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.