How to Sell an IMF Package

The IMF ranks somewhere between Judas and Satan in the Venezuelan imaginary. But what if it’s the only way out? How can the next president sell IMF-sponsored reform?

Picture this. It’s January 2017 and the new president, Henrique López Allup (HLA), takes an urgent call from the finance minister. It’s not pretty: Liquid international reserves are at $0 and neither Wall Street nor China will lend a dollar with Venezuela in default, PDVSA in default, and oil production in free-fall. Too risky.

The new government is in a bind: if it eliminates currency and price controls before getting direct bolivar subsidies to households online, prices rocket and people starve. If it brings direct subsidies online without external financing to back them up, the economy risks hyperinflation. If it does nothing, they betray their mandate for immediate change. The government needs a bailout, and it needs it pronto.

Though it may alienate Chavistas and ni-nis, HLA makes the call to tap the IMF for big money loans and is set to address the nation in 3 hours. What can he possibly say to get Venezuela behind harsh, IMF-sponsored liberalization? How can he sell a strings-attached IMF bailout?

Chapter 1: No more God damned lines

The moment price and currency controls are lifted, everything that is missing will reappear on the shelves. Flour. Sugar. Milk. Condoms. Meat. Butter. Car parts. Medicine. Anything you’ve been looking for… almost like magic, it’ll be back in less than a month.

Sure, prices will rise but you’ll also have more money in your pocket. The government will set up a system to directly subsidize needy families before removing price and currency controls.

There’ll be no more waiting 8 hours in the sun to have a shot at buying one kg of ham or deodorant. No more skipping work because you had to buy food for your kid. No more waking up at 3am to line up and buy any price-regulated good for sale to later trade it for something you actually need. No more begging for a CLAP to give you a bag of food.

No more god damned lines! It will finally be over.

Chapter 2: Money in your pocket, not some enchufado’s pocket

Instead of subsidising you, Chavez and Maduro’s government subsidized its cronies. It sold cheap dollars to companies that were meant to pass the love along and sell cheap products… predictably, most firms bought their owners yachts and planes instead. Even when some firms did sell products cheaply, bachaqueros pounced and resold everything at higher prices. So they got the benefit, not you.

That will change big time: instead of putting money in some Kleptocrat or bachaquero’s pocket, we’re going to put the money in your pocket.

We’re going to give you a debit card. And we’re going to put money in it every single week. If you’re rich, well, you get nothing. But if you’re in need, we help you. The bigger the need, the more money you get. Simple. And the money is yours. Want to buy diapers? Buy diapers. Want to buy milk? Buy milk. Everybody can do whatever they want with the money.

As the economy recovers and people get back on their feet, the transfers automatically wind down out according to some pre-determined rules. So tell me, what’s more fair? What’s more reasonable? Subsidizing you directly or subsidizing enchufados so that maybe, just maybe, they pass some of it along?

Chapter 3: We get a bailout or we become Zimbabwe

Venezuela is not Zimbabwe… Yet. The economy is driving towards a cliff called hyperinflation and if we change nothing, it falls right off. Food prices rise 10,000% a year, 100,000% a year, 1,000,000% a year. Same with medicines, same with everything. Salaries become worthless. Savings become worthless. It’s more lootings, more hunger, more suffering, more anarchy.

Do we want to fall off the cliff? Or do we want to pull all stops and turn the car around? We need a change. A big change. And this late in the game, we are so broke that we can only properly pull it off with IMF assistance. If we lift FX controls without reserves, the devaluation will be crippling. We have to go to the IMF. No nos queda otra.

Chapter 4: No paquetazo can be worse than Chavismo’s economic catastrophe

(to disarm Chavista intellectuals, cough, oxymoron)

After two back-to-back electoral cycles and the death of el comandante, the fall in oil prices caught the government hungover, pants down and penniless. Faced with a cash shortage and no real savings to burn, Miraflores scrambled and massively cut spending to pay Wall Street.

The government slashed non-oil goods imports from $45 billion in 2013 to to under $15 billion in 2016. That’s a 67% cut to to the pharmaceutical firms that make Cancer meds and a 67% cut to agroprocessors that make baby formula.

The import contraction set the stage for the most abrupt collapse of living standards in memory. Economic activity shrank 7% in 2015, 10% in 2016, and poverty rose to levels not seen in over a decade. And here we are…

You think the IMF is worse than that? Think again… Our adjustment program is about stabilizing the economy, getting the country back on its feet, and sowing the seeds for future prosperity. It’s the literal opposite of what got us here.

Chapter 5: No devaluation is worse than Chavismo’s

(to disarm Chavista intellectuals)

The exchange rate was half a bolivar per dollar in 1998. Now it’s 1,050 bolivars per dollar–two thousand times as much. The currency lost 35% of its value, every year, for 18 years straight.

Just in the last 3 years, the black market rate rocketed from 32 to 1050. Thats an average yearly devaluation of 64% assuming 15% interest at the bank. Let that settle in: every year, for 3 consecutive years, 64% of everybody’s bank savings evaporated. Poof. Gone. And here we are…

Our FX reform is one last devaluation to get rid of the crippling distortions in our economy. To un-bankrupt the state. To stop printing money. And if we are sitting on a mountain of IMF cash, the devaluation will be much smaller.

Chapter 6: Medicine and sweets? Or just medicine?

(for a Vladimir a la 1 type audience)

If we’re going to drink the nasty medicine of dismantling controls and and letting prices float anyways, why not work with the IMF to smooth the ride? We’re going to do most of what they ask regardless, so why not get big, cheap loans, international credibility and free technical assistance in exchange for it?

In a way, it makes no sense not to go to the IMF.

Chapter 7. The IMF ain’t what it used to be

(for a Vladimir a la 1 type audience)

Anti-IMF sentiment erupted in Latin America because the IMF of the 80s and 90s was opaque and didn’t complement its policy packages with measures to soften the blow. Newsflash: its 2016, and they got the memo. The IMF ain’t what it used to be.

Transparency is now a high level objective of the fund. They publish all documents that governments authorize them to on their website, and we’re going to authorize them to publish everything. They’re flexible enough that in Iceland, they sponsored a reforms with bloody control de cambio.

The IMF understands how critical the situation is in Venezuela and will not demand obviously unsustainable reform. Their mandate is to stabilize Venezuela’s economy and to recover its creditworthiness, not to push it over the edge.

Back to 2016…

The success or failure of the next government’s reform package will depend not only on surgical design and implementation, but on the leadership’s ability to get the whole country onboard. We cannot afford to wing the PR of a complex macroeconomic stabilization program. So how would you spin this albatross?