The master remembers the “millardito”

Ten years ago, Hugo Chávez had a problem: the Central Bank of Venezuela was independent. This was a personal affront to Chávez, who considered independence from him to be akin to a slap in the face. So, Chávez being Chávez, a furious assault on the Central Bank’s autonomy began by demanding they hand over $1 billion, a “tiny billion” or “millardito,” a la Dr. Evil.

The Central Bank acquiesced, but not before making up a new chavista euphemism, the concept of “excess reserves.” The President could have his billion, the bank argued, because the country didn’t need to save that much. We could calculate what the “right” amount of foreign reserves were, and hand over the rest. ¡Al cabo que ni quería! (Never mind that the Central Bank had already handed over the equivalent of all reserves in local currency, so any “excess reserves” handed over were basically inflationary double counting)

Ten years later, economist Pedro Palma brings the story back in an op-ed piece in El Nacional. In his trademark clear-eyed manner, he reminds us that, back in the day, the Central Bank decided that $29 billion was an adequate level for foreign reserves because that amount represented about 12 months worth of imports for the country. Ten years later, cosidering how much more we import now and using the same formula, Palma reckons that the appropriate level of Central Bank reserves should be in the order of $70 billion, more than three times what we actually have (around $20 billion).

The argument about “excess reserves” was a simple grab for a tempting pot of money. Once the independence of the Central Bank was violated, nothing in its vaults was safe. Given the role Central Bank independence plays in preventing price increases, is it any wonder we have the world’s highest inflation rate? Is it that hard to believe the bank has simply stopped announcing bad economic figures altogether?

When I first started studying economics, Palma had a TV show called Enfoque in which he talked about economic issues in clear terms. I remember having to stay up late to watch the show for my introductory economics class, and it became a benchmark for me. Someday, I thought to myself, I want to explain economics in such a clear and accessible way.

It’s refreshing to see the master in such good form.

9 thoughts on “The master remembers the “millardito”

  1. PP long ago used to work under me, and frequently fell asleep in his chair; then, he went on to Wharton and returned an “eminence” in economics. He has managed himself well in the “Land Of The Blind”. He was anti-Chavista, for all the right reasons, before Chavez was elected President, and has been head in Venezuela of one of the most-prestigious/competent international business consulting firms. Juan, I truly think you explain most economic issues very clearly/well, and, that being said, economics somewhat continues to be a dismal “science”, all the more dismal as it is attempted to be exercised under Chavismo.


  2. What this article emphasizes is the need for public institutions to be run on a meritocratic and technocratic basis, wholly autonomous from partisan political agendas or pressures , protected from the corruption and dysfunction that are the bane of almost any third world democratic system

    This include the Central Banks , the Judiciary, the Armed Forces . Government owned corporations and the Civil Service !! Each must be manned and organized following meritocratic a-political principles of administration . You start small and selective and then allow the initial island of excellence to take over the rest of the organization . An institutional firewall has to be created which the fires of sectarian politics cannot penetrate .

    If you read Hayek and Hannah Arendt carefully this is what they proposed , its also what all first world political systems have learned to do. It would make the corruption of political patronage and clientelism imposible or difficult . there is some danger of cronyism and other bureaucratic vices but they are easier to deal with than the dangers of despotic sectarian politics in a country vulnerable to demagogues and the cheap appeal of run away populism .


  3. “it’s also what all first world political systems have learned to do.”

    Some have, some haven’t. The U.S. judiciary is riddled with political influence and ideological partisanship. And key parts of the civil service have shown their colors – the ongoing IRS scandal being the most notorious example.

    Non-political armed forces are a requirement for any stable polity. One mode of failure is when the politicians fail to govern effectively, and the armed forces have to step in to prevent collapse of civil order. Once drawn into the political arena, the armed forces become corrupted by it.

    Thailand is in an early stage of this problem.


    • We humans hanker after perfection and of course absolute perfection is never achievable, Well grounded meritocratic institutions (however imperfect and capable of ocassional abuse) almost always work much better than those institutions run by political hacks and sectarian fanatics lacking any capacity to fairly rationally and effectively manage those public institutions theyre given the power to run .!!

      What is axiomatic is that people who manipulate political messaging to make themselves popular and distribute clientelar spoils on a populist basis are often absolute failures at making public institutions perform as they should.. By subordinating the activity of public institutions to their own sectarian political ends they cause more ruin and havoc than if such institutions where run by professionally trained officials.

      Meritocratic public institutions need outside control to avoid abuses , but one thing is to control abuses and quite another to have them replaced by institutions which are wholly beholden on following highly sectarian partisan political agendas .

      The Chavez regime total sectarian control of the Armed Forces , the Judiciary, the Civil Service , State owned companies and the BCV have brought our country nothing but ruin and the crisis that now afflicts us


  4. “¡Modifiqué la constitución, y ahora puedo sacar 2 millardos! ¡Y ponerle mi nombre a 5 ciudades!”



  5. Palma is not only a great scholar and economist but also a very generous guy. I had the chance to interview him over the phone and we spent over 45 min of really interesting conversation. Thanks for bringing his op-ed to CC.


  6. I’ve all but forgotten how gaudy and preposterous Radio Rochela had become during its last years on television. Mr. Palma makes more sense than the TV sketch to explaining the matter.


  7. He might try some rhetorical tricks of persuasion rather than information-dump, though. Here’s his opening paragraph:

    “De acuerdo con información suministrada por el BCV, al 20 del presente mes las reservas internacionales se ubicaban en 20.215 millones de dólares, y el promedio de las mismas durante los 20 primeros días de agosto fue de 20.430 millones. Eso significa que en menos de 2 meses han caído más de 1.300 millones, ya que al cierre del primer semestre del año se ubicaban en 21.604 millones de dólares, de las cuales 15.240,5 millones (70,6%) eran reservas en oro, 4.611,4 millones (21,3%) eran reservas en el Fondo Monetario Internacional (FMI) y en inversiones en divisas, y tan solo 1.752,1 millones (8,1%) eran reservas disponibles en divisas.”

    To my way of thinking, much of that belongs in the footnotes. The first paragraph should succinctly state the thesis of the article.


Comments are closed.