Market discipline for Hugo Chavez?
Sometimes the simplest solutions are the most striking. Blogger Miguel Octavio in Caracas, Venezuela, has suggested the best way for Venezuela to draw some earnings from its Citgo refineries here in the U.S. is to sell shares.
Houston—based Citgo has been in the news lately, with Hugo Chavez "threatening" to sell its eight U.S.—based refineries. Chavez says he doesn't get enough money out of them, and the U.S. markets suspect he'd like to sell to more easily cut off oil to the U.S. There are a lot of horse laughs in Houston, of course, given how much money he'd lose if he sold.
But Citgo in fact is part of Venezuela's money—losing state—owned oil company, PdVSA. These state organizations are naturally inefficient, and as we see in the Gulf states, they also retard their countries' economic development. The oil earnings don't translate to wealth, except for a politicized elite. In Venezuela, Chavez has changed the elite to a much more corrupt group, and compounded the problem by getting rid of the state company's technocrats who understood the oil industry.
As well, he has stepped up pork—barrel programs for poor loyalists, who are forming new political elites of their own. The neglect of investment by the new incompetents, and the expensive welfare programs, have cost the oil company billions of dollars in earnings, much more than the boom in oil prices can keep up with. So it's no surprise that in the middle of this oil—price boom, with hard currency from oil sales rolling in to the tune of tens of billions of dollars, Venezuela has devalued its money last week. It's a testimony to Venezuela's mismanagement of resources on a Congo—like scale. And Chavez is actually feeling it as he desperately tries to drive up oil prices through his increasingly manic statements.
But Miguel points out there is a means of alleviating his urge to spend on social programs which are draining the state oil company dry — sell shares. What better way to maximize oil earnings during a boom? Oil companies in the U.S. are reaching record highs in stock value. Not only that, the sale of Citgo shares would add desperately—needed transparency and market discipline to the company's operations. That in turn would lessen potential corruption and force the company to invest wisely for the future.
Miguel thinks, and so do I, that even though Chavez could earn a lot of money by selling shares in Citgo, just the money he wants for his social programs, the market discipline it requires would be too high a cost for him. For a hardcore Castroite like Hugo Chavez, the idea is just a little too advanced.