Living Out Your Own Counterfactual

the-matrix-red-pill-or-blue-pill

In his 2011 ProDaVinci interview with Rebelión de los Náufragos author Mirtha Ribero, Moisés Naím launched into a well-rehearsed little rant about the inevitability of economic reform when he came into government in 1989.

People didn’t understand or accept that there was no alternative. You could give speeches, you could grandstand, you could bleed for the poor, but in the end the reality is that we were out of money. That’s it. You didn’t have a state apparatus that could keep price controls in place, there was no way to keep handing out dollars through Recadi at an artificial rate, we could no longer keep protecting inefficient industries or bankrolling state enterprises that lost obscene amounts of money every year, or keep a giant and dysfunctional public sector that impoverished everyone. You had to take apart the control raj that was asphyxiating the economy and impoverishing and corrupting Venezuelans, and all these things were related.

It’s a key little rant, and still the most eloquent defense of the much-maligned neoliberal reform effort of the late 1980s.

The only problem is, it’s just not true. Of course there was an alternative.

Faced with strong inflationary pressures barely kept under lid by a dysfunctional exchange and price control regime, the government could have doubled down on controls, adopting more and more repressive measures to fight speculators.

Faced with a deliriously incompetent and loss making state-owned enterprise sector, the government could have stayed the course, come hell or high water.

Faced with an acute shortage of foreign exchange that made it impossible to provide dollars on anything like the scale business was demanding, the government could have just starved half the private sector of dollars, refusing to draw down reserves without actually adjusting the exchange rate.

None of these things were actually impossible. It’s just that, to a guy like Moisés Naím, the consequences of keepin’ on keeping on looked so dire, so extreme, they were as good as impossible.

But maybe there’s a failure of the imagination bound up in that “as good as”. Maybe where it all fell apart was in averting our eyes from the “what ifs”, thinking through the gory details of the alternatives to reform.

Take price controls. Even knowing that the state apparatus that implemented them was creaky and corrupt and entirely unfit for purpose, there was no law of nature saying the government had to repeal them. It’s just that doubling down on price controls would’ve seen scarcity spin out of control, forcing people to spend hours on end waiting in line to score one or two measly packs of harina PAN to the point where even Maracucho Superman was going to peel balls to find any. Sure, even then, continuism wouldn’t ultimately have done much to keep a lid on inflation, to say nothing of people’s salaries’ purchasing power, and sure, it would likely have fueled the rise of massive smuggling conglomerates devoted to taking the goods you keep subsidized across borders where they fetch several times the subsidized price – but was it literally impossible, as Mr. Naím would have it? Not at all.

Or take the state owned industries. Sure, refusing to bring a minimal level of rationality to their operations would’ve cost the nation dearly, but if they’d been bloody minded enough they could have just refused to revise the collective bargaining agreements for years and years after they’d expired, let inflation eat away at their buying power and just taken the resulting labor blowback like a man, even if it meant shutting down one state own firm after another and bred crazier and crazier corruption schemes that ended up costing the nation literally billions. Crazy bad policy? You betcha! Impossible? In no way.

Or take RECADI. Caracas wasn’t going to fall into the Caribbean Sea in 1989 if they’d just  refused to wind up the currency exchange control regime merely because they had 10 people asking for every one RECADI dollar on offer. It’s just that maintaining such a refusal would’ve seen the rise of an uncontrollable currency black-market. As the gap between dollar demand and supply grew, the street rate would’ve climbed first to two times the official rate, then to three times the official rate, then four, then five, six and, in time, seven times the official rate. Clearly, the distortions you would start to see at these kinds of official rate-street rate spreads would’ve tended towards the dadaist in their absurdity. At some point people would’ve started doing bizarre things like buying airplane tickets that cost thousands of dollars for flights they never intended to board just to send a friend to Aruba with a credit card to cash in on some of those impossible arbitrage margins. But, at the limit, if that had been what they really wanted to do, they could have done it.

So let’s just be scrupulously clear on what the extreme levels of economic degeneracy that we’re seeing these last few weeks actually means in terms of our political history and political economy. Because, in a way, we’re almost fortunate. We get a chance to see what lay just beyond the bend on the road not taken. Venezuela is living out its own counterfactual.

And so, to all those people who slammed the reforms of 1989 – to all those who said they were needless, destructive, mindless, unnecessary – history has taken the trouble show us the alternative in clear, crisp, compelling technicolor.

So no, Moisés, get it right: there was an alternative. And Venezuelans are living it every day.

116 thoughts on “Living Out Your Own Counterfactual

  1. Q paja. At this stage in the game, if you’re going to put forward a position like that you HAVE to put up the goods. Because otherwise, YOU’re just the 1989 vintage adeco CEN member, calling for “reform for everyone else, gradualism for me.”

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    • Wasn’t this approach debunked in “The Quest For Prosperity”? Perhaps I didn’t catch the real gist of it but what I understood was that Washington Consensus styled policies in this type of situation didn’t bring the desired result in the long run.

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      • Oh, not at all. Lin doesn’t agree with the Washington Consensus, but what he wants is to complement it, not to do away with it. The underlying theme in the book is that industrial policies without regard to market forces are destined for failure.

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      • For me, the phrase “Washington Consensus” long ago crossed the line from “analytical descriptor” to generic term of abuse. It obscures way more than it reveals.

        This kind of abstract-noun thinking has muddled the waters for too long.

        We should get down to brass tacks: do you think selling $20-bills for 10 bucks is reasonable economic policy? or don’t you? Do you think the state should spend its resources on patching up the balance sheets of steel mills that lose money year after year or don’t you?

        The advantage of Venezuela 2013 is that it’s bringing the real stakes into focus.

        You can rant against neoliberalism all you want. At the end of the day: do you want airlines to grow fat selling wildly overpriced tickets for flights nobody flies on, or don’t you?

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        • In hindsight, I think my comment did not reflect what I was truly trying to convey. I’m all for fixing the huge distortions the regime has created during the last 14 years but to leave it only at that, following the logic of Lin and as Nagel rightly pointed out in his comment, would not bring the country to where we should be.

          That’s what sort of jumped at me in this article. It seemed as it was only trying to call on reigning in the madness like it was the only thing that was going to eventually promote development on it’s own.

          Then again, that’s just probably the point of it the article: a huge smackdown on the idiocy of the ruling elite.

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          • Well sure, if you get shot in the leg and are bleeding to death, just stanching the bleeding and patching your leg up is not going to make you win the marathon. But I’m pretty sure you won’t win the marathon until that wound gets patched up…

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            • I think the real problem with policy making, using this analogy, is that in Venezuela, when you are shot and bleeding from one leg, they decide to perform surgery on the other perfectly healthy leg.

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        • I agree, “Washington Consensus” is used in an almost conspiracist manner within leftist circles. The truth is that there was no formal consensus, it was just a set of more or less similar economic policies that reflected similar measures being adopted all over the world. Same goes with “neoliberalism,” it has attained almost paranoid status among the radical Left.

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          • The point of the original consensus – “dude, the money you spend propping up SIDOR’s balance sheet is money you can’t spend paying teachers and nurses” – is so commonsensical, so aggressively uncontroversial, they needed to bogeymanify the moniker to make the obvious toxic.

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    • the extreme irony it’s that AD/Copei became sinonimous with the economic “fix” attempt that “harmed” the country and the “newcomers”, the chavistas, claim to be the heroes by “fixing” what AD/Copei did by doing the same thing AD/Copei did to cause the mess, to a person who didn’t lived through the 4th republic like me this is very confusing and I find incredible that some of those who did live through it don’t get it

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  2. Kudos to Francisco for this tour d force piece !! , leading us on for a while and then slowly and subtly building a message that ends up by striking the reader hard on the nose . This is what brilliant journalism is all about !! the weave of the conceptual and the factual is so tight and elegant that one wants to applaud . Yes Francisco we are now living the hellish counter factual alternative to what might have been the case if the much maligned CAP 2 package had been politically allowed to go after its goals . It was probably the last chance of straightening up the country and we blew it !!

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      • The sad part is that probably the lesson will not be learned.
        I mean, how many times are we going to repeat the same cycle in our history: Price Control, Exchange Control, bust.
        – 1983 Herrera-Lusinchi. Recadi
        – 1994 Caldera ||. BCV,
        – 2003 Chavez.-Maduro. CADIVI
        Every ten years.
        How tenuous is the people’s (and the leader’s) memory?
        How many times does it take to learn the lesson?

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  3. Its a myth that the main opponents of the package were ordinary people hurt by its sometimes harsh but necessary consequences , the main opponents where the entrenched interests , the traditional adecos and copeyanos who didnt want to give up their corrupt privileges ( when the country could no longer afford them ) , who wanted to keep intact their own share of the pie whatever others would have to sacrifice . the main enemy was rampant clientelism and partisan cronyism , the sindicaleros , the reposeros , the whole infected system of mutual patronage . They politically killed the initiative and destroyed its champions only to have a few more years of fun until giving it all up to the Peoples avenger : High Lord Chavez who stood sanity on its head and gave us the venezuela we suffer today. Maybe some parts of the package could have been improved , more anesthesia applied in select areas , but the basic gist of it was necessary !!

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    • You forgot to mention businessmen. Some of the harshest pullback was from people who were used to not having to compete, be productive and efficient, but instead wanted to be protected by subsidies, high tariffs and the fulano PVP. Part of the problem with Venezuela now and in the future is that we’ve never had proper capitalists.

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      • Good point Juan Cristobal , meant to include them specifically but figured they came under the clientelar patronage system . You are so right in pointing out that for the most part we ve never had proper capitalists , ony well connected opportunists , cosseted from competition by their govt pals and and concealed partnerships.

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      • “Proper capitalists” can only be found in proper capitalist economies. They are not a special breed, it’s the economic system of a country that forces people to be “proper capitalist”. No one wants to be a “proper capitalist” if they can avoid it.

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      • Someone told me recently work that in the distorted, corrupt, unproductive and parasitary economy of Venezuela Diosdado Cabello is our Steve Jobs. The inspiring tale of what you have to do to make it in Venezuela as a business man.

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  4. The thing is, we didn’t need a counter factual. Any intro to economics class can predict these things. Which is why it baffles me that people are so reluctant to support policy based on SCIENCE.

    I must admit that the far-left around the world has done a pretty good job at convincing people that capitalism is EVIL .Your typical gringo from a big city will stil think chavismo is a better alternative to any sort of technocrat government. Cause y’know, chavismo is FOR the people…jeez

    Leftist government will fail EVERY time not only in theory but in practice but people still cut them some slack. “in Cuba you won’t see billboards, is very pleasant!”

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    • “Leftist government will fail EVERY time”. That’s not true. “Far leftists government will fail EVERY time.” would be a more accurate statement.

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  5. Quico, kudos on this piece! Sadly, we’re still not at the end. I see no one in the streets bitching about how the country has degenerated into the mess VENEZUELA has become, they’re only bitching because they can’t get free dollars. I mean that is what CADIVI is, a bribe for the middle and upper classes, the lower classes get their bribes through all the different “social” programs and the inflated payrolls of the state and it’s para-statal/ paramilitary appendices. To paraphrase Churchill, this is is not the beginning of the end, far from it. Mugabe here we come!

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    • It all goes back to the original sin , clientelism for the people , the middle classes , for connected boliburgues businessmen , for the military , for everybody !! The problem is that at this stage clientelar relationships are deeply rooted in the national psyche so you cant exorcise clientelism by an act of collective chatharsis you can only subtly and gradually wean people away from it through a long tortous process !!

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  6. My impression of CAP’s reforms (and I am pretty ignorant here–educate me!) is that they partook of the then-fashionable “shock therapy” championed by Jeffrey Sachs for post-communist states.

    Great care must be taken, when imposing these changes, to provide cushioning as well as shock. I have Polish friends, for example, who tell me that every person in their small city lost his or her job on the same day, with horrific results. In the long run, things get better, but people live day-to-day, not in year-long leaps. Certainly care should be taken to minimize the number of desperate people who could be mobilized, this time, for a Chavista-led Caracazo.

    Making sure they can make it through the week is a good start.

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    • This is just what the cronies kept telling Naím in 1989. “Moisés, pana, stopping selling us $20-bills for 10 bucks all at once is way too extreme. We need gradualism. Sell them to us for 12 bucks for a while…then maybe 14 a few years down the road.”

      Surely you can recognize this kind of morally bankrupt rent-seeking for what it is…

      In the end, though, the monumental clusterfuck in Guayana speaks for itself. SIDOR is good as shut down by wildcat strikes because the government doesn’t have the money to keep patching up its balance sheet forever – this isn’t some theoretical possibility about the long term, this is happening right now!

      The advantage of Venezuela 2013 is that it brings the real stakes in this debate into sharp, sharp focus.

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      • According to the wikipedia article on economic shock therapy in the USSR, the country experienced a decline twice as intense as the Great Depression in the United States. Life expectancy declined precipitously. Unemployment was huge.

        Wanting to avoid something similar is not rent-seeking, it is sanity. Things are not usually black and white, they are often grey, too. I don’t know if Naim made all the right economic choices during his years in power; but the ultimate political consequences of his administration of the economy were pretty bad, and a new Venezuelan government might want to keep that in mind.

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          • Toro, it’s very easy for you to say that you just have to apply the “paquetazo” all at once, but the economic factors that have been sucking from the distortion would simply get you out of power, you’ll need to convince them or suppress them before you try something like that, wich is probably why CAP failed, you just can’t go to a slum and tell them that they’ll have to pay for everything now, they’d kill you.

            ironically, the way we are heading, the reality of the disaster may eventually convince everyone that it is neccesary, but right now the goverment have demonized traditional economic science so much that they can’t do it and nobody else would without facing backlash.

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              • there is always hope and some countries have gotten out of their holes, it may probably required a mixed approach, keeping some of the most popular/essential subsidies while getting rid of some crap, also some of those propaganda geniuses the goverment have would be quite useful to convince people to deal with the pain, the keys are having a national plan for increased productivity, a popular mandate to apply it and authority to execute it and to get rid of the worst corrupted.

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        • I strongly recommend Paper Tigers and Minotaurs. It’s like $15 from Amazon.

          Like your comment naively implies. The mistakes of the time were not on economic reform, but the political implementation that had to do with major power groups (specially among the private sector)

          On Mirtha Rivero’s book, I get the chills every time I read the passage where CAP’s government met with media directors after the coup asking them to play documentaries on military governments and how toxic they were. All media reps were receptive but no other than Eladio Lares (RCTV) which said “We are in the business of entertaining. That sort of things is not part of our business”. Also Ravel’s ordeal with privatization of CANTV and the toxic propaganda he launched then. As arbitrary and unjust the closing of RCTV was, RCTV under Lares and Ravel dug their own grave and were catalyst to the collapse of the political system that preceded these times. Do I want RCTV out of the airwaves? Hell no. Do I feel Ravel and Lares deserve what they got? Absolutely.

          Like somebody else said here, the people actually put up with the reforms, the elites didn’t. Naim, Rodriguez et al did plan for social safety nets (maybe insufficient). Their mistake was that they never expected the private sector and CAP’s own party to be opposed to the reforms. Some said that CAP should’ve push either political reform (decentralization of power, i.e. direct elections for governors and mayors) which pissed AD or economical reform, which pissed everyone else.

          Also he should’ve work closer with COPEI (Caldera) for some kind of consensus on what was required.

          These were dark times. Ramos Allup and Caldera defending the coupsters, dark times.

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          • Rodrigo, there was definitely strong push-back from CAP’s own party, so much so that I know personally some AD street organizers who claim that they were in Guarenas-Guatire at Party orders to stir up trouble against the FMI paquetazo (in order to try to pressure for more leniency in its application), when the demostrations got out-of-hand and became the Caracazo.

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            • At the time I heard from a work colleage living in a building in Avenida San Martin how in his neighborhood the protest started when a group of men, moving together, came out of a group of cars , guns in hand and started shouting for the people in the buildings to come down and start to riot . Before then the place was quiet .His feeling was that the riots were not spontaneous but incited by organized groups of people . Whether these people were disgruntled enemies of CAP from within his own party or from radical left wing organizations no one knew . Once the excitement ignited every body gleefuly joined the fray !!

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              • Castro had attended CAP’s inauguration with a few hundred men, many of whom stayed on after, and were involved in stirring up the original Caracazo unrest, including some snipers who fired on the military eventually called out (thanks to Alliegro’s insistence) to quell the rioting. Moraleja: if you climb into bed with vipers, you’re going to get bitten. .

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    • I had thought that the “shock therapy” was what caused the Caracazo”, and that the Caracazo was what made Chavez appear to be a “hero”, and so on. Francisco, you say you have more or less “given up?” Game of thrones: “Chaos is a ladder”, and there will be good guys and bad guys racing up the ladder. It is an opportunity for the good guys who haven’t given up!

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      • Understand shock therapy was dictated by necessity not decided upon by choice ( as per Naims narrative) , Certainly no one ever tried explaining why the therapy was necessary in terms most ordinary people might understand . As to the ‘hope’ part , Human ingenuity is endless as is the mutability of chance . There is always a chance . In any event when you fight for something deep you do so because something inside you doesnt let you give up, whatever the outcome . There have been many lost causes that suddenly conditions made winable or even .. inevitable . the other thing is not to go for the perfect outcome , go for what is achievable , step by step , if clientelism cannot be totally uprooted from peoples mentality , try finding a way for it to works so it does the least harm.

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      • When Caracazo occurred CAP had been in office a month and most of the reforms were not yet in place. The idea that “the great turn around” triggered Caracazo is part of the chavismo reprogramming of our collective memory.

        Caracazo was a product of high levels of discontent from the previous administration and ultimately caused by one sided raise of transportation costs (which had been frozen for two years). The riots scaled because the metropolitan police was on strike that month. The perfect storm.

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        • You’re missing something else. After CAP rashly announced his package of neoliberal reforms, no one was in for a rude awakening. Each and every common Venezuelan who voted for CAP had been thinking he’d bring back 1970s Saudi Venezuela in the blink of an eye; a prime example of mass delusion that had become the hope poster of his presidential campaign.

          While It is true his reforms hadn’t yet been implemented, the negative public perception was already on the loose. That’s exactly what Teodoro Petkoff learned not to make when he announced the 1996 Agenda Venezuela reforms.

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        • Rodrigo,
          The extreme left also promoted violence. Their actions were not spontaneous, even if they probably didn’t know it would get so badly. They had been trained for years to promote riots. This is no conspiracy theory. I translated a KGB document that shows how the PCV was sending people to training in sabotage just a few years earlier (the Faría family sent a nephew, related, I think, with a Faría PSUV deputy)

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          • You’ve just said yours is no conspiracy theory. Guess what, you’ve just produced the opposite effect of what you meant.

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            • It’s not a conspiracy to say that a bunch of Bandera Roja affiliated tira-piedras and quema-buses were active in Guarenas on the morning of 27F1989. That’s pretty widely documented.

              Thing is, Bandera Roja kids did little else than throw rocks and set busses on fire for 15 years leading up to 27F! They supplied a pretty continuous set of sparks for years leading up to that day…only on 27F was the prairie dry enough to burn.

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            • Did they know that was going to lead to the murder of 280 people? (or as they claim without ever providing a list, 3000 to 5000 people)?
              No. Were they organising something for that day and that something meant rioting and they knew they would provoke riots? Definitely yes.

              There is a reader of this blog, Moraima, who was a teenager at that time and who was living in a Caracas slum. She recounted how a boy who fancied her and was one of the guapetones of the place in 1989 warned her not to go out on that day, not to go to school, because something major was going to happen. There are similar recounts from other people but it seems no journalist has wanted to go deep into this.
              You can say that she is a liar. I don’t think she or many others were.

              I used to go to the Soviet embassy since I was a child in the early eighties (not for ideological reasons). I saw many of the guys, all older than me, that were going there to be prepared for their studies in the Soviet Union. And many of them got training in a bit more than medicine or chemistry (in fact, they found that easier than learning chemistry in Russian).

              There were many who got involved in training for what the Soviets called “conspiracy”, which is sabotage of a government – or what Vicente Rangel keeps calling guarimba. A guarimba is more than a spontaneous caimanera.
              Rangel uses that word against us not only because he wants to put the blame on us for anything but because he really knows what his people were doing back then and that’s what he expects anyone would do (and we don’t, the worst was 2002 and it had other dynamics).

              It was not unknown to many of the radical leaders in the urban slums that the Army was deeply infiltrated. That was a work they had consciously carried out for decades by then. Enough has been written about that.

              I happened to be starting university in the late eighties. Most UCVistas who took part in marches in 1988 could see how these extremists infiltrated our very peaceful university demos and how those marches ended up with the cops chasing us all and firing and running with their “peinetas”. We felt powerless. The infiltrations were very very obvious: we would march to the city centre and we would see them coming from Roca Tarpeya, we would shout at them to go away and they would not pay attention.

              We would not try to take them out because they had the weapons and we didn’t.
              While I was studying, the Elías Jaua’s of Venezuela were doing that.

              The following text is my translation (I copied it from a post I did) of a document dissident Bukovsky managed to copy in Moscow when he had the unique opportunity to peruse KGB archives. Yeltsin allowed that when the system was crumbling down.

              The guy mentioned in that document, nephew of the late PCV boss, is also related, as I said, to one of the PSUV deputies, one that Rory Carroll mentions in his book as the guy went to a PSUV event in a slum and gave a kid a basketball while saying “I give you this in the name of the Revolution”.

              There were many like him and they became vectors in ideological training and “conspiracy creation” (i.e. how to riot, move massses) in different slum areas across Venezuela. There is a fascinating article by a Soviet journalist who described a visit to 23 de Enero in 1983 and the nearly religious zealot of the guys doing “ideological training” in there. He didn’t mention the “sabotage-riot-provoking” part, but if you had seen what people like Moraima or me saw, you could connect the dots. Actually, you just need to read the text to connect the dots. Finally: Chávez sent soldiers to Minsk to an institution that provides a similar training, one of the institution where the Belorrussian KGB (they are still called like that in Belarus) gets its training. I have the links to the curriculum of that institution and there are very public (state) articles about the Venezuelans currently studying there.
              Most of those guys, like the guys who went to the Soviet Union decades ago, will just grab their CADIVI allocations, enjoy the time, vote for Chavismo. A few of them, though, would again be ready to give a little bit more of “system” to any havoc creation in times of political instability.

              The original:
              http://www.bukovsky-archives.net/pdfs/terr-wd/ct236-80.pdf

              ————————–
              Secreto máximo
              Acta Especial

              DECRETO del Secretariado del Comité Central del Partido Comunista de la Unión Soviética Sobre la petición del secretario general del Partido Comunista de Venezuela T. J. Faría

              1. Aprobar la petición del secretario general del Partido Comunista de Venezuela (PCV) T. J. Faría y ejecutar apoyo en la organización del curso de entrenamiento especial para el activista del PCV T.J Lenin Moreno.

              2. Aceptación y apoyo de T.J. Lenin Moreno para pasar al Departamento Internacional y Administración de Asuntos del Comité Central del Partido Comunista de la Unión Soviética, y organización del curso de entrenamiento especial por el Comité para la Seguridad del Estado de la URSS.
              Duración del curso – hasta 3 meses. Gastos por la manutención de T.J. Lenin Moreno van a cuenta del presupuesto del partido.

              Resultados de la votación: (firmas ilegibles)

              Sobre la petición del Secretario general del Partido Comunista de Venezuela, T. J. Faría

              El Secretario general del Partido Comunista de Venezuela (PCV) T. J. Faría se dirigió al Comité Central del Partido Comunista de la URSS con la petición (OP N° 2954 del 10.X.1980) para la organización del curso de entrenamiento especial en el área de trabajo general y conspiración para el activista del PCV T. J. Lenin Moreno.

              La petición de T. J. Faría se produce por la necesidad de fortalecimiento del grupo especial de la dirección del PCV con el personal de entrenamiento. Se consideró la posibilidad de satisfacer la petición del secretario general del PCV T. J. Faría.

              La petición fue aprobada con el visto bueno del presidente del KGB de la URSS, T. Tsinevym. El proyecto de resolución del Comité Central del Partido Comunista de la Unión Soviética se aprueba.

              Departamento Internacional del Comité Central del Partido Comunista de la URSS (K. Brutents)

              30 de octubre de 1980

              ——————————————————
              Traducción del español

              Comité Central del Partido Comunista de la Unión Soviética

              ¡Queridos camaradas!

              Mi sobrino Lenin José Moreno Faría x), que cuenta con mi confianza, llegará en octubre de 1980 a Moscú. En calidad de profesor de la universidad se encuentra en año sabático. Va a estar en Moscú por una estadía de su especialidad, pero en realidad querríamos que siga un curso de entrenamiento en el área de Inteligencia para que en el futuro pueda ayudar a la Secretaría General del Partido Comunista de Venezuela. De antemano les agradezco por la ayuda en esta cuestión

              JESÚS FARÍA Secretario General del Partido Comunista de Venezuela

              x) en el país es conocido oficialmente como José Lenin Moreno

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  7. Two things:

    1. The best part of this piece, by far, was “peel balls”.

    2. To Naím, a rojo-rojito style government plan was impossible because of a little thing called “intellectual honesty”. Such a plan can be enforced now because the people running the show are intellectually dishonest and divorced from the truth – initially for political gain and now maybe because of inertia? stupidity? I don’t know. But honesty remains a very, very distant concept to them.

    CAP and his cabinet surely knew the political consequences of reform. Maybe CAP’s arrogance led him to believe he could weather it, but they all knew this was politically very costly. Now, with these bozos there are two possibilities for not taking the reformist pill:
    (a) they realize the political cost of reform and may be too scared to act and lose power (and all their yacht-buying guisos, too); or
    (b) they are too stupid to understand the mess we are in is entirely of their making.

    I’m gonna go with (a).

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      • I guess by healthy you actually mean toxic. I believe it is actually more of (a) in the guiso front. It is all about economic interest and they use commie rhetoric just to justify policies that made the looting possible.

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        • That’s exactly it. Cabello would say the earth is flat if it was politically popular and let him keep guisando as he pleased.

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    • I second (a). I have acquaintances in central bank and finance ministry and the overall environment is fear. The few honest people with some kind of decision power are aware of the issues but don’t have the balls to mess with other more powerful people’s interest.

      Some others are just being blackmailed. Their vices are being used against them (Merentes) and some others are just too dogmatic (Giordanni)

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  8. Quico, great piece. I think you just found a goldmine for future posts: the comparison between the mid to late 80s and the current situation. For what it’s worth, perhaps it looks more like 1987 than 1989. The day of reckoning may be coming anyways, we’re just not there yet. It’s not going to be Perez II all over again, that’s for sure.

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  9. Quico:
    I read you daily, this article, from the photo introduction “red-blue pill” to the shocking end is a masterpiece!
    Thanks for make my hair rise in panic…

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  10. By the way, the piece is excellent, and I do think there is a lot to be learned there. It reminds me of a Russian saying: “Communism was the historically inevitable step between Czardom and Czardom.”

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  11. We should not stretch the parallels with 1989 a year when the price of oil in real terms was at one of its lowest levels and 2013 when the price of oil is at one of its highest levels in history… sadly the room of maneuver of these guys to further destroy the country is wider…

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    • Well, this cuts both ways. In 1989, with very low oil prices, refusal to reform would’ve accelerated the onslaught and deepened the impact of unintended consequences considerably. On the other hand you could argue that the scale of policy-making incompetence and ideological pigheadedness today is entirely out of proportion to what we had back then, which to some extent has a similar effect on policy outcomes.

      No parallel is ever exact, and it may be that non-reform in 1989 would’ve brought much worse policy consequences much quicker than non-reform in 2013. But a rough kind of parallel does seem to hold…

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      • It should also be noted that ‘when’ the decision to reform was made, and indeed it was logical, the leftists/socialists/communists of Venezuela were lying in wait. It ultimately resulted in the tragic violence of the Caracoza. People like Elias Jaua, a rock-throwing student at the time, whipped-up mobs throughout Venezuela. Harkening back to a previous post on “Chinese bashing,” today’s opposition movement (with Capriles in charge) is much too civil to instigate a dock strike at Puerto Cabello. The consequences would no doubt result in bloodshed. A younger Jaua wouldn’t have cared; Capriles does.

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  12. The part of that interview that I have never forgotten is this one:

    Todos proponían «el gradualismo». Venían a mi oficina o me interpelaban en el Congreso y pedían gradualismo. Eso, en la práctica quería decir subsidios y protecciones para los intereses que representaban y shock para el resto del país. Los sindicatos, los industriales, las empresas multinacionales, las pequeñas y medianas empresas, los indígenas, los maestros, los médicos, los banqueros, las universidades, los militares, los empresarios… todos se organizaron para presionar al gobierno y tratar de extraer subsidios del fisco y protecciones que los cobijaran de los costos del inevitable ajuste que había que hacer. La verdad es que ningún gobierno democrático escoge darle un shock económico a su población, a sus votantes, si puede evitarlo. Ese debate de shock versus gradualismo, en realidad, era un debate absolutamente hipócrita, tendencioso y teatral. No había la opción de hacerlo de manera diferente. Al país se le habían acabado las opciones.

    The same is happening today, everyone I talk to thinks it has to be bit by bit, keep my tickets cheap, my travel dollars, my cheap Harina Pan, my cheap electricity and whatever direct subsidy I receive. When I suggest a floating market may settle around where the black is, they say no, half of that, other wise the country will explode.

    Well, keep watching then.

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  13. Es el mejor articulo que leído en la semana; la social-demagogia de AD, Copey y el PSUV por lo visto les pudrió el cerebro y la moral a más de un pseudo-dirigente que dicen ser oposición, cosa que no entiendo porque comparten los mismos ideales del chavismo o madurismo, su unica ambición es tener una mayor cuota en el reparto del botín que es Venezuela. @PerroRealengo

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      • You posted that once before, and it is quite informative. But it falls short of a legal reason to remove a Chilean President, which required a 2/3 majority. Thinking about it today, I believe we can see a huge “Presidentialist” error committed by Allende, who thought he could make a revolution which only a minority wanted. Also, I think that it was really only the Communist Party that stressed the CIA connection to the exclusion of other factors. Friends of mine in the Socialist Party, the MIR, and the Christian Left were never in doubt that the coup came from within Chile, and was primarily the doing of Chilean political actors. The CP analysis was primarily useful outside of Chile.

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  14. It is the best article that read in the week; the social demagoguery of AD, COPEY and the PSUV apparently rotted the brain and the morality to more than one pseudo
    -leader that they say to be opposition, thing that I do not understand because they share the same ideal of the chavismo or madurismo, his only ambition is to have a major quota in the distribution of the booty that is Venezuela. @PerroRealengo

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  15. The difference in oil prices between 89 and now only underlines how destructive the extreme virulent chavista version of clientelism can be : If only part of the CAP II Package had been allowed to pull through and oil prices had improved a bit before 98 we probably would be in a much more healthy economic situation today..
    Francisco attacks Capriles dalliance with clientelism , what we must be aware of is that you cant currently win elections going for a direct frontal attack on state patronage . That would be suicidal. In fact you must accept that for a while some sort of ‘cleansed’ form of state sponsored patronage must be part of an oppo program . Most people are blind to reason when it affects their inmmediate interests , no matter how disastrous that blindness is in the long run. The first task is to sanitize state patronage , make it more efficient , use it to help people capacitate themselves or their children in order for them to develop a liking for self autonomy and responsability and ultimately forego such patronage .

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    • There are hundreds upon hundreds of thousands of people who directly benefit one way or the other from some kind govt patronage and moreover who have been taught that to demand such patronage is their birth right , Most of them are possesed of little or no economic literacy and would find the idea that these benefits be taken from them not only baffling but insulting . These kind of benefits are not new , they have gone on for years and years . To tell these people that these benefits are actually harmful to them and unfair to society would require a lot of explaining and persuasion . I honestly suspect that if Capriles were to state that all or part of these benefits should be abrogated , most if not all of these people would not take it kindly , moreover that it would hurt his popularity in a no uncertain way . maybe I’m wrong !! There are certainly lots of people wiser than me . but on this one I really think that Im right !!

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        • M. Octavio : I certainly hope we get as lucky as Britain and have our own tropical version of the admirable Mrs Thatcher . Still Britain , even during Labours heiday was a much more politically civilized place than we have ever been . Understand that the change in vision that made Mrs Tatcher revolution possible was started by a small group of liberal thinkers (at a time when every one held ´progressive’ views) , who met and decided to start a campaing to give their ideas greater exposure , they went at it with vigour and in some 15 years time effected the change in views that had seemed impossible 15 years earlier. Unfortunately In todays Venezuela that kind of slow intellectual contagion process seems hardly likely to happen !!

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        • And in Britain of those times virtually no bobby would have a gun, violent crime was extremely rare and they hadn’t had violent uprisings for several centuries.
          You had the violence in football stadiums.

          If you do something like this in Venezuela you need to carry out an intensive and very clever information campaign beforehand. Don’t consider Venezuelans unworthy of explanations or too thick. And good luck anyway.

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  16. Ladies and Gentlemen,

    There is an alternative.

    1.Venezuela has oil. Lots of it. So, you have a bottom buffer. In my current opinion, Venezuela may thus not go the way of Zimbabwe.

    2. Venezuelan companies that implement IAS 29 Financial Reporting in Hyperinflationary Economies, e.g., Plumrose, maintain the constant purchasing power (real value) of their capital and other constant items constant by indexing them in terms of the monthly published Consumer Price Index (CPI).

    Who decided that they can maintain their capital, reserves, etc. constant in this way since 2009?

    Hugo Chavez? No.

    Maduro? No.

    Answer: The International Accounting Standards Board who authorized IAS 29 in 1989. Venezuela implements International Financial Reporting Standards and IAS 29 is an IFRS.

    Very important red flag: The general price level changes daily – not monthly – and most probably has for at least the last 100 years.

    Proof: the parallel rate changes daily.

    Massively destructive consequence: IAS 29 being implemented in terms of the monthly published CPI instead of in terms of a Daily Index, e.g., like the Unidade Real de Valor in Brazil in June 1994, destroys a very significant part of these companies´ current year profits.

    Very scary fact: IAS 29 was implemented during the last 8 years of Zimbabwe’s hyperinflation with no positive effect at all.

    What would IAS 29 in terms of a Daily Index do in Venezuela?
    It would stabilise the non-monetary economy over a short period of time, but it will do nothing to actual hyperinflation. That will continue as long as the Central Bank of Venezuela prints too many Bolivars. This would happen without the intervention of the Venezuelan government. It would be done via IAS 29.

    The Grand Plan: All of you plus hundreds or even thousands of Venezuelan accountants write comment letters to the IASB – anyone can – requesting IAS 29 in terms of a Daily Index. Such an act would definitely have a result at the IASB.

    What do you say to that?

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      • You are like the Chavistas: I give you the answer (from Latin American history), but you are too comfortable in your virtual world to care about it.

        You all agree that Dollarization would stabilise the Venezuelan monetary and non-monetary economy. Daily Indexing is “dollarization” of only the non-monetary economy in terms of units of constant purchasing power expressed in Bolivars: you would still have monetary policy control.

        In the end, Venezuela´s economic problems would be solved with one of the folllowing:

        1. Dollarization
        2. Daily Indexation
        3. Low inflation

        They are all, in principle, the same solution.

        The principle will prevail in the end.

        Your discussions are like a computer game of the real world.

        The real world is one of the above solutions and they are not computer games like you are playing on this site.

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  17. Just to be extra bleak, I sometimes think that Venezuela is an accelerated version of the fate of the human species in general. It is a microcosm of our global collective future. We are all living off a natural abundance at levels which are unsustainable, the warning signs are staring us in the face, the symptoms of dissolution are setting in, and we have chosen leaders precisely for the purpose of putting on a circus side-show of distraction. The streets are full of guns, the institutions are contributing to exactly the harms that they were designed to control, and the dwindling middle class is spending money on tinted car windows and alarm systems.

    On the bright side, it is Friday.

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    • Let’s not focus on the futility of economic policy! Policy is never going to be a solution to anything… policy is just a framework that interferes or promotes the things that really matter. What really matters is that individual Venezolano must be productive, that is, doing things and making things that others are willing to pay for. Going to China, Russia, Cuba, etc. for things to import is doing the opposite. Educating people to “BE ABLE” to do things is paramount! Allowing people to do things and make things is doubly paramount!!! What is needed is an incubation period to get domestic productivity back on track. I think once the political obstruction is out of the way, the resulting vacuum will invite those resources back. There are not many opportunities else where in the world because we’re in a global depression!

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  18. Whenever I get discouraged about the state of politics here in the US, i just have to visit this site to realize how bad it really could be.

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  19. Another kudos for you Quico. Great post!
    For what it’s worth I am very pessimistic for the immediate future. Even though we still benefit from high oil prices, the country is an much worst mess than in 1989. The combination of narco-generals, leftist talibans, enchufados, boliburgueses, incompetents, a weak president, Cuban intervention and a weak or ineffective MUD is deadly for the country. I think we did not have such a negative combination of factors in 1989. I would be very grateful to one of the many intelligent writers in this post to tell us how will get out of this hole.

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  20. This article is brilliant. In the Venezuela of 2013, we are living what we thought was impossible in 1989. The monster of clientelism grew up to epic proportions, and infected every corner of the country. Our hyper-Presidential system fed the monster with oil money. Now, we either starve the monster or change the system to Parliamentary, so that the motivation to feed it is lesser. I prefer the second option, honestly.

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  21. 1989 was not a nice year, for those who were working or studying then here in Venezuela. I remember the terrible difficulties i the first 4 – 5 months just to get disposable diapers (pañales desechables), we had the whole family hunting for them, and once I walked all Chacao to find in an Abastos (grocery store) some old diapers stuffed in a hidden shelf.

    It also was the year that a car for the first time cost over 1.000.000 Bolivars (Buick Century), today that is the cost of a meal for 5 in a Mc Donalds … but surprisingly compared to today, the exchange rate was relatively stable in 1989: 38, 41 Bs/$ (Todays currency: 0.03841 Bs / $) in January to 43,69 Bs/$ (todays currency: 0.0469 BsF. / $) in December. An engineers salary was 12.500 / month which was about $ 325.

    We survived then, but today the horizon looks bleak … There would have to be incentives for all those Venezuelans that have left the country (specially young doctors) to come back and help rebuild; but with all those people accustomed to money handouts, government “workers” who do not work, cubans, etc. it does not look easy…

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  22. Wonderful article, wonderful comments. Total economic collapse is coming. Maybe then the “people” will finally react. streetwise or military-wise (remember, Pinochet was completely trusted by Allende/wife, to such an extent that he was chosen to accompany Fidel Castro on his country-wide tour, pre-general strike/subsequent bombing of the Presidential palace). With current general public indifference/Government incredible incompetence-corruption-patronage/Oppo virtual public awareness/media shut-out, it is hard to put a time on the coming social catharsis.

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    • “Huele a tempestad. “Los de abajo no quieren y los de arriba no pueden”. Se aproxima el tiempo de la libertad y el de la ilusión de construir Venezuela entre todos. Vamos a entrar en la posguerra ojalá que sin más guerra.”

      If I had a nickel for every time Carlos Blanco has written something like this since 1999…

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