Chávez, Maduro and the Ascendancy of the Arbitrageur Kleptolobby

Madurismo isn't just chavismo-with-low-oil-prices. Madurismo is the victory of the arbitrageur kleptolobby over the rest of the revolutionary coalition.


Apportioning blame for the current economic mess in Venezuela between the current and the former occupant of Miraflores Palace has become a favorite sort of parlour game among politically minded Venezuelans. On the one hand, it’s clear that most of the groundwork for today’s implosion were well in place by the time the Galáctico left the scene.

And yet, the more I think about it, the more I think the bulk of the 2016 mess wears a big, bushy moustache. Because while currency arbitrage – or rather, the wholesale looting of the public purse that currency arbitrage masked – had always been a key component of chavista political economy, its absolute explosion is very much a Maduro Era phenomenon.

You see this clearly in charts showing the Official vs. Parallel dollar rates. In the Chávez era, the arbitrage opportunities were there for sure – control over Cadivi was a key tool of economic and political control. But Chávez understood he needed to balance the interests of arbitrageurs with the interests of all the other constituencies who kept him in power: the far left, the army, el poeblo mesmo, the colectivos, etc.

Chavez Era

So from 2003 to 2012, you see the government periodically adjusting the official exchange rate to keep the gap between official and parallel dollars from getting completely out of hand.

To be sure, back in 2010 when an official dollar cost Bs.4.30 and a parallel one cost 8, it felt like it was out of hand. You could almost double your money instantly, in a single trade, with no risk, if you had the right connections! It was outrageous, it rightly incensed us…but it was absolutely nothing next to the insanity that came next.

It’s telling that arbitrage margins started to get genuinely out of hand in 2012, right when Chávez’s health began to deteriorate. On the one hand, the pressure for increasing public spending to ensure he could have one last big election win generated a serious expansion in the money supply that tended to send the parallel rate rising. But I can’t help but wonder if the corollary to that was the arbitrage lobby starting to realize that the old restraints wouldn’t apply much longer.

One of Chávez’s final acts in office, on February 13th, 2013, one month before his death, was to approve the final devaluation of his time in power, to Bs.6.30:$. At the time, the parallel rate had reached the unthinkable level of Bs.18.83, quadrupling the official Bs.4.30 rate. Todos andábamos con las manos en la cabeza, those seemed like crazy numbers. Bowing to economic reality, the government devalued to Bs.6.30 to try to close the gap a bit.

Then Chávez died, and this happened:
Maduro Era

Two things to notice here: the first is that the official rate – the flat red line at bottom – stops rising: Nicolás Maduro has never approved an official rate adjustment. And then, of course, there is the mad explosion in the parallel rate, to over 160 times the official level: a crazy – crazy isn’t really a strong enough word – number that allows the well connected to turn $1 into $160 instantly, with no risk, just because.

What I see in that chart is the heart of the matter. What I see in that chart is why Giordani left, and Nicmer Evans left, and Navarro left, and the left left, and the voters left. Maduro’s governing strategy is fundamentally different from Chávez’s. Madurismo isn’t about balancing off various interest groups to build a stable governing coalition. Maduro isn’t a strong enough leader to do that.

Madurismo is about the total victory of the arbitrageur kleptolobby: its complete capture of the state’s redistributive capacity, its exploitation of useful-fools like Luis Salas and Alfredo Serrano willing to put a leftish gloss on the looters’ policy needs, and the hubris-laden fuck-you they’ve issued to the rest of the erstwhile revolutionary coalition.

No, madurismo isn’t just chavismo with lower oil prices. It’s much, much worse.

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  1. Maduro is certainly much worse but also much more than just “the total victory of the artibrageur kleptolobby”. I am waiting to see how this monumental mess is untangled in a few weeks? months?… I think right now the level of irrationality of this regime is beyond the analytic powers of any thinker or any journalist (anyway, the last chart is truly spectacular)

  2. Excellent piece! The “arbitrageur kleptolobby” is a characterization that deserves a long life.

    I still blame Chavez too, though!

  3. Great piece.
    And remember that all this is currently happening under the most opaque administration in Venezuela history.
    Has the AN demanded to open the CAVIDI “books” immediately? That is what I would do first.
    As for who was worst? Is kind of pointless because with Chavez, Transparency International had already ranked Venezuela on top of the most corrupted. So many other ways to turn a quick buck with Expropriations, Embezzlement, etc

    But this takes the cake:
    “number that allows the well connected to turn $1 into $160 instantly, with no risk, just because.”

  4. “allows the well connected to turn $1 into $160 instantly, with no risk, just because.”
    Hell, not even in the wildest dreams people can make that kind of money in the Stock market.
    I wonder what the AN is waiting for to demand transparency on all of this rotten mess?
    The imported goods shortage is also one of the consequences of this.

  5. Quico, great article. I agree that Maduro’s irresponsibility with FX policy was much greater than that of Chavez. But I have to disagree with the argument that the government’s reluctance to devalue is related to the kleptocrats. That argument has never quite convinced me. Here is a sketch of why, bear with me for a second:

    Rent-seeking kelptocrats do their mental accounting in dollars. They don’t care if they multiply their Bolivares by 5, 50 or 150–bolivares are worthless, and worth less by the day–you can’t buy yachts, jets or even nice houses with them. All of those luxuries are de-facto dollarized. What kleptocrats really care about is earning money with real purchasing power and enduring value, i.e. dollars.

    When the government sells you dollars and the FX differential is 160x, like now, you keep 159/160 of the dollars (99.3%). When the government sells you dollars and the FX differential is 4x, like in early 2013, you keep 3/4 of the dollars (75%). After the FX differential is sufficiently high, say over 4x, the real driver to your klepto-profits is the number of dollars Cadivi assigns you, not the currency differential.

    As in: it’s better to get 75% of 3 million dollars than 99% of 1 million. To say it technically, there are diminishing marginal returns on an ever-higher FX differentials for rent-seekers.

    So… If the government devalues from 6.30 to 30, and the parallel market comes down to 800 from 1000, the FX differential would go down from 160x to 26x, which still nets you 96% (25/26) of the dollars Cadivi assigns you. This would make little difference to the Kleptocrats defrauding Cadivi, so I’m not sure they would be too concerned about it.

    What I really think is stopping Maduro from devaluing is the old-school fear of an inflationary shock, of rising Mercal prices, of the “Paquetazo” accusations, etc, etc. The Kleptocrats may have a smaller role here than we suspect, I think.

    • That’s an interesting take. But it’s a bit more complicated than this.

      What I have in mind is that the kleptolobby’s overriding policy priority has always been NO EXCHANGE RATE UNIFICATION. That’s what matters to them most, for the reasons you explain above.

      Now, because they’ve been able to keep Exchange Rate Unification at bay, the government is chronically broke. Not surprising: the government sells them the most valuable thing it has – dollars – at a fraction of its real cost. Because the government is broke – and Merentes is too stupid/sex-addled to know better – it seeks to cover the resulting deficit by issuing more bolivars…bolivars that then fuel inflation, increase arbitrage margins, and leave the government even more broke. A vicious circle.

      I guess what I’m saying is that the macroeconomy is out of control because the arbitrage lobby has taken the one, OBVIOUS policy solution to internal disequilibria off the table. It’s a policy that serves their interests well, but utterly guts the interest of every other part of the old Chávez coalition. Chávez would never have allowed a policy that so lopsidedly benefited one coalition interest group against all the others. Maduro, by contrast, has just capitulated to the kleptolobby.

      Once you capitulate to the kleptolobby, you leave the government only crazy options…and man, the government never saw a crazy option it didn’t love.

      • Ok, now I see what you are saying. The fat-cats are stopping the unification as a policy tool. I agree with that 100%. (Acabo de postear el mismo comment, porque hubo un lag en que apareciera el comentario y pense que se habia perdido en el eter. Si posteo el segundo comment, feel free to erase it).

        • More than the unification of the rates, or the nominal amount of said rate, what propels and basically is the standing stone of the black market is the monopolic aspect of the system, the arbitrary discretion that keeps part of the official (And legal, remember that ) demand dry while the funds keep being rerouted towards the black market and the accounts of the corrupt fatasses. I say this on the base of how much the black market rose with each cut in the quotas, like 3000$/year for online purchases until 2015 where there was only 300$ available for the whole year (And it was more like for a couple of hours in a couple of days).

          So, you can devaluate to 50, to 100, to 200, even towards 5000 Bs/$ if you want, but as long as kleptolobbyists keep the monopoly and steal all the dollars through their briefcase companies, the supply will continue to diminish, and the black market will continue to stand unopposed, because it follows the same model that every other thing the chavizmo has turned into a monopoly.

  6. Excellent piece and a much needed insight into a driver of the Maduro administration that everybody knows it’s there, but nobody seems to have the guts to point it out straight.

    The kleptolobby.

    I think one of the most salient features of this system, is the massive run on the Bolivar that has pushed its value way off the fundamental depreciation track. Check the purple line (M2/Reserves, an imperfect measure of the ‘fair value’ of the currency), which tracked the parallel rate 1-by-1 relatively good until late 2014. From there, the kleptolobby has been busy with the printing presses alongside a massive bid for black market dollars, which has pushed the parallel rate to 3-plus times M2/Reserves. That is crazy!! And it shows how the monetary system has been completely torn apart in a way that Chavez’s administration never let it happen.

  7. Saying that Chavez is even marginally less responsible than Maduro for Venezuela’s economic disaster is a stretch. Chavez is the Father of all the Leftist policies/individuals which produced the mess, including decimating local food/other production, all hypothecated on an ever-increasing price of oil (because Venezuela is certifiably RICH with reserves). Chavez/his minions regaled/stole perhaps as much as 50% of the 17-years oil windfall, and always had incompetents/crooks shuffled around to oversee the massive sacking of the Country, while vital infrastructure investment (oil/electricity/water/roads/etc.) went lacking. As the price of oil stalled out, Chavez increased borrowing/non-honoring of commercial debts to partially fill his spending gap, and left his/Castros’ acolyte’s Communist policies to inherit the oil crash. Today’s ruin of Venezuela was caused by Chavez, and would not be materially different had he been in charge, even if he had been tweaking the exchange rate, since real/effective exchange rate modification would have been too traumatic for his Bolivarian Robolucion, as it has been for Maduro.

    • I agree with this point. Chavez was the HIV that infected the country and weakened to a point of no return. Maduro is more like the pneumonia that will eventually kill us.

  8. Excelente artículo y gráficos de Francisco.

    Ahora me pregunto: cual es el propósito del régimen? Que busca? Es solamente que Maduro se rindió al lobby de ladrones? O existe un diseño detrás de todo esto para moldear el tipo de sociedad donde pudieran sobrevivir en un futuro.

    Me hace recordar la historia que me comentó un afgano antes de la invasión rusa a su país:
    Era un país pobre pero existía una clase media, existían instituciones y se estaban poco a poco modernizando, como cualquier país que busca tener un futuro.
    Vinieron los rusos y destruyeron todo: instituciones, asesinaron s sus intelectuales y aniquilaron la clase media. Todo lo anterior dio base al futuro surgimiento del Talibán.
    Qué queda ahora? Un país extremadamente pobre en manos de extremistas y de los warlords.

    Y entonces pienso en Venezuels.

    Cuando observó que la AN llaman a interpelar a ministros y estos le tiran una trompetilla.
    Cuanto veo la crisis humanitaria que se les viene y Maduro solo se preocupa de abrir su página de FB.
    Cuando veo el colapso de la infraestructura eléctrica y el régimen sale con excusas ridículas que muy bien describe Naky Soto en sus resúmenes diarios.
    Cuando veo los pranes en control de ciudades mayores y ……. ad infinitum.

    El último gráfico de Quico dice más que unos simples números.

    • El chavizmo no es más que un proyecto para saquear a Venezuela mientras se esclaviza a su gente, es el punto cumbre, el cénit de la mal llamada “viveza criolla”, que es la exaltación de toda la conducta criminal, marginal y sociópata que existe en Venezuela, es el sueño mojado de todos los parásitos resentidos que conforman el detritus de este país, grupo en el que están revueltos tanto los ladrones mil millonarios como diosdado como los pranes tales como el conejo-marrano.

      Los pocos “decentes” que todavía creen la falacia del “idealismo igualitario” del muerto, son simplemente personas que o son muy tercas para aceptar que se equivocaron, así que meten la cabeza en el suelo y gritan tapándose los oídos y los ojos cuando ven la realidad porque no pueden procesar el hecho de que cometieron el peor error de sus vidas al votar por el golpista y buscarán la excusa que sea con tal de mantenerse engañados a sí mismos creyendo que por una vez en su vida no se equivocaron; y están los que no son completamente criminales pero conforman ese grupo de gente que no tiene ninguna brújula moral, o que si la tienen está seriamente desviada, que no se atreven a decir en público que son chaviztas pero como buenos oportunistas come carroña intentan siempre joder a alguien para sacar provecho, o trampear algún sistema, todo con tal de no tener que trabajar, porque son gente que se les enseñó a odiar el trabajo y lo ven como una grosería.

  9. Look, the way I see it, things are far simpler. Maduro does nothing. It is not just that he does not devaluate. He does nothing at all.

    • I’m with you. It’s probably embarrassingly simple.

      The motivation for this stupidity is a president broke of political capital. If he formally devalues he ADMITS a mistake. He figures he cannot survive admitting even one failure, so he stubbornly keeps status quo hoping for a miracle.

      In the meantime opportunistic parasites suck the economy dry as described by this article.

  10. I posit that all the hard currency that this particular kleptolobby has made is relatively small compared to the plunder that the main kleptolobby group has taken.

    Quico, have you aggregated all the money stolen (supposedly) by the Fx enchufados and compare it to the monies stolen (supposedly) by the Cuban puppeteers?

    I would really welcome a fact heavy, analytical article akin to the excellent piece with an aggregation of :

    Petro Caribe and bilateral preferential oil pricing,
    Medical and sport coaches fees,
    purchasing commissions for food, medicines , etc.
    Myriad of commercial agreements (all obscure)
    Military and babalao advisers,
    Registro civil, notarias and Identification system fees…

    and a super long etc. of things we just dont know, yet.

    As they say, follow the money, i would bet that the Fx looting and even the PDVSA plunder pale in comparison to what the piratas del caribe have been able to withdraw.

    Excellent article. Por la madre.

  11. I like you argument, but I’m not entirely convinced. Chavez did not have to confront this dips in oil prices. I think it would be illuminating to add a line charting the change in oil prices up in that graph.

    • You know what’s kinda ironic about chavizmo? That if they have to thank somebody for the rise in oil prices, those thanks should go in part to George W. Bush, without the conflict in the Middle East, the prices in oil couldn’t have gone so high like they did until they broke the 100$ barrier.

      • Precisely. Chavismo really prospered from the stupidity of the neocons and their idiotic foreign policy. Without W., Cheney, Rumsfeld, Wolfowitz, Karl Rove and all of the rest of the Bush gang Chavismo wouldn’t have had the air to breath. Could the horror of a Trump presidency extend the life of Chavismo?

  12. On an answer above, Quico, you say “Maduro, by contrast, has just capitulated to the kleptolobby” and I think that’s the heart of the matter.

    I don’t think this is happening on purpose beause that would be saying that they are ruining the Legacy ™ on purpose, because they want to steal money like fat evil guys on a 30s cartoon. I think that this is happening due to incompetence and what you pointed there is one of the main reasons.

    I once read “The men in power do make history, they just don’t choose how”. If we take the words of everyone who knows Nicolás in private for real (including the infamous Mario Silva), Nicolás is not playing the crowd with a dumb-guy mask, he is actually like that. The guy we see on tv is not a character. The way I see it, he hoped to come in and have a good “socialist” rule but he’s taken down by a) His own stupidity and b) The gangster society already in the government.

    Let’s remember that Mario, on his audio, said that Rangel Gómez catched a guy with a ton of dollars and a fake business, arrested him and had a call from José Vicente saying that the dude had to be released, because he was friends with his wife.

    Taking those dollars away would bring Nico into conflict with a lot of red, rich pigs. Hugo Chávez is the father of this chaos, but the reason Maduro doesn’t fix it (which is his biggest sin) is because he’s afraid of losing not only pueblo, but the apparatchik. There’s already a lot of people inside the machine pissed at him. Like Rómulo said, “A government can’t be afraid, when it has to decide, it must”. Maduro is sitting with his idiots playing a loser’s game: How do we contain the situation while keeping the red fat fish with its dollar’s meal?

    It’s a mixture of incompetence and a deeply corrupted system. El tipo desde que llegó está entrampao’.

  13. Y yo me pregunto… ¿Es que sólo ha sido a mí al que ha venido jodiendo el más reciente asspull del chavizmo, el ¿¿CORRALITO BANCARIO???

    ” El límite diario para transferencias desde y hacia Cuentas de Ahorro propias y de terceros en Mercantil en Línea Empresas será de Bs. 25.000.”

    ¡Carajo! ¡Si he tenido que hacer malabares para comprar una pieza de 70.000 para un cliente (El corralito está activo para cuentas corrientes de nombre jurídico desde AYER MIÉRCOLES), y ahora los bastardos me están poniendo a tener que pasar una semana para pagar una compra cualquiera!

  14. Blame Maduro for steering us into economic ruin if you must, but don’t ever forget who put him behind the wheel in the first place.

  15. This is a valid assessment.

    There are a couple of problems with your premises. The breakdown of importing costs at 6.30bsf isn’t that much and it’s foolish to believe so.

    The amount of bribes that have to be paid to approve the few dollars left by cencoex must be huge and easily pushes it into the 100’s of BSF(paid in dollars no doubt).

    These probably have to import some kind of merchandise or product. Over invoiced, but they HAVE to import something. The country would have actually and literally starved.

    It’s not so much the fat cats, but the government officials who approve the spending of those dollars. The fat cats make good money, no doubt, but the government officials who approve them make so much more.

    Just about everyone except government officials who work directly with import dollar approvals will make money and have an easier without these currency distortions.

    It’s not like these dudes buy 100million dollars at 6.30bsf then just go chill in a yacht in Monaco. I mean that’s what they do, but the process is much more complicated then that. These guys aren’t multiplying their dollars by 160 just by ordering them. It’s going into a large breakdown between many levels of corruption on a large scale.

    The only company that’s importing at 6.30 and probably not paying bribes in Venezuela is Empresa Polar, even then, that’s not guaranteed. Their books are under constant scrutiny for this very reason I imagine.

    The biggest question to ask yourself is why. Why in the flying fuck would this be allowed or even convenient.

    1. The chain of corruption and distribution of this wealth goes much further then we could possibly imagine, even knowing companies like Derwick Enterprises exist.

    2. In an idealistic and perfect world, importers would buy their materials/merchandise/food source at 6.30. The happy go-lucky government official will approve your company’s dollar request without any personal gain what-so-ever and they company will produce, market and sell their merchandise with only 30% profit to cover basic costs.

    They probably do the former and delusion themselves into thinking it’s the latter.


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