The economic Rasputin behind Venezuela’s collapse

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Alfredo Serrano Mancilla

On this website we’ve covered the ongoing and ever worsening nightmare that is chavismo frequently and from a number of angles. One name we’ve failed to mention so far, however, is that of Alfredo Serrano Mancilla, who was described recently as “the man behind Venezuela’s economic mess” – not exactly the most coveted label of our time. The Venezuelan newspaper El Nacional said that it’s “entirely” thanks to Serrano that the nation “continues to insist on the economic models of socialism in the 21st century, despite the queues, shortages, and inflation.”

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José Guerra

Who is Serrano? A native Spaniard, he studied economics in Barcelona and Quebec, then relocated to Latin America along with several other anti-capitalist economists in search of the opportunity of putting their theories into action. According to the Wall Street Journal, they were soon “advising leftist leaders in Bolivia and Ecuador on economics, setting up social programs and the drafting of new constitutions.” José Guerra, an opposition legislator and economist, told the Journal that “Serrano is a typical European leftist who came to Latin America to experiment with things no one wants at home: state domination, price controls and fixed exchange rates.” In 2014, Serrano “established a think tank in Ecuador called the Latin American Strategic Center of Geopolitic.” (Although its think tank identifies him as “a professor at eight universities across Spain and Latin America,” the Journal managed to establish that he was not on the staff of any of them.) He also reportedly holds the title of coordinator at a Spain-based group called the Center for Political and Social Studies (CEPS).

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Hugo Chávez

His contribution to the trainwreck of Venezuela began relatively recently. In his 2014 book, The Economic Thought of Hugo Chávez, he lavished praise upon the late president’s social and economic planning. His view, as summed up by the PanAm Post, is that “the socialist economic model of the 21st century is unquestionable, and that any failure is the result of attacks from the opposition.” Pause to contemplate that one for a minute: in 2014, by which time the writing was already on the wall for the Venezuelan economy, this guy – a professional economic consultant – was prepared to get up and say that the solution to the country’s problems lay not in changing course but in doubling down. It was beyond idiotic – but it impressed Venezuela’s president, Nicolás Maduro, himself an idiot, who has called Serrano “a man of great courage” and “a very intelligent, very qualified man who’s building new concepts for a new economy of the 21st century.” He’s even dubbed Serrano “the Jesus Christ of the economy.”

Venezuelan acting President Nicolas Maduro raises his fist during a campaign rally in San Carlos, Cojedes State, on April 4, 2013. The presidential campaign to replace Venezuela's Hugo Chavez formally kicked off Tuesday, with Maduro -- Chavez's hand-picked successor -- battling opposition leader Henrique Capriles for the forthcoming April 14 vote. AFP PHOTO / JUAN BARRETOJUAN BARRETO/AFP/Getty Images
Nicolás Maduro

Next thing you knew, Maduro was slavishly following every last one of Serrano’s aggressively radical prescriptions. Among them: the government expropriation of private property and seizure of private businesses, the promotion of “urban agriculture” on people’s apartment balconies, the inauguration of a Soviet-style system for supplying goods to consumers, and the Maoist-style practice of forcing city residents to work on state-owned farms.

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Grigori Rasputin in 1916

In addition to formulating all these suicidal policies, Serrano wrote speeches for Maduro in which the president vigorously defended them and refused to let humanitarian aid into the country (a position apparently rooted in a good old Stalinist-style desire to “hide the crisis” from the outside world). And while Maduro has followed this Rasputin’s advice, he’s utterly ignored other insiders who’ve urged him to undertake more conventional, market-friendly reforms to halt economic collapse. We can only hope that when Venezuelans finally do take their country back, Serrano – along with Maduro – will get the payback he deserves. Unfortunately, like so many other Western socialists who love enjoying their own prosperity and privilege as much as they love engineering other people’s poverty, he’ll probably get away with his destruction, beating a hasty retreat back to Spain, where he can continue to spread his terrible ideas in academic books and university lecture halls.

Drexel’s hypocrisy on Ciccariello-Maher

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George Ciccariello-Maher

This week we’ve been looking at the tragic ordeal of Drexel University professor George Ciccariello-Maher. Taking to Twitter this past Christmas Eve, he made what he later defended as an innocent joke – to be specific, he said that all he wanted for Christmas is the genocide of whites (what could be funnier?) – and, inexplicably, all kinds of people actually got upset. For a minute there, it looked as if poor George might actually lose his job as a punishment for his charmingly humorous tweet. How could the students at Drexel survive without his wit?

As it turned out, however, Ciccariello-Maher had nothing to worry about. After all, as an incendiary far-left ideologue, he was – so far as his profession was concerned – on the side of the angels. We’ve already seen the vigorous defenses of him by writers at Slate and elsewhere. In addition, over 9,000 people signed a petition telling Drexel “that racist trolls deserve no platform in dictating academic discourse, let alone the off-duty tweets of academics.” Unsurprisingly, then, only four days after promising an investigation, Drexel backed down. University president John A. Fry and provost M. Brian Blake signed their names to a statement describing Ciccariello-Maher’s “joke” as an example of “protected speech” and declared that he was in the clear. Such episodes, affirmed Fry and Blake, “both test and strengthen Drexel’s fundamental dedication to the principles of academic freedom and freedom of expression.”

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Lukas Mikelionis

We don’t disagree with Drexel’s decision. Freedom of speech is a paramount American value. What’s deplorable is the university’s utter lack of consistency – its absolute hypocrisy – on this question. As Lukas Mikelionis pointed out at Heat Street, “While Drexel insists on granting free speech privileges to its professors, the faculty has been applying a different set of rules for their students.” For example, Drexel students aren’t allowed to post items on campus that, in the university’s own words, “may be viewed as demeaning or degrading to a person or group of persons.” Among the kinds of student behavior that Drexel views as actionable harassment are the telling of “denigrating jokes” or “written or graphic material” that “shows hostility or aversion toward an individual or group.” Even “inappropriately directed laughter,” whatever that may be, is considered a kind of harassment. Mikelionis further noted that Drexel is “one of the few universities in the country that expects trigger warnings in classes. According to the policy, ‘It is expected that instructors will offer appropriate warning and accommodation regarding the introduction of explicit and triggering materials used.’”

So Ciccariello-Maher’s career is safe. Indeed, all this fuss will probably end up having been a plus. His name recognition in the academy has skyrocketed, and he’ll now be able to label himself as a victim of today’s McCarthyites. On January 3, his latest book, Building the Commune, received a glowing review at Venezuela Analysis, a website that claims to have been providing “continuous, nuanced, grassroots-based reporting analysis from the ground” in the Bolivarian Republic while “the international media” has been “projecting a hysterical narrative of Venezuela’s catastrophic collapse.” Venezuela may be going down the tubes, but for Ciccariello-Maher everything’s coming up  roses.  

Will Samsung’s Lee be in handcuffs tomorrow?

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Samsung headquarters in Seoul

When we last left our South Korean friends in the Blue House and the chaebol boardrooms, the probe into Samsung’s cash transfers to foundations linked to presidential chum Choi Soon-sil – apparently in exchange for support for a merger between two Samsung subsidiaries – had entered a new phase. Documents had been confiscated at several locations, including the homes of several Samsung executives; the independent counsel had issued an arrest warrant for Choi’s daughter; and Samsung vice-chairman Lee Jae-yong, who is the firm’s de facto top dog and the son of its founder and chairman, Lee Kung-hee, had been barred from leaving the country.

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Lee Jae-yong

The latest update came on Monday in the Wall Street Journal. The special prosecutors, reported Eun-Young Jeong, Jonathan Cheng, and Timothy W. Martin, were seeking an arrest warrant for Lee on charges of bribery, embezzlement, and perjury. In order to be able to issue the warrant, they need to solicit approval from a South Korean court, which is scheduled to hold a hearing tomorrow to entertain that request. If approval is granted, Lee – who spent 22 hours last week being interrogated – will be taken into custody while the prosecutors continue to pursue their investigation. Samsung was quick to reply to the prosecutors’ request for an arrest warrant, repeating previous denials that it had made contributions in exchange for favors or made any “improper requests related to the merger of Samsung affiliates or the leadership transition.”

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Lee Kun-hee

The Journal noted that if Lee is indeed incarcerated for any length of time, the conglomerate “could face a leadership vacuum while smartphone maker Samsung Electronics Co. is also reeling from a massive recall of its Galaxy Note 7 device. It could also put on hold any further attempts to reorganize one of the world’s most complex business empires.” Indeed, it would almost certainly have a significant impact on the South Korean economy, given that Samsung alone, as the Journal pointed out, “accounts for nearly one-third of South Korea’s stock-market value.”

Meanwhile President Park Geun-hye’s fate also lies in the balance. Last month the National Assembly voted to impeach her, and the Constitutional Court is debating whether to unseat her from the office she has held since February 2013. If the evidence proves that Lee is guilty of the charges leveled against him, it is more likely that the same evidence will help convict Park as well.

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Park Geun-hye

It should be underscored that the current Samsung probe is far from the first to target one of the chaebol – the massive, family-run conglomerates that have formed the foundation of the postwar South Korean economy. Over the years, other chaebol executives – including Lee’s father, who reportedly pocketed $8.9 billion in Samsung funds – have been indicted and convicted on corruption charges. But almost all of them have received presidential pardons that kept them out of jail. The history of brazen, high-level corruption at the conglomerates has underscored the special privileges enjoyed by the clans that own and run them as well as the intimate, one-hand-washes-the-other relationship that has long existed between them and the office of the president.

This time, however, the story may take a fresh turn: the #1 man at the nation’s #1 company may end up going down for good, and when he does, he may very well take the president down with him. Stay tuned.

Cristina’s Christmas present

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Cristina Fernández de Kirchner

Well, it’s happened again. On Tuesday, a federal judge in Argentina, Julian Ercolini, ordered a trial of Cristina Fernández de Kirchner, who was president of that country from 2007 to 2015, on charges of corruption.

Also ordered to face trial were Julio de Vido, Kirchner’s sometime Minister of Federal Planning, and José Francisco López, former state secretary for public buildings.

According to the indictment, all three former officials are accused of forming an illegal association that was “created to commit crimes” involving the theft of “funds that were assigned to road works” – specifically, 52 projects in Santa Cruz province, where Kirchner’s late husband, Néstor Kirchner, served as governor before preceding her as president.

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Lázaro Báez

Already in court is contractor Lázaro Báez, whose company Austral Construcciones profited from the corruption scheme. Austral, it is reported, received over $4 billion in road-construction contracts from the Kirchner administration; of that amount, about $1 billion is estimated to have constituted illegal surcharges.

Judge Ercolini also froze $893 million in Kirchner’s personal assets.

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Cristina Kirchner with Axel Kiciloff

It’s the second time this has happened since she left office: in May, Kirchner, along with her former Economy Minister Axel Kiciloff and former Central Bank head Alejandro Vanoli, was indicted on charges of making illegal contracts to sell U.S. dollars at below market rates, supposedly with an eye to strengthening the peso. Instead of helping the Argentinian economy, these hijinks are said to have damaged it.

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José Francisco López

Inveterate readers of this site may recall that López, a longtime crony of Nestor Kirchner and “right-hand man” to de Vido, was arrested in June while trying to hide plastic bags full of money at a Buenos Aires convent. In addition to the plastic bags, he had a suitcase full of money, and he had driven these bags and suitcase to the convent in a car whose trunk was also full of money. The total stash: about $7 million dollars in the form of U.S. dollars, euros, yen, and other denominations. He also had a bunch of jewelry and several watches. And was packing a gun.

Apparently, all that dough was just a fraction of the massive sum fleeced from Argentinian taxpayers by by Kirchner, de Vido, López, Báez and company.

Kirchner, who was indicted in May for incompetent administration, was not taken into custody.

Digging up Samsung’s dirt

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Samsung headquarters

The probe into corruption at Samsung and the Blue House – South Korea’s presidential palace – entered a new stage on Wednesday, with investigators racing to get to the bottom of last year’s shady merger between Samsung C&T and another Samsung affiliate, Cheil Industries.

A quick summary of what we already know: last year, Samsung donated $20 million to two entities, the Mir Foundation and K-Sports Foundation, that are linked to Choi Soon-sil, an intimate of President Park Geun-hye. Samsung also funneled sizable amounts of cash to Choi and her family through a German corporation she controls and even underwrote her teenage daughter’s pricey equestrian activities.

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Choi Soon-sil

Why exactly did they fork over all this dough to Choi & co.? The working theory, in three words: quid pro quo. Try to follow this reaction pathway: Samsung bigwigs are believed to have bribed Choi to lean on her BFF, President Park, to order the National Pension Service – a major Samsung stockholder – to approve of the C&T/Chiel merger. The pension execs, as it happens, did indeed end up voting for the merger, even though their analysts had urged them to give it a thumbs-down.

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Lee Jae-yong

In short, the guardians of South Korea’s retirement funds didn’t do what was best for retirees or for fellow C&T and Cheil stockholders (who, recognizing the merger as unfavorable to their interests, fiercely opposed the merger). They did what was best for the powers that be at Samsung, period. Especially Samsung vice chairman Lee Jae-yong.

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President Park Geun-hye

At least that’s where the available evidence – largely acquired during a previous round of prosecutorial raids – seems to point. Now two investigative teams, one of them led by special independent counsel Park Young-soo, are intensifying the probe. On Wednesday, seeking further evidence, Park’s team – which has 70 days (with a 30-day extension if necessary) to complete its work – confiscated documents and hard drives at about ten locations, including the National Pension Service’s asset management office, the headquarters of the Ministry of Health and Welfare, and the homes of several Samsung executives.

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Chung Yoo-rah

That’s not all. The independent counsel has also secured an arrest warrant for Chung Yoo-rah, Choi’s horse-happy daughter, now 19. Since Chung is believed to be in Germany, the counsel has asked German officials to extradite her, has requested her German credit-card and phone records,  and has arranged for the cancellation of her passport. The investigators are even scrutinizing Chung’s high-school record, which turns out to have been faked. (The national educational department has already revoked her diploma.)

Meanwhile Lee – who, since his father, Lee Kung-hee, suffered a heart attack in May 2014, has been Samsung’s de facto top dog, and hence South Korea’s most powerful businessperson – has been barred from leaving the country. Earlier this month, the younger Lee testified at a parliamentary hearing that he didn’t know Choi and that Samsung’s payouts to her and her organizations were not bribes. According to one source, the independent counsel’s main goal is to find out whether or not that’s true.

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A car that was reportedly set on fire by an exploding Samsung Galaxy 7 phone

The whole scandal is, of course, a huge blow to Samsung, South Korea’s largest conglomerate and the ultimate symbol of the nation’s postwar economic success. And it’s happening, note well, at a time when Samsung is still smarting from its exploding-phone fiasco.

So start the countdown: seventy days. For our part, we can’t wait to see what Park Young-soo and his colleagues dig up.

Did Park take Samsung cash to push a merger? Looks like it.

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Park Geun-hye

The soap opera in Seoul continues. On Tuesday, in a brief TV address, President Park Geun-hye offered to avoid impeachment by resigning – although not immediately – from office. Opposition legislators, viewing the offer as an attempt to quash the impeachment effort, said no, promising to go ahead with the impeachment vote, which had been planned for today, but which has now been postponed to next Friday. By day before yesterday, however, parliamentarians from Park’s party had switched from supporting impeachment to going along with a deal to let her resign – even though she might not quit until some time in April.

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Choi Sun-sil

Meanwhile prosecutors continue to uncover details of the corruption scandal that set all this drama in motion. As we’ve seen in the last couple of weeks, the probe centers on fishy payouts by various family-run conglomerates – known in South Korea as chaebols – to foundations under the control of Park’s close friend Choi Sun-sil. Among these suspicious outlays are multiple contributions by the Samsung Group, the biggest chaebol of all, that added up to a cool $20 million.

What did Samsung get in return for its $20 million? That’s under investigation, too. One focus is on last year’s merger between two companies in the Samsung Group – Samsung C&T, which is involved in construction, trade, apparel, and resorts, and Cheil Industries, which sells textiles, apparel, and chemicals.

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Lee Jae-yong

The merger was a subject of fierce contention. On one side were the top honchos at the Samsung Group, who strongly favored the merger because they considered it necessary to keep the group under strict family control – a chaebol tradition. Lee Jae-yong, Vice Chairman of Samsung Electronics, was especially pro-merger, because he and his family owned 42% of Cheil, and the merger terms were highly favorable to Cheil shareholders.

These insiders were vigorously opposed, however, by various outsider shareholders in Samsung C&T, who believed – with good reason – that the merger wasn’t in their own best interests.

So who cast the deciding votes – the votes that put the merger over the top? South Korea’s National Pension Service, which owned 11% of Samsung C&T. Which raises another question: why did the pension fund vote the way it did?

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Samsung headquarters

Now comes an answer. In a major revelation, a member of the pension fund’s decision-making advisory board has told the Hankyoreh – South Korea’s most respected independent newspaper – the story behind its pro-merger vote. The fund, he said, didn’t vote for the merger because its analysts decided that was the preferred choice for South Korean pensioners. On the contrary, a consulting firm that the fund had hired to advise it on the question had come down firmly against the merger.

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Blue House

Why, then, did the fund give the merger a thumbs-up? According to the official who spoke to the Hankyoreh, it did so in response to direct pressure from two quarters. One was the Minister of Health and Welfare, who phoned the official and urged a pro-merger vote. The other was a friend of the official who called him on behalf of the Blue House itself – South Korea’s White House.

“My friend told me,” the pension official recounted, “that the Blue House’s position was that I should vote in favor of the merger. If the merger was rejected, he said, the transfer of power at the Samsung Group would run into trouble, which might damage a company that is so important to the Korean economy. A few days later, I got another phone call to the same effect, again representing the Blue House’s position.”

As Hankyoreh puts it, there are “deepening suspicions that the Blue House’s actions were made to compensate Samsung for the assistance it was giving to Choi.” No kidding. Let’s see how this develops.

Gangnam steal

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Park Geun-hye

Things are moving fast in South Korea. Early last week we caught up with developments in that country, where a massive scandal is roiling the chaebols (i.e. Samsung, Hyundai, and the other conglomerates that are the cornerstones of the economy) and is threatening to bring down President Park Geun-hye – who stands accused of helping her longtime chum Choi Soon-sil shake the chaebols down to the tune of some $69 million.

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Samsung headquarters, Seoul

Since we ran those pieces, there’s been a major new development. Last Wednesday, prosecutors raided Samsung’s headquarters in the Gangnam district of Seoul, the offices of the national pension service, and the office of Hong Wan-sun, who until earlier this year was chief investment officer at the pension service. Last year, as Jonathan Cheng and Eun-Young Jeong wrote in the Wall Street Journal, the pension fund “cast a decisive vote in favor of a merger of two Samsung affiliates” – namely, Cheil Industries and Samsung C&T – “that strengthened the grip of vice chairman and third-generation heir Lee Jae-yong on smartphone maker Samsung Electronics Co., the crown jewel of the business empire.” The raids were reportedly part of a probe of that merger. One detail overlooked by the Journal, but emphasized by one South Korean news source, was that this was the third raid on Samsung in a month – an indication that prosecutors had “already made significant progress in their investigation.” The same source indicated that this time around the raid focused largely on the office of Choi Ji-sung, Samsung’s Future Strategy czar.

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Lee Jae-yong

As the Journal‘s reporters noted, all this comes at a tough time for Samsung, which alone accounts for 17% of the South Korean economy. The discovery that Samsung’s Galaxy Note 7 smartphone could overheat and explode in a life-threatening conflagration led to two full recalls, cost over $5 billion, and caused the firm enormous embarrassment, leading to what may be long-lasting brand damage.

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Galaxy Note 7

The ultimate impact of this scandal, however, may be even more explosive than the Galaxy Note 7. As Bloomberg News observed in the wake of the Wednesday raids, it’s “raising fresh questions about decades of cozy ties between the nation’s big conglomerates and those in power.” While one president after another (including Park) has promised to limit the chaebols’ influence, each of those presidents has continued to play the same old game, exchanging favors, breaks, perks, etc., for cash on the barrel head. So far, it’s mostly been Park’s reputation that has suffered: once a popular leader, she’s now got an approval rating in the single digits. But as the South Korean public watches the country’s most powerful businessmen being paraded into police interrogation rooms like small-time crooks, and sees prosecutors raiding the offices of the nation’s largest and most prestigious company as if it were a Mafia operation, the chaebols – whose reputations have already been on the skids for years – are bound to lose even more of their luster. 

The only thing that’s sure here is that this story is just beginning to get underway. As the details of chaebol corruption continue to be investigated, uncovered, analyzed, and publicized, we’ll continue to monitor developments.