A few weeks ago, I was delighted to learn that our good friend Omar Zambrano, a terrific economist and blogger, was returning to Venezuela to … I dunno, get crap done. If you don’t know who Omar is, you can check his blog, or his unmissable Twitter feed. He’s a personal friend, as well as a friend of the blog.

His brave decision to return made us all ponder our life choices a little bit.

Omar is already hard at work making a difference in economic opinion in our country. But after reading his first in-depth interview with Prodavinci, I was left with a slight taste of disappointment in my mouth.

Omar gets all the basics right: Venezuela is going to need financing. We will have to lift price controls and currency controls. Reform cannot happen until Maduro and his passel of clowns leave the stage. Even though the way he said it is kind of murky -which is probably due to poor editing on behalf of the journalist, Victor Salmeron- his thinking is clear enough.

But when he gets into other areas, he is too cautious, and in some cases he makes no sense.

Here is an example (in the original Spanish):

Un actor importante es la banca. ¿No se necesita un ajuste de las tasas de interés si se levanta el control de cambio? ¿Qué impacto tendría el encarecimiento del crédito en la recesión? ¿En la situación de las familias?
Allí como en el resto de la economía tiene que haber un ajuste progresivo. No tengo elementos, pero hay quienes sí tienen preocupación por este aspecto. Venimos de un largo período de represión financiera, con gavetas de crédito. Nadie sabe la calidad de los activos que tiene la banca, a quién le han prestado en cada sector. Ese es un tema muy delicado. Venezuela tiene que transitar el camino hacia la recuperación del sistema de precios y eso incluye los precios financieros que son las tasas de interés.

Otro aspecto es el legado de empresas públicas ineficientes que reportan pérdidas, con nóminas abultadas y que necesitan inversión. ¿La privatización es la única salida a este problema? ¿En qué áreas vería con agrado la privatización como parte de un plan de ajuste?
La privatización es parte de las opciones que tiene que manejar el sector público, pero hay muchas modalidades; por ejemplo, en Bolivia se habló de capitalización de empresas públicas, puede haber traspaso de control a dueños anteriores de las empresas estatizadas, esquemas de participación de los trabajadores a través de alianzas con el sector privado.

Omar was asked about two things: the financial sector, and privatizations. On the former, he punts, basically saying we have no idea if the country’s banks will survive the transition because we don’t know how good the banks’ balance sheets are. On the second, he says that privatization may not be necessary, that there are other alternatives, such as worker alliances, or giving back expropriated companies to their old owners.

These are important issues, and I’m sure Omar has thought about them more carefully that his answers reveal.

We know that banks balance sheets are garbage. For years, banks have been financing the government, and providing cheap loans to shell companies whose owners used loans to purchase dollars. If the transition does not take this into account -via, for example, demanding banks merge and combine their capital- we will be facing a massive banking crisis in the near future.

As for public companies, the only remedy is privatization. Public companies such as electricity or water utilities are in desperate need for cash. This is not going to come from the government, or from some mythical worker alliance (let’s remember workers are bankrupt). Companies will need cash, and only the private sector can provide it. Yes, giving them back to previous owners might work, but will they want them back? Even if they do, this … is called privatization.

Can’t we just call things by their name?

I don’t know if Omar is playing a political game. I don’t know if he is hiding behind euphemisms in order to keep his enemies guessing.

But my advice to him is: go deep bro.

You’ve already taken the corageous step of moving back to Venezuela and getting in the thick of things. For years, you’ve called it like it is. Don’t become part of the machine. Don’t hide behind euphemisms. Don’t be guarded.

Venezuela is sick, and she needs us economic doctors to tell it to her straight… even if that means saying bad, bad words such as “banking crisis” or “privatization.”

22 COMMENTS

  1. While privatization is definitely the way to go , in many cases , care must be taken deciding how the privatization is done and with whom…., when the former soviet union privatized state assets lots of hanky panky ocurred, and a big set of mafias was created which latter behaviour was as thuggish as they come ….then there may be a dearth of decent offers , there is often a lack of people who have the means and the capacity to rescue those assets and transform them into well run businesses……not just people who have great publicity managers , good conections and are not really experienced and competent at taking over those assets or will do so on terms that are detrimental to the interests of the country ….lots of games are played even by well established business. Yes i well take over that burnt out petrochemical business provided you give me the gas or oil products used in them at bargain prices …….!!

    Remember in India how one big international oil company expressed an interest to inject capital into a big project which a competitor also wanted to enter , until the competitor tired of the competition took his business elsewhere at which time the big oil company decided that it too would abandon the project .(the whole idea was to prevent the competitor from establishing himself in a more advantageous position in the world market using India as a stepping stone ….

    The there are also areas where some level of state participation is both desirable and profitable even if the core operation is turned over to a competent private player……!! There is no one size fit all privatization route ……!!

  2. El populismo está infectando la médula del venezolano.

    El usar eufemismos populistas para intentar sobreponerse a la muralla de estupidez implantada por los comunistas es el obstáculo más difícil para convertir a los chavistas de base, no esa pendejada de que Chávez es sagrado y hay que besarle el trasero porque “peló bola” en algún punto de su vida o esas estupideces de la conexión mágico-emocional porque “escuchó al pueblo” u otras gafedades.

  3. “euphemism” :

    “a mild or indirect word or expression substituted for one considered to be too harsh or blunt when referring to something unpleasant or embarrassing.”

    Gotta love the definition.. in the Venezuelan context.

    “Can’t we just call things by their name?”

    You’re talking to Obama about Islamic Terrorism? Oh, no, this is about Venezuela’s banking crisis, and all the others.. the need for re-privatization, The need for a massive IMF loan. But who can trust the bandits at BCV?

    I trust privatization of all decimated industries. If someone Honest and educated and hard-working is still living in Venezuela.. There are very few left. Almost all of you, the readers and writers of these blogs are gone for good, years ago, away from that total mess. Over a million professionals. . Effective privatization of whatever industries are left, and PDVSA, would require heavy-duty Policing too. With total impunity, and no one going to jail for any crime, it’s just to easy to take the money and run. Public, or private monies.

    “Venezuela is sick, and she needs us economic doctors to tell it to her straight… even if that means saying bad, bad words such as “banking crisis” or “privatization.”

    That’s not what sick Venezuela needs. It’s needs Laws, justice, punishment, and jail for crooks, white collar thieves or all the others in the streets. A Tough government, not so corrupt as Chavismo.

    There are plenty of “economic doctors” still in Vzla or in exile. They all know what to do to start fixing the economy and Venezuela’s deep disaster. It ain’t rocket science, as this post and others explain. But you need to contain Galactic Corruption first. You need to have rules. Boundaries. A legal system. Honest judges. Lawyers. Real jails. You have to pursue Mega-Thieves, as they try to do in Brazil now. And set examples. And also punish thousands of other little crooks everywhere. You have to clean up a big mess, and start very harsh austerity measures. No more freebies.

    None of that will happen under Chavismo, or under the next MUD mess. Venezuela’s problems run too deep. It’s a character flaw, and a systematic corruption disease. Everywhere, at all levels of society. It’s become a way of life, a habit to be crooked and steal first chance they get. Everywhere. If you know the country, conduct any business there, you know what I mean. It’s impossible to stay totally clean in that mess. Besides crime, that’s the main reason we all got the hell out of there, those who could. And everyone decent is trying to get out too, right now, if they could afford it. Can’t blame them.

    Bottom line; most of these articles fail to address the main issues: Omar doesn’t, Juan doesn’t.: Astronomical corruption, total impunity, lack of justice, lack of education, massive brain-drain.

    And to dream that the muddy MUD will be able to fix any of that anytime soon is just a wild dream. Won’t happen.

  4. I’m on Omar on the banking stuff. You can’t go around screaming banking crisis at the top of your lungs without very careful evidence. Delicado es, no question.

    On the privatization thing I think there’s a really good debate to be had. I’m all for forthright debate, so how about a forthright debate on botched, rushed, ideologically driven privatizations? How about a forthright debate on the ugly reality that if you try privatize willy-nilly in the current context, the only people who really have the money to buy up state assets are people who’ve stolen that money from the Venezuelan state?

    I saw Omar as trying to show caution to signal that we’re not going to fall into those pitfalls, which are well known and very real.

    But I also think Juan has a strong point that when you’re a public intellectual part of your role is to educate, to guide and to provide a vision. If you’re not forthright in saying that —questions of timing and mechanics aside— private ownership of the means of production is the outcome you’re trying to reach, you’re failing to provide the clarity a public intellectual is supposed to provide.

    In Venezuela, in 2016, there is still a taboo around saying you want to move to a system of ownership that is clearly superior to the alternative. Guys in Omar’s position have a role to play in helping to dismantle that taboo.

    • I am generally in favor of privatization, but I would sound a cautionary note. Following the fall of the Soviet Union and the independence of the Republic of Georgia, the previously state run power company, Telasi was privatized in a partnership with American AES Corporation. The result was such a disaster that it became the subject of documentary movie, “Power Trip”, and is the subject of numerous international business case studies. A large part of the problem was that people were simply not accustomed to paying power bills equivalent to the cost of producing and delivering the product. Also, AES did not understand the political risks involved in their investment. They lost a ton of money, and the chaos created by the transition delayed other development in the country.

      The Venezuelan Opposition would do well to study the successes and failures of the recovery and development of the post USSR economies to learn what worked and what didn’t.

      • Interesting. Will look for that documentary. Actually, the points raised by various bloggers on the privatisations that took place after the fall of the Soviet Union are completetly on point. Many of these stories, and more importantly, the thought process behind the actions taken and the consequences are well documented in the book “The Oligarchs” by David Hoffman.

      • A co worker of mine used to work for a bank and lived in various countries. He was sent to Poland right after the fall of Communism…he had some interesting and sad stories like that, in that people and organizations really didn’t understand the basic concepts of capitalism and it led to debt and pain for many involved. They were also easy pickings for predatory lenders and con men

        • I spent a lot of time in the former USSR too, and saw a lot of what your coworker saw. There was a lot of abuses perpetrated by unscrupulous con-men taking advantages of the people’s naivete. In Poland, I became friends with a group of young people who enjoyed practicing their English with me. I also ended up in the role of big brother and camp counselor helping them deal with the new pressures of drugs, sex, marketing, and the general influx of world popular culture moving into a vacuum. Who else could they turn to? Their parents, priests, and other adult figures in their lives were clueless.

          However, I can’t imagine the situation in Venezuela being as bad as it was in the ex-USSR. The Venezuelans are pretty street savvy.

          • Big problems with privatization occur when there is weak rule of law, which results among other things in give always to insiders followed by weak or non existent regulatory oversight.

            Places like Ukraine are locked in a political and economic netherworld notwithstanding the ‘liberation’ of huge sectors from the state. Inefficient, corrupt and predatory state monopolies are replaced by inefficient, corrupt and predatory private monopolies.

            This kind of privatization may well be the ransom Venezuelans pay the regime and its key people for a peaceful political transition.

      • To know what didn’t work they should study cases like the above indeed, I agree, but to find out what actually works, specially regarding the electricity sector, MUD should go no far than Chile! Yes, Chile, because Chile has the best electricity sector in the region, and it’s used as a benchmark by the professionals in the area in all Latin America. Ah, both distribution and generation are 100% private. Bachelet just can’t meddle with, nor sell (give) the companies to her mates as it happened in Russia.

        • Interesting. Done under Pinochet. Brief research indicates it was very successful and that the model has been copied by other LatAm countries.

  5. Juan,

    I agree here with Roy. You need to learn from history, man. The same way as socialism does not work, trying to revert interventionism in a plump way is as disastrous.

    We should, we really should always remember what happened with the transitions in countries such as Czechoslovakia (or Czechia and Slovakia) and Poland compared to what happened in the Soviet Union (Russia, Ukraine, Belarus).

    There were many differences, even from way back, but one point that needs to be stressed is how privatizations were carried out in one place or the other. In Czechoslovakia they were not more “Juan-Cristobalesque” than in Russia. Not at all.

  6. Great to hear about reverse brain. This guy sounds like he has been paying attention: plain old neoliberal privatization is not a solution or a plan. Obviously in some cases private management would be better at least in the short term, until the next crisis or Caracazo ten years later. PDVSA could have produced 6 mbpd and also maintained the most professional state-run oil company if they had also realized their duty to share that wealth or perceived wealth with all Venezuelans instead of being a smug, alienated elite that lived grandly amidst a third world country. they created Chavez and allowed him to grow from their bubble of pre 1998 neoliberal dogma then were shocked when he kicked them out. Finance is a tool to serve the people (I know this is hilarious to those connected to the world financial systems and the calle de paredes, that is sort of the point). I find it intelligent and appropriate to question privatization as a panacea or even an accurate presription, what is needed is that hundreds or thousands of highly capable professionals follow the example and make a return home

    • At the time the institutional paradigm was that while Pdvsa handled the business so as to produce the maximum income from the oil , it was the job of the body politic and govt (not Pdvsa’s) to dispose of that income in the pursuit of those policies and programs as they saw fit…..I think Pdvsa´s elite (which of course existed ) would have been surprised at the notion that they had anything to do with disbursing the money which they produced , that was the task of the political establishment chosen thru democratic means…..!!

      The problem at the time was not the handling of the countrys oil as a business (which Pdvsa did fine) but the mishandling of the money the business produced by the govt and political establishment which Pdvsa had nothing to do with …….!! Pdvsa was not a political party!!

  7. Utterly agree with you Juan. It’s a shame that you too will be leaving the blog (i feel u). We better start calling things by their name of a transition towards a market economy will never flourish in Venezuela. And it’s not because we’re free-marketeers ideologues, it’s because we shouldn’t be afraid of calling things by their name.

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