Right, yet wrong

Our friend Miguel over at the Defecating Legion’s blog has sort of challenged me to an opinion duel. The argument goes like this:

A few weeks ago, opposition front-runner Henrique Capriles said that, if elected, he would not do away with Cadivi until the conditions were ripe for its removal. In other words, he refused to pledge to remove Cadivi upon taking office, but did not rule it out either.

Miguel is livid about this. He thinks Cadivi should be removed immediately because it represents a never-ending source of corruption, and because it creates distortions that will ultimately bring down the Venezuelan economy.

I agree. Misión Cadivi has long been one of my hobby horses, and I believe that it is the single most destructive of all of Hugo Chavez’s policies.

But Capriles is right to refuse to commit to an early end to the policy. The reason is after the jump.

Miguel gets the economics right, but not the politics. Consider, for a minute, the country that a President Capriles would receive. Not only will he have the Asamblea against him, but he will also have the Courts and the Armed Forces as his sworn enemies. More importantly, he will be duelling against the very agents that will supposedly “smooth out” the transition from a heavily controlled exchange regime to a more liberated one: the people at the Ministry of Finance, the Central Bank, and Cadivi itself.

Managing the transition is going to take real skill, and saddling yourself with artificial up-front commitments just won’t help.

Imagine, for example, you and a bunch of your red, very red friends are in charge of the BCV’s money market. Imagine President Capriles has instructed Nelson Merentes to flood the market with dollars if the exchange rate starts ballooning, but Merentes has given you green light to not do that, to – wink, wink – simply take a vacation. Where is the exchange rate going to end up after the first week of the new President’s signature policy?

Or imagine Capriles eliminates Cadivi, only to have the Supreme Tribunal reverse the measure because it violates the principles of solidarity, socialist ethics, and collective property enshrined in their imaginary Constitution? (The real one doesn’t have any of that stuff, but it ceased being relevant a while ago.)

Or imagine that the people in charge of making the electronic transfers for the new Misión that you’ve devised to counterbalance the shock effect of eliminating Cadivi – a Conditional Cash Transfer, say – inform you that, on the day where people were supposed to receive their money, they were unable to process the transfers because they require Hugo Chávez’s signature.

Or imagine the people in charge of watching over the nation’s foreign reserves inform you that the gold that backs your newly-liberated exchange rate … has vanished.

None of this is too outlandish to imagine, because we are dealing with insane people.

Capriles is right in saying that he first has to feel the machine and take it for a test run before he commits to a massive undertaking such as this one. It’s only common sense.

The other problem with Miguel’s argument is that it does not mesh well with Capriles’ main goal: unifying the country.

The entire message of the campaign has been: we need to stop the petty ideological wars. How does doing away with Cadivi and changing the entire way people do business overnight accomplish this goal? And how does announcing the establishment of a market exchange rate going to help solidify the impressive left-wing+right-wing coalition Capriles is putting together?

Because, to me, it goes in the opposite direction. People who are benefiting from Cadivi, most of them in the government, will feel like you’ve taken away their lifeline on the first day of office. Why should they take you seriously when you claim you are only interested in unifying the country? Deep down, you’re just looking for revenge.

Capriles’ proposal took me by surprise, but I came around. Capriles managed to convince a Cadivi-hater like myself that he was right. That, in my mind, is pretty brilliant.

53 thoughts on “Right, yet wrong

  1. I agree with Capriles’s stance, but I think he would be wise, nonetheless, to signal his commitment to end Cadivi “as soon as it’s feasible” rather than “at some point”.

    Because guess what? All those chavistas in the judicial branch and the fiscalía, they’re the ones who are going to be asking for an Ante-Juicio de Mérito against Capriles if the same corrupt practices that they ignore today continue under his watch!

    Do you really want our public sphere of 2016-2017 to be dominated by Ilícito Cambiario-based corruption trials from the first few months of 2013?


      • Mr. Cristobal, I salute you. Homerun, I think.Very well done. Yes, like you I find myself
        more and more in Capriles camp.
        (Not meaning to disagree with Mr. Toro nor Miguel..)


  2. Sorry, if you are that wishy, washy, you are not the President, you are a puppet, that is what Chavez has learned, he has the power, he says what needs to be done. Get rid of Merentes, Caldera did it (with kriboy).

    As for:

    “But Capriles is right to refuse to commit to an early end to the policy”

    What I found “offensive” is that this is the only policy he has said much about, which i find amazing. he did not refuse to commit, he said you could not.

    Look, I have become a real cynic about the ability of “Government” in Venezuela to “control” anything. We ha “Rey de la Cabilla”, “Rey de Notarias”, “Rey de Cadivi” and the like. The only way to get rid of all these kingdoms is to cut their roots at the base of their power, get rid of controls, get rid of the perversions. If you don’t, your are hosed. You are the President. Revoke Convenio Cambiario, Fire Merentes, if you don’t, you are no longer in control.

    As simple as that.

    BTW, LL said in a public seminar at IESA, get rid of controls…he wants the bull by the horns so far, he is ahead, but only in my book.


    • It’s not about Merentes, but about the 10,000 Cubans you have infiltrated in your bureaucracy, ready to bring your government down. There’s simply too much that can go wrong. Venezuela in 1994 is simply not a valid point of comparison. At least there were (some) institutions back then.


      • Tell them they can stay, give them residence or passage to the US, come on! How many really want to go back to an unraveling Cuba?


  3. Juan Cristobal

    I do not think you get the politics right either. Or rather I am not sure Capriles gets them. Like I did at Miguel I think that Capriles has a point but it is not a given.

    I have written in my blog often enough not to have to repeat it, but it is not enough to win in October (assuming you win and they give you the sash). If you win by promising to be nice, by promising to give more than Chavez then you will not have the mandate to effect the necessary changes. If Capriles promises not to touch CADIVI he simply will not be able to do it, not even improve it somehow (until the IMF forces him, but that is another story). In Venezuelan politics certain promises are “cuchillo para tu propia garganta” or ask Chavez what he thinks today about his promise in 1999 or 2000 that under his presidency gas prices will not increase…..

    You may promise that you will keep CADIVI for 6 months at most. But you cannot say that you will not touch CADIVI because at the very least you will lose those radical primary votes you need, such as mine :)

    In other words both you and Miguel are wrong but you are more wrong. :-P

    Besides, the idea that Capriles thinks he can manage CADIVI well is simply scary for me. Wait to see the Adecos and chavistas in bed together to control CADIVI…. Or something of the sort.


    • Daniel, simply winning, being allowed to win, being allowed to take office after defeating
      Chavez-will WILL open the doors to change.


      • No, I strongly disagree Charles, the other side is going to try to screw you (thinking of a nastier word) from day one, if you dont exercize your power as President, your days are counted. You have to show and prove you are different and in charge, if not, no money is going to flow back into the country. I think Capriles is right in that he needs to calm the lower echelons of Chavismo, but not the ones that have the power and stealing Billions, with a capital B, thanks to Cadivi. That’s how much power they have, they are more dangerous than drug cartels.


        • Here’s another possibility: the element of surprise is crucial here. It could be that Capriles is simply playing chicken, keeping his options open and eliminating Cadivi when we least expect it, which is how it should be done.


          • Can you vote for a candidate that isn’t being truthful?
            And who would he be hiding this from – certainly not the masses who don’t understand or give a fig about Cadivi. The ones who use the cupos are already in the MUD camp.


        • Coming into power “cortando cabezas” is not what made the Chilean model successful. Rather, it was the opposite.


  4. BTW, Caldera removing Ruth de Krivoy (not Kriboy like above) was a huge mistake, That caused a run on the Bolivar and the fast devaluation and the controls.


  5. Del apuro no queda sino el cansancio.

    The next guy is going to have to learn the art of sequencing – introducing unpopular policies in tandem with compensatory policies that make them politically feasible. Show up cortando rabo y oreja and your days are numbered…


    • Show up giving in to the Mafias, your days are numbered.

      (Do you guys really understand the Mafias the new President will face, it is billions with B!!! You will keep feeding them? Really!!!


    • I was talking to a friend who is in the construction business over the weekend. One thing he told me is that you can already see how the “baksheesh” rates are going up already due to as one “taker” told him: “We gotta take while the taking is good” In other words, the perception is that there is an end in sight to the “Feria de la Alegria” (with apologies to Henry Altuve)


  6. Ok, “as soon as feasible” means

    “As soon as I can safely fire the mofos at CADIVI, give the Cuban mofos a way to defect, and send to hell the criminal profit all the rest of parasitic mofos in Armed Forces and other ex-institutions”

    No more than six months to a year, tops, please.

    Be gradual, it’s sane. Do whatever it takes to insure the smoothest possible transition.

    But do the transition, and BE!

    Like I said, a recession and a fall in oil price might be somewhere in the future during next period. I don’t want to speculate about Hugo Chavez’s life expectancy, but it will be all for naught if he or one of his minions return after a short opposition government.


  7. I believe that a war of attrition on these mafias is not a good idea. The attrition will start from day one AGAINST the president. It is better to just cut them down ASAP before they do much damage,because that’s what they’re doing right now, DAMAGE. And when, and if, the next president takes over, they will speed it up.


  8. It is pointless to try to read much in those statements made by HRC. A candidate will say anything to get elected and then he will do what suits him better. Obama promise change, to end the Irak War and close Guantanamo. Chavez promised to get rid of corruption, not to copy the Cuban model and get rid of the adecos. Neither Obama nor Chavez did what they promised. Why should we take the words of HRC as something more real than any other campaign promise?

    Besides, there’s no way to win this game. Whatever he says, somebody will be b*tching about it. The whole thing is a mess and there’s no use in tipping your hand. And you should not forget that most of the mafias and cartels are run by military, as in SoB with guns and billions unwilling to give that away.

    The most important thing is to win the support of the people and win the election. If you have that, then you’ll be strong enough to fight the cartels and mafias inside the military and judiciary system. After you have secured the power, and only after that, you can begin to flex your muscle and get all “tough love” on Venezuela.


    • I think comparing HCR to Obama is spot on. I do think we can expect a much less hardcore government than most oppposition expects.

      However, the US is pulling out of Iraq this very year. Hopefully that is indicative of what HCR will do with CADIVI: take a bit and, when they think you’re not going to do it any more, do it!


      • Let’s hope not.
        Let’s hope he doesn’t wait 3 years to remove CADIVI. If he does that his government would be filled to the brim with corruption and inefficiency.
        Fact is of all the tough measures he is going to need to take, getting rid of CADIVI is the easiest one. There is no legitimate thing that CADIVI provides to anyone, it’s pure distortion. The only reason Chavez has CADIVI is because he loves to destroy private enterprise.
        Imagine a HCR government with 3 more years of CADIVI. He would be attacked from every side chavistas and non chavistas would be against him for all that corruption, inefficiency, economy not working.


  9. I don’t understand the dilemma. It’s not like CADIVI is a necessary evil. It’s a totally unnecessary one. It can be replaced and the replacement exists, it’s a true and tried system.

    It’s as if some evil landlord would have replaced the normal water supply to your building with a set of improvised narrow plastic tubes that get to the apartments from outside the building with weird couplings that drip water all over until finally a miserly trickle reaches the tenants. Once you change the landlord all that needs to be done is change the main coupling back to the old internal tubing and voila! everyone has water at full power. Who would want to keep the old system for 6 more months?

    Besides the president elect needs to start getting control of those reigns before he formally assumes powers. Those 4 months are critical for a healthy transition. That’s the time he will have to prepare to remove CADIVI and other distortions.


    • Cuz the guy with the maintenance contract for the Narrow Plastic Tube Water System has a nasty temper and the keys to all the apartments, maybe? (Just sayin’, you’d probably want to make sure all those locks are changed before you give him the boot…)


  10. So, here is the case against liberalization:
    “In a separate study of fiscal consolidation in Latin America between 1937 and 1995, Mr Voth pinpoints a tight link between fiscal consolidation and instability, across democracies and autocracies alike.
    Ricardo Hausmann of Harvard University similarly argues that Egypt’s steps towards economic liberalisation stimulated an appetite for greater opportunity that fuelled discontent with the ruling regime.”

    The next president will have to walk a tightrope to reverse this mess. People have already mentioned here some sort of subvention policies to ameliorate the impact of liberalization policies in the lower income homes, but HRC hasn’t. He probably should. That’s something missing in the campaign: how the current subvention system can and should be improved.


    • Bread. Bread and food prices went through. Remember things started in Tunisia, with the best educated population in the Maghreb and no oil to cope with food price hikes. All Arabs watched it through Al Jazeera.
      And then Egypt came. Egypt exports oil but it is much less important than in other places (and thus the government didn’t have enough resources).


  11. Truth is you can’t get rid of Cadivi until you achieve seguridad juridica. Otherwise the dollar will skyrocket. Period.


    • Every exchange control in Venezuela has been removed without the dollar skyrocketing after the initial targeted devaluation, you just have to be prepared for it with monetary and financial measures. These speculations are the same ones that were said when Caldera eliminated controls and the exchange rate was devalued to Bs. 530, revalued and stayed down for two years or so.

      The new President (we hope) will have all of four months before taking over, if in that time he can’t put together a plan on how to get rid of CADIVI, we are in real trouble.


    • Even if an eventual Capriles administration were made up exclusively of his cronies, it would probably be madness to simply shut down Cadivi on their first day on power. I don’t think you can just will Cadivi out of existence. Cadivi is certainly an incubus, but you can’t just shut it down because you hate it. It will probably take time and require some, maybe a lot, of previous groundwork besides merely cutting off some heads. You can will an economy to pieces, but it will take more than that to rebuild and put those pieces into place again.


  12. I have never disagreed with a post in Caracas Chronicles as much as I do with this one.
    If Capriles comes in and plays nice with the ones stealing billions of BSF by benefiting of CADIVI he will just allow them to swim in the murky post election waters until they get settled and comfortable. Then it will be harder to take them down.

    CADIVI needs to go. There will be no seguridad juridica and no economic policy that steers the ship in the right direction until the FX control is GONE. CADIVI is that much of a distortion.

    If he comes in and “plays nice” with those who have not been playing nice for a decade he will not be able to take them down. If he allows CADIVI to continue to exist he has already lost. If you do not do it quickly and swiftly he will not be able to do it.

    El Pueblo does not care about CADIVI, unless the mega-rich do.


    • I agree with you: I seriously doubt that low income homes get the biggest slice of the pie.
      The truth is, that most of the products that are imported with CADIVI dollars are sold as if they were bought with the black market exchange rate. The fattest profit margin goes to the importers or some mafiosos inside CADIVI or the banks.
      Even most of the CADIVI dollars used to import food end up in some mobster’s pocket, because a lot of these products go directly to the black market and rarely hit the stands at the regulated price.
      The upper and middle class are the ones are the ones that will suffer the consequences. It sucks, but everybody will have to make some sacrifice in the short and long term…


  13. Miguel wrote in his post: “First of all, there are so many specific proposals he could make, why choose this topic to be specific, in the absence of others…

    I am not an economy expert, so I shall leave that to others. However Miguel, you ask why choose this topic? In my opinion, very simply because it is a source of phenomenal corruption in which an important cross section of Venezuelan society is partaking. What Capriles seems to be doing is playing to the chavista gallery, tacitly saying “look guys, if I ever get there, I won’t deprive you of the mechanisms that have made you…” If you analyse his discourse thus far, it has been surprisingly non-confrontational. They guy doesn’t want to rock the boat, he doesn’t seem to want to get on the shit list of chavistas, for he is going to have to work with them when Chavez becomes a former president.

    Also, we can not ignore that Michu Capriles and el pelon Capriles are deeply in bed with Chavez. So who’s to say they aren’t advising HCR on the ‘best possible strategy’ to allow for the ‘smoothest transition’ to become a possibility come October 2012?

    I think it is a calculated political decision, one that HCR made in complete disregard to the economics of it.


  14. I think Capriles is wise to say as little as possible about anything he might or might not do. Lay low, don’t make any promises, don’t get people worked up about anything, and just get elected. the more generic, the better. the election is really all about chavez, anyways. it won’t matter what any opposition candidate promises. better to upset the least number of people as possible. of course he will get rid of cadivi if elected. that’s a given, he shouldn’t have to make promises that should be obvious.

    remember the coup in 2002, though? trying to undo everything chavez overnight made a lot of people nervous and we all know how that went…


  15. I agree with Juan Cristobal. You can’t just do it. I agree with all the arguments against CADIVI. But green lettuce is valued at twice what the official rate is. If you dismount that in a day you are giving your economy a big shock (with a huge political cost). Speculation will run free. It goes the same for gas. It is indeed a money sink, and as mentioned a few weeks ago benefiting upper classes more than the lower classes. But you can’t expect HCR saying that now the gas will be sold at 2.6 Bs/lts, and to say that in his campaign. It would again shock your economy, speculation would be running free and those with tiny pockets will come to Miraflores with torches and sharp sticks.

    I think he made the point that CADIVI is a bad thing. A bad thing he intends to get rid off. Yes, he was wishy washy about when. I know that there are many opposition radicals that would love to see all the red mafia go down and in jail. But starting a witch hunt is the last thing the next government needs to do. East Timor is an example on how forgiveness was more practical for getting out of the shit hole the were stuck in than immediately pursuing people guilty of horrible crimes.

    It will be extremely important to achieve consensus and what and where this country is going. If an oppo candidate wins, it will be a close one. You can’t go drastic when half the institutions are your enemies and you are starting with a popular support of %50.2.

    And about bringing down the red mafia, I think it will require patience. It will come.


    • Small point: Since when is common sense and demanding jail for corrupt officials so justice can be served cause one to be labeled “radical”.


  16. Yesterday, Ramon Guillermo Aveledo was interviewed in the radio show “palabras más, palabras menos” in RCR. Somebody asked him about CADIVI and he implied that everybody in the MUD agreed on a progressive strategy to get rid of it. I’m not sure whether that is the official program of the MUD or that’s what a personal point of view, but the way he explained, I believe it was the first: a consensus inside the MUD about how to deal with it, i.e. no shock therapy in the near future…


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