WEBVTT - Ricardo Hausmann Explains How the Venezuelan Economy Collapsed 0:00:02.720 --> 0:00:16.480 Bloomberg Audio Studios, Podcasts, Radio News. 0:00:18.360 --> 0:00:22.000 Hello and welcome to another episode of the Odd Lots podcast. 0:00:22.160 --> 0:00:23.960 I'm Joe Wisenthal. 0:00:23.480 --> 0:00:24.560 And I'm Tracy Alloway. 0:00:25.000 --> 0:00:29.440 So, Tracy, we recently published that episode about what it 0:00:29.520 --> 0:00:32.159 was like to have done business during the Maduro years 0:00:32.200 --> 0:00:35.440 in Venezuela. That was from a grain perspective, and I 0:00:35.520 --> 0:00:40.360 think one thing that's very obvious is that sure Venezuela 0:00:40.479 --> 0:00:45.360 may have plenty of natural resources oil obviously, but also 0:00:45.440 --> 0:00:49.920 other ones, and perhaps that the relationship between the US 0:00:49.920 --> 0:00:53.159 and the current government maybe better than it was, but 0:00:53.200 --> 0:00:57.160 there's going to be you know, actually reviving the economy, 0:00:57.200 --> 0:00:59.360 actually getting in a place of stability at thriving. 0:00:59.440 --> 0:01:01.280 That's a it's a very long way off, to say 0:01:01.280 --> 0:01:01.720 the least. 0:01:01.920 --> 0:01:04.920 Right, So, if you have oil in the ground, yes, 0:01:05.080 --> 0:01:07.800 that's great, but it's in the ground, and you need 0:01:07.840 --> 0:01:10.960 to actually extract it in order to make money, and 0:01:11.080 --> 0:01:13.960 also in order to encourage the type of people who 0:01:14.000 --> 0:01:17.080 would extract it, you need to have some sort of 0:01:17.120 --> 0:01:21.200 reliability in place, right, there has to be some sense 0:01:21.319 --> 0:01:25.440 of stability of the future. Otherwise, as we heard from 0:01:25.520 --> 0:01:28.440 our previous discussion, people just aren't going to want to 0:01:28.480 --> 0:01:30.120 go there and do business right. 0:01:30.200 --> 0:01:32.480 So one of the points that he brought up, which 0:01:32.480 --> 0:01:35.360 I think is very germane to the future and the 0:01:35.440 --> 0:01:38.120 questions about the country's future, is that, you know, he 0:01:38.200 --> 0:01:42.360 talked about if there was a talented engineer who worked 0:01:42.360 --> 0:01:44.720 on some sort of processing plant in his case, he 0:01:44.840 --> 0:01:47.280 was talking about Cargill. Obviously, if there was someone who 0:01:47.400 --> 0:01:49.760 is like talented in the sort of technical side of 0:01:49.760 --> 0:01:52.080 them that hired them in Mexico, you know, they hired 0:01:52.120 --> 0:01:56.320 them elsewhere. So many people left, and when you think 0:01:56.320 --> 0:01:59.800 about the security situation on the ground even again, let's 0:01:59.840 --> 0:02:02.960 say somehow the foreign money wants to come back in 0:02:03.720 --> 0:02:06.520 this question of talent, yeah, and the question of like 0:02:06.560 --> 0:02:08.280 where are they and do they want to come back, 0:02:08.320 --> 0:02:09.919 and what it would take to get them to come 0:02:09.960 --> 0:02:13.480 back such that you can actually sort of produce natural 0:02:13.520 --> 0:02:17.959 resources among other things profitably. That's a huge difficult element 0:02:18.200 --> 0:02:19.720 and there's no switch that you can flip. 0:02:19.960 --> 0:02:24.040 I'm also just interested in Venezuela's economy from a historical 0:02:24.120 --> 0:02:28.280 perspective one because I feel like Central and South America 0:02:28.400 --> 0:02:31.480 have been a blind spot for us for various reasons. 0:02:31.520 --> 0:02:33.760 I've been to Venezuela once, but I think it was 0:02:33.800 --> 0:02:36.480 on a cruise when I was the only cruise I 0:02:36.480 --> 0:02:38.320 ever went on, when I was like nine years old, 0:02:38.360 --> 0:02:41.320 and all I remember is getting off the boat and 0:02:41.440 --> 0:02:45.400 like being there for a few hours and seeing a 0:02:45.440 --> 0:02:47.680 lot of stray dogs that I thought were really cute 0:02:47.680 --> 0:02:49.760 and I wanted to take home with me. That's all 0:02:49.800 --> 0:02:54.600 I remember, but that it didn't them thinking about the economy, 0:02:54.919 --> 0:02:57.760 But also I find it really interesting because here we 0:02:57.840 --> 0:03:01.160 have an economy which seems to have cola around one 0:03:01.200 --> 0:03:05.000 specific resource. Yes, but as we learned from that episode, 0:03:05.280 --> 0:03:07.760 they do make some other things, yes, And so I'm 0:03:07.800 --> 0:03:10.960 curious about the trade offs between, you know, encouraging the 0:03:11.000 --> 0:03:16.080 oil industry versus other types of jobs and businesses. There's 0:03:16.080 --> 0:03:16.919 a lot to discuss. 0:03:17.120 --> 0:03:19.400 And one other element before we get into this that 0:03:19.440 --> 0:03:20.760 I think is very important is you. 0:03:20.760 --> 0:03:23.240 Hear a lot about how prior. 0:03:23.040 --> 0:03:27.040 To Hugo Chavez coming to Parlia, Venezuela was a fairly 0:03:27.440 --> 0:03:30.760 well off country. But and again it speaks to maybe 0:03:30.800 --> 0:03:34.960 the current moment. We know just looking internationally that there 0:03:35.000 --> 0:03:38.800 is really not any sort of obvious connection between natural 0:03:38.880 --> 0:03:41.840 resource endowment and the wealth of the public. 0:03:41.920 --> 0:03:44.000 The curse, the resource curse. 0:03:43.800 --> 0:03:46.080 Right and there are plenty of places that have a 0:03:46.120 --> 0:03:49.280 lot of oil or some other commodity where the general 0:03:49.320 --> 0:03:53.160 public is impoverished or does not live particularly well. I 0:03:53.200 --> 0:03:54.880 think this is where you get a lot of that 0:03:55.000 --> 0:03:58.680 element of the rule of law and skilled labor and 0:03:58.720 --> 0:04:02.720 all of these things that are certain unevenly distributed throughout 0:04:02.720 --> 0:04:06.000 the world and are not correlated necessarily with the existence 0:04:06.000 --> 0:04:11.200 of commodities. Anyway, someone that we've had on the podcast 0:04:11.280 --> 0:04:14.320 before who has talked a lot about these things, some 0:04:14.360 --> 0:04:18.640 of the preconditions for sustainable growth, We've talked to him 0:04:18.680 --> 0:04:21.440 about all this multiple times. He happens to be the 0:04:21.480 --> 0:04:26.000 perfect guest because he was previously part of economic policy 0:04:26.120 --> 0:04:29.440 making in Venezuela in the nineties. He was a Minister 0:04:29.480 --> 0:04:31.599 of Planning. He was also more a member of the 0:04:31.600 --> 0:04:34.200 board of the Central Bank. Truly the perfect guest. So 0:04:34.200 --> 0:04:37.360 I'm thrilled to welcome back on the podcast Ricardo Houseman, 0:04:37.400 --> 0:04:40.520 who is currently professor at the Harvard Kennedy School director 0:04:40.600 --> 0:04:43.560 of the Harvard Growth Lab. So Ricardo, thank you so 0:04:43.680 --> 0:04:46.799 much for coming back on odd Lots. Truly the perfect 0:04:46.839 --> 0:04:47.960 guest and the perfect moment. 0:04:48.680 --> 0:04:50.400 Thank you, thank you so much for having me. 0:04:51.000 --> 0:04:51.479 What are you. 0:04:51.640 --> 0:04:53.080 I'm trying to think where to start. Why don't you 0:04:53.160 --> 0:04:54.760 tell us about You've been. 0:04:54.680 --> 0:04:57.440 At Harvard for twenty six years, but as I mentioned, 0:04:57.640 --> 0:05:01.599 used to be in policymaking in Venezuela prior to the 0:05:01.680 --> 0:05:03.920 Java's years. What do you tell us a little bit 0:05:03.920 --> 0:05:04.839 about your history there. 0:05:05.160 --> 0:05:08.960 Well, if you want to understand Venezuela, you have to 0:05:09.360 --> 0:05:14.360 really understand the fact that it's a very mature oil country. 0:05:15.000 --> 0:05:19.640 Oil became important starting in nineteen seventeen with Royal Dutch shell. 0:05:20.120 --> 0:05:23.400 Then in the nineteen twenties standard oil of New Jersey 0:05:23.480 --> 0:05:29.760 came in now Exxon, and by nineteen twenty nine, Venezuela 0:05:29.760 --> 0:05:33.839 was the largest oil exporter in the world and remained 0:05:34.040 --> 0:05:37.680 the largest oil exporter in the world until nineteen sixty 0:05:37.800 --> 0:05:42.720 five when it was taken over by Saudi Arabia. And 0:05:42.839 --> 0:05:48.480 in that period going to say nineteen seventy eight nineteen eighty, 0:05:48.600 --> 0:05:53.400 between say nineteen seventeen and nineteen seventy eight, say it 0:05:53.560 --> 0:05:58.000 was you know, sixty years, Venezuela is probably the fastest 0:05:58.040 --> 0:06:01.880 growing country in the world, and it was the country 0:06:01.880 --> 0:06:05.840 with the lowest inflation rate in the world, and it 0:06:06.920 --> 0:06:09.800 had a fixed exchange rate with a dollar. It had 0:06:11.200 --> 0:06:14.800 a very developed financial market. It was a country a 0:06:14.920 --> 0:06:19.159 very very large immigration, so that saying the census of 0:06:19.279 --> 0:06:25.480 nineteen sixty seven percent of Venezuelans were born in Europe, 0:06:26.279 --> 0:06:31.240 in mostly Spain, Italy, Portugal, but also it was a 0:06:31.279 --> 0:06:36.120 source of attraction of Colombians, Dominicans, Ecuadorians, etc. So it 0:06:36.200 --> 0:06:39.839 was a very prosperous country. And then got in the 0:06:39.920 --> 0:06:44.320 nineteen seventies the oil boom, and the oil boom it 0:06:44.440 --> 0:06:48.200 made us think very very big. Then came the second 0:06:48.240 --> 0:06:52.400 oil shock of the Iran Iraq War, and that brought 0:06:52.440 --> 0:06:57.040 in even more money. And then suddenly in the nineteen eighties, 0:06:57.040 --> 0:07:02.920 the price of oil collapsed, revenues collapsed, and the US 0:07:03.200 --> 0:07:05.760 jacked up interest rates like crazy in the early eighties, 0:07:05.760 --> 0:07:08.640 and that led to a that crisis by nineteen eighty three, 0:07:09.160 --> 0:07:13.600 and from nineteen eighty three to around nineteen eighty nine, 0:07:14.320 --> 0:07:17.840 it's what in Latin America was called the last decade 0:07:17.880 --> 0:07:23.040 of the eighties. We were all in a big balance 0:07:23.040 --> 0:07:28.400 of payments crisis that was very painful. Happened in Venezuela 0:07:28.440 --> 0:07:30.400 is a country in the world that went from triple 0:07:30.440 --> 0:07:34.160 A to default more quickly it did, so it was 0:07:34.200 --> 0:07:37.840 triple A like in nineteen eighty one, and it defaulted 0:07:37.840 --> 0:07:43.040 in nineteen eighty three, So it was and then the 0:07:43.040 --> 0:07:46.800 eighties were quite complicated. Then in the early nineties was 0:07:46.800 --> 0:07:51.920 President Carlos Andres Pedes and his minister Miguel Rodriguez and 0:07:52.120 --> 0:07:57.200 others Moises Naim and other ministers. I participated on that government. 0:07:58.160 --> 0:08:03.440 A very major structuralogy lustment was done, that restructuring, opening 0:08:03.480 --> 0:08:08.760 the economy, and the nineties were a period of a 0:08:08.840 --> 0:08:13.280 difficult recovery. Oil was very volatile, going up and down. 0:08:13.960 --> 0:08:20.040 But by nineteen ninety eight you had the Russian crisis 0:08:21.040 --> 0:08:24.640 and the price oil collapsed dramatically. Interest rates went through 0:08:24.640 --> 0:08:28.520 the roof financial markets dried up. And it is in 0:08:28.600 --> 0:08:31.720 that year nineteen ninety eight that we had elections and 0:08:31.800 --> 0:08:35.080 the public said, what the hell you told us that 0:08:35.120 --> 0:08:38.160 all these reforms are going to pay off. You know, 0:08:38.280 --> 0:08:40.960 where's the money, et cetera. There was no money because 0:08:41.000 --> 0:08:43.040 the price of oil had gotten down to something like 0:08:43.080 --> 0:08:46.160 eight dollars a barrel. But the truth is that they 0:08:46.240 --> 0:08:51.680 voted for Chavis, massively voted for Chavis, and e. Chavis started, 0:08:51.720 --> 0:08:54.680 you know, very moderately at the beginning. But as time 0:08:54.760 --> 0:08:57.400 went on and as the price of oil recovered, and 0:08:57.440 --> 0:09:00.199 we had a spectacular boom between two thousand and four 0:09:00.240 --> 0:09:04.240 in twenty fourteen in the price of oil, well Chavis 0:09:04.280 --> 0:09:07.880 felt that he was empowered. He had the money. The 0:09:07.920 --> 0:09:11.080 oil money was coming in. He thought, giving all the 0:09:11.240 --> 0:09:15.080 oil money that was coming in, he could borrow against it. 0:09:16.480 --> 0:09:19.960 He put all these policies to restrict the private sector. 0:09:20.120 --> 0:09:24.920 He nationalized everything that moved. He created these socialist enterprises 0:09:25.040 --> 0:09:27.680 left and right. They all went broke eventually, but he 0:09:27.720 --> 0:09:32.760 imposed exchange controls, import controls, price controls. If it moved, 0:09:32.800 --> 0:09:38.720 you controlled it. And by twenty twelve he was very 0:09:38.720 --> 0:09:41.480 sick with cancer, but he ran for the election. He 0:09:41.520 --> 0:09:45.680 died probably immediately after the election. We don't know exactly 0:09:45.720 --> 0:09:51.199 the day when he died because he didn't appear publicly 0:09:51.679 --> 0:09:55.640 after early December, but they announced his death in March 0:09:55.840 --> 0:10:01.199 of twenty thirteen. The year twenty twelve, the government spent 0:10:01.360 --> 0:10:03.680 as if the price of oil was at two hundred 0:10:03.760 --> 0:10:06.640 dollars a barrow, when it was only at one hundred 0:10:06.679 --> 0:10:09.800 dollars a barrow. So they borrowed as if it was 0:10:09.840 --> 0:10:13.400 going out of fashion. And then Suddenly in twenty thirteen 0:10:13.440 --> 0:10:17.280 twenty fourteen, the price of oil collapsed to something like 0:10:17.360 --> 0:10:20.000 in the thirties. So it's not that they had to 0:10:20.000 --> 0:10:24.280 go from one hundred to thirty or it's that they 0:10:24.320 --> 0:10:28.240 were spending at two hundred and borrowing, and when the 0:10:28.240 --> 0:10:31.359 price of oil collapsed, nobody wanted to lend to Venezuela. 0:10:32.160 --> 0:10:35.640 So suddenly they had no dollars, no dollars to import 0:10:35.679 --> 0:10:41.160 praw materials, spare parts, seeds, fertilizers, whatever, and production came 0:10:41.320 --> 0:10:46.080 tumbling down. And it was the biggest economic collapse that 0:10:46.240 --> 0:10:50.280 ever happened in human history outside of wars, and bigger 0:10:50.320 --> 0:10:54.120 than the collapse that happened in most wars. So without 0:10:54.200 --> 0:10:56.760 money coming in, they still had to pay for a 0:10:56.880 --> 0:10:59.880 huge public sector that they had created, so it just 0:11:00.080 --> 0:11:05.040 printed money. In Maduro took out five zeros out of 0:11:05.040 --> 0:11:08.199 the currency, and barely three and a half years later 0:11:08.720 --> 0:11:11.680 he took six more zeros out of the currency. This 0:11:11.760 --> 0:11:15.240 is a hyperinflation never seen before. Maybe I don't know, 0:11:15.360 --> 0:11:18.000 in Germany in the nineteen twenties and for a brief 0:11:18.040 --> 0:11:21.360 period in Germany after the Second World War. It's something 0:11:21.400 --> 0:11:24.800 that has never happened. The financial system went from being 0:11:24.920 --> 0:11:28.680 like eighty billion dollars in assets to like one billion 0:11:28.720 --> 0:11:33.240 dollars in assets. So it was a total collapse of 0:11:33.280 --> 0:11:36.640 the economy. Eight million people left the country. Now you 0:11:36.720 --> 0:11:39.360 have to ask yourself the question, what the hell this 0:11:39.480 --> 0:11:42.079 is not the only oil country in the world. I mean, 0:11:42.120 --> 0:11:44.520 what happened to Saudi Arabia, what happened to Kuwait, What 0:11:44.600 --> 0:11:48.120 happened to United Emirates or Kasakhstan or a Zerbadan. You 0:11:48.200 --> 0:11:51.040 never heard of a collapse of this magnitude just because 0:11:51.080 --> 0:11:54.600 the price of oil went down. So what really happened 0:11:55.040 --> 0:11:58.240 is that the price of oil went down in a 0:11:58.360 --> 0:12:01.880 system that presumed that people had no rights and all 0:12:01.920 --> 0:12:04.840 the money was in the government. And when now the 0:12:04.880 --> 0:12:07.800 government doesn't have the money, people are left with no 0:12:07.960 --> 0:12:11.400 rights and nothing moves. And that's the underlying reason for 0:12:11.480 --> 0:12:12.520 the Venezuelan Plus. 0:12:28.280 --> 0:12:32.080 That was a fantastic summary of Venezuelan economic history. I 0:12:32.160 --> 0:12:35.319 like speaking to professors because I don't even have to 0:12:35.360 --> 0:12:37.000 ask questions. 0:12:37.240 --> 0:12:38.679 Yeah, because those are all the questions. 0:12:38.440 --> 0:12:39.040 I was going to ask. 0:12:39.120 --> 0:12:42.280 Yeah, that was great, Okay, Well, actually a serious question though, 0:12:42.480 --> 0:12:48.040 were there any real efforts throughout I guess the nineteen 0:12:48.120 --> 0:12:52.439 hundreds the last century to diversify Venezuela's economy away from oil. 0:12:52.600 --> 0:12:55.840 Yes, that was the mantra in Venezuela. It's harder to 0:12:55.920 --> 0:13:00.800 do than to say right that trouble is that we 0:13:00.800 --> 0:13:04.120 were going to sow the oil. We're going to sow 0:13:04.200 --> 0:13:08.160 the oil, and so we developed our hydro potential in 0:13:08.200 --> 0:13:10.360 the south of the country. We have the best hydro 0:13:10.400 --> 0:13:13.400 electric river in the world, the Calony River. It should 0:13:13.480 --> 0:13:19.000 be producing like thirty two jigawatts of power and by 0:13:19.040 --> 0:13:21.720 the way, twenty four to seven if you want three 0:13:21.800 --> 0:13:25.120 hundred and sixty five days a year, it's fantastic. From 0:13:25.520 --> 0:13:33.080 its hydrological marvel, it's not producing eight megawatts agigoads, so 0:13:33.120 --> 0:13:37.000 it's they messed that up to we were going to 0:13:37.080 --> 0:13:43.920 use that to produce aluminium steel. We have enormous agricultural potential, 0:13:44.000 --> 0:13:48.320 especially with the agricultural revolution that has happened in mostly 0:13:48.320 --> 0:13:51.280 in Brazil in the last twenty years. It didn't reach 0:13:51.400 --> 0:13:56.080 Venezuela during Chavismo, so we could be producing over twelve 0:13:56.080 --> 0:14:01.320 million hectares and we're producing less than a million. So 0:14:01.480 --> 0:14:05.640 the potential for diversification is huge. But the story of 0:14:05.920 --> 0:14:09.920 Venezuela has been the story of this incredible uncertainty over 0:14:09.960 --> 0:14:14.199 what the future brings because we have not managed the 0:14:14.760 --> 0:14:17.760 volatility in oil incomes in a way that protects the 0:14:17.840 --> 0:14:21.360 domestic economy. So more than you know, just the old 0:14:21.440 --> 0:14:24.120 Dutch disease of being. You know, you're earning so many 0:14:24.160 --> 0:14:28.080 dollars that you're so appreciated that other things are not competitive. 0:14:28.640 --> 0:14:32.160 It's really that since the nineteen eighties, it's been up 0:14:32.200 --> 0:14:34.840 and down, up and down in oil incomes that have 0:14:35.160 --> 0:14:39.240 made the economy quite unpredictable. And the only way to 0:14:39.360 --> 0:14:42.600 deal with that is to protect the economy from oil 0:14:42.640 --> 0:14:47.040 price volatilities through stabilization funds and those I wrote the 0:14:47.120 --> 0:14:51.040 law for the stabilization fund. But the moment Chavis got in, 0:14:51.240 --> 0:14:52.480 that's the first thing he killed. 0:14:53.160 --> 0:14:55.960 I was just going to ask, since you were on 0:14:56.000 --> 0:14:58.680 the board of the central bank. You know, we know 0:14:58.800 --> 0:15:02.680 that in a lot of resource rich countries the approach 0:15:02.720 --> 0:15:05.800 of the central bank they might just peg to the dollar. 0:15:06.120 --> 0:15:07.360 You know, something very simple. 0:15:07.600 --> 0:15:10.400 What was the sort of general philosophy of the central 0:15:10.400 --> 0:15:11.960 bank when you were on it. How did you think 0:15:11.960 --> 0:15:16.000 about sterilizing foreign currencies preventing inflation? Was what was the 0:15:16.040 --> 0:15:18.000 framework that the central bank used. 0:15:19.200 --> 0:15:24.200 That's a very good question, because Venezuela until nineteen eighty 0:15:24.240 --> 0:15:28.360 three had pegged the exchange rate to the dollar, except 0:15:29.280 --> 0:15:32.120 in one small crisis we had in the early sixties, 0:15:32.160 --> 0:15:36.280 and then when the US devalued the currency in nineteen 0:15:36.320 --> 0:15:38.840 seventy one seventy two, when it abandoned the Breton Woods 0:15:38.880 --> 0:15:44.480 Agreement the US, we revalued Visa Vigo US, but we 0:15:44.520 --> 0:15:47.320 had fixed exchange rates, so it was very simple, fixed 0:15:47.320 --> 0:15:50.800 exchange rate. The market believed the exchange rate was fixed 0:15:50.840 --> 0:15:53.880 and pegged, and it worked quite well until the nineteen 0:15:53.880 --> 0:15:56.800 eighty three crisis. And then in the nineteen eighty three crisis, 0:15:56.840 --> 0:16:01.320 first they tried exchange controls, multiple extra rates, and when 0:16:01.320 --> 0:16:04.720 I was at the central bank, we decided to unify 0:16:04.720 --> 0:16:07.840 the exchange rate to float and to adopt something more 0:16:07.960 --> 0:16:13.080 like inflation targeting. But it was not easy to do 0:16:13.200 --> 0:16:18.360 because you know, inflation targeting is easier to achieve when 0:16:18.440 --> 0:16:21.920 inflation is under control and things are more stable. So 0:16:21.960 --> 0:16:23.240 we had a pretty bumpy road. 0:16:24.240 --> 0:16:27.760 You know, you mentioned that stability fund. As a policymaker, 0:16:27.880 --> 0:16:31.800 what was it like to witness I guess the transition 0:16:32.120 --> 0:16:36.360 to the Chavas administration, and I guess see some of 0:16:36.400 --> 0:16:39.720 your work, your earlier work dismantled. 0:16:40.240 --> 0:16:46.760 Well, it was initially quite gradual. Chavis left the finance 0:16:46.840 --> 0:16:51.320 minister from the previous administration. She gave some confidence to markets. 0:16:51.360 --> 0:16:54.200 And he first thing he did is he changed the constitution, 0:16:54.760 --> 0:16:58.440 and the constitution concentrated power in the presidency. It went 0:16:58.440 --> 0:17:01.360 from two chambers of Congress to single chamber of Congress. 0:17:01.840 --> 0:17:04.800 And then and then the checks and balances were eroded. 0:17:06.240 --> 0:17:09.879 And but what really changed his mind was the moment 0:17:09.880 --> 0:17:12.199 the price of oil went up. He felt he no 0:17:12.280 --> 0:17:16.720 longer needed society, that the private sector needed him. He 0:17:16.760 --> 0:17:20.920 didn't need a private sector. So he started. He had 0:17:20.920 --> 0:17:26.080 the money to buy everybody off, but he expropriated, didn't 0:17:26.080 --> 0:17:29.399 pay for most of it, and created an environment in 0:17:29.440 --> 0:17:32.520 which people thought that they really had no rights. You had, 0:17:32.920 --> 0:17:35.840 your property could be taken away, you could not set prices, 0:17:35.880 --> 0:17:39.879 you could not buy foreign exchange without permission, and to 0:17:39.920 --> 0:17:43.879 buy to get that permission, you had to behave and 0:17:43.960 --> 0:17:48.040 so it created an environment to quite oppressive environment. By 0:17:48.080 --> 0:17:51.560 the way, we had a free press and now there's 0:17:51.800 --> 0:17:56.200 no free press whatsoever. So it's it's this erosion of rights, 0:17:56.560 --> 0:18:03.919 property rights, information rights, voting rights, just political rights. So 0:18:04.160 --> 0:18:07.240 it was the complete erosion of all rights in the 0:18:07.280 --> 0:18:11.119 transformation of a long standing democracy into a dictatorship. Was 0:18:11.200 --> 0:18:12.280 quite horrible to watch. 0:18:12.680 --> 0:18:15.480 I think one of the most surprising aspects, and now 0:18:15.480 --> 0:18:18.639 that I think about it from our recent conversation, was 0:18:18.680 --> 0:18:21.920 just how long some of these businesses stuck it out 0:18:22.040 --> 0:18:25.399 under a deteriorating situation. You'd think, okay, you get this 0:18:25.480 --> 0:18:28.320 hyper inflation, and you hear these stories about, okay, are 0:18:28.320 --> 0:18:31.600 there some warehouses full of sugar somewhere that we could 0:18:31.640 --> 0:18:34.440 sell abroad so that we could get the hard currency 0:18:34.640 --> 0:18:38.600 in in order to buy you know, buy spare parts, 0:18:38.640 --> 0:18:41.879 et cetera. This idea that like you know, it was 0:18:41.960 --> 0:18:44.159 not a it was a sort of slow boil. So 0:18:44.280 --> 0:18:46.920 to spect them, the big international companies, they didn't leave 0:18:46.960 --> 0:18:49.159 right away. They actually they kept trying to make it 0:18:49.200 --> 0:18:50.840 work for as long as they possibly could. 0:18:51.520 --> 0:18:56.320 Absolutely, and it was uh. I mean, Cargill is a 0:18:56.320 --> 0:19:00.840 good example in your in your previous show, Cargill, you know, 0:19:00.960 --> 0:19:06.440 the government nationalized international trade, so you had to buy 0:19:06.760 --> 0:19:10.680 you had to sell everything through a state owned company 0:19:11.240 --> 0:19:15.560 that would buy on behalf of your customers, and they 0:19:15.560 --> 0:19:19.119 were the ones kind of siphoning the differential between the 0:19:19.160 --> 0:19:24.320 official exchange rate and the market exchange rate, or the 0:19:24.359 --> 0:19:28.320 black market exchange rate, which was at some stages, you know, 0:19:28.880 --> 0:19:31.760 ten to one, one hundred to one. So the best 0:19:31.800 --> 0:19:35.840 business was to sell a dollar at the parallel rate 0:19:36.680 --> 0:19:39.840 and convert that into dollars at the official rate. That 0:19:39.880 --> 0:19:42.080 would have been a rate of return of ten thousand 0:19:42.160 --> 0:19:46.520 percent in a day. So it was it was that 0:19:47.200 --> 0:19:53.480 craziness in that led to the economic collapse that I 0:19:53.600 --> 0:19:54.320 mentioned before. 0:19:54.760 --> 0:19:57.840 Since we're talking about dollars, talk to us a little 0:19:57.880 --> 0:20:01.359 bit about the impact of sanctions. So you know, you 0:20:01.440 --> 0:20:04.480 were no longer a policy maker when those sanctions came 0:20:04.600 --> 0:20:08.360 into effect. But I think part of the difficulty when 0:20:08.359 --> 0:20:11.440 it comes to assessing Venezuela right now is we're trying 0:20:11.440 --> 0:20:15.160 to figure out how much of the economic issues there 0:20:15.240 --> 0:20:20.399 are the results of sort of homegrown structural issues versus 0:20:20.600 --> 0:20:24.160 external factors like the sanctions that have been in placed 0:20:24.200 --> 0:20:25.640 for two decades now. 0:20:26.080 --> 0:20:28.560 No, the sanctions haven't been in place for two decades. 0:20:28.800 --> 0:20:34.840 The sanctions. The sanctions were actually imposed starting around second 0:20:34.920 --> 0:20:41.040 half of twenty seventeen, and the economy imploded. The worst 0:20:41.040 --> 0:20:45.440 implosion was in the year twenty sixteen. In the year 0:20:45.480 --> 0:20:50.119 twenty sixteen, the government cut back on imports by something 0:20:50.200 --> 0:20:54.119 like eighty five percent, imports of food, imports of medicine. 0:20:55.280 --> 0:20:59.240 They just collapsed imports. I wrote an article in those 0:20:59.320 --> 0:21:03.439 days testing that Venezuela should go to the IMF and 0:21:03.480 --> 0:21:07.160 restructure its debt because since it had borrowed so much 0:21:07.200 --> 0:21:09.880 money and the price of oil had declined so much 0:21:09.920 --> 0:21:13.119 and it had no savings, it could not keep on 0:21:13.320 --> 0:21:16.800 servicing the debt and it would need to restructure its 0:21:16.880 --> 0:21:22.760 dead ideally with some support from the IMF. So I 0:21:22.800 --> 0:21:25.719 asked the question in the title of that article was 0:21:26.520 --> 0:21:32.760 should Venezuela default? And that got me banned from the country, 0:21:33.119 --> 0:21:37.479 so fortunately I published it abroad. But it gives you 0:21:37.520 --> 0:21:42.800 an idea of how this was the year twenty sixteen, 0:21:43.000 --> 0:21:48.680 okay before sanctions, okay, twenty fifteen, twenty sixteen, before sanctions. 0:21:48.680 --> 0:21:52.560 So it was the writing was on the wall. The 0:21:52.600 --> 0:21:56.520 oil production had collapsed because in two thousand and three, 0:21:57.320 --> 0:22:02.040 Chavez fired the oil company gone on strike because Chaves 0:22:02.280 --> 0:22:08.040 was messing with their meritocracy, with their hierarchical rules of 0:22:08.119 --> 0:22:10.679 you know what, you needed to do to reach a 0:22:10.720 --> 0:22:15.119 certain level in the structure of the company, which was 0:22:15.600 --> 0:22:20.480 a culture that we inherited from Excellent Mobile and from 0:22:20.680 --> 0:22:23.440 a shell that were sort of like the two large 0:22:23.480 --> 0:22:27.359 producers in Venezuela before they were nationalized in the seventies. 0:22:29.200 --> 0:22:33.240 So there was a deep culture that in that company. 0:22:33.560 --> 0:22:38.000 They went on strike. Chaves fired twenty thousand out of 0:22:38.040 --> 0:22:41.720 thirty two thousand, starting from the top, So he eliminated 0:22:41.760 --> 0:22:46.320 all the human capital of that company, and immediately productions 0:22:46.320 --> 0:22:49.840 started to decline. We had the capacity to refine one 0:22:49.840 --> 0:22:52.760 point three million barrels of oil a day. Today we 0:22:52.840 --> 0:22:57.560 can't refine one hundred thousand. We import gasoline. So this 0:22:57.760 --> 0:23:03.960 destruction way proceed semi sanctions. Now, the sanctions were imposed 0:23:04.000 --> 0:23:07.639 because Maduro started to get farther and farther away from 0:23:07.720 --> 0:23:12.720 democratic norms, and it was a way of trying to 0:23:12.760 --> 0:23:17.879 force him to to move back to democratic norms, and 0:23:19.280 --> 0:23:23.280 instead he radical He became more radicalized than his in 0:23:23.359 --> 0:23:26.159 his name. But just to tell you the importance of 0:23:26.240 --> 0:23:28.520 human capital and all you might say, oil is not 0:23:28.720 --> 0:23:30.879 that important, you know, human cap It's kind of like 0:23:30.920 --> 0:23:34.240 a basic industry. When they kicked out of Venezuelan and 0:23:34.280 --> 0:23:38.240 oil engineers. They went to Colombia. There was a field 0:23:38.240 --> 0:23:43.119 in Colombia called Rubialis. It was producing thirty thousand barrels 0:23:43.160 --> 0:23:46.880 of oil a day. The Venezuelan and oil engineers came 0:23:46.920 --> 0:23:50.040 in and in no time they it was producing two 0:23:50.119 --> 0:23:52.840 hundred and fifty thousand barrels a day. So it's it 0:23:53.080 --> 0:23:56.360 just you need to know what it is that you're 0:23:56.400 --> 0:24:00.200 doing well. That human capital they kicked out that that's 0:24:00.240 --> 0:24:02.760 the real collapse of the Venison oil production. And then 0:24:02.800 --> 0:24:07.200 obviously he could have negotiated around sanctions, but he would 0:24:07.280 --> 0:24:12.720 rather be poor and in power then you know, provide 0:24:12.760 --> 0:24:16.560 some more rights and norms and and and and maybe 0:24:16.840 --> 0:24:17.919 risk losing an election. 0:24:18.280 --> 0:24:22.280 That's truly a remarkable statistic about that, uh, that Columbian 0:24:22.320 --> 0:24:25.280 oil field. I want to get to the present tense 0:24:25.560 --> 0:24:29.080 soon and talk about the challenges now, but maybe to 0:24:29.119 --> 0:24:33.520 help us understand, you know, through these years of deterioration, 0:24:34.200 --> 0:24:38.960 whether we're talking about the latter years of Chavez or 0:24:39.080 --> 0:24:43.280 the earlier years of Maduro, what was the constituency that 0:24:43.440 --> 0:24:48.359 allowed them to stay in power despite these disruptions. Because 0:24:48.440 --> 0:24:53.280 even the most absolute dictator anywhere, to some extent has 0:24:53.320 --> 0:24:58.119 to have some credibility with some pocket that's powerful, something 0:24:58.160 --> 0:25:00.920 that preserves I would I would think, et cetera, talk 0:25:00.960 --> 0:25:04.240 to us about where was the constituency for this new 0:25:04.280 --> 0:25:07.159 trajectory of the country that started under Javis. 0:25:07.800 --> 0:25:12.000 So initially the constituency was very large. But as the 0:25:12.040 --> 0:25:15.399 economy started to deteriorate and as people thought that there 0:25:15.440 --> 0:25:19.439 were less and less opportunities within that regime, Maluda had 0:25:19.480 --> 0:25:24.160