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?

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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?

39 COMMENTS

  1. Hold a public referendum, with the question being made in the style championed by Chavizmo.

    For example:

    I Perfer
    1. an IMF-sponosred relief package
    2. starving to death for the benefits of a few rich party members

  2. Interesting post, but way too optimistic. The IMF imposes tough rules and demands:

    “IMF conditionality is a set of policies or conditions that the IMF requires in exchange for financial resources.[12] The IMF does require collateral from countries for loans but also requires the government seeking assistance to correct its macroeconomic imbalances in the form of policy reform. If the conditions are not met, the funds are withheld.”

    Their conditions would include eliminating exchange controls, (yesterday), no product price controls, total transparency of funds transfers, eyes into the corrupt BCV bank, and others, and many other tough austerity measures, such as raising the ridiculous gas prices.

    IMF loans are not free, and can be withheld if their tough conditions are not met.

    Even Ramos Allup knows this, he says that the next government will have to take tough economic measures to start fixing Kleptozuela’s disaster. And he says that such measures will be very unpopular. That MUD politicians should sacrifice their personal popularity for the long term well-being of the country and the people.

    My view is that the MUD will probably ask for the IMF billionaire loan, and will start to apply some of the tough austerity measures that are demanded by the IMF. Not all.. You know, the Criollo, avispao way.. Eventually the IMF will find out, and will withdraw some of the money lent, or demand faster repayment, while demanding tougher corrective measures.

    The colas will not magically disappear. You need food, medicine and multiple supplies for 30 Million people. Vzla will not magically start producing anything, home products, cows and milk, or computers and cars, or tools or chemicals or cement or anything. They don’t have any idea or means to produce anything other than oil. And they’re very incompetent even at that. Polar among the very few company that knows how to produce anything, mostly beer. There’s also some chicken and turkey production from a friend of mine there. Very rare.

    “El Pueblo” will soon get very pissed at the new MUD government with such tough measures, and when the economy does not improve. Millions of Chavista Enchufados will loose their bogus jobs. Millions. Or won’t be able to steal as much as they do now. They will also be pissed.

    Soon, the MUD will be hated, just as Maduro is hated now. Ramos Allup said it himself. (google it up).

    Remember that Venezuelans are ignorant enough to still love Chavez and Chavismo. They remember all the freebies and good times when oil prices were high. They bought into the false “socialism”, populist promises from el pajarito difunto. They still venerate him, that’s how clueless most Venezuelans are. More than half of them.

    All of those people will turn against the next MUD government, the “burguesitos” “capitalistas” in power, when they see the economy ain’t much better, and the new policies are tough. Inflation is inevitable. Wait till they raise gas prices, taxis, motorizados, public transportation, all car expenses go up. So you raise the price of what you sell, because the IMF demands no price controls. People will be pissed off. Vzla’s mess will continue for decades. Bachaqueros, thieves, crooks, criminals, drug dealers, they will not magically disappear overnight. They are trained to live the easier life, not to work honestly for a living. People will not get magically Educated with real education overnight either. Takes decades. And they will not be professionally trained to do highly-skilled technical jobs either. And the 1.5 Million Elite educated Profesionals that left the country long ago will not return. Will you? I sure won’t. Too dangerous, too unstable, and we built our lives away from that mess long ago.

    And the corrupt Guardia Nazional, and the putrid Military? They will not be happy either. At all, if they can’t steal millions or thousands anymore. They are all corrupt and enchufados too. I would not be surprised if the next MUD government, with Allup, or Capriles, or MCM, or Leopoldo as President, is knocked out by popular uprising and/or a military Coup d’Etat.

    Which is in my view the only, tough way to fix Venezuela- unfortunately. The MUD won’t be able to fix the economy or crime or education, etc. You need a right-wing Dictatorship. A Pinochet or a Perez Jimenez of sorts. That will send crooks to jail, control massive corruption, start producing something besides oil, steal a lot less, and educate people. Look at Chile today, after 17 years of tough corrective measures by the infamous, yet necessary Pinochet. A total disaster like VZLA cannot be fixed with nice MUD people.. unfortunately.

    • I think you assessment is too bleak but of course plausible.

      I would point you out to a more recent experience with a collapsed economy. Peru in 1990 after the government of Allan Garcia and APRA and as of late the best performing economy in the region.

      The Peruvian populace is poorly educated and its educational system is squarely third world yet the brutal hardships of the late 80s taught the culture a lesson that seems to carry to this day according to the numbers. And make no mistake, Peru has voted pretty crazy characters into power, Allan Garcia, second act and Ollanta Humala, yet it seems to have institutionalized itself enough to endure.

      Of course craziness is just one election cycle away, just ask Argentina with the Kirchners.

      One more aspect, which Mr. Coronel mentioned in a piece a week or so ago.

      The Venezuelan diaspora is certainly painful. I live it first hand in my wife’s family. But some will return as things improve in Venezuela or they fail in their chosen country of emigration. They will return with new ideas, different educations, contacts. Besides, Venezuela needs to be rebuilt from the ground up, so brave people will take the chance.

      I have guarded optimism for Venezuela which was also a theme of an article by Mr. Nagle a few weeks ago.

  3. Chapter 6 is why I found the Hausmann/KRod debate of a few months ago a bit pointless. The stuff KRod (and most other economists) want to do to enderezar la situacion by ourselves is the kind of stuff the IMF is going to ask us to do anyway.

    • I agree that Chapter 6 is one of the most powerful arguments to sell an IMF bailout. The thing is, since it is a weird counterfactual, it is very difficult to get people excited about it.

  4. No stabilization economic plan will succeed in Venezuela, harsh or sugar coated, unless a new Pacto de Punto Fijo of sorts is negotiated and agreed upon by MUD, what is left of Chavismo and the military. I really believe that such plan needs to be presented to the people prior going to the IMF and the World Bank. Hopefully what Ricardo Haussman and his fellow colleagues have been preparing for months will be ready by then. Not just the main lines of the plan but the mechanics of its implementation as well. That is why I would beg this proposal be presented asap to the Venezuelan people. I would even consider a referendum on the matter asking Venezuelans, as Tsipras did in Greece, to support such course of action. The situation has become so dire that popular support for such plan is likely. This by itself would strengthen the prospects of success for the new post chavista government.

  5. Many people think that the MUD are saints, incorruptible and wise.. Yeah, right.. How soon did we forget the previous 4 Decades of corruption from the Ad/Copey governments? Sure, they were not as bad, and as corrupt as Chavistas now, but they stole billions too. And they did not build much, or educate people.

    You can expect the same from the MUD. Many are highly corruptible, if not corrupt already. That’s the nature of Venezuelan politicians. Where you don’t have a justice system, good cops, laws that work and punishment for embezzlement, politician crooks go wild. And that includes the MUD politicians. When that government is in place, the corruption and theft will continue. Slightly better than now, but rampant theft, as always. That’s another reason Vzla is not about to recover in the next decades by some delirious miracle.

    • “Slightly better than now, but rampant theft, as always.”

      At least people might be able to have a little business without the risk of it getting expropiated by some son of a s**t with a party badge, you won’t have to deal with the stupid cadivi to live, and you won’t certainly have to worry about being bombarded 24/7 with the most nasueating and stomach-churning lithany of blatant lies and refined stupidity in all the media.

      “Vzla is not about to recover in the next decades”

      Then everything is lost, so get out of the country and never worry about it ever again.

  6. Harvard professor Ricardo Hausmann has announced recently the formation of a group of first rank international economic experts to work on a plan to tackle Venezuelas current problems in a comprehensive basis. the list of experts is impressive and include many top notch US, european and venezuelan economists (some with links to Venezuelan govt agencies who are contributing information not made officially available to the public). The group also has the collaboration of people with close contacts with the most important international economic institutions ..the plan seeks to take account of all aspects of the problem and identify the means to deal with any practical obstacles to implementation .

    In paralell we have the Plan Unasur presented to the Venezuelan Govt and which it is said Maduro turned down . Since the Plan was prepared under the direction of Francisco Rodriguez formerly chief economist of the Bank of America it is bound to contain many proposals which can be used to face Venezuelas crisis.

    Of course we know the obstacles will be considerable, that there are bound to be mistakes and failures on the path to achieving its basic purpose and as is inevitable in any complex human endevours wont bring forth a perfect result ……

    One thing is clear ,however , whatever plan is proposed will need as a first step a change in regime , because key to any plan will be the credibility of the people which are to carry it out , and the current regime has lost all credibility ……..

    Whatever difficulties lies ahead on the economic front , the first necessary step to tackling Venezuelas crisis will have to involve a change in govt …..!!

  7. Whoaaaah blast from the past and back to 2011….So you are saying that after all these years the best we can come up with is another version of Manuel “can’t even put one sentence together” Rosales Tarjeta Mi Negra? Sigh…But let’s assume this is doable, how does this plan and Pran Nation coexist? And how long do you think this money from IMF helicopter will last? Have you computed a ballpark estimate of the actual amount of money that would need to be handed? Who will actually manage the whole infrastructure behind such handouts? If we couldn’t hand out dollars for internet and travel properly, how are we actually going to succeed on the widespread helicopter money drop? The devil is in the details….

    Aside from having an actual, existing and somewhat battered oil industry, I can’t see how would one justify that the IMF has to give a bailout to Venezuela. Why not Haiti? Why not Togo or Sierra Leone for that matter?

    • The devil is definitely in the details. But this article is not about the details, it is a sketch of what arguments a politician could use to raise support for adjustment measures, provided s/he has a technical, experienced staff to pull the reforms off in the first place.

      The debit card proposal is a placeholder for a direct subsidy mechanism. Maybe there is another better mechanism to put money in people’s pockets. I don’t know. But that’s not the point. The point is that one way or another, in an adjustment scenario, the govt. should switch from inefficient indirect subsidies to less distortive direct subsidies. And that should be a principal element of its PR for the reforms: Money in your pocket vs. someone else’s pocket.

      • Thanks for your reply Frank. Well, I would prefer “no subsidy at all” mechanism! The only way to put money in people’s pocket is to slowly create the ideal conditions for them to prosper economically. We can argue what the best way to do this is. However, I am of the opinion that subsidies have no room in the creation of such conditions. Subsidies in anyone’s pockets are still subsidies and you need to use resources (either own or loaned) for these. Subsidies usually work best on small populations/industries and where results can be achieved (which would hopefully, some day translate into some sort of benefit) not on a 20mm+ population and specially one which has failed at managing $1tn. of income. The IMF won’t care about whether it was the opposition or the govt. who squandered the money or whether it was the military or the civilians, they will want guarantees, plans, etc. not mickey mouse assumptions (a good real life scenario is the negotiation that Russia had to go through in the late 90’s when negotiating a bail-out package of ~$20bn. part of which, by the way, ended up in the pockets of corrupt officers). I agree with some of the other readers, first step is price liberalisation. It doesn’t have to be all at once, it can be in steps, but that is the first phase. There are no magic wand short-term solutions.

      • Possible selling point is Chile and its “economic miracle.” The danger is in making promises of comparison, when the two situations are different, but the nationalistic appeal of introducing Venezuelans to solve Venezuela’s problems might have some weight t it. With that idea, however it is implemented, a likely “backbone” of reform might be found studying the experience of Chile and Milton Friedman and his Chicago Boys. And some predictability of results, including the transition, might be gained. The idea of “economic shock” is an example, but apparently a lot of that shock resulted from not implementing recommendations, rather than from the implementation which finally came to be and worked.

        https://en.wikipedia.org/wiki/Miracle_of_Chile

        Personally, I think the write-up in Wikipedia seems to include too many “different viewpoints” and becomes a bit confused, but I’m not going to try to dig up the recommendations and work through the implementations. The big picture is evident.

        There are similarities between Venezuela and Chile (e.g. copper / oil, inflation, “socialism,” army), but obviously the two countries are not the same. For sure, there will be “domestic meddling” on the part of the corrupt and immoral, too.

        This first video below is the left-wing point of view, and however woefully melodramatic and incomplete and misleading, it still can’t negate the facts that Chile recovered to become the leading Latin American economy.
        e.g. “it didn’t work” does not mention the domestic meddling which contravened Friedman’s recommendations and instead pegged the currency at an arificial rate … and that is what “didn’t work”
        e.g. it conveniently doesn’t mention that the “Chicago Boys” were native Chileans who graduated from Chile’s prestigious university and received scholarships to earn their PhD’s from UC under Friedman.

        It is much easier to be entertained by 10 minutes of video than it is to read “El Ladrillo” and sort out what was implemented and when and what was not implemented until later. For the important part of economic reform, skip to about minute seven, in the video.

        https://www.youtube.com/watch?v=9uVoktXVPNY

        This next video is more to the right-wing point of view, but again, watching a video is easy entertainment, and it is not the real story of reading the recommendations then sorting out what was and was not done, what was changed when results warranted, what was terminated when the economic objectives were accomplished, and so on.

        https://www.youtube.com/watch?v=SCkTFPLL-Lk

        For sure, neither of these addresses Venezuela. Inflation is already estimated higher than Chile’s at their worst. People are already starving. There already are political prisoners and armed repression. While Venezuelans know “the problem” and want their “estimated” $300,000,000,000 USD returned (which the IMF and World Bank might be willing to help with – and that amount could be a very important factor), and the corrupt thrown in jail or worse, I think the solution in Venezuela is not bombing Miraflores with jets, nor mass round-ups of 10,000 of whom 9,100 were released, but a real trial, and real democratic justice, in civil peace, without bloodshed, without atrocities, and with a tailored Venezuela-specific plan from the IMF. The IMF people are capable of producing a “Ladrillo” for Venezuela (“Ladrillo” is an unfortunate name for the plan, derived from the sheer size/volume of the report), based on the same principles of economic reform. The report will/ would undoubtedly include privitization, the absolute need for immediate guarantees of private capital, currency exchange (hopefully without domestic meddling), and price adjustments to the free market.

        For anyone confused about Friedman’s involvement in Chile, a less than two-minute video clarifies that it really is not Friedman, but economic and democratic principles which were “involved” in Chile’s remarkable recovery and still evolving success.

        https://www.youtube.com/watch?v=dzgMNLtLJ2k

        That would be an important selling point. It is not “the IMF” but “rational economics.” And again, implemented by Venezuelans. El Cambio, mano, el cambio.

        Venezuela already has PhD’s in economics. You know, boys who recognize that inflation does exist, and who can approximate the causes and recommend policies to remedy it. The problem is, they have probably left the country, and/or were “forcible disemployed” by Chavez. During the transition, perhaps they could be granted some type of diplomatic immunity guaranteed by world bodies to make it a bit easier for them to make their own decisions about whether or not to return to fill some positions in the government – as well as effective “policing” to make sure they don’t “inadvertently pad their own accounts.”

  8. You start with the false asumption that it is desirable to postpone the elimination of currency controls, which is a fallacy in a free market economy. The economic controls are at the base of the distortions within the Venezuelan economy whether they be currency, price, or whatever inept policy proposed by many in or out of political power. The first step in right direction is to eliminate these measures that hamper economic liberty a condition sine qua nom to economic growth and improving the lot of the Venezuelan people and the rest bullshit which is still an understatement.

  9. Frank, una pregunta, por qué pones para los de ”Vladimir a la 1”? No veo el programa, así que supongo que debe ser que Vladimir siempre habla con pavor del FMI.

    Aparte, otro punto sobre la subida de precios por una eventual devaluación. Acaso no han visto como la gente fue a comprar a Cúcuta? Los precios son muchos más bajos que los bachaqueros, y mucha gente pudo comprar a esos precios que estaban bien. Se supondría que en un eventual programa para acomodar los precios, lo lógico sería que vinieran más bajos que los precios que hay en Cúcuta.

    • Vladimir a la 1 (programa de entrevistas de Vladimir Villegas) es un ambiente un poco mas formal en donde los politicos se pueden dar el lujo de exponer ideas mas complejas y menos sexy. Por eso me parece que el argumento 6 y 7 son mas apropiados para ese setting.

      En cuanto a tu segundo punto, hay que tener cuidado. Una buena parte de la poblacion aun compra a precios regulados y no a bachaqueros ni contrabandistas. Para esa gente, una devaluacion/liberacion de precios va a ser muy fuerte. Para las personas que compran exclusivamente a bachaqueros/contrabandistas, el golpe sera menos fuerte.

      Por eso hay que hacer politicas publicas que compensen a la gente con menores recursos. El peso del ajuste no puede caer en el lomo de la gente mas vulnerable. No es etico ni politicamente sustentable. Gracias por el comentario!

      • Por cierto, sabes alguna solución viable para los despidos que se tendrán que hacer de la nómina de PDVSA o de las empresas públicas? También es un tema bastante delicado…

        • Ese es un mega tema. Y muy clave para el exito politico de la reforma. Pero la verdad es que no te puedo decir mucho. No he leido ningun paper al respecto ni he hablado con gente que ha trabajado en paises con el mismo problema.

          Off the top of my head, podrias crear incentivos 1-time para que los empleados renuncien, como un bono golden parachute, o ofrecer sueldos bajos para que se vayan a trabajar al sector privado con mejores sueldos. Pero no se. Es muy delicado. Amerita un post por si solo.

          • Una opción es privatizar las empresas que prestan servicios tales como agua, luz y teléfono, eso le quitaría una carga enorme al estado y como la plata de dichas empresas pasaría a tener dolientes, pues el servicio también mejoraría.

            Lamentablemente todos o casi todos los vagos que no les gusta trabajar van a comerse un cable, pero bueno, ya les toca, porque han sido 17 años de comecablismo para la gente que sí trabaja en este país.

  10. Eliminating all food subsidies for those lacking a wage capable of allowing their survival until economic growth would make every one enjoy a good enough wage to avoid starvation might probe a nifty idea for solving the problem altogether , we can imagine that if until those new economic conditions are created enough people die of starvation (say 3 to 5 years ) then the human scale of the problem would be reduced to controllable dimensions………., reminds me of a famed english writers proposed solution to the XIX starvation of the very fertile irish, have them eat their kids to feed themselves……!! A tad cruel but very effective ….!!

    • Johnathan Swift was being ironic but I believe he was taken seriously in some quarters.

      I appreciate Mr Muci looking seriously at a possible recovery scenario, and how it works politically. I do because I just don’t hear a lot of discussion about this. But then one immediately wonders things like: what huge percentage of the population would starve without subsidies? The whole bloody economy is subsidized to the hilt. The IMF may be different now, but does it do bailouts that defy gravity?

      • The reforms will certainly be tough. The next govt. will have to carefully tailor the reform package to compensate the sectors of society hit the most by the adjustment. If the private sector gets a big confidence shock and ramps up investments, that could help with some of the heavy lifting, sort of like its doing in Argentina with Macri’s adjustment.

  11. Great post Frank, the IMF es lo que queda and you ve got the reasoning behind it right. I think the moment of empty stomacs opening ears to a new way of doing things is around the corner. It will be crucial that tomorrow’s HLA goes full blast with all of these arguments and then delivers con seriedad.

  12. the question lingering in my mind is: given how chronically corrupt venezuela is, how do we avoid imf loan money going into more yachts and private flights? at this point it seems that corruption is part of any big public sector job description, and those tasked with fighting it are the top beneficiaries. Unless there is a serious corruption fighting system I don’t see how they couldn’t just steal half the imf money leaving us more indebt and with no long term benefits.

    • Corruption in Vzla stems from weak institutions, opacity, and crucially, a totally ass-a-nine system currency controls. When you sell a dollar for 1 cent in exchange for a promise that the buyer will pass the subsidy along, many (most) will obviously break the promise. When the next government gets an independent judicial system, increases the transparency of its operations, and removes crazy currency controls, corruption will decrease substantially.

      In a country where it is easy to get away with corruption and rarely any consequences when you’re caught, there will be a lot of corruption. In a country where it is hard to get away with corruption and grave consequences when you’re caught, there will be less corruption. Societies respond to incentives, so one way to reduce corruption is to get the incentives right.

      • vagonba is correct. Most of the IMF money would be quickly stolen in Vzla. Even under a new “MUD” government. Historically, Vzla is a highly corruptible country. Even before Chavismo, for decades Venezuelan politicians and “empresarios” or “contratistas” have been a bunch of twisted thieves.

        What makes you think the MUD will be any diffrent than adecos/copeyanos and previous politicians? What makes you believe new anti-corruption methods will be effectively put in place? If/when the IMF millions arrive to Caracas, then they would have to channel that money wisely, morally, in multiple directions. That’s when the stealing would start: bribes, guisos, tigritos, funds disappearing.. By the time some food arrives from Colombia or Uruguay, half of the cash would be gone, mark-ups at 300% to bribe everyone, from the source to the transportation companies, the guardia nacional, customs crooks, etc.

        I lived in Vzla for 20 years, before Chavismo. Doing any business there was already a mess. Guisos everywhere. Bribes everywhere. Corruption, at all levels, from top politicians to middle size managers, to the obreros, everywhere.

        Get real. Most of the IMF money would vanish in no time.

        • “Get real. Most of the IMF money would vanish in no time.”

          And then the IMF wouldn’t loan a cent after the first payment is defaulted by Venezuelan hyper-corrupt government. Maduro might be that stupid, but Merentes and the other folks who thrive in the chavista corruption certainly aren’t.

          Look at what the chinese are doing, they continue to let chavista regime borrow money from them because the regime PAYS, yes, they pay, even when said payments are made at the expenses of all the people who are now starving, sick and murdered hourly; haven’t you read how the regime pays on time to its creditors, even the vulture bond holders and freaking WALL STREET??

          Get real, the corrupt regime would borrow the money, and then put the population through misery to pay and be able to borrow more.

  13. IMF.. “… They’re flexible enough that in Iceland, they sponsored a reforms with bloody control de cambio…” well Venezuela is not Iceland… would the IMF have done the same thing to Zimbabwe? I don’t think so…
    this is a misleading statement… a very good and comprehensive article here: http://prodavinci.com/2016/07/13/actualidad/la-emergencia-economica-la-brecha-externa-y-el-mito-del-petroleo-por-miguel-angel-santos-sebastian-bustos-y-gustavo-baquero/
    an extract: “…las únicas fuentes de financiamiento que el gobierno de Chávez-Maduro no ha sido capaz de agotar son los organismos multilaterales: Fondo Monetario Internacional, Banco Inter-Americano de Desarrollo, Banco Mundial, y Corporación Andina de Fomento. Además de la banca multilateral, Venezuela puede recurrir a mecanismos de financiamiento bilateral y a las mismas organizaciones de cooperación y emergencia a las que el gobierno le ha negado la entrada a Venezuela…” probably no one, not even all are good solutions, but it’s what it is, the problem with all those entities but specifically with IMF is that not even the advice is for free, everything has a price and I’m not sure that our politicians will know how to handle/manage/steer IMS influence, conditions and intervention…

    • “…everything has a price and I’m not sure that our politicians will know how to handle/manage/steer IMS influence, conditions and intervention…”

      Better to stand the “intervention” of the IMF than that of Cuba and the castros.

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