A couple of weeks ago, Amanda Quintero wrote a provocative post arguing it may be in our long term interest to keep Maduro in power for another year or more.

We certainly agree that Venezuela is facing a major external shock and that, under the current administration, choices are constrained to either default or a major adjustment via imports (and, even then, maybe default). Yes, she’s right that what’s ahead of us is worse, way worse, than what we have experienced so far.

Amanda argues that “we shouldn’t kid ourselves: the bulk of the still-to-come economic contraction is already baked into the fiscal math in a way that won’t magically change because you put an opposition figure in power.”

Certainly, Venezuela will not become a developed economy overnight, but the opposition can certainly do much better than Maduro in the short run, because it has a card under its sleeve, one that Chavismo will never have: credibility. Credibility with the markets, credibility with investors, and, yes, credibility with creditors – private and multilateral alike.

This matters. Maduro has battled the private sector fiercely, creating a dire investment drought. In per capita terms, investment dropped 10% in 2013, a year with a $98 oil barrel when nobody expected a major price drop. In other words, the private sector has never trusted Maduro, even when things were going relatively well. More recently, the per-capita decline in investment was 18% in 2014, and around 27% in the III Quarter of 2015. A catastrophe.

As Woddy Allen famously said, “90% of success is just showing up.” If, once in power, the MUD shows a decent economic agenda, it would send the right signals to investors and creditors. Capital doesn’t just react to economic policies, it anticipates them. Capital doesn’t wait around when it spots an investment opportunity and, even with low oil prices, any sign that our country is converging to a market economy would revive many projects that were impossible under Chavismo. Even starting from a contracted economy, at this point there are so many opportunities to do things right that the costs are outweighed by the potential gains.

Even states on the edge of bankruptcy can rebound rapidly when sensible economic reforms are implemented; Peru is a good example, and Argentina, most recently, too. It might take us more time, but, even if that is the case, consecutive massive contractions are rare. One needs to put a lot of effort into designing truly terrible policies to continue big contractions year after year for over three years.

So far, we’ve focused on why Amanda’s argument that a MUD government can’t make a difference in the short term is a crude exaggeration. But it’s not just that MUD could make things a lot better by taking power. It’s that chavismo could make everything much, much worse by keeping it.

First of all, because of a point Amanda stresses: we haven’t hit rock bottom. She’s right. Even though Venezuela is in a grim situation, the government isn’t out of assets, or anything like it.

The government still has enough assets abroad to stay afloat for some time. On top of $14 billion in Central Bank Reserves – mostly gold – there are tens of billions more in assets abroad: Citgo – but not just Citgo, also a slew of non-Citgo refineries abroad – as well as Petrocaribe debt, other financial assets, oil terminals, deposits in the Fondo Chino, Fonden even owns 49% of Evrofinance Mosnarbank – a huge stake in a big Russian bank Chávez bought when he was feeling especially frisky one day – and plenty of other odds and ends. The Central Bank pegs this net foreign asset position at almost $100 billion, other analysts think the real number is more like half that much. Still, far from zero.

Of course, an asset they have is an asset they can sell – though certainly not at full price, since they’re in a major hurry, but sell nonetheless. They can restructure debt at very bad terms or knock on China’s door to find more money to squander. It’s this kind of wanton asset-stripping that could really bankrupt the state, badly hemming in the opposition if it reached power 24 months from now rather than this year.

Our question to Amanda is, would you really want to give Chavismo enough time to raspar la olla to the very bottom? Would you want to pick up a country completely out of net foreign assets? That’s not an outcome that’ll help us return to democracy. In fact, ruined states atop impoverished nations are the perfect soil for authoritarianism.

What worries us the most is that, as long as the opposition decides to just watch from the AN bench as the crisis carries on, it might be taken by Venezuelans as a signal that it is just as useless as Maduro, reinforcing the idea that the problem is not Chavismo, but bad leadership.

You can let Maduro burn, sure, but you don’t know what might come after. The opposition needs to secure a path to restore liberal democracy in the country. In a couple of years it may be too late, because it would require to keep in line the impatient radical wings for far too long (not precisely the ones that look for a constitutional removal).

There are plenty examples in recent history of countries with weak institutions where political elites decided to wait while their country was driven down a cliff (Germany in the 1920s, Chile in 1972, Russia in the 1990s). All those examples have had the same outcome: autocratic governments sometimes worse than the ones they were opposing to in the first place. If we do not do everything in our hands to avoid the apocalyptic path, then we could find ourselves having a similar conversation 30 years from now.

As long as the Oposición is unable to propose a sound economic policy, the belief that the MUD is as useless as Chavismo will be impossible to refute. To avoid that, the Oposición needs to take power, and fast. Andrés Velazquez made a reasonable call for a constitutional amendment. Even for Capriles, los tiempos de Dios are finally here in the form of a recall referendum. Both are democratic and legal ways to avoid complete disaster.

What is certainly not a way forward is to dither.

32 COMMENTS

  1. You know, this is incredibly sad to have to say but… it is great to see an actual debate on substance carried out with respect toward the person but deep engagement on the issues being discussed.

    Because what we are used in the Venezuelan politics context is just namecalling, insults, screams, declarations of who is a traitor/idiot/whatever…

    • Gringo, you are right but only partly right. I agree that we have to let this new cohort of younger politicians learn how to grab the bull by the horns and fight. However, almost two months have passed and we don´t see them really fighting. They had to accept the loss of the Amazonas deputies because of the outrageous Supreme Court decision but they have not incorportated them back in spite of the end of suspention period. They have been sneered multiple times by ministers and officers to their constitutional calls to report to the Assembly and not even a minimum fine has been imposed. They have multiple evidence of wrong doing in the appointment of the justices including fraud by the appointees when presenting their qualifications and they have done nothing. They have not approved any important law whatsoever. The Amnesty Law is noe being discussed in the barrios all over the country in stead of being approved as fast as Cabello approved the thirteen phony justices. They accept a bunch of yelling thugs in the Chamber disrupting their work. They are still considering what to do to get rid of Maduro while that question should have been studied, discussed and decided long time ago even before elections.
      ¿Don´t you think, Gringo, that they should increase a bit their speed? ¿don´t you think they should pass now to the atack?

      • Carlos, I see what you’re saying, and appreciate your reply to someone who isn’t even in Venezuela, and who is not a citizen. I’m not close enough to the whole procedure to go into things like fines which might be imposed, but they did submit something to the TSJ to reclaim the Amazonas seats, and they did pass the law Maduro is sure to veto which gives title to the government public housing. I thought that was important because it gives something to (presumably) Chavistas. My take on it is that if they had defied the TSJ on the Amazonas deputies, they might have nullified themselves entirely (the TSJ declaring any and all acts null), so they have to be very careful when faced with a government which is clearly illegal. The article I read about the disruption said or implied that the AN security forces did finally remove the shouting gallery, but did so only after the session was closed. That is, they did not perform their duty as called upon. I know I was surprised at the 6D landslide, I think the government was, and maybe MUD did not anticipate the extent of their victory, and so had not considered the possibility of removing Maduro.

        In the meantime, the Maduro government has been making a fool of itself (e.g. Salas and his “inflation does not exist in fact), while the AN has brought an increase in international attention. Cabello was able to act quickly because there was no one in the way to oppose him, and he didn’t give a hoot about “fancy legalities.” If the roles were reversed, and MUD owned the executive and the TSJ, and had the FANB sitting on its hands for them, and also held the purse strings and the BCV, then they might move more quickly, but I doubt that they would try to nullify a PSUV AN – that’s the problem. It’s something like fighting cancer – you have to be careful not to kill the patient. Were it not for the stupid patient, getting rid of cancer would be easy, just nuke it. The way things are, the Psuv apparently is no longer sure whom to “trust” and the same may be true within the FANB.

        The economic plan they (MUD) were to submit today must have the government very frightened. I was hoping to see what they have to submit there, because, again, I think the economic reforms are where the real action is. I sincerely hope you do not think I am arguing against you for the fun of arguing – I do see your points, I’m not very well informed as to ground-level specifics, but I still think MUD is making the right moves in a very difficult situation, fighting out of a corner.

  2. Efraín, Jesús
    You make excellent points.
    Specially about why chavismo needs to go now.
    There is very little to add, except …
    “quien le pone el cascabel al gato”
    who will bell the cat?

    To be more precise not who but how?
    We know chavismo has a death grip on power
    and a resolve not to let go that borders on the insane.

    They will block any constitutional attempt
    even if it takes the whole country down with them.

    The pressures need to come from inside chavismo
    well reasoned articles like yours warning about the severity
    of the coming crisis, need to reach them more and more.

    Many of them have lived for too long in a fantasy land of denial
    that has served them well, they need to be awaken from it.

    There are already a few dissenting voices popping up
    but I do not think they grasp the gravity of the situation.
    That is the task at hand.
    Keep at it but do it in Spanish too.

    Diosdado already pronounced the word resign
    so that is a good sign…

    • “Diosdado already pronounced the word resign
      so that is a good sign…”

      In the context he used it, I don’t think it’s a good sign:

      “¿Cómo es que tu vas a obligar a alguien a renunciar, renunciar es un hecho total y absolutamente voluntario?(…) El Presidente debe continuar en su cargo y el pueblo de Venezuela quiere que siga en su cargo. Es una conspiración en marcha, donde factores de poder están jugando a ver quién cobra”, expresó Cabello.

      Sending his daughter to another country was a good sign, though.

      I have always had in mind that the first thing Cabello would do when he started considering that the revolution might not end up that well for him would be to send that singer to another country… And then he did it.

      That’s “Cabello waking up after years of denial”, hehe. What is a little different from what you suggest with “waking up” and “denial”, I know, because you think that they are just regular folks, stupid but well-intentioned, they would want to “make it right”, what I disagree with.

      • Actually I was referring to Diosdado saying:
        “Nicolás no va a renunciar ténganlo por seguro, tengan la certeza.”
        Nicolas is not going to resign, rest assured, be certain of that.

        I have noticed that one of the surest indicators
        of something that is going to happen
        is when a government official
        flat out denies it is going to happen.

        So not really a predictor
        but, like I said,
        a good sign.

    • Maybe not. But it could also last a full term and make favorable decisions for others to come and continue the job. No reason to expect the worst, I think. Keeping it in mind is wise and good, but measuring a future through it is self-defeating.

  3. Excellent article. I think exactly the same as you, specially in question of opportunities.

    Venezuela has been reduced to a disastrous state. We’ve seen this happen for way too long. It’s obvious that we’re facing the worst crisis in our history and it will only worsen as long as this government remains in power. We no longer have any time to waste. We can’t afford to wait.

    This is a catastrophe, sure, but with the right moves, it can become an opportunity. We can rebuild the country, but for that, Maduro and his cohort need to leave Miraflores as soon as possible. Let’s see what announcements by the MUD are waiting for us next week.

  4. Jesus, Efrain outstanding article, congratulations… and I have to agree with Jesus Couto that it is refreshing to see an intellectual debate… no name calling, just opinions supported by historical facts

  5. A thought-provoking article. Well done!

    But you guys are way behind the eight ball. Pay attention. The future of Venezuela is gold mining! Got it? Forget about that oil stuff, That’s so, …yesterday. Didn’t you pay attention to the news conference at the BCV? In short order Las Brisas and Las Cristinas mines will be generating over 200 billion in revenue. Gold! El Dorado. We’re rich! We have the largest oil reserves in the world AND the largest gold mines….pass the sick bag please.

  6. One of the (many) problems with Amanda’s post was that her argument rested on assumption that was very difficult to believe: even in power, MUD could do NOTHING to change the outcome, or spare pain to the population.

    The assumption requires a suspension of disbelief too large to even contemplate.

    As big as the crisis is – and yes, it will get worse – MUD can do SOMETHING to improve outcomes. It might be little, but it’s something. And if MUD can do something, then it follows that it must seek power, for a myriad of reasons: moral, political, strategic, tactical, etc.

    And, as Efrain and Jesus say, it’s not only what MUD can do, but also what we can stop PSUV from doing: holding a fire sale of Venezuelan assets just to stay a little while more in power. The “wait until it burns” argument of Amanda says that we should not only wait until the house burns down, but also stand pat while PSUV sells the tools needed to rebuild it, empties the bank accounts, and mortgages the plot of land. How can that be a good strategy?

  7. I have some doubts on the quantification of Pdvsa remaining assets abroad , Citgo is not worth much as a collection of refinery hardware , whatever its worth depends on its capacity to generate abundant cash flow as an ongoing business , that however depends on the future availability of Venezuelan crudes of a certain type ( which value the refinery was designed to maximize) , if the refinery is sold then any future supplies may go elsewhere depriving Citgo of its cash flow generation potential , in any event much of that cash flow is already heavily mortgaged to pay for a financing which Citgo obtained last year to pass on to Venezuela . Don’t know what other slew of refineries exist in Pdvsas possession .Curacao refinery is rented and its lease will expire in a few months , Nynas is a small swedish refinery co owned with Neste Oy specialized in the production of certain specialty products also much dependent on supplies of certain specific Venezuelan crudes , Hovensa stopped operation over a year ago because its operations had become un economic , its been on the markets for a long time with no significant takers. Generally oil properties are currently sold at very low distress prices given the terrible Oil market situation . The Petrocaribe oil debt remaining is with countries which economies don’t offer much confidence ( think Haiti, Cuba, Nicaragua ) . Not sure the Russians can be trusted whatever promises they make ( and how much publicity is given those promises ) to ultimately put hard cash in the Regimes hand , they are having some serious problems of their own . People don’t know this but its a gambit of international oil companies to offer to buy or participate in some projects keeping the process going for a long time to prevent competitors from getting their hands on them so that when the projects have to be wound up , they can use their money on project which they really favour because they bring them more profit. The Chinese have their own problems and are bound to tie any financing to the money being used to pay Chinese contractors or manufacturers oney already owed them .

    The authors are right in downplaying the capacity of the regime to monetize these assets in todays difficult environment .

  8. I disagree on a point that you make. It may look like a technicism, but I wouldn’t that the opposition (it’s not only the MUD, let’s be honest) benefits from Market credibility. Sure, Chavismo has squandered its credibility capital, but the opposition is yet to show that it is able to get things done. So far, the only agenda has been to do things the other way, inferring that the other way is good. Certainly, chavismo’s policies are disastrous, but the opposition has failed to produce a real and actionable agenda for change.

    If I’m an international investor looking for opportunities in Venezuela, I’m not looking to put my money in the guy who promises to start anew and forget everything that’s happened in the past, because that is a recipee for political (and therefore economic) turmoil and uncertainty. I’m looking for a politician that will reach across the aisle, be realist, and will try to find common ground to actually get things done.

    I know, it’s hard. It’s been 17 years of cynicism and squandering. But the market (and not just international investors) wants effective change. And effective change, when at least 40% of the country still believes in the ideas of Chavismo (not in maduro) means you need to make a deal, however minimal that deal is, so as to ensure proper governance and to reduce uncertainty.

    There, I know this is way more provocative than Amanda´s post, but let me try to make my point again: It’s easy to say that you know better than the other guy, but to actually get things done, you need the other guy.

    • Just in case, when I say “It’s not only the MUD” I mean that MUD is yet to show that it can really come together on more issues than “not chavismo”. The power dynamics between PJ and VP, for instance, are very interesting

  9. You do make a good point, but what about chavistas?, or the vast majority of venezuelans that at one time or another have voted for chavismo. They may have switched sides at the last election, but that does not mean they are not longing for another populist caudillo to solve all their problems. It is hard to imagine a new government carrying out sensible economic policies with chavistas in the opposition.

    Let Maduro and his cronies run out of assets, lets hit rock bottom, after all, these assets were bought with oil money. As for the majority of venezuelans, maybe then they learn that populism is not the solution.

  10. “What worries us the most is that, as long as the opposition decides to just watch from the AN bench as the crisis carries on, it might be taken by Venezuelans as a signal that it is just as useless as Maduro, reinforcing the idea that the problem is not Chavismo, but bad leadership.”

    The opposition is making the right moves. Most of us probably have read “super-hero” comic books, or have heard of Superman – someone who can knock out the enemy with concentrated x-ray vision and “POOF!!” the villain disappears! That isn’t the way the real world works.

    The problem with the bad guys is that they do not respect laws and agreements. That’s why we call them “bad guys.” So you try to hold a session of the AN, and the offialismo dolts shout it down. If MUD tried that, oh my, the screams and cries and moans and accusations from the officialistas would never end. The bad guys do not believe in any “truth.” The bad guys believe “There are only lies, idiot – wake up! Get real!”

    The country is in worse than economic chaos – it is in a sabotaged situation. What MUD is trying to do, is to reestablish some order. And the response has been yet more chaos. It is a very difficult situation. As moderator of this blog, put yourself in a position in which there are two people who insist on cursing and insulting anyone who has a rational thought, and when you try to delete their comments, you find you cannot (the TSJ rules your attempt to moderate is “unconstitutional and a violation of free speech).

    What exactly would you have MUD do? Pull some kind of Sadaam Hussein caper and set fire to all the oil wells? Would that change things fast enough? Did you take the “Carros!! Carros aqui, carros aqui, carros – cono – carros por todos lados!” seriously?

    Sorry – I just get frustrated when I see the MUD people have the cojones to actually do something, and they win with a landslide, then proceed exactly as they said they would, pass laws in a country in chaos, and someone whines that they aren’t doing anything. MUD deserves full support. not “criticism”.

    Take some moringa. I can’t find that up here in the US, or I’d drink it instead of coffee. You’ve got a fine blog. Very fine. That’s “doing something about it.” You are to be praised for it. But why criticize people who are already going full bore? What is the solution? I tried yesterday to get some interest in an economic plan, to get someone to post some ideas of what to do to begin to reestablish a reasonable facsimile of an economy. I didn’t see much response. Maybe I’m stupid (do stupid people realize they’re stupid?), but it seems to me that Maduro is not going to “hang on to power.” The big issues are in the reconstruction, the phasing out of sabotage, and the phasing in of something viable. There has to be a transition.

    MUD is faced with a situation similar to trying to talk to a mother-in-law-from-Hell. You try to talk, but she will not stop screaming and throwing things. You can’t knock her out (your wife will kill you). So how do you calm her down enough for her to listen?

    Maybe I’m showing I lived there too long, and I have Venezolano in my blood or something, but man … what does anyone think MUD should do to resolve this by tomorrow, sunrise? They’re doing all they can, and they’re making the right moves.

  11. My concern would be no whether is a good idea to get rid of Maduro right now, because it is. What worries me is how the people in their desperation would absorb the idea that this crisis won’t be solved overnight. Most people in poverty that once supported Chavez and are currently steering away from Maduro (yes, the ones that gave the victory to the MUD in the National Assembly this time around) don’t have a PhD in Economics, they firmly believe that the shelves will be full the next day after Maduro’s departure and the fact that it won’t happen will give fuel to the remaining chavistas to start their proselytism (see for example the image below, used by some chavistas after the MUD victory)

    https://lh3.googleusercontent.com/RNOr-NrwuD8FBxLq0KxA6dzoDraVwqkTPYLCUw2zhxOsQzoLH79IjWJYsfgD3cuZ_XANKw=s142

    The “sound economic policy” is to make Venezuela a free-market economy and for the Venezuelans to see the benefits of such approach will take a long time and it means suffering through the required harsh process necessary to correct the vices of “El Socialismo del Siglo XXI”,

  12. I agree with Salazar & Gorrin. It’s about time we pivot our topic from “Oh my!” to “Let’s get to work!”

    First of all, the current economic environment is investment unfriendly for many reasons that can be solved quickly! The regime being removed is the most apparent! Second is the crime. No one is safe, and investors don’t want to be kidnapped or robbed. Third, the inflation is impossible to deal with! Fourth, a dependable customs, ports administration needs to be reorganized. How’s that for a start?

  13. I am in complete agreement with Efraín’s analysis and conclusion. The lack of an announced path forward is hurting the Opposition’s credibility. Simply waiting until the Government implodes is not a plan. It is a capitulation, and is seen as such by the public. They were voted into the AN to DO something. Just waiting, we could do all by ourselves. Granted, it is unfair to say the Opposition is doing nothing. I would say they have done a good job of establishing their credibility and mandate, but now is the time to do something with it. Waiting will not improve their position, and could well allow it to deteriorate.

    In addition to arguments made by Efraín that an Opposition in power could make sufficiently rapid improvements in the current situation, I would add that the most important change they could make would be to restore a sense of “future”. At the moment, no one can visualize the future of Venezuela. No one makes plans for the future. We can’t. We can’t imagine what the future will look like. We live and make decisions for the short-term only, if that. The majority are overwhelmed with nothing more than today and perhaps tomorrow. Both the medium and long term are murky and obscure concepts that only a few dare to contemplate. But, even those that do (such as we on this blog) are making wild guesses based on incomplete data. And even if we do make guesses, if pressed, we hedge our predictions seven ways from Sunday.

    The biggest obstacle to economic recovery in Venezuela is not all the absurd controls and regulations. It is the UNCERTAINTY and INSTABILITY. So, sure the currency and price controls have to go. We can debate whether to do it gradually or in one blow. But, either way once a plan is place, being followed, and adhered to, we can begin planning for the future. Furthermore, once we reestablish stability for the future, Venezuela can begin to court foreign investment once again. It will come… tentatively, at first, but the longer the country shows that it is serious about its commitment to its plan, the more foreign and domestic capital will risk investing. With no plan in place for the future, all of our decision-making ability will continue to be paralyzed, nothing will get done, the condition of the country will continue to deteriorate, and the time needed to recover increases.

    As for the public, the Opposition needs to treat the citizens as adults. Give them the unvarnished truth. They can take it. Hell, nearly everyone in Venezuela (except the few remaining brain-washed Chavistas) already understand that the recovery will take a generation. If the Opposition lays out its plan, explaining clearly, all the benefits and costs, the people will get on board even understanding that to return to a true prosperity will take a long time. They are desperate for rational leadership and clarity. I should add that, of course, in the short-term, people need to eat. Immediate solutions for food and medicine need to be addressed as well.

    Ok, I am starting to ramble, so I will stop here. I hope I made my point.

  14. I sincerely hope Amanda makes another post, not only did it spark a whole lot of debate, but it actually put un words something we all have thought (the potential of never hearing about chavismo ever again is mouth watering) in a relatable enough way that we all had our counter arguments already unholstered, i think because that’s what we tell ourselves everytime we think about it.

    One of the first change asociated with the oppo will be the extermination of the word “expropiación” and that together with a reasonable enough plan against crime will start shifting things around.

    30 million people even in this economy is an interesting enough market, and a lot of expat bussinesspeople are just waiting for those two conditions to be met to start venturing back at least partially, so i agree that sitting someone at least a little trustworthy will make a difference.

    Plus 11 bucks a month is a low enough number to attrack even the sweatshoppiest nike manufacturer around, and i don’t think it will come to that.

  15. Nothing will come out of nothing. Amanda assumes that to wait is better than to act, but I do not believe that strategy is reasonable for many reasons. This article is a strong counter-argument. I can only add that we should not in any way endorse hopelessness and much less in the name of reason or strategy Why? Simply put becayse hopelessness is the very seed of demagogy. Of course we can do something and we can do it now! We should not underestimate the psychological factor in this conflict. This may sound naive, but maybe we should ask ourselves whether what we think is impossible is really so. Sometimes I think there is a lack of will behind all that MUD rethoric.

  16. I agree with Gringo that the MUD is doing what it reasonably can in an untenable Regime major institutional-controlled situation. Meanwhile, the Regime will try to cash out it’s few remaining cashable assets, which BB so aptly says aren’t worth that much, as they cling to power, and the economic situation becomes much worse for the Country’s vast majority Poor. Outside investment will not come to Venezuela so long as Chavismo has anything near the 40% claimed popular support of the last election. And, the 80% poor Pueblo do NOT understand that it will take “a generation” to dig out from under the Chavista mess, so that what remains is major catharsis some time in the future as rational and irrational worlds collide….

  17. […] このアドバイザーの元で、マドゥロ大統領は効果のある解決策をなんら出せていません。ベネズエラ国民の多くは、マドゥロやセラノと一緒にこのディストピアで心中するなどまっぴらだと思っているはずです。ベネズエラで「物不足により国民の不満が高まっている」というとき、その背後には、単なる物不足に対する不満を超えた、やり場のない怒りや将来に対する不安、絶望があるのです。 […]

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