Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Hello and welcome to another episode of the Odd Lots podcast.
Speaker 3: I'm Joe Wisenthal.
Speaker 4: And I'm Tracy Alloway.
Speaker 2: So, Tracy, we recently published that episode about what it
Speaker 2: was like to have done business during the Maduro years
Speaker 2: in Venezuela. That was from a grain perspective, and I
Speaker 2: think one thing that's very obvious is that sure Venezuela
Speaker 2: may have plenty of natural resources oil obviously, but also
Speaker 2: other ones, and perhaps that the relationship between the US
Speaker 2: and the current government maybe better than it was, but
Speaker 2: there's going to be you know, actually reviving the economy,
Speaker 2: actually getting in a place of stability at thriving.
Speaker 3: That's a it's a very long way off, to say
Speaker 3: the least.
Speaker 4: Right, So, if you have oil in the ground, yes,
Speaker 4: that's great, but it's in the ground, and you need
Speaker 4: to actually extract it in order to make money, and
Speaker 4: also in order to encourage the type of people who
Speaker 4: would extract it, you need to have some sort of
Speaker 4: reliability in place, right, there has to be some sense
Speaker 4: of stability of the future. Otherwise, as we heard from
Speaker 4: our previous discussion, people just aren't going to want to
Speaker 4: go there and do business right.
Speaker 2: So one of the points that he brought up, which
Speaker 2: I think is very germane to the future and the
Speaker 2: questions about the country's future, is that, you know, he
Speaker 2: talked about if there was a talented engineer who worked
Speaker 2: on some sort of processing plant in his case, he
Speaker 2: was talking about Cargill. Obviously, if there was someone who
Speaker 2: is like talented in the sort of technical side of
Speaker 2: them that hired them in Mexico, you know, they hired
Speaker 2: them elsewhere. So many people left, and when you think
Speaker 2: about the security situation on the ground even again, let's
Speaker 2: say somehow the foreign money wants to come back in
Speaker 2: this question of talent, yeah, and the question of like
Speaker 2: where are they and do they want to come back,
Speaker 2: and what it would take to get them to come
Speaker 2: back such that you can actually sort of produce natural
Speaker 2: resources among other things profitably. That's a huge difficult element
Speaker 2: and there's no switch that you can flip.
Speaker 4: I'm also just interested in Venezuela's economy from a historical
Speaker 4: perspective one because I feel like Central and South America
Speaker 4: have been a blind spot for us for various reasons.
Speaker 4: I've been to Venezuela once, but I think it was
Speaker 4: on a cruise when I was the only cruise I
Speaker 4: ever went on, when I was like nine years old,
Speaker 4: and all I remember is getting off the boat and
Speaker 4: like being there for a few hours and seeing a
Speaker 4: lot of stray dogs that I thought were really cute
Speaker 4: and I wanted to take home with me. That's all
Speaker 4: I remember, but that it didn't them thinking about the economy,
Speaker 4: But also I find it really interesting because here we
Speaker 4: have an economy which seems to have cola around one
Speaker 4: specific resource. Yes, but as we learned from that episode,
Speaker 4: they do make some other things, yes, And so I'm
Speaker 4: curious about the trade offs between, you know, encouraging the
Speaker 4: oil industry versus other types of jobs and businesses. There's
Speaker 4: a lot to discuss.
Speaker 2: And one other element before we get into this that
Speaker 2: I think is very important is you.
Speaker 3: Hear a lot about how prior.
Speaker 2: To Hugo Chavez coming to Parlia, Venezuela was a fairly
Speaker 2: well off country. But and again it speaks to maybe
Speaker 2: the current moment. We know just looking internationally that there
Speaker 2: is really not any sort of obvious connection between natural
Speaker 2: resource endowment and the wealth of the public.
Speaker 3: The curse, the resource curse.
Speaker 2: Right and there are plenty of places that have a
Speaker 2: lot of oil or some other commodity where the general
Speaker 2: public is impoverished or does not live particularly well. I
Speaker 2: think this is where you get a lot of that
Speaker 2: element of the rule of law and skilled labor and
Speaker 2: all of these things that are certain unevenly distributed throughout
Speaker 2: the world and are not correlated necessarily with the existence
Speaker 2: of commodities. Anyway, someone that we've had on the podcast
Speaker 2: before who has talked a lot about these things, some
Speaker 2: of the preconditions for sustainable growth, We've talked to him
Speaker 2: about all this multiple times. He happens to be the
Speaker 2: perfect guest because he was previously part of economic policy
Speaker 2: making in Venezuela in the nineties. He was a Minister
Speaker 2: of Planning. He was also more a member of the
Speaker 2: board of the Central Bank. Truly the perfect guest. So
Speaker 2: I'm thrilled to welcome back on the podcast Ricardo Houseman,
Speaker 2: who is currently professor at the Harvard Kennedy School director
Speaker 2: of the Harvard Growth Lab. So Ricardo, thank you so
Speaker 2: much for coming back on odd Lots. Truly the perfect
Speaker 2: guest and the perfect moment.
Speaker 5: Thank you, thank you so much for having me.
Speaker 2: What are you.
Speaker 3: I'm trying to think where to start. Why don't you
Speaker 3: tell us about You've been.
Speaker 2: At Harvard for twenty six years, but as I mentioned,
Speaker 2: used to be in policymaking in Venezuela prior to the
Speaker 2: Java's years. What do you tell us a little bit
Speaker 2: about your history there.
Speaker 5: Well, if you want to understand Venezuela, you have to
Speaker 5: really understand the fact that it's a very mature oil country.
Speaker 5: Oil became important starting in nineteen seventeen with Royal Dutch shell.
Speaker 5: Then in the nineteen twenties standard oil of New Jersey
Speaker 5: came in now Exxon, and by nineteen twenty nine, Venezuela
Speaker 5: was the largest oil exporter in the world and remained
Speaker 5: the largest oil exporter in the world until nineteen sixty
Speaker 5: five when it was taken over by Saudi Arabia. And
Speaker 5: in that period going to say nineteen seventy eight nineteen eighty,
Speaker 5: between say nineteen seventeen and nineteen seventy eight, say it
Speaker 5: was you know, sixty years, Venezuela is probably the fastest
Speaker 5: growing country in the world, and it was the country
Speaker 5: with the lowest inflation rate in the world, and it
Speaker 5: had a fixed exchange rate with a dollar. It had
Speaker 5: a very developed financial market. It was a country a
Speaker 5: very very large immigration, so that saying the census of
Speaker 5: nineteen sixty seven percent of Venezuelans were born in Europe,
Speaker 5: in mostly Spain, Italy, Portugal, but also it was a
Speaker 5: source of attraction of Colombians, Dominicans, Ecuadorians, etc. So it
Speaker 5: was a very prosperous country. And then got in the
Speaker 5: nineteen seventies the oil boom, and the oil boom it
Speaker 5: made us think very very big. Then came the second
Speaker 5: oil shock of the Iran Iraq War, and that brought
Speaker 5: in even more money. And then suddenly in the nineteen eighties,
Speaker 5: the price of oil collapsed, revenues collapsed, and the US
Speaker 5: jacked up interest rates like crazy in the early eighties,
Speaker 5: and that led to a that crisis by nineteen eighty three,
Speaker 5: and from nineteen eighty three to around nineteen eighty nine,
Speaker 5: it's what in Latin America was called the last decade
Speaker 5: of the eighties. We were all in a big balance
Speaker 5: of payments crisis that was very painful. Happened in Venezuela
Speaker 5: is a country in the world that went from triple
Speaker 5: A to default more quickly it did, so it was
Speaker 5: triple A like in nineteen eighty one, and it defaulted
Speaker 5: in nineteen eighty three, So it was and then the
Speaker 5: eighties were quite complicated. Then in the early nineties was
Speaker 5: President Carlos Andres Pedes and his minister Miguel Rodriguez and
Speaker 5: others Moises Naim and other ministers. I participated on that government.
Speaker 5: A very major structuralogy lustment was done, that restructuring, opening
Speaker 5: the economy, and the nineties were a period of a
Speaker 5: difficult recovery. Oil was very volatile, going up and down.
Speaker 5: But by nineteen ninety eight you had the Russian crisis
Speaker 5: and the price oil collapsed dramatically. Interest rates went through
Speaker 5: the roof financial markets dried up. And it is in
Speaker 5: that year nineteen ninety eight that we had elections and
Speaker 5: the public said, what the hell you told us that
Speaker 5: all these reforms are going to pay off. You know,
Speaker 5: where's the money, et cetera. There was no money because
Speaker 5: the price of oil had gotten down to something like
Speaker 5: eight dollars a barrel. But the truth is that they
Speaker 5: voted for Chavis, massively voted for Chavis, and e. Chavis started,
Speaker 5: you know, very moderately at the beginning. But as time
Speaker 5: went on and as the price of oil recovered, and
Speaker 5: we had a spectacular boom between two thousand and four
Speaker 5: in twenty fourteen in the price of oil, well Chavis
Speaker 5: felt that he was empowered. He had the money. The
Speaker 5: oil money was coming in. He thought, giving all the
Speaker 5: oil money that was coming in, he could borrow against it.
Speaker 5: He put all these policies to restrict the private sector.
Speaker 5: He nationalized everything that moved. He created these socialist enterprises
Speaker 5: left and right. They all went broke eventually, but he
Speaker 5: imposed exchange controls, import controls, price controls. If it moved,
Speaker 5: you controlled it. And by twenty twelve he was very
Speaker 5: sick with cancer, but he ran for the election. He
Speaker 5: died probably immediately after the election. We don't know exactly
Speaker 5: the day when he died because he didn't appear publicly
Speaker 5: after early December, but they announced his death in March
Speaker 5: of twenty thirteen. The year twenty twelve, the government spent
Speaker 5: as if the price of oil was at two hundred
Speaker 5: dollars a barrow, when it was only at one hundred
Speaker 5: dollars a barrow. So they borrowed as if it was
Speaker 5: going out of fashion. And then Suddenly in twenty thirteen
Speaker 5: twenty fourteen, the price of oil collapsed to something like
Speaker 5: in the thirties. So it's not that they had to
Speaker 5: go from one hundred to thirty or it's that they
Speaker 5: were spending at two hundred and borrowing, and when the
Speaker 5: price of oil collapsed, nobody wanted to lend to Venezuela.
Speaker 5: So suddenly they had no dollars, no dollars to import
Speaker 5: praw materials, spare parts, seeds, fertilizers, whatever, and production came
Speaker 5: tumbling down. And it was the biggest economic collapse that
Speaker 5: ever happened in human history outside of wars, and bigger
Speaker 5: than the collapse that happened in most wars. So without
Speaker 5: money coming in, they still had to pay for a
Speaker 5: huge public sector that they had created, so it just
Speaker 5: printed money. In Maduro took out five zeros out of
Speaker 5: the currency, and barely three and a half years later
Speaker 5: he took six more zeros out of the currency. This
Speaker 5: is a hyperinflation never seen before. Maybe I don't know,
Speaker 5: in Germany in the nineteen twenties and for a brief
Speaker 5: period in Germany after the Second World War. It's something
Speaker 5: that has never happened. The financial system went from being
Speaker 5: like eighty billion dollars in assets to like one billion
Speaker 5: dollars in assets. So it was a total collapse of
Speaker 5: the economy. Eight million people left the country. Now you
Speaker 5: have to ask yourself the question, what the hell this
Speaker 5: is not the only oil country in the world. I mean,
Speaker 5: what happened to Saudi Arabia, what happened to Kuwait, What
Speaker 5: happened to United Emirates or Kasakhstan or a Zerbadan. You
Speaker 5: never heard of a collapse of this magnitude just because
Speaker 5: the price of oil went down. So what really happened
Speaker 5: is that the price of oil went down in a
Speaker 5: system that presumed that people had no rights and all
Speaker 5: the money was in the government. And when now the
Speaker 5: government doesn't have the money, people are left with no
Speaker 5: rights and nothing moves. And that's the underlying reason for
Speaker 5: the Venezuelan Plus.
Speaker 4: That was a fantastic summary of Venezuelan economic history. I
Speaker 4: like speaking to professors because I don't even have to
Speaker 4: ask questions.
Speaker 3: Yeah, because those are all the questions.
Speaker 5: I was going to ask.
Speaker 4: Yeah, that was great, Okay, Well, actually a serious question though,
Speaker 4: were there any real efforts throughout I guess the nineteen
Speaker 4: hundreds the last century to diversify Venezuela's economy away from oil.
Speaker 5: Yes, that was the mantra in Venezuela. It's harder to
Speaker 5: do than to say right that trouble is that we
Speaker 5: were going to sow the oil. We're going to sow
Speaker 5: the oil, and so we developed our hydro potential in
Speaker 5: the south of the country. We have the best hydro
Speaker 5: electric river in the world, the Calony River. It should
Speaker 5: be producing like thirty two jigawatts of power and by
Speaker 5: the way, twenty four to seven if you want three
Speaker 5: hundred and sixty five days a year, it's fantastic. From
Speaker 5: its hydrological marvel, it's not producing eight megawatts agigoads, so
Speaker 5: it's they messed that up to we were going to
Speaker 5: use that to produce aluminium steel. We have enormous agricultural potential,
Speaker 5: especially with the agricultural revolution that has happened in mostly
Speaker 5: in Brazil in the last twenty years. It didn't reach
Speaker 5: Venezuela during Chavismo, so we could be producing over twelve
Speaker 5: million hectares and we're producing less than a million. So
Speaker 5: the potential for diversification is huge. But the story of
Speaker 5: Venezuela has been the story of this incredible uncertainty over
Speaker 5: what the future brings because we have not managed the
Speaker 5: volatility in oil incomes in a way that protects the
Speaker 5: domestic economy. So more than you know, just the old
Speaker 5: Dutch disease of being. You know, you're earning so many
Speaker 5: dollars that you're so appreciated that other things are not competitive.
Speaker 5: It's really that since the nineteen eighties, it's been up
Speaker 5: and down, up and down in oil incomes that have
Speaker 5: made the economy quite unpredictable. And the only way to
Speaker 5: deal with that is to protect the economy from oil
Speaker 5: price volatilities through stabilization funds and those I wrote the
Speaker 5: law for the stabilization fund. But the moment Chavis got in,
Speaker 5: that's the first thing he killed.
Speaker 2: I was just going to ask, since you were on
Speaker 2: the board of the central bank. You know, we know
Speaker 2: that in a lot of resource rich countries the approach
Speaker 2: of the central bank they might just peg to the dollar.
Speaker 3: You know, something very simple.
Speaker 2: What was the sort of general philosophy of the central
Speaker 2: bank when you were on it. How did you think
Speaker 2: about sterilizing foreign currencies preventing inflation? Was what was the
Speaker 2: framework that the central bank used.
Speaker 5: That's a very good question, because Venezuela until nineteen eighty
Speaker 5: three had pegged the exchange rate to the dollar, except
Speaker 5: in one small crisis we had in the early sixties,
Speaker 5: and then when the US devalued the currency in nineteen
Speaker 5: seventy one seventy two, when it abandoned the Breton Woods
Speaker 5: Agreement the US, we revalued Visa Vigo US, but we
Speaker 5: had fixed exchange rates, so it was very simple, fixed
Speaker 5: exchange rate. The market believed the exchange rate was fixed
Speaker 5: and pegged, and it worked quite well until the nineteen
Speaker 5: eighty three crisis. And then in the nineteen eighty three crisis,
Speaker 5: first they tried exchange controls, multiple extra rates, and when
Speaker 5: I was at the central bank, we decided to unify
Speaker 5: the exchange rate to float and to adopt something more
Speaker 5: like inflation targeting. But it was not easy to do
Speaker 5: because you know, inflation targeting is easier to achieve when
Speaker 5: inflation is under control and things are more stable. So
Speaker 5: we had a pretty bumpy road.
Speaker 4: You know, you mentioned that stability fund. As a policymaker,
Speaker 4: what was it like to witness I guess the transition
Speaker 4: to the Chavas administration, and I guess see some of
Speaker 4: your work, your earlier work dismantled.
Speaker 5: Well, it was initially quite gradual. Chavis left the finance
Speaker 5: minister from the previous administration. She gave some confidence to markets.
Speaker 5: And he first thing he did is he changed the constitution,
Speaker 5: and the constitution concentrated power in the presidency. It went
Speaker 5: from two chambers of Congress to single chamber of Congress.
Speaker 5: And then and then the checks and balances were eroded.
Speaker 5: And but what really changed his mind was the moment
Speaker 5: the price of oil went up. He felt he no
Speaker 5: longer needed society, that the private sector needed him. He
Speaker 5: didn't need a private sector. So he started. He had
Speaker 5: the money to buy everybody off, but he expropriated, didn't
Speaker 5: pay for most of it, and created an environment in
Speaker 5: which people thought that they really had no rights. You had,
Speaker 5: your property could be taken away, you could not set prices,
Speaker 5: you could not buy foreign exchange without permission, and to
Speaker 5: buy to get that permission, you had to behave and
Speaker 5: so it created an environment to quite oppressive environment. By
Speaker 5: the way, we had a free press and now there's
Speaker 5: no free press whatsoever. So it's it's this erosion of rights,
Speaker 5: property rights, information rights, voting rights, just political rights. So
Speaker 5: it was the complete erosion of all rights in the
Speaker 5: transformation of a long standing democracy into a dictatorship. Was
Speaker 5: quite horrible to watch.
Speaker 2: I think one of the most surprising aspects, and now
Speaker 2: that I think about it from our recent conversation, was
Speaker 2: just how long some of these businesses stuck it out
Speaker 2: under a deteriorating situation. You'd think, okay, you get this
Speaker 2: hyper inflation, and you hear these stories about, okay, are
Speaker 2: there some warehouses full of sugar somewhere that we could
Speaker 2: sell abroad so that we could get the hard currency
Speaker 2: in in order to buy you know, buy spare parts,
Speaker 2: et cetera. This idea that like you know, it was
Speaker 2: not a it was a sort of slow boil. So
Speaker 2: to spect them, the big international companies, they didn't leave
Speaker 2: right away. They actually they kept trying to make it
Speaker 2: work for as long as they possibly could.
Speaker 5: Absolutely, and it was uh. I mean, Cargill is a
Speaker 5: good example in your in your previous show, Cargill, you know,
Speaker 5: the government nationalized international trade, so you had to buy
Speaker 5: you had to sell everything through a state owned company
Speaker 5: that would buy on behalf of your customers, and they
Speaker 5: were the ones kind of siphoning the differential between the
Speaker 5: official exchange rate and the market exchange rate, or the
Speaker 5: black market exchange rate, which was at some stages, you know,
Speaker 5: ten to one, one hundred to one. So the best
Speaker 5: business was to sell a dollar at the parallel rate
Speaker 5: and convert that into dollars at the official rate. That
Speaker 5: would have been a rate of return of ten thousand
Speaker 5: percent in a day. So it was it was that
Speaker 5: craziness in that led to the economic collapse that I
Speaker 5: mentioned before.
Speaker 4: Since we're talking about dollars, talk to us a little
Speaker 4: bit about the impact of sanctions. So you know, you
Speaker 4: were no longer a policy maker when those sanctions came
Speaker 4: into effect. But I think part of the difficulty when
Speaker 4: it comes to assessing Venezuela right now is we're trying
Speaker 4: to figure out how much of the economic issues there
Speaker 4: are the results of sort of homegrown structural issues versus
Speaker 4: external factors like the sanctions that have been in placed
Speaker 4: for two decades now.
Speaker 5: No, the sanctions haven't been in place for two decades.
Speaker 5: The sanctions. The sanctions were actually imposed starting around second
Speaker 5: half of twenty seventeen, and the economy imploded. The worst
Speaker 5: implosion was in the year twenty sixteen. In the year
Speaker 5: twenty sixteen, the government cut back on imports by something
Speaker 5: like eighty five percent, imports of food, imports of medicine.
Speaker 5: They just collapsed imports. I wrote an article in those
Speaker 5: days testing that Venezuela should go to the IMF and
Speaker 5: restructure its debt because since it had borrowed so much
Speaker 5: money and the price of oil had declined so much
Speaker 5: and it had no savings, it could not keep on
Speaker 5: servicing the debt and it would need to restructure its
Speaker 5: dead ideally with some support from the IMF. So I
Speaker 5: asked the question in the title of that article was
Speaker 5: should Venezuela default? And that got me banned from the country,
Speaker 5: so fortunately I published it abroad. But it gives you
Speaker 5: an idea of how this was the year twenty sixteen,
Speaker 5: okay before sanctions, okay, twenty fifteen, twenty sixteen, before sanctions.
Speaker 5: So it was the writing was on the wall. The
Speaker 5: oil production had collapsed because in two thousand and three,
Speaker 5: Chavez fired the oil company gone on strike because Chaves
Speaker 5: was messing with their meritocracy, with their hierarchical rules of
Speaker 5: you know what, you needed to do to reach a
Speaker 5: certain level in the structure of the company, which was
Speaker 5: a culture that we inherited from Excellent Mobile and from
Speaker 5: a shell that were sort of like the two large
Speaker 5: producers in Venezuela before they were nationalized in the seventies.
Speaker 5: So there was a deep culture that in that company.
Speaker 5: They went on strike. Chaves fired twenty thousand out of
Speaker 5: thirty two thousand, starting from the top, So he eliminated
Speaker 5: all the human capital of that company, and immediately productions
Speaker 5: started to decline. We had the capacity to refine one
Speaker 5: point three million barrels of oil a day. Today we
Speaker 5: can't refine one hundred thousand. We import gasoline. So this
Speaker 5: destruction way proceed semi sanctions. Now, the sanctions were imposed
Speaker 5: because Maduro started to get farther and farther away from
Speaker 5: democratic norms, and it was a way of trying to
Speaker 5: force him to to move back to democratic norms, and
Speaker 5: instead he radical He became more radicalized than his in
Speaker 5: his name. But just to tell you the importance of
Speaker 5: human capital and all you might say, oil is not
Speaker 5: that important, you know, human cap It's kind of like
Speaker 5: a basic industry. When they kicked out of Venezuelan and
Speaker 5: oil engineers. They went to Colombia. There was a field
Speaker 5: in Colombia called Rubialis. It was producing thirty thousand barrels
Speaker 5: of oil a day. The Venezuelan and oil engineers came
Speaker 5: in and in no time they it was producing two
Speaker 5: hundred and fifty thousand barrels a day. So it's it
Speaker 5: just you need to know what it is that you're
Speaker 5: doing well. That human capital they kicked out that that's
Speaker 5: the real collapse of the Venison oil production. And then
Speaker 5: obviously he could have negotiated around sanctions, but he would
Speaker 5: rather be poor and in power then you know, provide
Speaker 5: some more rights and norms and and and and maybe
Speaker 5: risk losing an election.
Speaker 2: That's truly a remarkable statistic about that, uh, that Columbian
Speaker 2: oil field. I want to get to the present tense
Speaker 2: soon and talk about the challenges now, but maybe to
Speaker 2: help us understand, you know, through these years of deterioration,
Speaker 2: whether we're talking about the latter years of Chavez or
Speaker 2: the earlier years of Maduro, what was the constituency that
Speaker 2: allowed them to stay in power despite these disruptions. Because
Speaker 2: even the most absolute dictator anywhere, to some extent has
Speaker 2: to have some credibility with some pocket that's powerful, something
Speaker 2: that preserves I would I would think, et cetera, talk
Speaker 2: to us about where was the constituency for this new
Speaker 2: trajectory of the country that started under Javis.
Speaker 5: So initially the constituency was very large. But as the
Speaker 5: economy started to deteriorate and as people thought that there
Speaker 5: were less and less opportunities within that regime, Maluda had
Speaker 5: to get nastier. So Chaves was very you know, liked
Speaker 5: if you want. He was popular in he could actually
Speaker 5: win elections. Madula couldn't really win elections, and so he
Speaker 5: had to get nastier and masterier. So today what you
Speaker 5: have is essentially extreme repression, extreme repression not only on
Speaker 5: civil society, but extreme repression on the military. They distrust
Speaker 5: the military to death. They have a secret police for
Speaker 5: civilians called Sabine, and then there's a secret police for
Speaker 5: the military called the Hesim, and the de Hesem has
Speaker 5: hundreds of officers in jail. They are the worst treated
Speaker 5: political prisoners in Venezuela. They are starved, they are tortured.
Speaker 5: They have deeply penetrated all the communications of anybody in
Speaker 5: the army the Cubans are deeply into it. They're using
Speaker 5: Russian technology so that they're trying to prevent the army
Speaker 5: from organizing against the government. So the army is not
Speaker 5: really there to defend the country. That's why the attack
Speaker 5: on January third was such a cakewalk. It's that, you know,
Speaker 5: the army was there to be kind of controlled so
Speaker 5: that they wouldn't break from the government. So it's really
Speaker 5: that's why in the election of July twenty eighth, twenty
Speaker 5: twenty four, in spite of the fact that they didn't
Speaker 5: let eight million Venezuelans a broad vote, in spite of
Speaker 5: the fact that they did not let three million young
Speaker 5: Venezuelans register for the first time in the electoral roles,
Speaker 5: in spite of the fact that they did not let
Speaker 5: the candidate that the primaries to run, Maria Corina Matchalo.
Speaker 5: She appointed somebody who nobody knew. She raised his hand,
Speaker 5: and he won seventy thirty. He would have won eighty
Speaker 5: five fifteen if other people had been allowed to vote.
Speaker 5: Now that's a margins, even seventy to thirty, that's a
Speaker 5: margin that you haven't seen Trump win. You know, train bound,
Speaker 5: nobody wins by those margins. So there is a huge
Speaker 5: political majority in Venezuela for change that has that is
Speaker 5: behind one clear political leadership. So Venezuela is not Iraq.
Speaker 5: Venezuela is not a polarized country. Venezuela is a unified country.
Speaker 5: In those elections, the opposition won in all twenty four states,
Speaker 5: they won in ninety percent of the three hundred and
Speaker 5: thirty five municipalities. That means it's a natural there's a
Speaker 5: political majority in Venezuela that wants to go in a
Speaker 5: different direction, but there's a small clique that's trying to
Speaker 5: prevent it. And so that is the current situation, and
Speaker 5: that's my concern that the Trump administration has announced that
Speaker 5: they want to rule by indirectly, by controlling that trick
Speaker 5: when there is a big political majority that wants to
Speaker 5: go in a different direction.
Speaker 4: This is actually going to be my next question. So
Speaker 4: we're now up to January twenty twenty six. Maduro is gone.
Speaker 4: The US says it wants more private investment in Venezuela,
Speaker 4: so maybe, you know, some of the sanctions issues go away.
Speaker 4: But on the other hand, the acting president is straight
Speaker 4: out of the Maduro regime, and it doesn't seem that
Speaker 4: you're having any significant political or structural change. Is that right?
Speaker 5: It's very hard to read exactly what the Trump plan
Speaker 5: is for Venezuela. Marco Rubio had talked has talked about
Speaker 5: three phases, first stabilization, then recovery, and then eventually a
Speaker 5: political transition. I think, and I have argued that it's
Speaker 5: the wrong phasing because there's going to be very little
Speaker 5: recovery unless you know what is the those rules of
Speaker 5: the game, what is what is the what are the
Speaker 5: rights that people have? Right now? People in Venezuela are
Speaker 5: afraid to speak, are afraid to to to do anything
Speaker 5: because they're still being deeply harassed and put in jail
Speaker 5: for just you know, tweeting something or for having an
Speaker 5: opinion or for you know, they have put in jail
Speaker 5: young girls in order to pressure military officers that have say,
Speaker 5: broke rank, and they want them to to to turn
Speaker 5: themselves in. So it's a very very oppressive regime. And
Speaker 5: the idea is that, yes, we are going to give
Speaker 5: this regime orders of what to do, even though at
Speaker 5: the heart they are the ones that brought the economy
Speaker 5: to where it is. And the idea is we're now
Speaker 5: going to eliminate sanctions. But it's not sanctions that destroyed
Speaker 5: the Venezuela and oil industry. It was the expropriations that
Speaker 5: were done in two thousand and seven and two thousand
Speaker 5: and nine. It was the firing of all the oil
Speaker 5: workers in two thousand and three. It was the rules
Speaker 5: that they created for the oil industry. In the oil industry,
Speaker 5: according to the law, production can only happen through the
Speaker 5: national oil company or in joint ventures where the national
Speaker 5: oil company has fifty one percent of its shares. The
Speaker 5: national oil company is broke, it's in default with all
Speaker 5: its creditors. So if it were to receive some dollars
Speaker 5: in some bank account in the US, you know, there
Speaker 5: are judgments in US courts that would freeze those assets
Speaker 5: to pay creditors. So nobody wants that as a partner.
Speaker 5: So it is in this context that Trump says, oh,
Speaker 5: I want US companies to go back. Well, the law
Speaker 5: doesn't allow for those companies to go back. And if
Speaker 5: you want to change the law, who's going to change
Speaker 5: the law? Well, we had stolen elections last year for
Speaker 5: the National Assembly that the US does not recognize Latin
Speaker 5: America does not recognize, Europe does not recognize. There is
Speaker 5: no legitimate power to change the hydrocarbon's law. Right now,
Speaker 5: you have a dollar at the official rate of three
Speaker 5: hundred and something, and the black market rate is that
Speaker 5: four hundred, five hundred, six hundred. It reached one thousand.
Speaker 5: So if you are going to invest at what exchange
Speaker 5: rate do you come in? At what exchange rate do
Speaker 5: you convert your profits back out? It's what the president
Speaker 5: of Excellent said that Venezuela is uninvestable. It's just a
Speaker 5: description of reality. It's it's that the system was not
Speaker 5: designed for private investment independent of sanctions, and that's that's
Speaker 5: what needs to change. But it needs to change through
Speaker 5: a government that has legitimacy to change things that is
Speaker 5: perceived as being, you know, the reflection of the will
Speaker 5: of the people that you know, they are the ones
Speaker 5: who decided that, you know, what course of action to take.
Speaker 5: I don't think any serious investor is going to go
Speaker 5: in into such a messy situation.
Speaker 2: I certainly take your point, and it certainly sounds very
Speaker 2: logical what you say that you're never going to get
Speaker 2: real investment of capital. You're certainly not going to get
Speaker 2: this sort of perhaps remigration of talent that left and
Speaker 2: so forth, until there's some sort of political stability, until
Speaker 2: there's some sort of confidence this is the new thing.
Speaker 2: But how do you do that functionally? I mean, clearly
Speaker 2: sanctions didn't work right, Sanctions didn't have any effect on
Speaker 2: removing the Maduro regime. There's not an impulse to put
Speaker 2: boots on the ground American troops and so forth. That
Speaker 2: doesn't seem like there's any appetite. So is there some
Speaker 2: mechanism in which the Trump administration, even if it wanted
Speaker 2: to take your advice and put political stability before economic revival?
Speaker 2: Does the tool exist practically to establish that sequence?
Speaker 5: I think it does, and I think you might see
Speaker 5: them moving in this direction in the coming days and weeks.
Speaker 5: And I think that it's important they that they listen
Speaker 5: to the fact that you know they this is not they.
Speaker 5: You know, they are obsessed about not committing the mistake
Speaker 5: that the US made in Iraq, right, But Iraq has
Speaker 5: nothing to do with Venezuela. Iraq is you know, a
Speaker 5: country that goes back to Mesopotamia, was five thousand years old.
Speaker 5: In those five thousand years until Salam Hussein, there had
Speaker 5: never been an election. There had never been political parties
Speaker 5: in Venezuela was democracy. We have political parties. We ran
Speaker 5: an election not one hundred years ago, in twenty twenty four.
Speaker 5: We were able to secure the results of those elections
Speaker 5: because we had six hundred thousand people across the whole
Speaker 5: country supervising and protecting the votes for the opposition. You
Speaker 5: have a political organization, a majority political organization there. So
Speaker 5: what you need to do right now is to say
Speaker 5: is to tell the army, we're not going to fire
Speaker 5: you the way they fired all the army in Iraq.
Speaker 5: You tell the bureaucracy, we're not going to fire the
Speaker 5: way you fired all the bureaucracy in Iraq. Everybody's going
Speaker 5: to have their salaries, everybody's going to have their pensions, right,
Speaker 5: but they are going to be under civilian control. And
Speaker 5: if you tell them, you know, they have already seen
Speaker 5: what happened to Maluru, they are very clear that it's
Speaker 5: much cheaper a treatment alasule money. Right. You don't have
Speaker 5: to put the special forces on the ground to extract somebody,
Speaker 5: you know alasule money. You just send some missiles and
Speaker 5: no boots on the ground. So the pressure you can
Speaker 5: put to say, listen, guys, Let's define a timetable for elections.
Speaker 5: Let's define a credible electoral council to supervise those elections
Speaker 5: with international supervision. Let's have a date for those elections.
Speaker 5: Let's open up the role so that young people can
Speaker 5: register and diaspora can register, and we have an election
Speaker 5: on a certain date. And by the way, you have
Speaker 5: to free all the political prisoners. You have to allow
Speaker 5: the diaspora to go back, and you have to allow
Speaker 5: a free press, otherwise you get a Soulay money treatment.
Speaker 5: And I tell you that if you do those things,
Speaker 5: what is going to do. They're going to want to
Speaker 5: participate in those elections, to organize for those elections, to
Speaker 5: start thinking about the future, and to have the credibility
Speaker 5: that the future is going to be possible because there
Speaker 5: will be a democratic government committed to a market economy,
Speaker 5: not a socialist government under threat of American attack and
Speaker 5: with a cash flow control by the American power. So
Speaker 5: that is a much better situation in which to recover
Speaker 5: the economy, to achieve social peace, and to have a
Speaker 5: Venezuela become prosperous again.
Speaker 4: Could you have some sort of hybrid structure here where
Speaker 4: Venezuela maintains some aspects of socialism but also tries to
Speaker 4: reintroduce those market signals that you've been talking about.
Speaker 5: First of all, I don't understand exactly the logic of
Speaker 5: a hybrid. You mean, like when Trump won the election,
Speaker 5: did you say, why don't we have a hybrid? You know?
Speaker 5: Why do you know one off trick? You know? Why
Speaker 5: do we need a hybrid? There is a majority political
Speaker 5: opinion in Venezuela in favor of one direction. If it
Speaker 5: has to be done gradually for ex ra, why reason
Speaker 5: let them figure it out. It's not there is something
Speaker 5: that has failed, and has failed catastrophically. There is no
Speaker 5: other catastrophic failure that you can compare to the collapse
Speaker 5: of the Venezuelan and economy. People want change. There's a
Speaker 5: state that is not working. By the way, Venezuela is
Speaker 5: going to have a free education, free healthcare, free many things.
Speaker 5: Because it's kind of like in the DNA, don't it's
Speaker 5: always been The consensus is by US standards, relatively liberal.
Speaker 4: By standards, that sounds very socialist.
Speaker 5: Yeah, exactly. So the problem is not socialism, not socialism.
Speaker 5: The problem is individual rights, freedom, property rights, free press.
Speaker 5: Those are the basic things, because those things convert individuals
Speaker 5: into agents of their own destiny. And that's how you
Speaker 5: get investment, that's how you get the economy going. If
Speaker 5: the Venezuelans abroad don't feel that it's a place where
Speaker 5: they can live in freedom safely, the human capital of
Speaker 5: the country has left, it won't want to come back.
Speaker 5: But if you tell them, look, recovery is coming in
Speaker 5: a free place with a government that wants a restitution
Speaker 5: of rights. Venezuelans has always been a country of immigration,
Speaker 5: not out migration. It's a country that has been a
Speaker 5: source of attraction of people everywhere. So that transition. I
Speaker 5: tell you that transition can be done quickly and without
Speaker 5: conflict if enough pressure is put on the clique that
Speaker 5: has sequestered the government. That's why they can't get votes,
Speaker 5: that's why they look. Even in the voting centers in
Speaker 5: military bases. The government lost seventy to thirty in spite
Speaker 5: of its repression. So let the majority of Venezuela something
Speaker 5: that did not exist in Iraq, it did not exist elsewhere.
Speaker 5: It's a society that has undergone a catastrophe and has
Speaker 5: learned from that catastrophe, it has figured out what doesn't
Speaker 5: work and what course of action it wants to continue.
Speaker 2: So I want to say I take your point absolutely
Speaker 2: as you put it very well. Venezuela, in your view,
Speaker 2: is not a polarized society. There is a consensus, there
Speaker 2: is a view both domestically and Venezuelan's abroad that there
Speaker 2: needs to be major political change, And I certainly take
Speaker 2: your point highly intuitive that you're not going to get
Speaker 2: the influx of capital or talent until that political change
Speaker 2: takes place. On the other hand, you know, when the
Speaker 2: US just kidnapped the head of state, which is a
Speaker 2: shocking turn of events. I think we're all shocked the
Speaker 2: day that we woke up on January third and you're
Speaker 2: talking about you know, you say the Soleimani treatment, So
Speaker 2: that is assassination that you're saying should be would be
Speaker 2: the threat against the clique. Do you see possibility that
Speaker 2: you essentially engender a sort of I don't know about
Speaker 2: a necessarily defense of the existing regime, but a defensive
Speaker 2: sovereignty that what is this other country doing kidnapping our
Speaker 2: head of state? What is this other country doing threatening
Speaker 2: to assassinate the people who run our government. This is
Speaker 2: our government, et cetera. Do you not see or is
Speaker 2: it completely off the mark to talk about risk of
Speaker 2: backlash there and the impulse to rally around the flag
Speaker 2: and sovereignty when another country is being this aggressive about
Speaker 2: controlling our government.
Speaker 5: I think that's why narratives matter, and I don't particularly
Speaker 5: like the narrative that sometimes Trump uses. The narrative about
Speaker 5: the US getting into Europe in the Second World War
Speaker 5: was we came to liberate, not to conquer. Okay, that's
Speaker 5: the idea. We came to liberate, not to conquer. Today
Speaker 5: in Venezuela, Trump is very popular. Getting rid of Maluro
Speaker 5: is super popular. Why because the perception is that we
Speaker 5: had been taken over by Cubans. You saw that in
Speaker 5: the attack on January third, cub announced that thirty two
Speaker 5: of its members were killed. Because that was the security
Speaker 5: apparatus around Maduro. Maduro didn't rely on Venezuelans for his security.
Speaker 5: He relied on Cubans for his security because he doesn't
Speaker 5: trust Venezuela. So the perception was that we were a
Speaker 5: colony of Cuba. If you want, we were a colony
Speaker 5: of foreign interests and now we want to get back
Speaker 5: to our freedom. So the narrative I would want to
Speaker 5: us to stick to is we came to liberate, not
Speaker 5: to conquer. We came to reestablish your freedom. And if
Speaker 5: freedom gets re established, Venezuelans will naturally be good partners
Speaker 5: of the US as they had historically been, the fact
Speaker 5: that Trump is popular in Venezuela and is a condemnation
Speaker 5: of Chavismo, it's how disastrous these guys have been, how
Speaker 5: aligned with foreign powers that have nothing to do with us.
Speaker 5: You know their language, Cuba. They're aligned with Russia, they're
Speaker 5: aligned with Iran, they're aligned with Belarus. So it's that
Speaker 5: kind of government that has taken over with no domestic
Speaker 5: political base, that is, it's been threatened to be kicked out,
Speaker 5: and that's why I think it makes the transition so
Speaker 5: much easier.
Speaker 2: Professor Hauseman, thank you so much for coming back on
Speaker 2: odd lots, fascinating perspective. Truly the perfect guests, and really
Speaker 2: appreciate you taking your time to chat with us.
Speaker 5: Thank you, thank you for having me.
Speaker 4: Thank you, Ricardo.
Speaker 3: Tracy.
Speaker 2: That was a fascinating conversation from someone who I guess
Speaker 2: I would say has an unmatched perspective, Right, that is
Speaker 2: an excellent view to get from someone who has both
Speaker 2: served in government but also has made it his career
Speaker 2: as an economist to talk essentially about some of these
Speaker 2: human capital problems that will certainly be set Venezuela for
Speaker 2: a very long time, regardless of how the political situation unfolds.
Speaker 4: You know, I can't think of Ricardo without thinking about
Speaker 4: monkeys swinging from trees and his description of how countries
Speaker 4: actually develop new industries and one area can lead into
Speaker 4: a new to more technologically advanced area. But anyway, one
Speaker 4: thing is stuck out from that conversation for me, which is,
Speaker 4: you know, the emphasis on institutional and structural decline versus
Speaker 4: the external factors like the sanctions. And it seems to
Speaker 4: me that that makes it more difficult in the current environment,
Speaker 4: right because again, US involvement in Venezuela, I don't even
Speaker 4: know how to describe it nowadays would suggest that maybe
Speaker 4: dollar shortages aren't going to be as much of a
Speaker 4: thing as they were in the past, maybe sanctions go away,
Speaker 4: stuff like that. But if the major problem is that
Speaker 4: institutional decay and the acting president is still still from
Speaker 4: the Maduro regime, that seems a much harder problem to solve.
Speaker 4: By the way, your last question about whether or not
Speaker 4: US involvement maybe like Coalesces Venezuelans around sort of nationalist regime. Uh,
Speaker 4: there's a headline out right now saying that Venezuela's acting
Speaker 4: president says she's had enough of ES orders. So you know,
Speaker 4: you get kind of like a glimmer of it.
Speaker 3: It seems very tough.
Speaker 2: And to talk about the Sulemani treatment there's a euphemism
Speaker 2: for assassination.
Speaker 3: Of not even sure it's a euphemism, it's not even
Speaker 3: a euphemism at all.
Speaker 2: Look, I certainly take the point though that this idea
Speaker 2: of let's get the economic stabilization done first and then
Speaker 2: the political stabilization that might simply be impossible. And I
Speaker 2: thought professor Hausman did a great job of laying out
Speaker 2: there's sort of the reality of human capital and the
Speaker 2: idea that you know, this is not just some vague
Speaker 2: thing that.
Speaker 3: We want talented people back.
Speaker 2: And that stat about the Columbian oil field very remarkable.
Speaker 2: But then also some of the legal aspects of why
Speaker 2: the system is not designed as a currently is for
Speaker 2: multinational oil companies to come back into the country. But
Speaker 2: on the other hand, I mean again, sanctions didn't work
Speaker 2: for years to get Maduro out. We've had sanctions against
Speaker 2: Cuba for how long they'll work? Like getting the government
Speaker 2: you want, even if you're much more powerful than the
Speaker 2: other country, is far from a trivial exercise in almost
Speaker 2: every example that we can think.
Speaker 4: Of, absolutely well. I'm also thinking back to again that
Speaker 4: episode that we did with the Cargill employee and this
Speaker 4: idea that well, maybe if you have enough private investors
Speaker 4: multinationals that come together and say, you know, we are
Speaker 4: interested in Venezuela, but we need to see the following changes,
Speaker 4: maybe that acts as some sort of catalysts to strengthen
Speaker 4: up the rule of law. But it's a sort of
Speaker 4: chicken and egg situation, right, because those companies need to
Speaker 4: be incentivized. They need to want to come in to Venezuela. Yeah,
Speaker 4: in order to advocate for like the conditions that would
Speaker 4: make it possible for them to enter Venezuela.
Speaker 2: I wonder how much vacancy there is at the apartment
Speaker 2: complex where asad is living in Moscow. Like, the question
Speaker 2: is like how many people need to be promised a
Speaker 2: very cushy retirement in a nice gated Moscow high rise
Speaker 2: for them to say, Okay, we'll just do this the
Speaker 2: easy way. I'm curious, like the what the number would
Speaker 2: be and how much capacity there is for that movement
Speaker 2: that would be the sounds like it could be a solution,
Speaker 2: but I don't know if that's really on the table.
Speaker 4: That would be an interesting statistic. I don't think you're
Speaker 4: going to get it anytime soon, but anyway, shall we
Speaker 4: leave it there?
Speaker 3: Let's leave it there.
Speaker 4: This has been another episode of the Authoughts podcast. I'm
Speaker 4: Tracy Alloway. You can follow me at Tracy Alloway and.
Speaker 2: I'm Jill Wisenthal. You can follow me at the Stalwart.
Speaker 2: Follow our guest Ricardo Houseman. He's at Riccardo Houseman. Follow
Speaker 2: our producers Carman Rodriguez at Kerman armand Dashel Bennett at
Speaker 2: Dashbot and kill Brooks at kill Brooks. Odd Lots content
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