García Mora vs. F-Rod

BondsQuico has been talking about how Bank of America’s chief Venezuela economist (and friend of the blog) Francisco Rodríguez sees the economy. In a nutshell, F-Rod believes an adjustment is well under way, one that will allow the government to survive financially in the medium term. If the market has yet to internalize this, then this is an opportunity for early-bird investors.

Political analyst Luis García Mora sees things as quite the opposite. He sees Ramírez as not really empowered. In his latest column, he claims Rodríguez meets with Ramírez but fails to get the other side of the story, and he sees little hunger for pragmatism inside the government.

Instead, he paints a picture of a government very much at war with itself, where economic decisions are not made, where gridlock is the name of the game.

Hearsay? No idea, but I think it’s worth pondering what each side in this debate is saying before making up our own minds.

To be fair, it’s surprising that Jorge Giordani’s exit from key positions inside the government has not been accompanied by any significant shifts in policy. If there was ever a time for Ramírez to assert his “moderate” views on policy, it is now. But this has not really happened.

The money quote (sorry it’s so long, but García Mora is … not the best writer, imho):

“There are a few Venezuelans in international banking whom, for a tasty bond, will write and cash in on the Republic as they send out award-winning reports thanks to their connections in the high government: when people in the Finance Ministry call, they listen.

A month and a half ago, one of them brought (I am told) important institutional investors – bond purchasers from the US – into a meeting with Ramírez. In this meeting, the investors would get a feel for the real state of the economy, to know if they should buy Venezuelan bonds. What did cold, serious, intense Ramírez say to them? First off, “we made a mistake. The model has failed. State-owned enterprises have not worked out. The State has grown exponentially, at a huge cost. We are now paying for the consequences of these mistaken policies. We are going to begin giving back seized assets to people that have shown to be efficient in handling them. For example, the oil sector, and the seized farmers of the south of Lake Maracaibo. We will slowly begin compensating them for damages, and transferring the ownership of these companies to their rightful owners. And we are going to do this in agriculture, we will return seized lands to people that made them productive with their work.

Second: “We are going to a single, free and flexible exchange rate. This anomaly of having four exchange rates has brought huge amounts of corruption and an impressive growth in smuggling.”

Third: “On the topic of gasoline; part of it goes across the border at a huge cost for the country. The topic of gas prices for us means a $20 billion subsidy.

Other things were mentioned. Opening up the oil sector. Agreements with multinationals. An oil savings fund for Venezuelans, in order to lower the inflationary effect of oil booms.

The fellows heard all this and said “Done! The economic problems are going to be solved.” And they conclude this thanks to Bank of America, responsible for writing bullish reports on the Venezuelan economy.

In a matter of hours, though, Elías Jaua reacted: “Here? Return lands? To whom? These lands belong to the Republic!”

That is how decisions are made in the high command…

Ramírez’s announcements get weaker every day. This heightens the drama for the man responsible for setting up the meetings, the one they call “El Kid,” just like the closing pitcher.”

For what it’s worth, Fausto Masó (another heavyweight Sunday paper political analyst) seems to concur.

80 thoughts on “García Mora vs. F-Rod

  1. Human beings aren’t the “rational actors” that many economists use for their arguments, so I’m more inclined to believe García Mora, mainly because the power struggle inside the PSUV has already left several corpses on it’s way.

    And Jaua is specially touchy when people remind him that he was a terrible Minister of Agriculture. I remember when Capriles, back on 2012, talked of the transition from AgroIsleña to AgroNada and he inmediatly responded while foaming at the mouth.


  2. Rodríguez at least has hard data and analytic tools. García Mora has mainly hearsay and puffed up writing.


    • Yeah, hard data, ok…When it was that he “quit”because he did a report on the economy to the assembly that was not to like? oh yes, and he is getting paid by BofA, (they are not the ones that recommends, /issues, Venezuelan debt/bonds) whatever?

      Th e thing is who is paying FRod for his reports…He is not an independent actor


  3. There have been recent statements by Ramirez on the matter. This happened just 4 days ago in London. Ramirez sounds like a graduate from the Chicago School of economics as led by Milton Friedman. If true, …oh my. The fist fights which must take place behind closed doors with these people…..!


  4. Jaua was an ally of Giordani in the struggle that led to his recent ouster from Pdvsa and BCV board of Directors , Ramirez is probably more pragmatic , but even if Ramirez is sincere about those views he discloses in secret to a group of foreign bankers he isnt in absolute control of decisions , Jaua is part of an influential faction thats seen itself defeated in protecting Giordanis status as a crucial factor in the govts decision making, but still retains a great deal of influence . Lets not forget that it could have gone the other way but for Ramirez quick manouvering .

    All the decisions that need to be taken have political repercusions which may cause the decision to be pared down or posponed for fear of their implications . So in the end whatever Ramirez may propose may get shot down or cut down by the fears or opposition of faction groups inside the regimes decision making process, which is not methodical and straightforward but reactive and erratic. They are not economists they are people besotted with Power who privilege political considerations over any other consideration and dont understand the ultimate consequences that well.

    Jaua is close to Arreaza and Adan Chavez , he is also sometimes able to play on Cilias ambitions to help her clique to attain greater positions of power. The regime does not operate as a smoothly running rational decision making machine . Maduro is not great resolute leader but someone who must sattisfy different factions to wield his power .!!

    There is also the fact that even where complex decisions are taken implementing them require the use of a sometimes very disfunctional govt machine which often botch up the handling of the decisions on a practical level .

    Doubt that there is a master rescue plan for the economy with everyone on board as to its implementation , reality is bound to be more complex and confusing !!


  5. So here we have a guy with limited – very limited – understanding of the macro issues involved (and *no* grasp of the micro/macro divide) issuing grand edicts on the basis of hearsay (which is nonetheless reported verbatim!) and of vaguely ridiculous, puffed up analogies that – surprise surprise – just happen to map directly onto what the opposition wants to hear.

    Con una opinión de esas y 3 bolos te montas en el metro…

    García Mora is like the baton twirler in the grand parade that is The Opposition Bullshit Machine (to use a suitably mangled García Moraesque analogy…)


    • Francisco,

      I am completely neutral on this. Now: what do you make out of Rafael Ramírez’s statement on the unification of exchange rates? If the inflationary effects of last year’s devaluation developed already last year: when do you think we should start seeing a drop in inflation levels?


      • I think this might be completely unrelated to that.

        There’s an interesting rumor running about here and there in the EM finance community that perhaps this shakeup in ministerial power and the recent statements are an attempt at a pseudo-roadshow prior to issuing new bonds. Certainly, what we are hearing and seeing would be somewhat conducive to interest in a new issue float; and given the recent strength in the bond market, there may be an eye towards diversification back into the EM market after the drop a year or so ago.

        However, I’d be a bit concerned that it is all smoke and mirrors. I’ve seen more than one dog and pony show like this: lots of thunder and lightning, but little or no rain. (How’s that for a metaphor or two.) A few possible scenarios:

        1). This might be one of the last grand plays for an influx of cash prior to crash. We’ve recently seen the government head to every source of available money/loans/lateral transfers from oil companies and interested/invested governments to negotiating debt deals with MNCs. As yet, there’s been no default on PDVSA or sovereign debt issues, and that would carry well with a relatively high yield on a new issue; but the market is fairly saturated and they might be limited on bid. However, from another perspective, it is also fairly alarming if that’s the game plan: common consumer tactic prior to bankruptcy is to max the credit cards if you are going to default anyway. (This also brings up the curious notion of who will be co-issuing the float; I’d bet my last bolivar that there’s

        2.) I also wonder how much of this dovetails with what is going on in Argentina, since this may trigger a run on the bonds and further tighten access to cash in the marketplace given the political relationship (as well as ideological leanings) of Venezuela and Argentina.

        3.) Obviously the political dynamics of an internal power struggle and attempts at fixing the economy prior to a collapse would come to mind given the contrast of activity. However, this is not the first gyrations we’ve seen and, as yet, they’ve come to naught.

        I think the key thing is, as always, to ignore what the various powers-that-be say in Venezuela and pay more attention to what they actually do or accomplish. Will they unify things? Maybe, but until they do, I give it no credence. Will they move towards privatization? Possibly, but I don’t see any remuneration of lost funds or property and even if they did, where would said funds come from?

        One other thing to ask: If there is a new issue, which banks stand to benefit from a very bullish position on Ven. Bonds?


    • Quico, this is not about the macro issues, it´s about power plays. And for all we know, Garcia Mora knows a lot about that. I think a little bit of healthy skepticism is called for.


      • Y’know, people use the phrase “that guy doesn’t know what he’s talking about” in a kind of loose, allegorical way. But here we’re faced with a *very*literal* case of a guy commenting on something without actually knowing what it is! How can you take seriously a guy who thinks the question of whether the farms in the South of Lake Maracaibo get returned to their original owners has any kind of bearing on Venezuela’s capacity to service its debt?

        There’s a certain threshold of economic literacy you need to clear to be taken seriously on this debate. García Mora is too busy mangling analogies to clear it.

        It’s an intolerable arroz con mango, Juan, c’mon…


        • I think we passed the point where economic policy was deemed a “technical” issue aeons ago…

          Aside from that, quibble with García Mora all you like, but Barclay’s sees things in quite the similar way.


        • The comment on the Sur del Lago farms, btw, seemed to be a general comment about the way economic policy might be headed under Ramírez, and that obviously has implications for Venezuela’s capacity to service its debt. I don’t know if it happened that way or not, but it strikes me as perfectly plausible for Ramírez to have said those things in the context of a meeting with foreign bankers.


        • “How can you take seriously a guy who thinks the question of whether the farms in the South of Lake Maracaibo get returned to their original owners has any kind of bearing on Venezuela’s capacity to service its debt?”

          I agree with your skepticism, but to be fair to Garcia Mora, that’s not what he was saying.


        • Returning the seized Maracaibo lands was part of a list of rational economic policies which contradict the chavernment’s rhetoric and previous policies.

          If the chavernment can back off the destructive policies which it has previously embraced passionately, then there is a chance of managing debt service. Jaua’s reaction shows that even if Ramirez sincerely wants to make such policy changes, the rest of the chavernment is firmly opposed.

          And that means that soon, Venezuela will not be able to service its debt.


    • I resent that you call this “the Opposition Bullshit Machine”. What is apparent is that the long-term opposition is expecting -or is resigned to expect- that macro-stability a-la-Cuba produces a popular opinion decline, due to a loss of purchasing power, and they’d compete electorally with the government -which shows no significant political fractures- to see who manages the recovery; while the short-to-mid-term opposition is expecting an immediate crisis so apparent that it would set off a social protest spiral which would meet their political proposals, and perhaps exploit some internal grievances within the government (as some would have expected of the repressive measures of the last four months).

      Whose narrative does Garcia-Mora lean to? I hardly think any political leader reads him, so it may be that he’s feeding lines into the cloud of “opposition leaning” opinion (but showing “fractures” in the government camp is a favourite among some). Which seems even more dangerous, since no one in the general public reads FR beyond this blog.

      BTW, coming from ProDaVinci (who has economists on board) is not the best piece of analysis…


  6. Ojo, this isn’t to say that F.Rod’s position is definitely right. He may well be wrong, hell if I know. It’s just to say if you want to be persuasive, you need to make the argument at the technical, quantitative level. And García Mora vs. F. Rod at the technical, quantitative level is Bambi vs. Godzilla…


    • I think it should be simpler: “what are your sources?” is a simple question!
      Any investor that doesn’t ask for proof is a money loser!


  7. BTW, Juan, I don’t really get what you mean by “Hearsay? No idea…” Of course it’s hearsay. HE’S TELLING US IT’S HEARSAY!

    And…how accurately has the hearsay been heard, and said? The giveaway comes here:

    The fellows heard all this and said “Done! The economic problems are going to be solved.”

    Anybody who’s followed this debate and thinks *that’s* the conclusion they’ve come to disqualifies himself from it. Exactly *nobody* is saying “the economic problems are going to be solved”.

    This is an argument about whether long-term stagnation is likely to be accompanied by ongoing, acute macro imbalances (à la Zimbabwe in 2000-2012) or whether long term stagnation is likely to be accompanied by relative macro stability (à la Cuba 2000-2012).

    García Mora didn’t even understand *that*!! It makes me genuinely angry that a guy this fucking clueless gets a voice in this debate…


    • Well, what I ment to say was that I don’t know if this was baseless innuendo or if there was actually some truth to what he’s saying. Regardless of our opinion of the guy, García Mora is well regarded in Caracas’ political circles. This is not Robert Alonso we’re talking about. Besides, what he’s saying pretty much mirrors what Barclay’s has been saying – that hopes of an adjustment currently being under way are pipe dreams.

      I think his silly phrase says more about the poor quality of his writing than about the veracity of what he’s trying to convey.


  8. Re: The hearsay

    Political Analyst Garcia Mora reveals what he’s reporting on the basis of hearsay. At least he’s honest on that score..And he.provides us, thanks to Juan’s report, a cautionary tale for the gullible on the political machinations that are bound to stop any grandiose economic strategy from ever materializing. That’s worth reporting in this blog, whose readers have been stuffed, on more than one occasion, with high falutin’ praise on the ringleader of a dog and pony show from the Bank of America. Yes, I’m lookin’ at you, Quico.

    F. Rod’s report is based on a lot of billowing smoke and flashing mirrors, created from the internal meetings with a few select members of the government, eager to please BofA’s investment banking arm, on whom that government relies for marketing and issuing Vennie bonds, in order to keep its “powerbiz” afloat. HUGE interests at stake, both on the government’s and BofA’s account. Because we all *know* how accurate and reliable is the number-crunching from the government, as provided to BofA, for the latter’s analysis and subsequent marketing to the gross financial benefit of both parties. Ohh no, no palaver here at all. Absolutely no hearsay is involved. Everything is just squeaky clean. Uh-huh.

    Conclusion: Quico, you are no longer a toddler and should be able to see through the palaver, the hearsay, at all ends of the fraying cord. (I so wish you had the experience of sitting in on some of these dog and pony shows. It would cut through the pixie dust that floats before your eyes.)


  9. Ramirez also claimed that the U.S. increase in shale oil production will result in a boom for Venezuelan heavy oil and that Venezuela expects their market share in the U.S. to increase as a result. Anyone buying that? Not me…


    • Not that I know anything about the oil biz, but wouldn’t the same refineries used to process shale and tar sands oil be used for Vzla Heavy?


      • Short answer: no. US shale oil is a light crude that is processed in refineries that are configured differently than refineries that process Ven heavy crude.


        • In one article I read, they said something about the light crude needing to be mixed with heavy crude, such as Venezuela’s, but this makes no sense to me.

          Are the any petroleum engineers out there who can weigh in?


          • This is what wikipedia has to say about the oil found in tar sands :” The crude bitumen contained in the Canadian oil sands is described by the National Energy Board of Canada as “a highly viscous mixture of hydrocarbons heavier than pentanes which, in its natural state, is not usually recoverable at a commercial rate through a well because it is too thick to flow.”[5] Crude bitumen is a thick, sticky form of crude oil, so heavy and viscous (thick) that it will not flow UNLESS HEATED OF DILUTED WITH LIGHTER OR DILUTED LIGHTER HYDROCARBONS such as light crude oil or natural-gas condensate. At room temperature, it is much like cold molasses.[6] The World Energy Council (WEC) defines natural bitumen as “oil having a viscosity greater than 10,000 centipoise under reservoir conditions and an API gravity of less than 10° API”.[1] The Orinoco Belt in Venezuela is sometimes described as oil sands, but these deposits are non-bituminous, falling instead into the category of heavy or extra-heavy oil due to their lower viscosity.

            Extracting and processing tar sand oils is more costly and difficult that is the case for Venezuelan Extra heavy crude oil (EHCO) but the latter also needs heating and mixing with lighter hyrdocarbons for handling and conversion to marketable condition . It is also much more demanding of technical effort and investments than conventional oils .

            Venezuela is much richer in EHCO than in conventional oil deposits , Most of its conventional oils have been in exploitation for a long time and are now becoming increasing depleted or more difficult to maintain so their production must be increasingly replaced with EHCO to maintain exports . Problem is that handling and transforming these EHCO into marketeable requires them to be mixed either with light crude oils ( in a propportion which can be as high as 30% of more ) or with light refined products such as diesel ( in a proportion which can be as high as 20% or more) .or to be upgraded ( which require huge investments ). Of course the yield from the sale of EHCO is less than is the case for conventional crudes , but the real problem is that Venezuelan is running out of the light crudes which it needs to mix with the EHCO and its refineries production of light products has fallen and isnt sufficient to allow for enough volumes of such products to be mixed with the new volumes of EHCO to make them marketeable which requires Venezuela to have to import those lighter crudes and products from abroad at a very high cost , ( in 2013 Product imports amounted to close to 10 billion USD and is expected to climb this year) , This further cuts into the profitability of Venezuelas EHCO exports which in any event command lower international prices because of the need of it to be refined in specially designed Refineries .

            This means that while the general volume of production may fall only slowly or even keep up , the return from such sale falls as does the net revenue obtained from such sales diminishes as the costs of producing that exported crude rises or becomes more difficult (for the reasons stated above) . The alternative of buildind upgraders to make EHCO into synthetic crude is a very costly one . An ordinary upgrader of the kind build in the 90′ can cost 18 billion USD and takes years to build , Some estimate that building the upgraders required to process the EHCO coming into production can cost the country upwards to 200 billion dollars and REMEMBER EHCO by it self cannot be handled transported or marketed unless you spend money either upgrading it or mixing it with pricy light crudes or light refined product Venezuelan no longer produces in sufficient quantities . . Some of Ramirez announcements deal indirectly with fragments of this problem but there is no public recognition of what this inevitable change in the composition of our crude exports implies for our oil dependent economy .


      • Or, did they ask why they want to increase their trade with the same country they are accusing of plotting against them?

        Actually, I don’t think it was a press conference with opportunities for the press to ask awkward questions. It was a presentation to investors to tell them exactly what they wanted to hear, in order to calm their jitters and convince them to invest more money in Venezuela.


        • You might be right. Still, it would be nice if someone had some publication where people asked those questions. We could have one single site devoted to questions we should have asked to the different boligarchs.


          • Kepler,

            If you think about it, there are very few opportunities for journalists to actually ask questions of this government. When they do have the rare opportunity to do so, the regime treats such impudence by ridiculing them, or intimidating them.


  10. I think we need to think through the political economy of this thing: does Ramírez have the clout to actually carry out an increase in the price of gasoline? Does he have the power to do away with the currency exchange controls that are the lifeline of half of the Armed Forces, bachaqueros, pimpineros, and assorted “-eros”?

    I hope he does – for his sake, and ours. But this is far from clear.


  11. “(…) If the market has yet to internalize this, then this is an opportunity for early-bird investors.”

    More like very late birds… You may want to update this chart as of today, Juan:

    Seems like the market still stands on F-Rod’s side. And kudos for those traders who trusted in Sicad 2 ;) even though the system turned out to be squat, the promise of some sort of reform encouraged a 20-point rally in vene bonds, starting from 16%-plus yields. Definitely a killing!


    • I don’t understand how we can talk so causally about “making a killing” by buying Venezuelan Bonds. Regardless of the fact that there might be money to be made or not, buying bonds is basically like making campaign contributions to PSUV (since government and PSUV are, for all practical purposes, indistinguishable). Every self respecting oppo member should oppose buying Ven bonds on moral grounds alone.


      • Nanu, of course you’re right. I’m sorry if it sounded so casual.

        But I’d say that your argument is quite a stretch: I don’t think there would be any benefits for the nation (or for the oppo movement), and a whole lot to lose for taking a Boicot stance towards our own external debt.


        • Daniel:
          I don’t think my argument is a stretch. Money raised through bonds is spend by the government with little or no accountability and for whatever purposes they need at the time. Buying bonds is basically lending money directly to Maduro and Diosdado to do as they wish. Of all the possible investment vehicles out there, I don’t see how an opposition member could choose to take his hard earned money and lend it to the government.


    • Well, the EM Bond market has been in rally mode, along with most other bonds, since February. Part of the gain is that trend. Part is the reactionary beta of dealing with Venezuelan bonds in general. The instability of the “new” regime created a lot of price volatility although I find it fascinating that the bonds have been rallying since around the time the protests began. Coincidence, I’m sure given the bond runs, but fascinating nonetheless.


  12. The question isn’t whether Venezuela bonds are “safe” – the question is whether they’re *safer*than*similarly*high*yielding*bonds*.

    From that perspective, there’s something trivially true about saying they’re a good investment: even UKRAINIAN bonds pay less than ours, and they’re literally at war with Vladimir Putin!

    We pay around 80% higher yields than KENYA, coño, whose head of state is wanted for war crimes, where Al Shabbab blow shopping centers up for sport and which is on the constant verge of violent ethnic war.

    This morning, we yield about the same level as Argentina, ferfucksake, which following yesterday’s gringo supreme court ruling is on the verge of defaulting again, for the second time this year!

    En serio, hay que aterrizar…


    • Bond debt only accounts for a portion of Venezuelas overall debt , the bond debt gets paid but much of the rest of the debt is not paid , there is a lot of debt which is not bond debt which is owed the Chinese and Russia and Importers , foreign Suppliers and Contractors, the partners of Pdvsa in mixed companies and lots of other people and wich if not paid cause a lot of harship to ordinary Venezuelans and its now moribund industry . China gets paid through retentions on the income recieved from millions in securitized oil sales , there is even an accounting gimmick which allows the govt to claim that what has to be paid the chinese is not debt ( so the amount of actual debt reported is minimized) .

      If a person pays one of its creditors on time but stops paying all its other creditors is that a sign of economic robustness ?? This whole business with how great the deal with venezuelan bond debts is a red herring !!


  13. OT (but somewhat related):

    American Airlines will cut its schedule to Venezuela significantly in July, as the amount of cash it has trapped in the country continues to mount.

    The Fort Worth, Texas-based Oneworld alliance carrier will discontinue 38 of its 48 weekly flights between the USA and Venezuela and end service between Caracas and Dallas/Fort Worth, New York JFK and San Juan after 1 July, it tells Flightglobal.

    American will continue to operate eight weekly flights between Miami and Caracas, and two weekly flights between Miami and Maracaibo, it adds.

    “Since we are owed a substantial outstanding amount and have been unable to reach resolution on the debt, we will significantly reduce our flights to the country,” says the airline.


  14. Pdvsa and the govt have some heavy financial debt payments falling due after 2014 , they dont have the money to pay them , their best tactic will be to roll over their payment debt on terms which will depend on how good they are at improving the image of Venezuelas future financials . Thus the efforts of Ramirez road show to make people who will be advising their customers on the roll over believe that “things will be all right because we have a master plan under way” ( vouched for by F Rods analysis ??) which will allow Venezuela to pay that rolled over debt . That might ease the roll over process and make it less onerous.

    The Master Plan may exist in Ramirez mind , not necessarily in the mind of all other heads of factions in the regime some of whom carry some heavy weight ideological baggage in their heads . e.g. Jaua. Adam Chavez . Giordani is gone but like minded people remain in influential positions . Maduro is no a strong leader whose decisions are automatically accepted by all , he is no Chavez , he needs to balance things between different factions to keep things rolling. Ramirez isnt always candid about what he says , in the oil info he gives there is always a lot of fibbing (thats NOT hearsay) , there are probably lots of things about the problems which Pdvsa is facing in its operations which arent known to F Rod or to the public in general and which might throw off the rails even a well though out rescue strategy . Ramirez does not act alone , he acts inside a collegiate group in which some special political considerations are uppermost and not always compatible with the implementation of an economic master rescue plan .

    Its official that the US is exporting 200 to 250.000 bls a day of crude oil to Canada . Mexico has a good chance of increasing crude production in future years . Not sure shale oil is as permanent a game changer as its made out to be , but at least for a time it will make the US less dependent on imported oil .

    Having said all of the above there are measures which if succesfully taken by the regime can go a long way in helping it improve its financials , certainly the creation of a unified mechanism for the exchange of USD and Bs at a market rate , the raising of gasoline prices , normalizing the terms under which which oil is supplied to geopolitical or political allies etc. The thing is that in the Past Ramirez announcements have been long on promise but short on delivery .!!

    Has anyone looked at Ramon Espinazas (of Georgetown University) Harvard presentation early this month , at the tables it contains on the real income which Pdvsa is receiving from its oil sales , and the rising import costs of oil products to Venezuela ( now closing on the US$ 10 billion figure) , on the measly income it actually recieves from its China Sales and Supplies to Cono Sur allies and Petrocaribe , on the rising cost of servicing its debt .?? These affect Pdvsa’s actual revenues in a big way , more that if the price of oil were to fall by a big margin . Ramirez doesnt touch on whats behind these numbers and they appear to be relevant .


  15. Quico Toro makes an excellent job of translating Francisco Rodriguez text into understandable terms. He says the optimistic approach of Rodriguez is based in three or more assertions:
    1. For Rodríguez, what’s hardest is external adjustment – shifting from the crazy rate of imports we had in 2012 to a more sustainable level. But that part is basically done. The painful, wrenching switch away from a higher to a lower consumption plane was achieved in 2013. It sucked. You saw it in your daily life in the form of bare shelves and enormous queues to buy the basics. But something like it was inevitable. In 2012, Venezuela was consuming way beyond its means. Now it isn’t.
    2. reaching internal balance isn’t as hard a problem as people think it is. They just need to end the control the cambio – Venezuela’s crazy-dysfunctional forex control regime – and really devalue, across the board…….However, he adds, The tiered system isn’t something chavismo is free to walk away from when it stops serving its fiscal purposes, because the tiered system embodies the deep structure of chavismo’s distributive model….. Worse still: the pockets they’d be picking in Fuerte Tiuna belong to the very same officers they’re going to have to call on to repress the protests that are sure to break out in Antímano when those pockets get picked as well. And this is the solution that’s being sold to us as not having much of a political cost!
    3. the inflationary cost of devaluation is one the government already paid because – big bold claim number four coming up – they already floated the bolivar last year.

    Quico’s objectivity about the difficulties of ending exchange controls supports the skepticism of many Venezuelans about the regime taking such a pragmatic step.
    However, when a political analyst, Luis Garcia Mora, lists signs that the internal disputes in the regime will make Rodriguez’s optimistic approach very difficult to materialize, Quico Toro has this to say about his views:
    So here we have a guy [Garcia Mora] with limited – very limited – understanding of the macro issues involved (and *no* grasp of the micro/macro divide) issuing grand edicts on the basis of hearsay (which is nonetheless reported verbatim!) and of vaguely ridiculous, puffed up analogies that – surprise surprise – just happen to map directly onto what the opposition wants to hear. Con una opinión de esas y 3 bolos te montas en el metro. Garcia Mora is like the baton twirler in the grand parade that is The Opposition Bullshit Machine (to use a suitably mangled Garcia Moraesque analogy…)
    This does not sound so much like Garcia Mora’ s ideas vs Francisco Rodriguez’s ideas but like Garcia Mora’s disqualification to give an opinion on the matter.
    The truth is that Francisco Rodriguez is an excellent economist but he has been wrong before. I remember dining with him in Margarita many years ago, when he was arriving to Venezuela to serve as Economic Advisor to Congress, with Chavez already in the presidency. He was full of optimism about his role and about the outlook for the economy. I predicted during the dinner ( Alberto Quiros was there as well) that he would only last six months in this job. I think he lasted a bit more, leaving very disappointed.
    Garcia Mora’s suggestion that Rodriguez’s opinion was biased in the government’s favor for the bank to keep doing business with the regime is uncalled for, unless he has evidence that this is the case. However, Garcia Mora is basing th rest of his analysis in the open contradictions within the government, not only hearsay. Only a few days ago, Maduro – speaking in the group of 77 – in Bolivia, made a brutal attack against the U.S., at the same time Ramirez – in London – was expressing his desire to sell more oil to the U.S. This is a sign of stupidity but also a sign that there is chaos inside the regime, brought about by the clash between dogmas and real needs. I think that this regime will go under due to their inability to tear away from dogmas in order to survive. After all, the victory of pragmatism would equal the end of the Chavez revolution. If pragmatism prevails we would not have a revolution in place anymore, just a horribly bad government.


    • Gustavo, thank you for your clarity while parsing that tussle (Quico’s bromance with F-Rod vs. Nagel’s presentation of an alternative view vs. Garcia Mora’s political analysis of F-Rod’s ingenuity on the economic panorama of the Vz government).

      As for Garcia Mora’s suggestion that Rodriguez’s opinion was biased in the government’s favor for the bank to keep doing business with the regime … I agree that a little back up would have been helpful, and would have aided Garcia Mora’s credibility. OTOH, I’ve whiffed un-truthiness between the lines of F-Rod’s latest report. And as someone who’s been actively involved in a few of these circus junkets, it is not a stretch to consider that the wining, dining and charm offensive to which F-Rod (willingly) succumbed resulted in a biased report.


      • My last sentence, however unfair, supported by previous errors in outcome, following F-Rod’s splendid predictions of panaceas in the Bolivarian economy.


  16. Can someone explain me why, if the devaluation of last year “paid off” we are still having the inflation we had last month? ‘chas gracias.


    • To stop inflation is not enough to devalue, you have to stop the crazy monetization of debt which hasn’t happened. With only devaluation and no monetary responsibility you get higher escalating prices.


    • The devaluation “paid off” in correcting current account deficits + somewhat helping the govt’s fiscal position (Money printing by the BCV for PDVSA has slowed down considerably so far in 2014). It was not meant to slow down inflation; quite the opposite, as common sense will tell you, the Venezuelan economy has a lot of pass-through, a.k.a. the domestic inflationary effect of a depreciation/devaluation of the exchange rate.


          • OMG, call Einstein!
            And in the meantime, ask the population at large how relatively painless is the ever-so-slow pull of the devaluation Band-Aid.


        • Well, theoretically that’s true for a country such as Brazil in early 2013 (which let the real weaken at a 20-30% pace to correct their real exchange rate and to avoid balance of payments issues), but the context in Venezuela in my view is different. Looking at the drivers of inflation and exchange rate weakness, there’s no signal of currency or price stabilization getting any sooner:

          – M2/Reserves is still going up (M2 is expanding aggresively and Reserves are flat year-to-date).
          – The harsh price controls and fiscalizations have had a negative impact on real output, with some analysts talking about a likely double-digit plunge on Manufacturing and Construction.
          – The “we are running out of dollars” mentality is hitting hard the Bolivar on the parallel market, aside from the obvious “carry trade” (borrowing weak BsF to purchase strenghening USD), and that’s passing through private imports.
          – There have been numerous adjustments in regulated goods so far this year, some of them in the triple-digit range; and the are lots more expected (electricity, natural gas, transport, medicines, fuel..)


        • Kepler i forgot to add a crucial factor for this:
          Price dynamics in Venezuela are characterized by high persistence in inflation rates (that is, shocks to the inflation rate have a long-lasting effect). This was actually the subject of my Bachelor’s dissertation, and the causal factors are several: using inflation as a source of fiscal income (inflation tax), conflicts between economic groups in regards to real income distribution, low policymakers’ credibility, inter-relations between inflation and exchange-rate depreciation…

          Here’s the Working Paper version of my disertation, in case you want to take a look at it (in Spanish):


          • Daniel : Thanks for sharing, although my ignorance prevented me from reading through the evidently thoroughly well researched paper, I did what I usually do when faced with that kind of problem and went straight to the last part where the solution is perfectly set out in two lucid and concise paragraphs .!! However Im still left with the doubt , is inflation something that can be remedied simply by stabilizing the external inflows and outflows or are there supplemental measures which need to be taken to bring it down . The main thesis seems to suggest the former , while the last two paragraphs seem to suggest the latter . Would you be so kind as to clarify this to us curious neophytes ??


            • Thanks for reading Bill! Well, after some thinking and the developments in he venezuelan situation since i wrote the paper (lae 2012-early 2013), I’d conclude that stabilization in the country’s external position is definitely a priority and a necessary, yet not a sufficient condition, fpr bringing the chronic inflation problem to an end.

              However, and this is the mistake that has been repeated every time, the sources of this mess have to be addressed. And it is a huge mess indeed!

              My set of proposals were explained in greater detail in the dissertation. I can send them to you vía email if you want :)


  17. The regime almost never does what it says it is going to do but whatever is actually the case, it looks to me like the good bet, and the bad news, is more instability.


  18. Hearsay vs. biased economic opinion is really irrlevant–the proof is in the pudding–Venezuelan 2/15/20-year bond yields are still at 16-17%. The markets know what to believe, or not.


  19. The opinions in CC are as divided as the opposition. While we fight, Chavistas keep the train wreck going.


  20. IMHO, the most shocking thing from that article is not the controversy with FRod or Ramirez (no one reads Garcia Mora for the economics) but the gossip about Giordani supposedly asking for Maduro’s resignation after he read “la carta,” to Navarro and Montes (or was it at the Board meeting of the BCV? Hard to tell from the poorly written article). Either Garcia Mora is the biggest bullshitter in Venezuela, or Chavismo is at the brink.


  21. Does the removal of Giordani today mean anything or is this just the latest iteration of the deck chairs on the titanic?


    • Giordani’s been *THE* roadblock to an exchange rate reallignment/unification/whatever-euphemism-you-want-for-aggressive-devaluation. I’d say his quick loss of power means a lot.


      • Maduro is so cruel! Had he waited just 12 days, Giordani would have been 74. Now the Monk will have his birthday without a ministerial post. I fear for his mental stability. Just joking, the bloke was completely round the bend.


  22. So, Giordani’s letter went public ( and it’s a big deal right now, confirming at least part of the “bullshit”, “hearsay” or whatever name you prefer for García’s column.

    I know it doesn’t make full sense for economics, but García’s column is about politics and the power struggle inside chavismo… and I think the facts are confirming he at least has good sources.


Comments are closed.