Suggested Sunday reading

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Zimbabwe_$100_trillion_2009_ObverseTwo great pieces from two friends-of-the-blog, both of them at Harvard University, both of them in Spanish.

First off, Francisco Monaldi goes deep on hyperinflation in El Nacional. Francisco is lucid when discussing why this traumatic phenomenon occurs – governments basically print money out of control because they refuse to adjust to changing commodity prices.

Oil producers, however, rarely fall into hyperinflation because they can always devalue the currency, and since they are the only ones selling it, this quickly solves the government’s fiscal problems. Sure, there is a spike in inflation when that happens, but it goes away, unlike hyperinflation itself. Venezuela, however, refuses to devalue.

This was the part that called my attention:

“But, why have they not dared devalue the official exchange rate? Probably out of fear of the political cost and its impact on electoral dynamics. Maduro was traumatized by the fact that the devaluation prior to his election in April of 2013 almost cost him his job.”

I agree that Maduro’s election has marked him deeply, but I’m not sure that we can chalk it up to devaluation. In fact, I didn’t even remember that the government had devalued prior to that election – as far as I recall, the devaluation happened in February, right? (I remember because I was finishing our book at the time, and Chávez died a few days after that) But it’s an interesting theory nonetheless.

What I liked about the piece was how it ended on an optimistic note. Historically, hyperinflation is so traumatic to a society that it sweeps away the governments that caused it, and the ones that come in do so riding on considerable political capital that allows them to implement many needed reforms.

Oh, we wish.

Another piece – this one not as recent – is by Jose Ramon Morales in Foreign Affairs Latin America, where he discusses Chávez’s legacy. I think Moncho, as his friends call him, has an effortless way of putting things, slipping in his arguments in a way that is not easy to do. (You may have noticed that by reading that horrible last sentence I just wrote):

Moncho’s main point is that Maduro is Chávez’s legacy: an economy that is crippled, and a government too paralyzed to do anything about it. The highlight:

Today, the biggest challenge to political stability in Venezuela does not come from the opposition, the bourgoisie, or the empire, but from the many dark factions that make up chavismo. For many years, internal conflict was placated with “Chávez’s finger,” the Solomon-like decision making of the final arbiter. Chavismo’s entire legitimacy was built on Chávez. Chavismo was built with an excessive dose of personalism, and this explains the secrecy of Chávez’s illness, as well as the importance of explicitly naming an heir. Part of Chávez’s legacy is, then, a government that only one in five Venezuelans support, and can only gain legitimacy by histrionically defending the late man’s “legacy.”

This is a topic we don’t discuss much – the absolute absence of a governing agenda in Venezuela. Other than repressing and holding on to power, is the government really doing anything to solve scarcity? Inflation? Crime?

No. Instead it whithers away its time collecting signatures against Obama.

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1 COMMENT

  1. Thanks for the interesting articles.
    What would happen if the government devalued even half of what it would?

    Look at this:

    https://www.google.de/search?q=gdp+per+capita&oq=gdp+per&aqs=chrome.0.0j69i57j0l4.2667j0j4&sourceid=chrome&es_sm=0&ie=UTF-8#q=gdp+per+capita+venezuela

    Apparently and even according to WB, Economist (based on WB data) and many others, Venezuela has a GDP per capita that still rivals that of many other countries in the region.

    In reality this is a scam.

    I do believe the day the outside world gets the official “Venezuela’s per capita GDP is half of what the Colombian GDP is” few neighbours, even in South America, will be able to justify their support for the Venezuelan regime.

    • Scam indeed! Your referred article is for 2013. 50% of Vze GDP is oil, which today fetches half what it did then. Plus, non-oil businesses have been packing it in. Lower the numerator by about 30%, increase the denominator a little (population growth?) and you come up with a rough estimate for today. It ain’t pretty.

  2. 1/ ” Maduro was traumatized by the fact that the devaluation prior to his election in April of 2013 almost cost him his job.”

    Not sure what are the actual sources backing up that assertion. Presumably, a vile, under-educated, materialistic Thug like Masburro — who on top of all that is, by all means DUMB — a guy like Masburro couldn’t care less about honorable concepts as “his job”, his “duties” or even his “legacy” (which is nothing but a stupid power-trip for many ex-presidents). A guy like that obviously does not care about Corruptzuela, only about himself, as all narcissistic, totalitarians do.

    The only reason he would be afraid to lose his “job”, would be one of 2 things: immediate investigations and Prison, and/or less time to continue Stealing enough, ravaging the country, to live like a Roman Emperor with all his friends and family for the rest of his miserable life.

    2/ “This is a topic we don’t discuss much – the absolute absence of a governing agenda in Venezuela. Other than repressing and holding on to power, is the government really doing anything to solve scarcity? Inflation? Crime?”

    The main agenda for those with real power in Corrupzuela, Cabello, the Military, a few families… is to get as Rich as possible as fast as possible, just like Masburro. They know this regime is unsustainable, cannot last much longer. Too much theft, incompetence, corrupt Communism does not work in the 21st century.

    Their lack of education and putrid morals, Greed for $$$ has turned the situation into an uncontrollable pond of voracious piranhas, fighting for the last chunks of meat before the oil dries up.

  3. I am under the impression that the government agenda is “steal all the money”. They cannot think of abandoning power until this historic task is accomplished.

    • They can’t ever willingly abandon power because of all of their crimes.Where would they go to live out a tranquil retirement where they could enjoy all of their stolen funds? Not Cuba now, as the Cubans would sell them out to the Americans in a heartbeat for the right price. And not Iran, somehow I just can’t picture a putrid fat Venezuelan general living without his whisky or putas. Where would they go? Their only hope is to do what ever it takes to maintain power in Venezuela and if that means breaking a few more heads then so be it.

    • As far as I know they no longer have a firm concrete long term agenda , only the tenacious resolve to retain power indefinitely by whatever means possible . For that they need two things which really occupies all of their minds . One to keep such imports and social programs going as they can afford so as not to lose all the popular support they have left , and second to avoid a financial default this year and if possible the next . Thats it .!! Additionally they will step up persecution of their enemies and a repressive regime to prevent any protests from ocurring and getting out of hand .

      The sacking of the country and the protection of their accumulated fortunes is not part of the official agenda and in any event is related to their maintenance in power which is their primary existential goal.

  4. “El único consuelo es que las hiperinflaciones, después de mucho sufrimiento, han tenido generalmente un “final feliz”. ” …. One blatant contradiction : Zimbabwe. With Venezuela I can’t stop thinking that’s where we are going. Feel to tell me why not.

  5. The biggest legacy of Chavez is the social hatred he created among Venezuelans , the way he made people take pride in their resentments and ideologically poisonous passions , his institution of a system of rule where raw coercion and gross deceit are the main tools of governance .

  6. “Historically, hyperinflation is so traumatic to a society that it sweeps away the governments that caused it, and the ones that come in do so riding on considerable political capital that allows them to implement many needed reforms.”

    Like Germany. hehe

    • The German hyperinflation was in 1923. The Nazis got no real political benefit from it; the Beer Hall Putsch in November was a fiasco. Hitler got out of prison after a few months, but the Nazis remained a insignificant fringe party until 1930.

      The Deutsche Volkspartie, Zentrum Partie, and Deutsche Demokratische Partie were in government from 1922 through 1926; they went into the 1924 election with 195 seats and came out with 188. The Socialists and Communists had 196, and won 162.

      So, surprisingly, the German hyperinflation did not cause a political upheaval.

      • The effects of traumatic historical experiences have very long shadows , it has been argued by noted economics and pundits that germanys current insistence on austerity as the basic tool to fight the european economic crisis has as its root origin their fear that by using a policy of controlled inflation to improve economic performance they will let loose the dragon of inflation and destroy their way of life . No country is more fearful of inflation than Germany . Likewise the Caracazo , something that happened so many years ago left the vivid impression in Venezuela , that attempting to raise prices (e.g. gasoline prices) offers such a peril of social explosion that gas prices can not be adjusted except with the greatest of cautions.

        We think that peoples character is formed by recent events but forget how even very remote events can leave them subliminally enthralled to certain hidden fears and inhibitions .

    • yes it is a good read, also, too, the commentaries. funny though how Canadian Naomi Klein pops up in the commentariats. Her EvaGolingerish ‘lengua de oro’ is wrongly attributed as having influenced Chávez and Castro. As I rolled my eyes, I wondered why some Canadians need to alleviate their inferiority complex by exaggerating the behaviours of their own who have reached a certain prominence.

  7. I think the most important aspect of this whole thing is the inability of Venezuela to effectively govern itself. The evidence is everywhere. It is probably the most corrupt government in South America. Socialism would be fine if they could keep the lights on and the population safe. I am sure we all have stories about our experiences with the government or how poorly run everything is. I am always amazed that Venezuelans as a whole are content to go about their daily lives knowing how crappy things are there–particularly given the steep decline in the quality of life. Regardless of dueling statistics, we have all seen it and felt it. In most other corners of the world people would have been on the streets every day demanding better. Yet, it is also evident that nerves are frayed and that things are reaching a breaking point.Things could go Romanian quickly.

    I have said this before and I will say it again. Those involved with the corrupt regime (and businessmen and women that do business with the government) are seen as the pariahs of the world right now. They might be accepted in some quarters but they are laughed at and derided when they are out of the room. Many are openly shunned. While they might be getting some mileage with the anti-american thing going on right now in some of the traditional anti american crowd, there is no doubt that internationally the anti american stuff is not getting much traction. Indeed, due to the limited executive order, it is seen largely as a laughable PR stunt that will probably end up biting Venezuela on its butt. There are probably more sanctions coming and more evidence that will show up about the linkages of government officials/drug trade/fiscal corruption. I am not sure the US is the enemy Venezuela wants right now. The human rights violations in the country are Medieval in character and show the true brutality of the nation. Until human rights issues are resolved, until corruption is seriously dealt with, until the country is safe for all, until there is greater economic freedom, and until the government truly values multiple viewpoints, Venezuela is unlikely to thrive.

  8. Morales’ article is clearly written and has one great sentence about the “opaque” (incorrectly translated by the blogger as “dark”) factions within the government.

    The rest in unconvincing. He argues the government is immobilised by Chavez’ legacy and the need to follow or imitate his habits and conceptions but, as we have seen repeatedly, the successors of a strongman do not need copy him.

    We have the example of Mao Tsetung, a demagogue made in the same cast as Chavez. Well, the Chinese keep his portrait on the currency, but their policies go totally against his last will.

    Same with Stalin, Perón, JV Gómez, even with Bolívar.

    So, no, his legacy is not the problem. The problems are 1) too many people with power need the arbitration economy to prosper, 2) would face jail if the regime relented, 3) are waiting for the Cubans to give instructions and 4) are too incompetent anyway to keep Chavez portrait everywhere while carrying out the reforms to actually keep them in power.

    The real analysis here has to focus on the criminal networks that conflate with government and how to dismount them.

  9. “Historically, hyperinflation is so traumatic to a society that it sweeps away the governments that caused it, and the ones that come in do so riding on considerable political capital that allows them to implement many needed reforms.”

    There is at least one painful example where this didn’t happen, despite the second worst hyperinflation in history.
    You displayed their banknote at the beginning of the article.

    Third worst hyperinflation – Yugoslavia 1993 – didn’t result in that either.

  10. Pardon me: “Maduro was traumatized by the fact that the devaluation prior to his election in April of 2013 almost cost him his job.”

    Reeeally? On what basis does Monaldi state this? Does he know Maduro personally? Does he conjecture that the trauma was due to Maduro’s talks to a little bird?

    Since one of Smartmatic’s own now admits to failures “elsewhere in the system” (no fleas on Smartmatic, natch) and that the machines can only catch duplicate cédulas at a particular center, after the vote, thereby barring the specific card from that particular centre, in future, but not from other centres, it is easy to deduce that there is a lot of play, and that the CNE will always produce results that will never traumatize the regime in power.

  11. I really liked Monaldi´s article, it´s powerful, succinct and informative.

    As per political costs, I really think there is a solid case for a distributive pugnacity among factions hypothesis in complementing the explanation of the observed delay of the adjustment. At this point, the kind of control allowing the government to ´prefer´ hyperinflation over adjustment is the same kind of control that allows the government to delay elections, which downplays a little bit the Maduro´s trauma hypothesis.

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