El Gran Viraje, 25 years on

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Twenty-five years ago today, Venezuela’s recently inaugurated president gave a speech.

It is safe to say that few speeches have been as momentuous or significant as the one Carlos Andrés Pérez gave that day. In it, Pérez announced his government’s economic plan. It marked Venezuela’s first attempt to liberalize a severely distorted, and simultaneously bankrupt economy. The set of measures included freeing the prices of public services, raising the subsidized price of gasoline, letting the market set the rate at which the dollar would sell, and lowering tariffs – your basic Washington Consensus recipe.

It was a whopper, a true paquetazo. Eleven days later, the Venezuelan public would give their verdict, and Venezuela would never again be the same.

I was a starting my economics studies at the time, and I wasn’t fully aware of the depth and braveness of the reforms Pérez was attempting. As the months went by and I studied my profession in more detail, we all realized what he was doing was unprecedented. For the first time ever, Venezuela was trying its hand at capitalism. It was also failing at it.

Still, the experiment marked me, along with a generation of economists and other students. For a brief moment in time, we thought this could be a country where, yes, we could argue about free trade agreements and about the right way to privatize money-wasting state companies. A country where we could discuss whether or not the newly-independent Central Bank should intervene in the currency market, or whether supply and demand should take care of the price of the dollar on their own. A country where we could think of ways of making the stock market bigger, not smaller, and where we could analyze ways to implement social policy in a targeted manner.

For my generation, Miguel, Ricardo, Moisés, Imelda, and the others became an inspiration, and for that I owe them a load of gratitude. But all that’s in the past now.

Yes, many mistakes were made, and the timing of the policy implementation was off. More emphasis should have been given to social policy.

In spite of that, twenty years of poor economic performance have proven Pérez right. We should not be ashamed to admit that the revolutionary Gran Viraje was, in a broad sense, the right way to go.

1 COMMENT

  1. Yes, sort of. What amazes me is how little discussion was then and now given to how the real economy works…like some people think those policies would suffice as economic principles – mere simplifications – are supposed to act like physical laws.

    Those policies were necessary, by all means, and yet by far they were not and will never be sufficient to start the change towards…I will use the term so much avoided in Venezuela, SUSTAINABLE DEVELOPMENT. What is more: they are not only sufficient but they will always lead to disaster and getting into a vicious circle unless other things are taken care of as well.

    Policy makers need
    1) well-thought socio-political measures to prepare a feudal society for the change and
    2) actual knowledge of production processes, actual touch with the real producers in Venezuela and elsewhere

    I think Venezuela will always be in deep trouble as long as only military or people from the imaginary world – lawyers and, yes, economists without actual experience in the real economy – are the ones calling the shots.

    The USA and Norway can be ruled now by a huge bunch of lawyers and economists. They can afford it.

    Not for nothing China and Japan and Korea and even Norway over a century ago (well before oil was discovered) realised they needed more than just “opening up” and “accepting capitalism”.

    The Japanese prior to the Meiji period tried what we tried and a civil war and unrest followed.

    You don’t go from a feudal society – and that’s what we had and what we have right now, with the petro- prefix attached to it- to a capitalist society without giving some serious thought about how to set up production and avoiding political unrest.

  2. How different would the country be had they managed to stay the course? Or had the needed reforms been introduced earlier, whether it was through Lusinchi, Campins of CAP1? How much pain and suffering by the Venezuelan people would have been avoided?

    We can mock/deride Maduro for continuing in his economic intransigence and that of his predecessor, but there’s a long history of it in Venezuela. I agree, CAP made the right choice at the wrong time, but, right or not, he has been pilloried for it ever since. No wonder presidents of Venezuela choose the easy popular economic path rather than the difficult and needed decisions.

    When you talk of opportunity cost, think of that path that was chosen and ultimately discarded by CAP, Caldera, Chavez and now, Maduro and the results thereof. I cannot think of a better example specific to Venezuela.

  3. what a sad “solution” our society picked at that time!!! And the same society keeps going in the same wrong direction…….pity for our future! We still are knotted to the populism and absurd economical pathway.
    Great blog!

  4. Despite agreeing in heart with the reason behind the Gran Viraje i don’t think it deserves as much awe as you try to portray. After all that was a set of generalized policiey prescriptions emanated from a small bunch of wonks at the IMF (the Washington Consensus), and NOT a true economic revamping initiative that took into account the institutional and social context (what the Washington Post Consensus http://www.who.int/trade/glossary/story074/en/ tried to be).

    Let’s face it; the Gran Viraje crashed and burned simply because it wasn’t designed for Venezuela, it wouldn’t ever work on Venezuela’s political system, and will be forever scorned by the Venezuelan society at large.

    • It did work. The economy began to grow, inflation began to come down, the interest rate for Venezuelan bonds came down, the budget deficit decreased, the quality of service of private CANTV greatly improved, etc.

      There were mistakes, but overall, the economic policy yielded positive economic results.

      The Washington Consensus isn’t “fuck the people, give all money to transnational corporations”; it’s about governments abstaining from running huge deficits in industries like steel, phone, food, ice cream; so they could invest that money in security, healthcare and education; with the added benefit the in private hands those industries put money in the public treasury (instead of taking it) through taxes.

      Venezuela’s political system also underwent positive changes under CAP II: the direct election of mayors and governors.

      Unfortunately, traditional political parties were reluctant to modernize themselves; and people like Caldera, Escovar Salom and Uslar Pietri used the political crisis to get back at CAP on old grievances, thus throwing the baby (Venezuelan democracy) together with the bathwater (CAP from their perspective).

      Had we stayed the course our economy today could be where the economies of Chile and Colombia are today, or even better.

  5. If the Paquetazo was the way to go then , in its essential features, shouldnt it be the way to go now.? -of course adapting it for present circumstances -, if so why should anyone balk at proposing it as the way forward ?? Probably because it is politically inexpidient given the blackened reputation its has gained from people who always thought, -from an ideological perspective- a different course was not only possible but prefferable .and or because common people have always misjudged the long term benefits for them of such govt policies and held to the illusion that in a rich country all could be had for nothing , without hard times or sacrifices .

    If the famous Message which the oppo has to deliver to the chavista masses to turn them to the oppo side includes some elements of the Paquetazo , what is their likely reponse ?? we of course know the answer. !! The problem is that any rational set of policies will necessarily involve consequences short to mid term which are not going to be the least bit palatable to the common population who for the most part are intellectually incapable of understanding their merit , who would rather go on with their illusions of a quick fix through some kind of magic dramatic shortcut to prosperity and general welfare.

    Is popular democracy in a country such as Venezuela compatible with good responsible government .?? .

    Perhaps there is a version of the Paquetazo , one which allows for supplementary policy to buffer the effects ot its implementation to the general population which might make it more saleable ?? what might those supplementary social policies look like??

    The above article is a good introduction to a discussion concerning the above issues !! great piece Juan.!!

    • It’s a leadership problem. Political leaders, including CAP II, think the people would reject a paquetazo because of the short term hit it means in people’s pockets.

      So nobody explains to the people the reasons that make a paquetazo necessary, out of fear of a popular backlash.

      Hence the people, in a self-fulfilled prophecy, reject any attempt to implement a paquetazo, that they don’t understand.

      • Or a lack of leadership problem.

        My wife often tells me that Venezuela has two deeply ingrained things that tend to hold it back culturally, politically and economically: procrastination and the tendency to avoid any politically unpopular decisions. Combine these two things and you end up with ineffective governments. Her reasoning goes further that after these governments run 15 or 20 or 30 years, they screw things up so effectively that a dictator/caudillo needs to step in and reorganize things; someone who can enforce necessary changes through political will or capital, and effectively reset things for another generation or two of lousy democracy.

        I’m not excusing dictatorships as a panacea or a “good” thing because they are equally corrupt and criminal in their own way, but, looking back, you can almost see that pattern emerge from history.

        My suegra, former ex-AD, current ex-Chavista, terrifying and awesome lady that she is, says the last decent government was under MPJ, because at least he was able to get something done.

        Looking at the political history of Venezuela in the last century, I’m reminded strongly of Greece in 6th century BCE. That endless cycle of gradually corrupted democracy that gave rise to ineffective oligarchy that turned into a power-consolidated dictatorship in which things were “fixed” until the dictator was overthrown and democracy was reinstituted. The Greeks, at least, had the good sense to utilize ostrakoi regularly to remove troublemakers in the democracy phase.

        Chavez makes a great ideological Alcibiades.

        • I read a great article about this subject some time ago. The author criticizes the opposition for doing the popular thing instead of the right one.

          I think it builds upon another article from Thomas Friedman.

          The takeaway from Friedman:

          ‘Indeed, I heard a new word in London last week: “Popularism.” It’s the über-ideology of our day. Read the polls, track the blogs, tally the Twitter feeds and Facebook postings and go precisely where the people are, not where you think they need to go. If everyone is “following,” who is leading?’

  6. Ok, you are back on your way to redemption with this one JC. I agree with you. The gist of what Perez was doing was spot-on correct yet the delivery & implementation were very flawed. I was back in Venezuela at the time, shortly after completing my PhD and witnessed the riots first hand. Perez was a deeply troubled man in many respects but I also hope he will be fairly treated by history.

    • Humberto : The right set of ideas at the wrong time ??. Selling them was going to be very up hill because most common people were so un-informed , so tied to mentally primitive beliefs, so wrapped up in cultural delusions and conceits that the best laid of reasons werent going to convince anyone. To do so you need time and a big smart educational effort going on for a full generation . Even most enlightened people in this blog I suspect werent bought on their wisdom when they first were announced . I also believe that CAP did it ‘cold shower style’ because the money had run out and he hadnt the time .!! I share with you the hope that he will be more fairly treated by history than by people in our generation. !! .

      • Well Bill, it was even worse. When Perez was elected the second time, it was under the guise of restoring the “Gran Venezuela”, the period of prosperity that coincided with his first term in office and came about after oil prices shot-up in the seventies (scarcity driven by the Arab oil embargo, etc.). So in fact, nobody that voted for him even presumed he would attempt to implement changes in the economy that would promote freer markets, etc. I did vote in the elections that elected him, but not for Perez because I did not trust the man. I guess I was right. I agree with your points on “selling” the ideas first. In hindsight, adding a cushion to minimize the impact of harsh measures was an absolute requirement. So two big mistakes: (1) no sell job, and (2) no social cushion.

      • The Caracazo is seen by political historians as the largest anti-neoliberal protest ever. I think it makes sense to see it in relation to the wave of anti-neoliberal responses throughout south America, and which have positioned a spectrum of countries, not least of which Ecuador and Bolivia with their ‘Amazonian-Andean capitalism’, and Chile, Brazil and Uruguay with their more moderate positions, at the vanguard of post-neoliberal political discussions. I live in Australia, a country with near total neoliberal capture of consciousness (fetishisation of bottom-line oriented techno-accounting efficiency) throughout all institutions and organisations, and it is the vanguard of Habermas’s nightmare of the system having colonised the lifeworld. Neoliberal authoritarianism in the shell of social democracy. Perhaps the southern cone is as good as political debate in the world gets rights now, where a spectrum of positions still exists, but I hope another world is possible, and that is the symbolic power of the Caracazo and while the Chavistas have used it well.

  7. It all started back in 1928. The country has been slave to the ideology of the “Generacion del 28” and their political heirs ever since. First they were in love with communism. Later most of them switched to socialism. Almost one hundred years of this slavery to the leftist manuals has produced in the general population poverty, ignorance, lack of creativity, dependence, corruption, high crime rates. It has lasted so long in time, because all was hidden and manipulated with oil dollars. It is like looking at a pond, as long as the water level is high, nobody sees the debris at the bottom. Today the water level is down, and the debris is showing. The sad part of this story is that all politicians, from both sides of the leftist fence, are looking for ways to increase the water level, without clearing the debris, and set rules to avoid future debris in the pond. Perez wanted to restore the water level, but first clearing the debris, his only mistake was not explaining enough and proceeding too fast..

  8. If those who want a better Venezuela do not have the will to EDUCATE all Venezuelans, if our economists and political scientists and lawyers who are politicians do not understand some basics about sustainable development and economics and they do not have any desire to set up information campaigns that reach the poor, we will never get out of this mess.

    • First thing Kepler is to educate the educators and mid level social leaders, Now they are as lost as the people they teach or lead . The question as always is not what to do , but the nearly forgotten one , how the hell are you concretely going to do that ??

      • What kind of education are you talking about?A person can have many University degrees and still be a moral midget.As long as we think that it is okay ,and even normal for people to steal, trick, lie,and scam the system etc…AND get away with it, no amount of fancy education will amount to anything.

        First things first….I want Justice for the innocents who are being victimized by the ” vivos” In Venezuela.

        • Firepiggette: I also have my doubts about the presumably magic virtues of a formal education , it can help but it certainly is not enough , please refer below to what I wrote to Kepler .
          You however raise an altogether different and very interesting subject which is how formal education has often nothing to do with a persons character and moral behaviour . and there I totally agree with you . Education for the most part helps you develop your mind , your intellectual potential but character is more often than not formed at home by way of inmitative contagion or example and latter by the shaping influences of social or personal experiences .
          Character has also a genetic grounding which may not necessarily deetermine it but does guide in in certain direction.
          There are books written in the unhappy experience of US educators and policy makers tryng to improve the lot of the black ghetto children by exposing them early to a better education with results which are dissapointing , because the character traits they develop at home or in the streets makes such educational advantages dissapear too easily . example the intellectual gain obtained at school is lost during vacations .
          Now a new educational system is being attempted which tries to teach kids character traits not just math or geography , they even have a report card which rates their self discipline , resilience etc .
          Thats why statistics show that dysfunctional broken single mother homes are so often a predictor of a failed life for their children ( absent a mother or grandmother with a great nurturing personality ). . . .

        • equally, people can study a thing called ‘marketing’ or ‘economics’ and not receive much of an education. all that is taught at universities in Australia now is neoclassical economics, no spectrum of ideas, no economic history.

      • Bill,

        I am not talking about sending people to university or some IESA-kind of workshops at the price of 2000 Bs fuertes.

        The extreme left was able to indoctrinate its activists through informal workshops on their basis credo under much more difficult circumstances in times without Internet. These people became the vectors that were activated when time became ripe to them in 1989-92. Most of these people had a pretty shitty education, as you can see from just analysing guys going from Soto to Rojas-Müller or Chávez.

        If they managed to do that, I would have thought people who had UCAB or Harvard degrees would be able to know what to do in the case of Venezuela.

        The problem is that the vast majority of them just want to talk to the choir and talk mostly as a catharsis or that even they are nothing but one-track specialists, or as Germans say, Fachidioten.

        Some of the things they need to learn have to do with budgets, with sustainable development as a subject pertaining economics, environment (yep, which also means urbanization) and social development.
        They need to learn the very basics of what “pluralism” and the concept of “debates” is, what accountability is, competition, the basics about how countries such as Japan, Germany, Britain or South Korea developed.

        I think Rodrigo Linares mentioned one of the closest attempts to carry out what I mentioned before.
        Once a sufficient number of vectors, of activists, learn these things pertaining economics, democracy and peaceful resistance, they can organise operations to distribute information – not in shopping centres in better-off places in Caracas, Valencia, Maracaibo, but by closing roads and making people hate them to death, but by, for instance, distributing flyers in the terminales de autobuses in the 100 average urban centres of Venezuela – Charallave, Los Teques, Punto Fijo, El Tocuyo, Acarigua, etc.

        • With all due respect Kepler, you are intelligent for sure, but for sure you have to be a Virgo, or at least have Mercury in Virgo ( not seeing forest for the trees)…he he.

          The main reason people are indoctrinated is not because of a lack of information but because something has moved their heart strings or pinched their pride, or awakened their fears.

          The rogue elephant of the brain is the emotional center and it dominates almost all of us, which is what we need to always work on in order to protect ourselves from insane debating techniques , crazy extreme politics, spacey religions or any other kind of group mania. Pamphlets cannot do that.

          We need leaders who are willing to appeal to people emotionally without manipulating to gain votes.We need a campaign to get people to have pride in doing the right thing, and incentives for good behavior, and punishment for bad.Some people are able to be guided by understanding ideas….most people do no have that capacity unfortunately.Most people need advertising techniques that are designed for real self improvement.

          I remember a maid of mine in Caracas who was from Grenada telling me that back then, there was very little robbery in Grenada because if people were caught robbing, nobody would marry them….Now that is a good incentive.

          Once a general pattern of good behavior is established , then education can improve people’s lives.

        • Kepler : I have the same misgivings that you have regarding what to understand by education , people generally believe that its something you recieve by merely going to some school or university , Im not sure thats the case , education can be obtained many ways and can take many forms . In fact I am prejudiced in believing that a lot of so called professionals are really un educated people because they never read or reflect on any of the topics that give a person true intellectual literacy , they learn the ideas on surface but never really understand them or connect them to what they see and experience in daily life. To understand the difference my self I have attempted to coin the term ‘intellectual literacy’ to distinguish people who have attained it usually through individual effort or social discourse , from people who simply have a degree from an university but otherwise are as uninformed or small minded as many who havent.gone to university .

          Not sure how you do it . Maybe Rodrigo Linares has a point . But to me its an open question how best to do it . I have met people who conventionally were not very educated but who could reason their economics with considerable fluency and insight (most poignantly an elderly cab driver) . But we all agree that something has to be done to rescue common man from his many culturally induced delusions .!!

          • Sure. One of my aunts only did 2 years of primary school at a time when the first public school came to her village and yet she understands much better economics and all the rest than my crazy Chavista aunt who became a teacher or some other people I know who went to university and became Chavistas as well.
            But then we need to understand: all things being equal, it is better to have more of who know certain basic principles than not to have them.

            We are dealing here with two options: either keep on going without a plan for emotional caimaneras and see where it takes us – and remember that if we do get into power in the short or middle term the extreme left has lots of good plans for sabotage – they will use terrorism for sure but also manage to blame it on others- or we firstly prepare a certain amount of people and then go for the emotional marches.

          • BB,

            Because there is a huge difference between intelligence and education to a point where very well educated people who are not particularly intelligent use their education to misunderstand everything.

            Critical thinking is not reserved for the educated.It is reserved for the people who are curious and open minded.

            But even intelligent folks have emotional foibles that interfere, btu someone who is truly intelligent has more resources to discover their limitations.

    • Agree very much. In Northern Europe we have a complex system of diverse education for different people. Not only University but also more a sophisticated system for those who are more practically oriented. And there are ways to add an University degree on top, once you have reached certain level in the practical oriented education.
      Some people might not like her feelings for Salvador Allende, but this old woman had tried to apply the basic ideas of a serious and decent education for more practical oriented people in Chile.

      Education certainly doesn’t create a productive society when you give education for “leaders”, hoping that once it will trickle down. Education is a tool to empower people on any level.

  9. By looking at this video and seeing the headlines from that time I wonder why today’s situation is not resulting in another Caracazo. Two reasons come to mind.

    First, this government has done a good job blaming others for everything. I guess one thing that differentiates the Chavismo from the Cuarta is that the Cuarta didn’t blame others for the situation. One of the most appalling qualities of the Chavismo is “descaro.” And many people buy it. Everything can be blamed on the Cuarta, Imperialism, economic wars, novelas, etc. etc.

    Second, the Chavismo has done a good job keeping “el pueblo” happy with social programs even if those programs will never improve the situation of any Venezuelan.

    Was CAP a god president? Probably not. But at least back then “descaro” and “hipocresia” were kept at a minimum.

    • Might I disagree with you here? I think there is a more important point to be made here as to why “today’s situation is not resulting in another Caracazo.” In a word: morality. People like Lopez, Capriles and Machado are simply reluctant (and would be horrified) to instigate a violent revolution on the streets, whereas those holding political power in Venezuela today are not. They could and they did back in 1989. The Carcazo in 1989 was whipped-up by people like Jaua and other Cuban-inspired revolutionaries for the acquisition of political power. People like Jaua et all did not achieve their objectives in 1989, but not because of morality. Rioting and dead people in the streets are just part of the plan. Likewise, they would have no qualms at shedding other peoples blood today to maintain that power. This is fundamental to understanding political politics in Venezuela today.

  10. So here we are yet again. My GF asked me yesterday what would happen if the government fell and the opposition took over, and my answer was “I don’t know.” Whomever inherits this mess of an economy has a very uphill battle. I am no economist, so can’t comments on the specific merits of a neoliberal vs a Statist economy, but a quarter-century after the event, El Caracazo is still very alive in politicians’ minds. Is there a sort of nicotine patch that can wean the Venezuelan economy from its current addiction? Has the opposition a nicotine patch in mind?

    • And that is why one way or the other some organisation needs to prepare several thousand people to become communicators – with a whole manifesto – when the economic crisis really hits the poorer at the end of 2014 and 2015. But quite frankly, I think right now even within PJ people like Borges or Capriles don’t know anything about how South Korea developed or what an overvalued currency does or have any concrete ideas on education beyond “education, education, education, more schools”.

      • I agree with your two priorities: messengers and manifesto. But I would invert the order.

        So far we have enough communicators to have convinced half the population by April 2013. What we need is to shift that effort towards medium sized cities.

        But our biggest problem is lack of a compelling message for communicators to deliver. Given a good enough message, communicators can pop up spontaneously using BB messenger, whatsapp, sms, email, twitter, facebook, web pages, web videos, pamphlets, word of mouth, etc. The message really should NOT be improvised, as it has been thus far because, if we want to convince new voters efficiently.

        • There is the risk of being naive in thinking that common people with their lack of familiarity with complex ideas,limited capacity for critical analytic thinking , with their deeply roooted delusions and conceits, with their passion for cheap melodramatic myths will ever be able to take economic truths straight and direct , so that too much honesty and detail may make the message unpractical to deliver . One must come with a watered down edulcorated version they can understand and accept but which must to a certain extent cater to their prejudices. This is the way of politics almost everywhere in the world .!! CAP played the political game of his time the best way he knew how. It fell short of the country’s demands and unraveled his carefully laid plans .
          People dont want to believe what most participants in this blog we want to tell them , they want quick dramatic fixes , someone to blame , magic formulas , having the pie and eating it too etc etc. You need a message and good communicators but its not going to be the conceptually undiluted set of ideas we discuss among ourselves .!!

          • Rajoy won after Spain collapsed under PSOE and he successfully sold the idea that less expense instead of more expense was the way to go.

            Yes. Venezuela is not Spain or Europe, but Spain doesn’t have the oil cushion either. My point is that if explained properly, voters HAVE chosen austerity.

            And explaining properly isn’t explaining things at length, is going to the core issues. Way before the twitter era, Violeta Chamorro defeated Sandinismo (which I find rather similar to Chavismo) with the platform: “We’re hungry, we want amnesty, cheaper tortillas and the end of conscription” (‘Tenemos hambre, queremos amnistía, tortillas más baratas, fuera el servicio militar’).

            Here I went on on how not explaining the paquetazo out of fear is a self fullfilled prophecy that leads to popular rejection of the paquetazo. http://caracaschronicles.com/2014/02/16/el-gran-viraje-25-years-on/#comment-121967

            CAP II also neglected his political game, big time. Appointing Escovar Salom, pressuring the CSJ justices to resign to include more opposition minded justices (who later supported his ousting), letting AD become an opposition party, not paying enough attention to military unrest…

  11. There’s a quote from CAP in La Rebelión de los Náufragos that best explained for me the reason his government collapsed. I don’t have my copy at hand so I’ll paraphrase. If anyone out there can quote it outright, I’d appreciate it.

    “Only two men can take the kind of economic measures Latin America needs right now: General Pinochet with his bayonets, and I with with my popularity”

    He thought he was too popular for people to doubt the course he was setting, well loved enough to not be abandoned in his hour of need, too big to fall or be taken down, and his measures too logic to require explaining.

    His hubris and arrogance were his undoing. And with his fall, Venezuelan democracy began its demise.

  12. But, CAP II really had no choice other than shock therapy, no time for slow vs. fast. Venezuela was literally bankrupt–remember Treasury Secreary Brady, which saved the day with his U. S.Treasury-backed Venezuelan dollar-denominated bonds, predicated on the implemetation of the IMF Plan. CAP II’s own reactionary Party die-hards are even rumored to have started the initial disturbances in Guarenas/Guatire which resulted in the unintended leftist-barrio Caracazo explosion, as per an AD street activist friend of mine who was there/involved at the time. No, the current Oppo will not consciously promote a new Caracazo, but all the ingredients are there for a spontaneous combustion at some time in the future–all that is needed is a spark.

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