who truly wishes for that much-admired country to live up to those very high standards of which I feel it is capable. And when it doesn’t, I am just a much-saddened friend, but never a foe. The United States should not ignore the fact that out there it has many true friends who truly wish it well. It should never confuse them with all those who are plain bootlickers.

Also, if the ongoing globalization is to stand a chance to end in something good for the world, this will also very much depend on the willingness of the USA to do the right things right. 

But please, do not let the previous comments confuse you … I am foremost and above all a Venezuelan.

Young

My studies started in Venezuela, in a kinder at a catholic nun school, with a 3-boys-to-100 girl ratio, unfortunately at a time when I had yet to grasp the significance of this numerical advantage. My primary school happened in a very small—really tiny—Evangelical school in San Cristóbal. Television had not yet arrived to the region and neither had telephones to Palmira, where we lived. My contacts with the outer world occurred, therefore, through radio and books … but so intensively that CNN never really surprised me.

Youth

From there, at the age of 12, I took off to Sweden to a boarding school in Sigtuna. The school was quite renowned (in Sweden) as their future king of Sweden was studying there. Also, in the closet of my room, Olof Palme, the illustrious and later assassinated Prime Minister of Sweden, had also scribbled his name.

My Andean Pact Trip

In 1966 at age 16 and a week, I took a summer job on a Swedish merchant boat for four months mostly scrubbing dishes and rust. This trip took me from Europe to South America where I visited ports in Venezuela, Colombia, Ecuador, Peru and Chile. Bolivia did not have a port but luckily for me, as the vessel’s name was MS Bolivia, I was able to later argue that it was a full Andean Pact trip. I need not say that this type of summer jobs was not that frequent in my boarding school.

Academics

Between 1969 and 1971, very fast, two years plus many- many summer courses, urging to get back to Venezuela before the tranquility of Sweden got a final grip on me, I graduated as an economist in the University of Lund. 

Back to Caracas, between 1972 and 1974, fulltime immersion at the Instituto de Estudios Superiores de Administración, IESA, and where I earned my MBA, with distinction. Thereafter I started my professional life, with two initial brief and surrealistic experiences:

Diversifying into the blue

The first, in a local important commercial bank had me going, after just one week, to Panama, to participate in a workshop arranged by their associate, a big international big bank, to discuss the latter’s worldwide diversification strategy … Fortunately, it took us less than an hour to agree that no one of us had the slightest idea of what we were supposed to be doing, so we gave up on the intent, and had a good time over the weekend. (I still remember with much fondness a great show, in a very dingy place, by Daniel Santos, one of the long gone icons of boleros, that beautiful lamenting bluesy tropical musical that had everyone cutting their veins … normally because of non-answered love). 

Some weeks of public … disservice?

Back in the bank, after just another two weeks, and I guess because of my Panama experience, my name was put forward as a candidate for the post of Diversification Manager in the Venezuela Investment Fund that was being created to handle the oil income surpluses of the nation. I entered the Fund its very first day, and I left a couple of weeks later the same day my desk arrived, utterly frustrated when the Fund was requested to analyze, and obviously endorse, the economic feasibility studies of a 4-billion-dollar investment known as the Fourth Plan of SIDOR, the big Venezuelan iron and steel complex. With an “if something goes wrong with this project the Venezuelans might have the right to hang us in Plaza Bolívar, and I’m much too young for that” I slammed the door on the public sector … for the following 28 years.

Riding harvest combines

Urgently back to the real world … although I must say a bit too real for my taste. During the following year I traveled around Venezuela harvesting rice and sorghum, with a fleet of ten beautiful big light-blue combines, all perfectly inadequate for Venezuelan conditions. I got trapped into this when one of the partners in what seemed a viable agribusiness proposal, the agronomical engineer of the group, on the spur of a moment, decided to buy 10 totally untested combines, arguing that by doing so we had won the right for an exclusive representation of that brand in Venezuela. As we were never able to reduce the droppings of the combine to less than 20%, I guess it was pure beginner’s luck that we did not combine our problems by using these rights and selling these combines to others. Being that the concept of an MBA was quite new in Venezuela and no one really knew what they were for, least I, the group deemed me to be the right universal tool to get it out of its serious predicament … and so they sent me out as their line manager, all over Venezuela. 

Back to harbor … or new frontiers

A year later, tired of being pursued by angry farmers, I cut my losses, not by far short enough, and with a substantial negative balance (zero assets and a lot of debt) I went to do what an MBA is suppose to do, manage, for big bucks, other peoples companies. In a few years I managed to turn into an eminent financial leasing company expert and even the manager of one. In this I was greatly assisted by the fact that few in Venezuela really knew what leasing was all about … which gave me a lot of leeway

Personal blessings

I did well. Not only did I manage to repay my debts but also, most importantly, I married Mercedes. Besides being a wonderful wife and mother, Mercedes is an excellent lawyer with 20 years of corporate experience in Venezuela, recently overhauled with an LLM from Georgetown University. Besides, she also moonlights, for free, as my Spanish editor. To round up this personal paragraph let me say that Mercedes and I have been blessed with three beautiful and most talented daughters, Mercedes, Alexandra and Adriana, and who also, when push comes to shove, stand in as great friends. As the only man in the house, I have been staged in the role of the gentle and good World Bank, while Mercedes, poor her, has to play … and be … the strict IMF.

Learning how not to bike

I made some splash with my statement of learning how to bike during the debates about using Country Systems. Therefore I believe I should confess here (in an appendix) that my youngest daughter, Adriana, set out to bike with her roller skates on—and crashed. We had to look in the dark for her two front teeth and, instructed through cell phone by my favorite dentist, my brother Sven, I reinserted them. I got it wrong the first time, so I had to take them out and do it again. But, don’t worry, Adriana’s fine. Her confidence did not take a beating; she stills bikes, but does not rollerblade, at least not simultaneously. As for me, I had the type of experience you just don’t really need as a father. 

An intermezzo

From mid 1979 until mid 1980, before the girls were born my wife and I also took a year out in London. There I practiced at Kleinwort and Benson, one of the truly old English Merchant Banks that has since then, as so many others, gone down, disappeared or been diluted, in the oceans of globalization. During this year I also had the chance to attend London School of Economics, as a listener to International Commerce and take the Corporate Finance Evening Course at London Business School. I made some money investing in currency futures … but I got out of it … as I did not see a real win-win opportunity in it … more the contrary.

Financial brewer

Back in Venezuela, by mid 1980, I signed up as Finance Director for a brewery that was facing serious troubles as their market share was dropping from 30% to 8%, over few months, so fast that it finally could not service, even the first quarterly installment of a huge international bank syndicated loan. The scandal, not of my doing, resulted in the first real Chapter 11 type of proceedings ever initiated in Venezuela for a public listed company, and helped me (and some others) build a small reputation in work-outs.

At last my niche

In 1983, I had had enough doing just one thing all the time, and so I entered into private consultancy, that allowed me to suggest other people what to do … all of their time. 

From then until 2002, I enjoyed 19 years of great and varied experience. In areas of hotels, resorts, industries, hospitals, aluminum, oranges, chemicals, real estate, paper, printing … and so on. Mostly for local clients, but also for some multinationals, some which even led me to negotiate a deal with IFC during the early nineties. I worked mostly in traditional corporate financial and strategic planning and marketing, but I also got seriously into some exotic products such as debt equity conversions. I worked mostly in Venezuela, but also managed to get some interesting assignments in Colombia. 

Mangoes

With the aid of friends, I dappled in some ventures and one of them was exporting mangoes. We actually managed to get into Harrods’ delicacy department with our beautiful multicolored and individually wrapped mangoes and we were doing great … until. Our largest individual cost was the airfreight to London, that we had to pay in advance and so when a finance minister woke up in Venezuela and announced, that according to him, the Bolivar was undervalued and then he executivized it from 36 to 24 to the dollar (something perfectly feasible in the short term in an oil country) the day before we were to convert into Bolivars all our British Pounds, he bombed our cash flow. Having to fight against the mosquito in the mangoes or the flight schedules of British Airways was one thing, having also to fight against the ego of a finance minister, was just too much.

Teaching

For a very brief moment, 1974-75 I taught corporate finance at Universidad Metropolitana in Caracas. Also at IESA, I shared for a couple of years the responsibility of lecturing in International Finance. Teaching has always attracted me but somehow no one ever baited me irresistibly enough. Even nowadays, I still toy with the idea of going back to get my PHD, not because I am truly convinced about it, but because it seems to have turned into an obligatory requirement for allowing you to either teach or research. (Might there be a market opportunity for a University principled on No Ph.D.s allowed?)

Bank representative

For about 10 years I acted as the representative in Venezuela for the O’Higgins Bank of Chile, later Banco the Santiago … until the Banco Santander of Spain purchased the Chilean bank and globalized me out of a nice and cozy relation. During those years I had the chance of frequently going to Chile and study their real and their not so real progress. While doing so, I had to hear so much hoopla about their social security system that I guess I developed some antibodies that might currently affect how I look on this whole issue. Nonetheless, I do admire many of their other efforts and I wish them all of the best as they are really great people. 

Almost banking

As the Chile representation was almost a sideline, and as the name correctly indicates, mainly a representation, I never actually worked in real banking. That said, I had a lot to do with many banks, developing for some great strategic plans that were never executed, and holding the hand of others in difficult times such as interventions. These close but afar relationships with the banks and their clients, is what inspired me later to set out on my Get-Basel-Bank Regulations-Under-Control mini crusade.

Honduras & Guatemala

A friend, Christopher Jennings whom I had met when the company he worked for was trying to get the mandate to operate the Caracas water system and I initially handled this quest, made it to the Inter-American Development Bank. From there he called out for assistance in setting up the financial mechanism of some water projects plus some other tidbits and I will always be very grateful for these opportunities, as they became the looking glasses with which a private sector man like me could peek into the public ... and opine. Many of my Central American experiences were made much more enjoyable through the great support I always received from Ian Walker and all his associates in ESA Consultores.

Writing

In July 1997 I suddenly got the chance to write some articles … and have them published. This turned out to be a blessing. Not only was the writing an escape valve that released the pressure I felt as an unsatisfied citizen in a country with very unsatisfactory showings, but also a very energizing tool as it forced me to get close to what was going on in the world as large. Soon I will have written four hundred articles and I might have a loyal following that, unfortunately, does not always guarantee the inclusion of my three daughters … Daddy what have you been writing about lately?

Music

I cannot come close to describing my life without including some lines about music. I play the guitar and harmonica … as a totally self-taught amateur … who is at his best when there is no real musician close by as a reference … and I love it. In fact there was a time when my sound engineer (Mercedes, my wife) and I escaped to the Island of Margarita over weekends so that I could play incognito for foreign tourists at a small hotel where I as a small shareholder could exercise some influence. Once after my concert (concert … no understatement there), I was tipped by a German tourist, and I still remember that as a very proud moment … by the way, my sound engineer was also once approached in terms of what she would be doing after she got off her duties. During three consecutive years, I participated in a choir at my alma mater IESA, twice a week, from 6 to 8 p.m. … what a lovely way to catch up with life. At the World Bank, to help show that we EDs could also be “somewhat” human, I could not resist Tara Sharafudeen’s very insistent invitation to participate in the Celebration of Cultures show with my guitar and my harmonica. Because of logistical considerations, it had to be during an Asian show where I, among a lot of participants from India, sang about Venezuela … I defended the whole mix up by advancing the thesis that India was quite naturally doing a little bit of musical outsourcing to South America.

And that was when …

In August 2002, the Planning Minister of Venezuela, Dr. Felipe Perez, a man who, I feel, deeply believes in transparency, local participation … and open systems (Linux), communicated, on the Web, about Venezuela’s turn to nominate an ED in the World Bank, asking for candidates. With probably unwarranted but still unchecked optimism, I went for it.

CV Acknowledgements

There is no way I could write this type of CV memoir without also including my thanks to the rest of my family and some very special friends. First of all Fredrik, my younger brother, who by relieving me of many of the older-brother-duties, helps me to travel lighter in life and also Sven and Karin, my still younger siblings, without whom family would not remotely be family. From my Sweden of so many years ago, I still feel next to me Klas Gierow, Otto Ramel, Lars Henriksson, and Anders Hedborg. Of course there are others from the opposite sex, whom I have not forgotten, but here I am perhaps better off by cryptically referring to a Willie Nelson and Julio Iglesias song. From my professional years in Venezuela there’s no way I can get by without mentioning Jose Manuel Egui and Antonio Iszak. And through my years as consultant, what would I have done without my partners in crime, Daniel Boersner and Rafael Lorenzo. Let me also give some special thanks to all of Mercedes’ family. Her father, Jose Antonio Cordido-Freytes, a young judge in Venezuela, officially married my parents soon sixty years ago … talk about conspiracy theories … and her mother, Eva Mercedes stands out as a model for the mother in law you all would have killed for. 

Finally I must acknowledge the great help received in putting together this book from my editor in chief, James T. McDonough, Jr., and his personal editor, his wife Zaida. As he wrote his Ph.D. dissertation on The Structural Metrics of the Iliad and among his many editorial credits lists a World Dictionary of Foreign Expressions and a couple of medical dictionaries, I found him perfectly suited to guide me through a globalization book without taking any of my uttering for granted. I let many of his comments be a part of the book without even talking about copyright issues with him. I guess that if we run into some problems, we can both count on Zaida and Mercedes to bail us out.

Puritanism in banking

Puritanism in banking

In his book Money: Whence it came, where it went” (1975), John Kenneth Galbraith discusses banks and banking issues which I believe may be applicable to the Venezuela of today.

In one section, he addresses the function of banks in the creation of wealth. Galbraith speculates on the fact that one of the basic fundamentals of the accelerated growth experienced in the western and south-western parts of the United States during the past century was the existence of an aggressive banking sector working in a relatively unregulated environment. 

Banks opened and closed doors and bankruptcies were frequent, but as a consequence of agile and flexible credit policies, even the banks that failed left a wake of development in their passing. 

In a second section, Galbraith refers to the banks’ function of democratization of capital as they allow entities with initiative, ideas, and will to work although they initially lack the resources to participate in the region’s economic activity. In this second case, Galbraith states that as the regulations affecting the activities of the banking sector are increased, the possibilities of this democratization of capital would decrease. There is obviously a risk in lending to the poor.

In Venezuela, the last few years [the 1990s] have seen a debate, almost puritan in its fervor, relative to banking activity and how, through the implementation of increased controls, we could avoid a repeat of a banking crisis like the one suffered in 1994 at a cost of almost 20% of GDP. Up to a certain point, this seems natural in light of the trauma created by this crisis. 

However, in a country in which unemployment increases daily and critical poverty spreads like powder, I believe we have definitely lost the perspective of the true function of a bank when I read about the preoccupation of our Bank Regulating Agency that “the increase in credit activity could be accompanied by the risk that loans awarded to new clients are not backed up with necessary support (guarantees)” and that as a result we must consider new restrictions on the sector.

It is obvious that we must ensure that banks do not overstep their bounds while exercising their primary functions—a mistake which in turn would result in costly rescue operations. We cannot, however, in lieu of perfecting this control, lose sight of the fact that the banks’ principal purpose should be to assist in the country’s economic development and that it is precisely with this purpose in mind that they are allowed to operate. 

I cannot believe that any of the Venezuelan banks were awarded their charters based purely and simply on a blanket promise to return deposits. Additionally, when we talk about not returning deposits, nobody can deny that—should we add up the costs caused by the poor administration, sins, and crimes perpetrated by the local private banking sector throughout its history—this would turn out to be only a fraction of the monetary value of the comparable costs caused by the public/government sector.

Regulatory Puritanism can affect the banking sector in many ways. Among others, we can mention the fact that it could obligate the banks to accelerate unduly the foreclosure and liquidation of a business client simply because the liquid value for the bank in the process of foreclosure is much higher than the value at which the bank is forced to carry the asset on its books. In the Venezuela of today, we do not have the social flexibility to be able to afford unnecessary foreclosures and liquidations.

In order to comprehend the process involved in the accounting of losses in a bank, one must understand that this does not necessarily have anything to do with actual and real losses, but rather with norms and regulations that require the creation of reserves. Obviously banks will be affected more or less depending on the severity of these norms. Currently, a comparative analysis would show that Venezuela has one of the most rigid and conservative sets of regulations in the world. 

On top of this, we have arrived at this extreme situation from a base, extreme on the other end of the spectrum, in which not only was the regulatory framework unduly flexible, but in which, due to the absence of adequate supervision, the regulations were practically irrelevant.

Obviously, the process of going from one extreme to the other in the establishment of banking regulations is one of the explanations for the severe contraction of our banking sector. Until only a few years ago, Venezuela’s top banks were among the largest banks of Latin America. Today, they simply do not appear on the list.

It is evident that the financial health of the Venezuelan banking community requires an economic recovery and any Bank Superintendent complying with his mission should actively be supporting said recovery instead of, as sometimes seems evident, trying to receive distinctions for merit from Basel (home of the international bank regulatory agencies). 

If we insist in maintaining a firm defeatist attitude which definitely does not represent a vision of growth for the future, we will most likely end up with the most reserved and solid banking sector in the world, adequately dressed in very conservative business suits, presiding over the funeral of the economy. I would much prefer their putting on some blue jeans and trying to get the economy moving. 

From The Daily Journal, Caracas, June 1997

Guaranteed boring

In a world with so much entertainment available anytime and anywhere there might be a niche for a tourism that guarantees a boring experience. “Get a good reference point. After a week with us, we guarantee you’ll enjoy much more the rest of your travels and even perhaps the rest of your life.”

Vanity tourism

I received an e-mail saying: “Take this one! Attached is one article published by ABCNews.com which states that without a doubt, Venezuelans are by a long shot the vainest people in the world.” The index reveals that 65% of Venezuelan women and 47% of Venezuelan men say that they “think about what they look like all the time.” In Germany, for contrast, virtually no one confesses to this habit.

From the tone of the e-mail, I suppose that the sender considered the high ranking achieved by Venezuela in this index as being unfavorable, and I also suppose that he would like me to share some degree of guilt. Well, I DON’T! Intuitively, I am pleased to be part of a country in which my compatriots are worried about their appearance instead of rubbing shoulders with those ranked among those who “never think about how they look.” The fact that our society holds dear to the heart a feeling of vanity over and above levels in other countries certainly differentiates us from the rest and perhaps we should analyze this fact within the context of comparative advantages. 

The dedication of persons like Osmel Sousa to the Miss Venezuela beauty contest has elevated our country to the apex of world perception of the beauty of Venezuelan women. By using the word “perception,” I do not intend to question the objective beauty of our women (God forbid, I have four of them at home!). I wish to make a point of the importance of the general perception per se. This, by the way, renders even the less pretty Venezuelans beautiful.

Any country culturally geared toward taking care of physical appearance for centuries, that has managed to develop methods and formulas that have been time-tested and proven to the world by live TV transmissions of Miss World, Miss Universe, and similar mega events, has in its hands a tool to attract tourism that other countries would give one arm and half the other to have.

And so I promptly pushed the “reply” icon on my computer and sent off the following message:

“Thanks for having sent me the Vanity Index. I think there must be certain mistakes in the Index since I believe that the figures for Venezuela are too low. In Venezuela, I would say that 100% of the population worries about how they look.” 

“While we talk about appearances, you should see the results we have achieved with a treatment supervised by the stylist school of Caracas which includes massages in the turbulent waters of the Caroní river and scrubbing with powerful and mystic Orinoco algae, while listening to the sensual rhythm of the beating of the herons’ wings and drinking a skin reconstituent malt-based beverage. 

And all this under the indiscrete tropical moon, for only US $1,680 per day!

Extracted from “Vanity and the nation’s economy” published in The Daily Journal, Caracas, October 1999

Adventure (fiscal) tourism

Nag, nag, nag about not being able to develop our tourism as we should … but perhaps there’s still hope. On this marvelous island (Margarita - Venezuela) where the ingenuity and genes of its native and assimilated population are put to work full-time to confront all adversities with spunk and élan, new promotional strategies for increasing tourism are being designed.

As a sales tax was recently introduced in this previously unspoiled paradise, the merchants, instead of despairing, have instead taken it as an opportunity to offer all those tourists, who are so burdened with taxes in their homelands, the possibility of participating in the exhilarating experience of evading taxes. Just a variant of adventure tourism! To that effect some Tax-Evasion-Certificates are currently being designed, and there is great optimism that these will be able to compete successfully with any of the dried and lacquered fish sold in other souvenir shops around the Caribbean. The local authorities, not wanting to be left behind, are also studying the possibility of raffling one citation by their taxmen among every five thousand tourists. Clearly it should be the highlight of a trip for a Hans from Hamburg to be able to frame and hang a citation in his living room from which he escaped by taking the plane one hour before he was to appear in tax court. It sure must beat a couple of hours of those boring videos that friends abhor.

The same goes for corruption and, just to prove they have nothing against videos per-se, a local production company is setting up arrangements so that tourists can fall into the local nets of the slightly overweight transit police who have bugged everyone on the island for generations, and thereafter work themselves out of the mess­, on camera. Clearly a video of one bribing the authorities must beat any African antelope head on the walls, no matter how wide its horns.

Extract from an article The Daily Journal, Caracas, May 14 1999

Dead and Useful

Note: The following is a quite daring piece I wrote on a plane during an ED trip after having being challenged to it by a colleague who is a true Robert Louis Stevenson fanatic. (In the end the article might have been too much even for the Rolling Stone magazine)

Dead and Useful

A friend, upon hearing that I was going to Samoa, reminded me that I could not miss the opportunity of visiting Robert Louis Stevenson’s grave. “Of course I won’t,” I said, but it got me thinking.

Would my friend have suggested seeing RLS’ grave, were he buried in London? Of course not! The fact that he is buried on an island without an excessive abundance of so-called big tourist sights presents a win-win situation in terms of development strategies. For instance, if Mick and Keith, on account of their Voodoo LP, were to be buried in Haiti, they still might provide a much-needed and useful boost to the island. 

But that’s not all. We all know that “location, location, location” is the mantra for any real-estate affair, and this burial site alternative has the potential to create its own location value, since many Mick and Keith fans could find merit in having their own graves located next to them. As most of the gravesites for these graveyards could be negotiated on a pre-burial basis, and as the state of the clientele permits overcrowding the venues with little added risk, the business opportunities are immense. This goes not only for the initial ticket offering (nothing to do with offerings) but also for the secondary market where scalpers (nothing to do with scalping) should be able to enjoy a strong and renewable support level, provided mainly by visiting family members.

The constraints are few, and the potential huge. You need not locate Mick and Keith in the same spot—you could rotate them from graveyard to graveyard, giving a fresh meaning to a Farewell Tour. Flexibility in product design could also allow marketing the graveyard as timeshare units, providing the possibility for an exchange of a week or two, perhaps even with Eleanor Rigby’s Resort-yard. 

But, of course, it’s not only about rock and roll. Just think of all the very powerful and attractive burial arrangements you could achieve by mixing yesterday’s and tomorrow’s lovers, friends, or foes. Personally I find the foe niche especially interesting, since it would give a much more profound and proactive significance to the whole concept of a peaceful rest. 

P.S. I finally went to visit RLS’ grave in Samoa and although I never made it up to the mountaintop, I must confess that it was much more than a grave. His former residence houses a splendid museum where, guided by a classy and knowledgeable local girl, we were shown interesting glimpses of the five final years of this famous Scottish author. I submit that this little detail does not invalidate the general dead-and-useful proposal.

A niche in crookedness?

(A letter not published by Financial Times)

Sir, in your series about reforming Europe you refer to Pisa’s medieval tower as a “spectacular example of a grand architectural project gone awry: beautiful, still in existence, but wrong nonetheless,” and you got it all wrong. It is just because the tower is leaning that it has turned into one of the most outstanding commercial successes. What would a straight tower have meant to Pisa? 

I wish to make this point since when trying to pursue an “antidote to decline” in today’s difficult environment, trying to straighten out Italy in too many aspects might actually break it. There might very well be interesting little niches in crookedness to pursue, and, besides, without some of it, the world would be an unbearably boring place.

My answer to the NGOs

The EIR discussions ... a missed opportunity

Friends,

I am one of the executive directors of the World Bank who recently were bombarded with your mostly similar and spam-like messages urging us to approve word by word all the recommendations that the so-called “eminent person” made in conclusion of the Extractive Industries Review (EIR).

Most of what is said in the EIR is logical and already has been considered and applied by the World Bank. Nonetheless, there were some issues and recommendations that carried more than a hint of radicalism. These extremist suggestions blind the world from finding the pragmatic solutions it so urgently needs to solve the problems of environmental degradation and adequate energy availability.

In his book, The Future of Ideas: The Fate of the Commons in a Connected World, Random House, 2001, Lawrence Lessig writes that “a time is marked not so much by ideas that are argued about as by ideas that are taken for granted.” In this respect, I had big hopes that the discussions on the EIR would help us unlock the current debate, which seems to be suffering from another bout of failure of imagination.

Unfortunately that was not to happen, since many of the really significant problems and solutions were just ignored, while minor issues were highlighted. Even the Bank management’s final response, although technically quite adequate, in using an excuse-us-NGOs-for-daring-to-disagree tone, does not put forward the differences of opinions with sufficient strength and clarity.

In this and all other respects, the real challenges still lie ahead of us. Therefore, I wish to send you herewith my thoughts on some of the issues covered by the EIR, hoping this will help to focus our energy and concerns in more productive directions. By the way, what follows are strictly personal opinions and they do not reflect any formal statement made during the discussions of the Board, as these need to be confidential to guarantee that they are never taken out of their overall procedural context. And so, in a nutshell, here is what I think of the EIR.

The high growth rates of some countries, which are undergoing the highly energy-demanding transition from bicycles to cars, are forcing the world to face two very important constraints more than ever: general energy availability, and the capacity of an already overstretched environment to absorb the carbon impact of such growth.

Instead of discussing issues such as whether the world needs to find a way to tax excessive energy consumption to promote fairer global distribution of energy use or how to compensate for the quickly growing opportunity cost of not developing environmentally sensitive areas such as the Amazon Jungle, some very parochial NGO perspectives captured the EIR, and most of the participants just played along.

Yes, we all want clean energy, but given the urgency and magnitude of the problem, it must be clear that the world cannot afford to waste resources on unaffordable solutions. The money not spent on early prototypes of hybrid cars, or on subsidizing wind or solar-power generation plants that are not yet economically justifiable, could be much better spent on research for truly sustainable renewable energy sources, fighting poverty, or even directly paying for environmental priorities, such as keeping the Amazon intact. 

***

Jim my editor: “A rare case where I disagree with you. We need to develop hydro power (especially of slow-moving tides as well as fast waterfalls), solar, geothermal, wind, and other energy sources that do not burn fossil fuels, or nonfossilized soybeans for that matter.” 

I: “Except for the nonfossilized soybeans that I never heard of, we do agree, 100%. What I am emphasizing though is that we should spend the money developing economically feasible energy alternatives, and not waste that money in using alternatives that are still uneconomic.

Back to my answer:

***

Yes, the world should move away from coal and oil, especially as oil is too valuable just to produce energy. But as the price of gas has reached the unaffordable level of US $6 per Mcf (one thousand cubic feet) and is generating billions of dollars in losses for electricity generators, realities are driving the world back to coal. In this respect in particular, the recommendation of the so-called “eminent person” for the Bank to withdraw fully from coal, gas, and oil is so completely out of synch with current realities that perhaps the Bank should have done best by just ignoring it. 

***

Jim, my editor again: “Perfecting clean energy sources now is probably not as impossible as building an atom bomb seemed to be in 1941 or building a moon rocket seemed in 1961, yet each of these was accomplished in fewer than ten years.” 

I: “Dear Jim, yes I hear you, you could be right, let us hope so … but this is my voice, and this was my answer to the EIR.”

Back again.

***

Although countries with annual incomes of US $30,000 per capita might survive using uneconomic environmental approaches, those with US $3,000 or less will certainly not. In this respect, the Bank should have reiterated more firmly that under no circumstances can it be allowed to cut the umbilical cord that needs to run between its efforts aiming at poverty-reduction on the one hand and economic rationality on the other.

Yes, human-rights issues are of extreme importance, and the Bank, by nature and through the quality of its people, does always give them due consideration. But to tie up the Bank and its extractive-industries (EI) operations with additional sector-specific formal rulings will only hinder reaching the acceptable balance between individual human rights and collective human rights.

Yes, the interests of indigenous groups should always be considered respectfully, but assigning special and near-veto rights to them will clearly infringe on the rights of the rest of us, who all are indigenous to this planet.

Yes, if we all agree that a holistic approach is needed, why is then the analysis of the demand side for the resources produced by the extractive industries missing? It is clear that in most cases, the share of revenues among local participants has not been adequate. But to ignore the fact that the slice of the pie to be shared locally might be too small—as many nonrenewable resources are sold at a price equal to their marginal extraction cost and therefore don’t leave much room for earnings—is not really an objective approach.

Yes, initiatives such as the Revenue Transparency Initiative might not be perfect, but they are a step in the right direction, and the Bank should pursue them always, not only in the EIR. For instance, the use of the economic surpluses created when granting patents, presumably to pay for research, should also be more transparent so as to better measure the prohibitively high prices of vital medicines. Since the treasury of most industrialized countries perceive through their gasoline taxes more fiscal income from a barrel of oil than the producer, this not only begs the question of who might really be cursed, but also whether those flows could also benefit from more transparency. Taxes collected on gasoline in the name of the environment (more than $100 billion a year on unleaded gasoline in Europe alone) of which basically nothing really goes to the environment and much of which has even been used to subsidize the coal industry could be the foundation for a real environmental global fund or, better yet a global tax program. By the way, if we are to have a global tax based on a gasoline tax, then I am of the opinion that ALL countries should pay an amount per liter consumed, albeit at rates that are adjusted for their national income per capita. (Even the poorest have the right to feel they are contributing toward a shared world cause)

Yes, there is always a need for better practices, as in gender issues, but for EIR to go to such an extreme as to single out the sector and specifically link it with issues such as rape and prostitution is unacceptable, both on moral and intellectual grounds.

Friedrich List[1] wrote that free trade was the means through which an already industrialized country “kicks away the ladder by which it has climbed up, in order to deprive others of the means of climbing up after it.” If we were to paraphrase List, the way the “eminent person” wanted the EIR to conclude would have kicked away the ladder for many undeveloped countries, preventing their use of their natural resources.

In conclusion, it is unfortunate that these EIR discussions did not advance a more rational agenda, especially since the World Bank is one of the few worldwide institutions that could really establish a leadership role in environmental and energy issues. Nonetheless, let us not cry over spilled milk. There are so many urgent challenges and opportunities for the Bank and all of you to play a truly creative and proactive role.

For instance, in one African country, millions of small and unorganized miners who need their jobs in order to survive create severe environmental damage. The same country also suffers yearly deforestation of hundreds of thousands of acres of forest. In such a case, wouldn’t perhaps a “Forest-Growing Miner Cooperative” be a quite sensible program for the world to sponsor? Would not this make more sense as an investment vehicle for all those environmentally sensitive dollars that the rich nation’s consumers are currently willing to spend on much less worthy proposals, such as building windmills in their gardens or driving around in their hybrids?

Let us not be busybodies blocking the world from going forward. Let us instead be very busy bodies helping it to go forward … in the right direction. 

Regards, 

Per

Sent by e-mail in October 2004, to each of over 900 persons who had previously e-mailed me

[1] List, F. 1885. The National System of Political Economy, translated by Sampson S. Lloyd from the original German published in 1841. London: Longmans, Green, and Company.

Lessons from Florence

Dear Franco and Biaggio (my two Italian colleagues at the World Bank), I went to Florence—and I got inspired.

THE CONTEST!

My apologies to the Florentines, but their beautiful city is like the Magic Kingdom of the Renaissance. The inexhaustible flow of tourists, hotels, prices, and lines for attractions, fast or slow meals, and souvenirs, all makes one question, between Medici and Disney, just who copied the model of whom. In my opinion, not only are the gelatos of Florence richer, but also, with the possible exception of Goofy, Michelangelo’s David and the frescos of Fra Angélico are far superior to Mickey, Pluto, and the rest. 

What an inheritance the Medicis left to their city! The Florentine economy will always be easy to manage, since the only thing that their Paperon de Paperoni (Scrooge McDuck) has to do is fix admissions prices. The one little cloud on the horizon could be the quantity of English, Venezuelan, German, and other immigrants who try to take advantage of the infrastructure. What would Machiavelli have thought about entering the European Union?

We know that despite all its possibilities, Venezuela, in a local saying, still has not managed to connect the foot to the ball when it comes to developing its tourism industry. This will never be resolved by naming ministers who spend their time conducting publicity campaigns, or visiting Orlando and Florence. We are not proposing that other Medicis substitute for those who govern us—we can discuss this on another day. But in the meantime, we could emulate the experts.

In Florence 500 years ago, the contest system was used to assure that the best artistic proposals were utilized to adorn the city. So let’s organize a grand contest.

It will be a grand contest to choose a grand team and a grand plan for the strategic development and management of the tourism sector for the next 30 years, with an estimate of costs and results.

A qualified panel of judges should choose the best three proposals, and the proposals should be publicly debated on television. The losers will receive an important prize, and the winners will be commissioned to execute their proposal during thirty years, with a significant fixed, indexed and guaranteed annual budget.

Since televised public contests enjoy high ratings, this contest could also be a way to build pontes novos, new bridges, in our divided society.

The Santa María del Fiore Cathedral took more than 100 years to construct, and for a long time everyone thought its dome would be impossible to build. And so, friends, let’s not lose the hope of finding a local genius like Brunelleschi for our Helicoide (a local 45-year-old monstrous white elephant). 

From El Universal, Caracas, April 10, 2003