The weekend negotiations between Greece and her creditors was quite the spectacle. One of the many lessons we can draw from it is that it’s really hard to be a left-wing populist when you’re presiding over a bankrupt economy. Sooner or later, you have to face reality.
Speaking of Maduro … when will Venezuela have to face reality?
So far, we’ve been cutting back on our imports in order to continue paying Wall Street. That is simply not sustainable – sooner or later, the pressures on the domestic front become too large. So, when the time comes to make hard choices, what will we do?
Two of our most prominent economists are going to the mat on this issue today.
According to Bank of America’s Francisco Rodríguez, quoted by El Universal, Venezuela does not need to go to the IMF: we simply have to get our prices right (eliminate subsidies, price controls, exchange controls, etc.) and go and borrow from international financial markets. In F-Rod’s view, Venezuela simply needs to adjust its distortions and borrow from Wall Street, or even from other organizations such as UNASUR. (Hmm, I hope that was the journalist misquoting him … )
My initial impression upon reading this was that F-Rod’s suggestion is tantamount to doing what the IMF would demand Venezuela do anyway – straighten out public finances and do away with distortions – and at the same time get the money you need for the time being from banks.
The problem is that going to the IMF would entail doing the same things Francisco is proposing, but would undoubtedly be cheaper than getting it from Wall Street. So yes, Francisco may be right from a theoretical point of view, but I doubt it’s convenient for the country. It’s like saying “don’t go borrow from your mom and dad because they will scold you, just do what they are going to tell you to do anyway, and borrow from your credit card in the meantime.”
Ricardo Hausmann goes much further. In a scorching Facebook post, Hausmann shows little patience for F-Rod, saying that his suggestions are “absurd.” Hausmann says Venezuela faces a severe liquidity crisis, that nobody is willing to lend to the country, and that we are inevitably heading to the IMF because that is what the IMF is for – to bail out basket cases such as us.
Hausmann ups the ante by suggesting that the newspaper’s owners (whomever they may be) are trying to position F-Rod as a possible Finance Minister. He then goes on to suggest that any government that might consider naming as Minister someone who proposes measures lacking any kind of “sensibility” is a government that is utterly incapable of putting Venezuela in the right path.
Personally, I don’t enjoy this whole “so-and-so is positioning himself to be Minister” line of argument. Venezuela’s problems should be debated on the merits, without calling into question the possible motives behind our positions.
Nevertheless, I believe Hausmann is right in that Venezuela does face a liquidity crisis – perhaps as soon as in the next few months. Getting relative prices right is going to entail massive subsidies to ease the pain to poor households, and we are going to need money for that. Come next year, we may not be able to pay our foreign obligations, and the markets know this.
You simply can’t solve the relative prices problems in Venezuela and pay our creditors without a bag of cash to back you up. And Venezuela does not have a bag of cash.
That is what the IMF is for.
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