I hope you won’t think it brash of me to use your first name. We’ve only met once, briefly, back in 1990 when I was an economics student asking you to come to a forum at our University. You don’t remember it, but I do. Still, I allow myself to treat you informally because I’m writing this as a fan, not a critic.
Back in 1989, I was a freshman economics student at UCAB, and you guys were our heroes. We saw you, Miguel, Ricardo, Gerver, Ana Julia, and the others as real revolutionaries: the people with the courage and the vision to do the things our textbooks told us needed to be done, forging, contra viento y marea, the Venezuela of the future, the country that would finally live up to its potential.
You may not know it, but your experiments in deregulating, fostering growth, and digging us out of the petro-state morass inspired a generation of economists who, like myself, came of age literally breathing the fumes from the burning cars of the Caracazo.
Which brings me to the fascinating, maddening interview you gave Mirtha Rivero in ProDaVinci recently.
Rivero’s cornering the market for CAP-II-ology these days, and I can see why. She has a knack for putting the reader right there on the scene, reminding us what it was really like to be Venezuelan and alive at that pivotal, turbulent moment, the key juncture when the country might have reached for the stars, but instead went to the dogs. And she also asks good questions, don’t you think?
The picture you paint of the challenge facing CAP’s second administration is stark, and underlines that the “Washington Consensus” might have been a Consensus in Washington, but it was no such thing in Caracas.
People didn’t understand or accept that we had no alternative. You could make speeches, you could posture all you want, you could fret about the situation of the poor but, in the end, the reality is that we had no money. Period.
What’s more, we didn’t have a mechanism to keep price controls in place, there was no way to continue disbursing Exchange Controlled (Recadi) dollars at an artificial rate, we couldn’t keep protecting inefficient industries or subsidizing state firms that year after year lost obscene amounts of money, nor could we sustain a huge and sclerotic public sector that made everybody poorer. We had to take apart the whole apparatus of administrative controls that was choking the economy and impoverishing and corrupting Venezuela. And it was all connected.
First, we needed money: if the multilaterals like the IMF and the World Bank don’t lend to you, nobody would. The multilaterals said they wouldn’t cough up one penny if you didn’t get rid of the multiple exchange rate system – that is, Recadi – which was a source of economic distortion and huge corruption. Liberating the exchange rate forced you to liberalize prices, and this forced you to open up to international trade and reduce import barriers.
Because if you let the exchange rate float freely, it was impossible to keep prices controlled administratively by the Development Ministry. How can someone sitting behind a desk in a ministry know what the price of soap is, of bread, of some medicine or of thousands of products if the price structure for each of them changes daily, as the exchange rate floats, as interest rates and input prices float? How can a mid-level ministry official, badly paid with little education, know what is the “correct” price for toothpaste that millions of Venezuelans use every day. He doesn’t; he can’t.
So you can’t keep price controls – besides, it was a myth that they were “controlled” – and so you had to free imports. Otherwise, if you didn’t, inflation would spike out of control, because sellers would have no reason to keep prices down, since you’d be keeping their competitors out through controls. That’s why we needed to get rid of them; so the guy who sold tires, for instance, didn’t charge more for those tires than what it would cost to bring them from abroad. We needed to introduce international competition to limit the prices that industrialists and local businessmen could charge.
So it was all interwoven.
The country had no options, and doing one thing forced you to do the next, and then the next. But that explanation I just gave you was never accepted by those who criticized our economic policy. They all proposed “gradualism”. They’d come into my office or call me to testify in congress and they’d ask for gradualism. In practice, that meant subsidies and protection for the interests they represented and shock for the rest of the country.
The unions, the industrialists, the multinationals, SMEs, the indigenous groups, the teachers, the doctors, the bankers, the universities, the military, businessmen…all of them got organized to pressure the government and try to extract subsidies and protections that would shield them from the inevitable adjustment costs of what we had to do.
The reality is that no democratic government chooses to impose an economic shock on its population, on its voters, if it can avoid it. That debate about shock vs. gradualism, was in fact a totally hypocritical, manipulative and histrionic. There was no option to do it differently, the country was out of options.
I’m quoting you at length here just to show how, in some ways, it’s possible to almost give a (certainly unintended) chavista reading to your frustrations. The idea that you could undo the Venezuelan License Raj without a frontal assault on the power groups that benefited from it was always an illusion.
Reading your response carefully, it strikes me that your argument is self-refuting. Surely you realize that no government can hope to win a fight with the unions and the industrialists and the multinationals and SMEs and the indigenous groups and the teachers and the doctors and the bankers and the universities and the military and businessmen – and all at the same time. It should have been evident that, whatever the economic costs, “protection for favoured sectors and shock for the rest of the country” was going to be a political necessity.
And yes, of course, hindsight is 20/20. The amazing thing, though, is that you’re sticking by your guns! Twenty years later, you still can’t see that CAP II bit off much more than it could chew. That 18 years after the publication of Paper Tigers and Minotaurs, you still can’t really say what you could have, and should have, done differently strikes many of us as simply sad.
Moisés, nobody will question the brilliance of your intellect. In fact, it’s the juxtaposition of your smarts with your inability to genuinely introspect that makes the interview so electric.
But time and again, you make thoughtful arguments that subtly undermine themselves. Time and again, we keep asking when you will stop blaming other people (Reinaldo Figueredo, Marcel Granier) and start questioning what your team got wrong.
For instance, you are very much concerned with challenging the conventional wisdom that CAP II had “good policy but bad communications” – without mentioning, by the way, your own role in establishing that narrative in the early 90s. You do so by noting just how deeply entrenched the Special Interests really were. Here, you reach for a perfectly Kafkaesque illustration from that era, the Horse Track at La Rinconada.
Venezuela in 1989 may have been the only country on Earth where a large gambling venue consistently lost money. The Nationalized horse track consistently made fortunes for a handful of rich, well-connected horse-breeders…but losses to the Venezuelan state. And you’re right to remember, as a galling absudity, the huge, immovable entrenched opposition any attempt to privatize it met!
When you can’t even get political support to privatize a loss-making horse track, you want to know, what hope is there, really?
But it’s an anecdote that illustrates almost exactly the opposite point than the one you want to make. If your communication strategy – hell, if your political strategy – is so badly misconceived that you couldn’t even win the public over to a plan to sell a loss-making horse track, exactly how bad at communicating your agenda were you, really? And if your government can’t forge the necessary coalitions to make something as simple as selling a racetrack happen, then how can you expect to forge a consensus in support of privatizing the CANTV?
Had CAP been a shadow of the communicator he was reputed to be, had his populist instincts survived that 10-year stint out of power, he would have realized the Special Interests he was fighting were serving their own heads up on a plate.
The narrative writes itself: The People vs. The Powerful! “These fatcat horsebreeders are taking the arepa out of your children’s lunch plates!” It’s an easy, almost lazy frame that could have worked, largely because it was factually accurate. CAP II really was an exercise in trying to decouple entrenched, rent-seeking special interests from the public sector teat. Framing it as such couldn’t even have been portrayed as populism: it was just a matter of fact.
The framing was right there, staring you in the face! Why didn’t CAP take it?
I suppose CAP was too much a child of AD to govern in histrionic opposition to all of its component interest groups. To do so would’ve required a kind of revolutionary temperament he just didn’t have. But that’s not the only reason, is it Moisés?
Could it have been that such framing would’ve been laughable coming from a government run by the elitiest of the elite? Might it have something to do that Miguel Rodríguez, Moisés Naím, and Ricardo Hausmann could never have passed the snigger test posing as populist firebrands? Or could it be that CAP’s ability to keep his appointments and micro-manage his ministers, which you perhaps correctly applaud, kept him from taking care of the big-picture coalition-building that a revolutionary government – like his pretended to be – actually needed to survive?
These things seem desperately obvious to me, and there is one potential corollary. Perhaps the real mistake was naming you guys. Perhaps you should never have been cabinet-level in the first place.
Don’t you think the frightfully competent technocrat, as a political subspecies, belongs at vice-minister level? Wouldn’t the A-Team been better off behind the scenes, away from the microphones, and in support of people with the political skills to build the coalitions and make the compromises needed to make reform durable?
An introspective look back at those years would probe those types of questions. But perhaps Rivero’s questions didn’t go there – or perhaps egos prevent us from even asking them ourselves and answering sincerely.
It’s a lot more comfortable to blame Ibsen Martínez, anyway …
But here too, amid the evasions, the unanswered questions lurk. Viéndolo bien, why was the portrayal of CAP II’s reforms in Por Estas Calles believable? What gave it legs?
How could a program to radically reduce the power of the special interests that had captured the state be successfully caricatured as an powerplay by special interests to capture the state?
Lurking in the background of all of this is the shadow of the Caracazo. Perhaps the real answer lies there, in the early days of CAP’s revolution. Pretending his government had not been crippled by the massive human rights violations that took place under his watch, plowing through with his agenda, trying to undo Recadi and raise the price of gas and eliminate price controls and privatize state-owned companies and establishing Central Bank Independence – well, it strikes me as suicidal, right?
I know what you’re gonna say – we had no choice. We were broke. These were the conditions laid out for us by the IMF and the holders of Venezuelan debt.
All that is true. And yet – could a country sitting on 78 billion barrels of oil reserves really say it had no choice? I mean, we had no foreign reserves and oil back then was cheap. But we’re not Haiti, and we never were. Was there really nothing else you could have done? Not even after the invasion of Kuwait did we have a bit of breathing room?
Or could it be that an ideological commitment to adjustment made you willfully blind to the alternatives we did have?
Because if Ibsen Martínez was able to do the number on y’all that he did, don’t you think it’s because people intuited, deep down, that you were more concerned with what they would think of you in Davos than in Carapita?
And isn’t that, right there, the crux of the communications problem the government was facing?
These are the real questions stemming from the experience of the early 90s. They will become vitally important for when the nation is forced to tackle what comes after Chávez.
Sadly, those are questions I feel you, and the country, still have not come to terms with.
Perhaps some day someone will ask them, and you will provide us with the answers. But in the meantime, the feeling I get from the experiences of those days – which largely determined Venezuela’s economic and political course for the 20 years that followed – is that there is a lot still waiting to be learned.
I remain an admirer,