Caracas Chronicles

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.