A pyramid scheme called Venezuela

Hugo Chávez, Venezuela's embattled president, is living on borrowed time. The real problem for Venezuelans, though, is that their economy is also living on borrowed time, and the day of fiscal reckoning may be near. Venezuela has an enormous fiscal deficit, and it is running out of places to borrow from. Like Ponzi schemes, the Venezuelan government needs ever growing sources of funding in order to keep paying for the generous promises it has made to its people.

The Chávez administration's record on fiscal issues is, in pure chavista fashion, deeply red. Last year, in order to secure re-election, the fiscal deficit reached 15 percent of GDP, according to The Economist. In spite of record high oil prices that saw state revenues balloon relative to historic levels, the government found that it had to spend billions of dollars it did not have to give people appliances and apartment homes.

But 2012 wasn't a one-off affair. Even though the deficit was absurdly high, it was only fitting for an administration that has rarely balanced its numbers. In 2003, for example, the fiscal deficit was around 5 percent of GDP. Only in 2005 and 2006 did the numbers look reasonable -- but population growth and increased subsidies mean those days are gone for good.

Foreign banks lend to Venezuela at very high rates, reflecting the inherent uncertainty of lending to a country where one person makes all the decisions. The extra yield from Venezuelan bonds demanded by the market in order attractive in comparison with U.S. Treasury bills is 722 points -- more than double that of countries such as Sri Lanka or Zambia, and much higher than neighboring, slumping Brazil. In spite of this, or because of it, bankers have benefitted mightily during the Chávez years.

That is mostly due to the fact that Chávez never misses a bond payment. In a provocative article, Bloomberg's Ye Xie and Nathan Crooks report that, over the years, Venezuelan bonds have yielded 14.7 percent annually, a very high figure even for emerging markets.

As it likely faces yet another presidential election, the government is desperate for new funding. In the last few years, it has received fresh money from China as part of an obscure loans-for-oil scheme, the details of which have yet to be fully revealed. But recent reports suggest the Chinese are reluctant to continue with the flow of money, citing unhappiness with the uses to which their funding is being put and the quality of the oil being provided.

This spells trouble for Venezuela. The situation -- large historical returns to investors, a structural inability to balance the books, complete lack of transparency on how it gets funding and what it spends on, and an increased scrambling for ever higher sources of funding just to stay in business -- has all the classic marks of a Ponzi scheme. Substitute "Bernie Madoff" for "Hugo Chávez," and the situation in Venezuela looks remarkably similar to the famous pyramid built by the notorious American fraudster (except, perhaps, for the fact that Chávez will never go to prison).

After 14 years in which he has expropriated everything from oil companies to jewelry stores, one thing is clear about Hugo Chávez: He loves other people's money. But as with all Ponzi scams before him, there will come a point when El Comandante will run out of cash. Only high oil prices are preventing this house of cards from collapsing.

Someday, the music will stop, and Venezuelans -- and their bondholders -- will be left with the bill.     

Photo by Yorvis Weffer/AFP/GettyImages


Merkel's Fascist Guest

"Bloodsuckers," "monkeys," and pigs" -- that's how Egyptian President Mohammed Morsy refers to Jews. Just two weeks ago, Morsy offended a group of U.S. Senators by claiming that Jews control the international media. Morsy also belongs to the Muslim Brotherhood, the group whose leader Mohammed Badie was ranked by The Simon Weisenthal Center as the "biggest anti-Semite" on the planet.

But then German Chancellor Angela Merkel decided to surprise us all by inviting the Egyptian President to visit Berlin as her guest today -- the same date Hitler took power in 1933. Yet she is doing this despite the fact that Morsy's rhetoric qualifies him as an out-and-out neo-Nazi. This visit is an insult to Germany's struggle against racism and nationalism over the past sixty years.

It's worth noting that Chancellor Merkel, who belongs to the Christian Democratic Party (CDU), will be hosting a dictator whose government persecutes Christians on a regular basis. In Egyptian prisons, there are now at least four Christians (Ayman Youseef Mansour, Gamal Abdou Masoud, Makarem Diab Said, and Bishoy El-Beheri) who have been jailed -- for up to six years -- simply for expressing their Christian beliefs. This is not even to mention the sectarian propaganda released by the Muslim Brotherhood and the Egyptian presidency against Christians. Persecution reached its peak last September during the crisis over the film Innocence of Muslims (and which resulted in the destruction of Germany's embassy in Sudan). This campaign of religious intolerance continues today.

This week, Morsy's Muslim Brotherhood accused Egypt's Christians of leading criminal groups that were responsible for the killings of more than 50 people during the past week's anti-government demonstrations.

We democratic activists in Egypt are extremely worried about any military cooperation between Germany and Egypt. Germany has always been one of the largest exporters of weapons to Egypt (right behind the United States). Such worries are particularly pronounced at a moment when the Egyptian police and army regularly use western-supplied weapons to crush non-violent protests that call for freedom and democracy. I don't believe that German citizens accept the notion that they can only support their own economy by selling weapons to dictatorships like Egypt and Saudi Arabia, which stand against the rights of their citizens to live in freedom and equality.

Mr. Morsy speaks a lot about respecting court decisions and the rule of law, but at the same time he is protecting a huge number of criminals who are responsible for the death of more than 1200 civilians (over 70 of them were killed after Morsy took power) and the wounding of tens of thousands of protestors since the revolution started. Not a single police or military officer has been punished for these crimes. By contrast, the chief of Military Intelligence, Abdel-Fattah El-Siessy -- who, by the way, oversaw the process of my own torture on February 4, 2011 -- received a promotion from Morsy, who recently appointed him as Minister of Defense. My official complaints have been ignored by all legal institutions in Egypt.

Chancellor Merkel, relations between countries presuppose a certain common ground of shared values. Diplomatic relations should not justify support for dictatorships. Otherwise you should also invite and host both Iran's Ahmadinejad and Sudan's Bashir. I'm sure they are both eager to have better relations with Germany (and to buy more German weapons).

As you know, Chancellor Merkel, your compatriots in East Germany took to the streets against communism and dictatorship in 1953, but their protests were crushed by a government that enjoyed the support of many powerful countries. Please don't help the rising Egyptian dictatorship to crush freedom with Germany's help.

Maikel Nabil Sanad, an Egyptian activist and leader of the "No to Compulsory Military Service" Movement, now lives in Germany. He became a prisoner of conscience after boycotting military trials in August 2011 and spent 130 days on a hunger strike. 

Photo by ODD ANDERSEN/AFP/Getty Images