The Precise Instant Everything Went to Hell

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Pancarta-Chavez-BCVIt’s a luxury, really: not that many countries are able to pinpoint the exact moment when the wheels came off their economic institutions and macro-chaos became inevitable.

We can.

It happened on November 9th, 2003, during Aló Presidente #171:

Esta es mi discusión con el Banco Central y yo quiero hacerla pública porque tengo tres meses en esto y no he podido avanzar un milímetro. Entonces yo le dije a Diego Luis Castellanos, bueno, yo voy a hacer pública esta discusión y si no llamo a un referéndum, yo puedo llamar a un referendo nacional. […]

Yo le digo, ¿dónde está la tabla de las reservas internacionales? Pásame la tabla porque yo voy a comenzar a debatir esto públicamente, yo pido apoyo a los productores del campo, a los sectores privados porque el Banco Central no puede negarse a esto. No es justo que se niegue. 

Bueno, las reservas internacionales, ya tenemos aquí la cifra grabada, estamos llegando a casi 21 mil millones de dólares, ah, para tener eso depositado en los Bancos de Estados Unidos y de Europa, un dinero que es de los venezolanos, ¿qué hacemos nosotros con tener 20 mil millones de dólares depositado en los bancos? ¿Por qué no podemos utilizar mil millones de dólares que es lo que le pido yo solamente, mil. 

Ese dinero no es del gobierno, ese es un dinero del país, tampoco es del Banco Central. Ese dinero no es de ustedes amigos del Banco Central, ese es un dinero de los venezolanos- Ese dinero, dame acá, aquí está, Diego Luis, yo te lo dije, y lo estoy cumpliendo, la última vez que nos vimos te dije: entonces voy a llevar esta discusión que estamos haciendo en privado para que el país lo sepa, porque estamos en democracia. 

Y no puede ser que porque ustedes no quieren entonces se tranque una vía que está en la Ley del Banco Central de Venezuela, yo lo que le estoy pidiendo al Banco Central, quiero que lo sepa el país, los productores privados porque esto no es para el gobierno, es para ustedes los que van a sembrar el algodón, las caraotas, los que van a criar lospollos, los que van a criar más cerdos, los que van a criar ganado, los que van a hacer la leche, los que van a procesar todo eso. Eso es para ustedes los productores privados, el cultivo de la soya, nosotros estamos importando todo el aceite de soya del mundo para acá, teniendo toda la mesa de Guanipa, nada más, para hablar solo de una zona especial, donde pudiéramos sembrar toda la soya que necesitamos. 

Ahora, no es justo porque yo no tengo el dinero para apoyar a todos los productores. La banca privada, tampoco apoya resueltamente a los productores, apoya a un pequeño grupo, porque la banca privada bueno, se maneja, bueno, es privada pues, yo no puedo obligar a la banca privada, aun cuando hay una ley que los obliga, a apoyar proyectos agrícolas, pero eso tiene sus límites, entonces el Banco Central, miren ustedes, miren como han crecido las reservas internacionales, 20.700 millones de dólares, de esto yo le estoy pidiendo al Banco Central mil millones de dólares nada más, es decir, son millardos, ellos tienen, tenemos, no es que ellos tienen, esa plata es de todos nosotros porque es la plata bueno, que ingresa al país, producto de la venta del petróleo, producto de las exportaciones que ustedes hacen, son los dólares que tenemos ahí, entonces los hemos ido recuperando, recuperando, como los golpistas no se los pueden llevar ahora porque hay control de cambio y los estamos administrando con mucho criterio, y dándoles solo a los que realmente lo necesitan, de 21 millardos de dólares.

Yo a nombre del país, sobre todo de los productores agrícolas, le pido al Banco Central un millardito de dólares, uno, uno, un millardo, si el Banco Central se sigue negando, yo voy a pensar entonces o en una acción judicial, con el Tribunal Supremo de Justicia pero para ello pido el apoyo, no es Chávez, esto no es Chávez que quiere pelear, No, no, yo no quiero pelear con nadie, sólo estoy defendiendo los intereses de la nación que es mi suprema responsabilidad, entonces pido la comprensión y el apoyo de la Nación, para que el Banco Central, los directores del Banco Central que creo que son 8. 

Yo les tengo respeto a todos, a todos, hace unos días llamé al doctor Maza Zabala, porque ha cumplido año, cumplió no sé cuántos años, creo que 50, 25 años, doctor Maza un abrazo. El doctor Maza Zabala es un gran escritor, es un gran intelectual venezolano, economista de fina pluma y de fino humor también. 

Bueno doctor Maza, feliz cumpleaños de nuevo, pero, yo le pido a usted doctor Maza, a usted doctor Castellanos que son los que pueden tomar esa decisión, vamos soltemos, no sé unos conceptos que no están a tono con la gran necesidad de producción agropecuaria que tiene el país. 

Se trata de eliminar las exportaciones, de dejar de importar pollo, caraota, ropa, aquí podemos sembrar todo el algodón y el algodón nuestro es de lo mejor del mundo para dejar de importar tanta ropa, eso va a generar empleo, el estado y el sector privado, bueno, entonces tenemos unos planes especiales que apenas avanzan un pasito, pero pudiéramos avanzar mucho más si el Banco Central de Venezuela nos aportara esos mil millones de dólares para arrancar en firme, pronto, un gran proyecto.

The current crisis has its root in this bizarre episode of televised bullying. Every shortage, all the run away prices, every time somebody is asked to show a kid’s birth certificate to buy a pack of diapers: all of it flowed from this moment.

In a normal country, it all would’ve come to a head much sooner, but the oil boom brought in so much money that the consequences of this outburst took over a decade to work themselves through the system.

What’s amazing, reading it now, is realizing that even in late 2003, even after the coup and winning the Recall Referendum, even then Chávez faced some, few, institutional restraints. He couldn’t just bark an order and expect automatic obedience from BCV. He had to fight, spend real political capital, to dismantle the institutions that sustained macroeconomic order.

But he made it a priority. And he got his way.

History must record that nobody at BCV resigned in protest.

53 COMMENTS

  1. The original document is incredible. 76 pages in total!

    Oh and the part on the millardito came after a 4 page discussion on John Kenneth Galbraith… and how he got sent to a dungeon once for reading one of his books.

    Where are we now with PDVSA’s “pagarés” to the BCV?

  2. Reminds me of the great opening of “Conversaciones en la Catedral”:

    Desde la puerta de La Crónica Santiago mira la avenida Tacna, sin amor: automóviles, edificios desiguales y descoloridos, esqueletos de avisos luminosos flotando en la neblina, el mediodía gris. ¿En qué momento se había jodido el Perú?

  3. And these are the very precise words where everything went pear shaped.

    Right there:

    Yo a nombre del país,

    The next few years for Venezuela could be a great opportunity to teach a lot of people (esp. creditors) that there is no such thing as a nombre del país, only whoever said Yo.

  4. Gents,
    i got an email form family earlier this week with this figures below.

    It references a book by a Mr. Jose Curiel.

    Does anyone have more information which book is being referenced?
    comments?

    Regards,

    LuisF

    CIFRAS DEL LIBRO DE JOSÉ CURIEL, CONTUNDENTE, LA MEMORIA ES CORTA,
    CONTRASTANDO DOS ÉPOCAS (GESTIONES)

    • Ingresos anuales promedio ($)

    1958-1998= $ 10.685 millones

    1999-2012= $ 99.615 millones

    *Diferencia: $ 88.930 millones

    • Precio Promedio Barril/Petróleo

    1959-1998= $ 13,08

    1999-2012= $ 51,80

    *Diferencia: $ 38,72

    • Deuda total del país

    1959-1998= $ 32.809 millones

    1999-2012= $ 215.000 millones

    *6,5 veces más

    • Deuda PDVSA

    1959-1998= $ 5.000 millones

    1999-2012= $ 78.506 millones

    *15,7 veces más

    • Homicidios por c/100.000 hab.

    1959-1998= 9

    1999-2012= 275

    *30 veces más

    • Hurto y Robo por c/10.000 hab.

    1959-1998= 0,72

    1999-2012= 186

    *258 veces más

    • Promedio de Camas hospitalarias por c/10.000 hab.

    1959-1998= 25,32

    1999-2012= 17,01

    *Déficit es de 46.831 camas

    • Promedio anual de kg. carne por hab.

    1959-1998= 19,52

    1999-2012= 14,45

    *5 kg. de carne menos al año

    • Promedio anual Lts. de leche por hab.

    1959-1998= 80,88

    1999-2012= 31,79

    *49 lts. por hab. menos al año

    • Industrias (Incluye: Manufactura, pequeña, mediana y grande
    industria)

    1959-1998= 21.342

    1999-2012= 14.570

    *6.772 industrias menos

    • Comparativa Liquidez Monetaria sobre Reservas Internacionales

    1999= 0,86 Bs. por cada $ (Ratio)

    2013= 57,80 Bs. por cada $ (Ratio)

    2014= 76,25 Bs. por cada $ (Ratio)

    *El Precio del $ en el mercado se genera a través de esta relación. El Riesgo
    país también influye en dicho cálculo.

    • Autopistas construidas en Venezuela (Kilómetros totales)

    1959-1998= 2.059 km

    1999-2012= 402 km

    • Aeropuertos construidos (nuevos)

    1959-1998= 63

    1999-2012= 0

    • Sistema Eléctrico Nacional

    – Km de red construidos 765kv

    1959-1998= 2.083

    1999-2012= 153

    – Km de red construidos 400kv

    1959-1998= 2.949

    1999-2012= 657

    • Población en hogares/estrato

    – Año 1997

    Casa urbanización: 10%

    Apartamento: 37%

    Bloque:
    30%

    Casa/Barrio:
    23%

    – Año 2007

    Casa urbanización: 10%

    Apartamento: 20%

    Bloque:
    18%

    Casa/Barrio:
    52%

    Familias viviendo en casas de barrio ascendió de 23% a 52% en 10 años.

    • Not that I do not recognize Mr. Chavez and his accolades’ disaster, but I submit that a comparison between years 1973 to 1998, and 1999 to 2012 would have been better. The reason, although I was born late to live most of it, is that the more likely causes Venezuela commited collective political suicide in 1998 are more engrained in this 70s decade than in the previous one. Needles to say, I am not sociologist, economist, nor anything in between, so I leave up to you and welcome your comments.

      In the same angle, and based on the original post content: was not Mr. Herrera Campins the president who went after Diaz Bruzual jugular vein (who I believe the press of the time baptized as “El Búfalo”), with similar arguments and reasons? Please note I am not claiming that El Insepulto said what he said and did what he did because of what happened in the 70s or 80s. All I am saying is that our most recent collective psique has a tendency to disregard the value of institutions and their role in check-balancing, hence we have the country we have. Anyway, are these 2 events a bad comparison? If so, what they are different? Thanks.

      • If you look at development indices you recognize the 80s as truly the lost decade for Venezuela. Errors may have occurred before and after, but in the collective mindset that period had a very strong effect. The 90s were a reaction of course but the indices started rising, just not fast enough, especially in the face of other traumatic events (Caracazo)

  5. The episode is telling in more than one way, it teaches us that technocratic – meritocratic institutions ( The BCV) cannot be subordinate to the whims of a golden tongued demagogue no matter how popular he is or how many votes he got . That if a populist democracy can be used to allow a megalomaniac ignoramus to ruin a country , then some constraints must be built into its operation to protect basic public institutions from the destructive manipulations of such kind of fiend . This is so fundamental and yet so little attention is paid to it.

      • The money quote: ” Indeed, Morales has largely surpassed investor expectations during his time in office, overseeing a rapid expansion of the private sector. The number of private companies in Bolivia has risen by 522% during Morales’ tenure, from 19,774 at the end of 2005 to 122,995 at end-2013.”

        Ojala esa sea Venezuela…. sigh….

    • I agree with your point Mr Bass, but there’s always something more to be said and done. As Mr Castellanos where removed from the CBV presidency, the others that follow him, didn’t do it better. Remember Mr Gaston Parra Luzardo? He died while he was CBV President. First time in CBV’s history. And after Gaston, arrived Mr Nelson Merentes. And I have something to said about Mr Merentes. When in 2008, the global financial crisis erupted, the Annual Meetings of IMF-World Bank in Washington D.C. where focused on the causes and lessons from the crisis, did you know where Mr Merentes was?… Well, let me tell you, Mr Merentes was singing salsa with his long-time friend Mr Erick Francheski at the Juan Pedro Lopez Square. Priorities. So, the problem with institutions is not only the existence of a “golden tongued demagogue vs technocratic institutions”… The problem is also in their followers, those who praise everything the demagogue said, just because he said so. The problem is to believe that “somos un país rico, qué carajo”, and we can do anything with the exchange reserves. We can do stupid things and create “laws”, like the infamous “Ley de Reservas Excedentarias”… Do you even remember the mandatory currency profits transfer from the CVB to the venezuelan treasury in 2001?… Some years before the “instant everything went to hell”

    • That if a populist democracy can be used to allow a megalomaniac ignoramus to ruin a country , then some constraints must be built into its operation to protect basic public institutions from the destructive manipulations of such kind of fiend.

      And how do the constraints hold if the fiend manages to stay in power for 15 years? No institutional mechanism can hold for so long.

      The only way is to design the institutions so that either the fiend’s supporters feel the pain immediately and stop supporting him, or the fiend fails quickly and loses support.

      In the specific case of Venezuela, it means taking oil money out of the state’s coffers so politicians can’t play with it in their own favor, make the state a permanent beggar that has to plead with its citizens for money and justify that money every time it wants to do something (sorry to beat that drum, again).

      • You are right in your conclusion , you cant let democratically elected pols handle public resources , run the day to day business of that part of government which has to do with performance and results , you have to transform the state so that there is a part of it where the pols cant corrupt the operation of public functions . Where they can decide on general things, on guidelines , maybe approve budgets , control certain abuses on the part of a meritocratic machinery , but not RUN government businesses or services , you need to instituionalize a division of roles , like what you have in the governance of large corporations , the shareholders own the shares and decide some basic things but the day to day running of the business is entrusted to a professional management organization manned by experts , who have to perform, who have highly specific goals and programs to carry out . whose performance can be measured and appraised with great precision . the populist notion that just because your popular you can be trusted to run an organization or handle resources efficiently or honestly is a sham . The state has to be given a new governance structure . The concept of course requires us to go outside the envelop of our commonplace assumptions about what the state is all about , it needs a bold imagination , but its been done again and again in many contexts . Think of governance rather than of government and maybe we can figure it out.

  6. I was working at the Central Bank of Venezuela that day. Indeed, nobody resigned because of “the millardito”. Some weird things had happened, back then. For example, that back on April-2002, some of the top managers have been celebrating the “successful” coup against HCh. Instead of that celebration, one member of the CBV Board of Directors, was at the Carmona Estanga “Oath”. It was the one with an animal in his last name. In 2003, at the CBV we had pretty clear of the things that had happened to PDVSA staff. Indeed, in one of the 2003 Board’s meetings, Mr. Giordani wanted to do the same as in PDVSA, but with the CBV staff. That was one year before the recall referendum (2004), and the creation of the world famous “Lista Tascón”. This list is still used today at the CBV. That thing with “the millardito” was solved through open market operations (the redescuento facility), but in the amount equivalent in venezuelan bolivars. It’s regrettable that some of the main actors of this drama, are dead (HCh, Diego Luis Castellanos, Maza Zavala), and the others (Armando Leon, Giordani), are out of jail, where they should be. With a life sentence over their heads. Some of the CBV staff was retired and became pensioners. So many well-trained staff left the CBV, and their jobs were filled with the first wave of chavistas in the CBV, and their families, like for example Castellanos daugther, ill-fated.

  7. Here is another “Precise instant everything went to hell”.

    The moment is when TSJ declared that Organic laws only needed to be approved by 50 % of the National Assembly, even though these special kind of laws needed to be approved by 2 / 3 of the National Assembly according to the Constitution.

    Javier

    • Agreed. To me that is when Chavez officially became a dictator. When the other two powers capitulated before him openly violating the constitution.

  8. Maybe you guys can help me out, I’ve been looking for a long time for a similar article as the above by Mr. Toro, it has a similar title as well. It’s probably four or five years old.

    In the past I was interested in finding similarities between the crucial moments that preceded Venezuela’s jump into the abyss and the fatal moments that could have sent my country to hell too. I spent hours trying to find the text, but it was fruitless and at some point I had to simply give up. But since we have a similar article showing up today, my hopes have been renewed.

    So, do any of you know what is the link to a very similar article as the above, which is lurking somewhere in Caracas Chronicles, but with another equally important moment being highlighted?

    Thanks.

  9. If I remember correctly, somewhen after Chavez 2006 reelection, the Central bank (BCV) was officially (as in by decree) stripped of its autonomy. Can anyone remember exactly when this happened? Any link to a “Gaceta Oficial” with this decree or something like that?

  10. “Ese dinero no es del gobierno, ese es un dinero del país, tampoco es del Banco Central. Ese dinero no es de ustedes amigos del Banco Central, ese es un dinero de los venezolanos- Ese dinero, dame acá, aquí está, Diego Luis, yo te lo dije, y lo estoy cumpliendo, la última vez que nos vimos te dije: entonces voy a llevar esta discusión que estamos haciendo en privado para que el país lo sepa, porque estamos en democracia. ” … “PORQUE ESE DINERO ES MÍO”

    Also, I think the precise instant everything went to hell was when the corpse didn’t get a facefull of lead the very instant he was caught with his soiled pants in the military museum, that could easily been covered with “He fired first, we acted in self defense” in the report.

  11. My vote for the “instant everything went to hell” goes to April 14th, 2002 when the galactic commander returned from his “captivity” and soon thereafter realized that he could do whatever he wanted without real opposition.

  12. What utter lack of understanding of the monetary system that rant evidences. So sad. Then in 2004 oil prices skyrocketed, fidel had the idea of the misiones, and the tragedy we will see next year started to form.

    Yep, I agree this moment was critical.

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