Hausmann Presidente


haussgoyA translation of a delicious put-down of our cerebrally-limited President, courtesy of Harvard Prof. Ricardo Hausmann:

After a trip to Albania, South Africa, India, and Kazakhstan, where I have spoken to governments about how to confront their problems, I found out that Nicolás Maduro has again tried to hold me responsible for his own failure.

Apparently, Venezuela’s financial problem has nothing to do with Maduro’s own decisions – a fiscal deficit of 20% of GDP, price controls, an exchange differential of more than 2600%, three-digit inflation, expropriations – but rather with a supposed conspiracy led by 2 Venezuelan intellectuals who are otherwise super busy with dozens of other public activities.

Nicolás Maduro’s ability to blame others for his own misgivings is truly astonishing. Venezuela is considered the riskiest country in the world because, as The Economist has pointed out, it is the worst managed country in the world. Credit rating agencies, whom I have confronted in the past, have a very positive opinion of Bolivia, yet they do not see Venezuela with the same set of eyes. Can the debt, deficit, money growth, expropriation, and exchange rate levels have something to do with the different perception of risk amongst countries that are otherwise members of the ALBA group of nations?

Since we are on the topic, I would like to point out some of the other lies coming from the despotic human-rights-and-Constitution violator that holds power in Venezuela. It is not true, as Maduro said last night, that I left Venezuela “expelled by Chávez’s revolutionary avalanche.” I left Venezuela in February of 1994 to take the job of Chief Economist at the Interamerican Development Bank, and I was in that position when Chávez won the elections in 1998. It is simply not true – it is, in fact, a stupidity – to say that credit rating agencies are governed by the World Bank and the IMF. Often times the market does not agree with these agencies, and bonds are frequently traded at rates that are different than those implied by their assessment of risk. There are also many cases in which the three largest credit rating agencies differ in their opinions. But in the case of Venezuela, they all agree. Thousands of institutions and people hold and trade $130 billion worth of Venezuelan debt, and in those markets the risk premium has shot up above 2200 basis points, the highest in the world. Many of the current holders of Venezuelan debt are covering the risk of default by paying the highest risk premiums in the world: these premiums imply a 94% probability of default in the next five years. This is not the opinion of a few. This is the firmly-held belief of thousands of institutions and people after witnessing Maduro’s incompetent rule. They awaited the promises of Ramírez, they waited for the Revolcón, they waited for the Fiscal Revolution, also known as the Cañazo, they waited for one announcement after the other, and they finally realized the man does not know what he is doing, and lies through his teeth.

Venezuela’s problem is not Moisés Naím and myself. If Maduro wants someone to blame, he should look in a mirror. Maduro and his eternal little bird frittered away the largest oil boom in the nation’s history, and now they don’t have any money to pay for their obligations. In the same period of time, countries such as Kazakhstan saved up three years worth of oil exports in its sovereign wealth fund, and they currently do not have problems confronting the fall in the price of oil. But Venezuela used high oil prices to issue debt and to create a situation that is unsustainable even with oil at $100 per barrel. That is why, even with oil at $100 per barrel, the black market exchange rate went from BsF 10 in September 2012 to BsF 100 in September of 2014.

Maduro is incapable of steering Venezuela away from the crisis he got the country into. He is incapable of understanding its causes, design its solutions, build alliances, and picture a viable and promising future, and invite Venezuelans and foreigners to build the country together. Instead, Maduro thinks that by naming 27,000 new pricing police, and by sending the National Guard to the borders, the nation’s economy is going to recover. Maduro is so lost that he used the recently expired Enabling Law to pass 50 laws that do nothing to solve the crisis that he got Venezuela into. Maduro thinks the country’s problems are caused by an economic war, without realizing that his policies are the ones that have declared war on the country’s economic possibilites. That is a war he is winning.

Venezuela has a future, but Maduro has no idea where that future lies, nor how to get us there. And nobody can lead a country to a better place by lying.

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  1. “cerebrally-limited President”
    Are we still thinking he is dumb? Like we did with Chavez? Seriously?
    He is literally raping all Venezuelans and they still think Maduro is the stupid.

  2. BTW, Hausmann posted a response to FRod that’s also pretty amusing, yet much more respectful. He basically says the problem in Venezuela goes way beyond an adjustment in the exchange rate.

    The money quote is at the end:

    “El país necesita discutir estos temas. La ventaja es que con Francisco se puede discutir porque es una persona inteligente y honesta y discutiendo se aclaran las cosas.”

    • Can anyone explain to me how come equilibrium can be reached with a exchange rate of 35 bolivares per dollar as Mr. Rodriguez claims?

      Seems way too low to me. I mean, the government doesn’t have enough dollars to sell at the SICAD II rate which is around 50bs/$, the parallel rate is around 180bs/$, and yet somehow you can reach equilibrium at 35bs/$, how the hell is that possible? Does equilibrium in this context mean something different from what I would think it means?

      • The thoery is that if ALL dollars were sold at Bs. 35, then the Government would have all the dollars it needs to bring down the Bs. 180 to any level it wants. Why? Demand would collapse. Not bad, I would just start it higher and bring it down.

        • Miguel, it’s an interesting theory, but: 1) How much are “all” those dollars, remembering that McPapas Medianas overestimated them at $60-80 bln. when Venezuela’s oil was much higher than around $50 where it is now; 2) A certain level of international reserves must be maintained; 3) Any major adjustment to the 6.30 rate at which the Pueblo’s food is imported, which represents a large part of Venezuela’s current dollar income, will probably be the end of this Government, unless salaries are adjusted upwards proportionately, which will, as mentioned by Hausmann, just bring us back to where we started–i. e., adjusting the exchange rate will not, in of itself, solve the Country’s problems.

        • If we go to theory it should be around the implicit value almost 90. Even if they crack demand by flooding the market with dollars and momentarily put it under 50 it will not last… And from my point of view, we’re already in the collapse of the currency, people don’t want bolivares anymore, be it other currency or goods, is better than BsF… it will end with another currency… like argentina after the Rodrigazo

      • The key is to look at our current official exchange rate as pondered. Some dollars are exchanged at VEF 6.30, some at VEF 11, some at VEF 50. Throughout 2013-2014 the pondered exchange rate has risen, simply by shifting some economic areas from 6.30 to 11, and some others from 11 to 50.

        Apparently, if we went to a single exchange rate of 35, the import/export distortions could be overcomed.

    • “en los últimos 3 meses, el bolivar se ha depreciado a la tasa anualizada del 1500%. Lo digo para no exagerar, porque si tomo solamente los últimos 30 días, el aumento del dólar ha sido del 47.7% lo que anualizado representa solamente 10648%.”

      I am not sure I follow him. If he is talking about the parallel dollar then by definition it wasn’t a devaluation. Devaluation means a fall in the official rate…

  3. Stupid, though he may be, keep your eye on food prices! World food prices have surged over the last four years, and according to many analysts are the number one reason for populace rebellions that overthrow governments!

  4. I just wish Chavez was alive to deal with the mess he created, and to kill his personality cult with 6 hour lines for Harina Pan.

    But awesome put down.

  5. An article in Bloomberg concludes that in the e b entry of a default Venezuela’s bondholders would not be able to take Citgos assets because Venezuela has not taken responsibility for Citgos debts and because it would be difficult to prove that Citgos and Venezuela are alter egos. The article relies on American lawyers attending a conference I NYC and apparently the lawyers relied upon represent countries in default litigation.

    • Article should be read correctly: Yes Venezuela’s creditors could not, but PDVSA’s creditors could. Bad article in my opinion.

  6. I just have to say that I love -it’s satisfying- reading these well written, well thought out responses. I would just wish somebody else in Venezuela – besides Maria Corina- would stand up to the crooks managing the country and employ similar diatribes. Remember Hausmann, Naim, etc, are all abroad and have basically no exposure whatsoever to the media.

    Would you imagine Henriquito Capriles being so blunt and straight forward? Never!!

  7. For starters how presumptuous. How could he help any government like the Indian government with its diversity of cultures, religions, people and problems solve anything? Harvard needs a little introspection after what its graduates and lecturers did to Wall Street, through it the world financial system and through that to the dignity of workers everywhere.

  8. It is totally natural that even professionals of such stature as Hausmann and Naím must be inclined to respond to attacks by someone like Nicolas Maduro and who formally is the president. That said, it all makes you wonder whether there is someone behind the curtains watching all three and laughing his heart out.

    Who here… and really how many out there… could find Hausmann and Naim responsible for what is happening?

    Though I must say that Hausmann, visiting South Africa and India at the same time, sounds a little suspicious… could he be sembrando cizaña between Venezuela and BRICS?

  9. Nicolas Maduro has held high office for more than a decade. His family and in-law family are now rich and powerful. The party he heads has been in power for 15 years now. He faces no serious political opposition and very little internal opposition. All branches of government answer directly to him alone. Even though his policies have caused financial distress and suffering among his electoral base there have not been widespread popular protests coming out of Caracas’ shantytowns. He just sacked a general (Rodriguez Torres) without fear of a military backlash.

    Calling him “cerebrally challenged” is wrong and shows one of the ways the Venezuelan opposition has found to remain the opposition: condescension towards an astute, ruthless adversary (remember Daka and how the opposition reacted? who is cerebrally challenged?). It also shows a certain lack of imagination, to think that someone bereft of formal education is stupid.

    I think that, in a country where Jose Antonio Paez, Juan Vicente Gomez and Carlos Andres Perez (all of whom were at some point underestimated by highly educated opponents) were dominant for decades, there is no place for condescending.

    Yes, Hausmann and Naim are surely brilliant, but didn’t they fail to impose their vision on our country? (I am sorry they did, by the way) They failed where Chavez and Maduro succeeded. Think about that.

  10. Cerebeally-challenged Maduro is a faithful representative of much of his un-/undereducated cerebrally-challenged Pueblo base, and the astute/ruthless adversary is the Castro Cubans, who are calling the shots in Venezuela, and who have 50 years’ experience in crowd (Pueblo) control.

    • Net,

      I am sorry to remind you of what may be a painful memory: Chavez was elected with a significant support from the middle classes, including university teachers.

      And anyway, the Castro brothers are not intellectual luminaries, are they? I mean, they can barely speak decent Spanish. And yet, they conquered a country without invading it.

      You underestimate the cerebrally challenged at your own peril.

      • Chavez’s initial support and Maduro’s current support are two different things. The Castros have 50 years’ experience in controlling a Pueblo, for which one does not have to be an intellectual luminary, and very definitely they are calling the shots in Venezuela. And, yes, cerebrally-challenged can rule over similarly cerebrally-challenged.

        • Net,

          Please allow me to disabuse you. Even now the PUSV has a solid middle class support, among those who profit from currency and price controls, among those who hold middle to high office in the government (and their extended families) and among those who are simply too stubborn to admit they have been deluded about chavismo since 1992 (I actually know a few of these unfortunate souls).

          About Cubans calling the shots, as you say, I used to think like you but recently I have come to seriously doubt. Cuba is looking for ways to establish diplomatic relations with the US, strenghten their standing vis-a-vis the EU and liberalising the economy (admittedly very slowly). Venezuela is on exactly the opposite way on each of these fronts.

          Would the Cubans kill their main source of oil through mismanagement? How come Ecuador and Bolivia are relativly well managed, even if Cuban advisors are influential there too?

          Reality is slowly telling us this is a purely Venezuelan problem.

  11. Let’s believe for a second the bogus Maduro argument, and think that the almighty Hausmann and Naim can sway the American credit rating agencies. Ok.

    Then how can you explain Dagong downgrading Venezuela’s credit rating to BB- in AUGUST. By the way, our Chinese friends in Dagong have been conspicuously quiet lately.

  12. Every so often I get a glimpse inside the whale , and youd be surprised about how much anti regime sentiment exists inside even among mid to high level cadres , every one is careful about not showing it too cnspicousy , but the message gets out clear enough. I would have to guess that unless they are being careful before someone very identified with the cause there is very little middle class support for the regime .


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