Ricardo Hausmann Explains How the Venezuelan Economy Collapsed

Ricardo Hausmann is a professor at the Harvard Kennedy School and the director of Harvard's Growth Lab. We've talked to him multiple times in the past about the necessary preconditions for economies to grow and thrive. But in addition to his academic work, Hausmann was previously a policymaker in Venezuela, including a stint at the country's central bank prior to the election of Hugo Chavez. In this conversation, we talk about how Venezuela went from being the largest oil exporter in the world (even larger than Saudi Arabia for a time) to becoming the ultimate economic basket case. We also talk about the huge challenge the country will face in reinvigorating its economy, and why he believes that will be impossible as long as the remnants of the Maduro government remain in charge. Subscribe to the Odd Lots NewsletterJoin the conversation: discord.gg/oddlotsSee omnystudio.com/listener for privacy information.

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• 0:00Tracy Alloway?

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• 2:44Joe Weisenthal?

  Hello and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

• 2:49Tracy Alloway?

  And I'm Tracy Alloway.

• 2:51Joe Weisenthal?

  So Tracy, we recently published that episode about what it was like to have done business during the Maduro years in Venezuela. That was from a grain perspective. And I think one thing that's very obvious is that sure Venezuela may have plenty of natural resources, oil, obviously, but also other ones. And perhaps that the relationship between the US and the current government may be better than it was. But there is going to be, you know, actually reviving the economy, actually getting in a place of stability and thriving. That's a, that's a very long way off, to say the least.

• 3:28Tracy Alloway?

  Right. So if you have oil in the ground.

• 3:30Joe Weisenthal?

  Yes.

• 3:31Tracy Alloway?

  That's great. But it's in the ground and you need to actually extract it in order to make money. And also, in order to encourage the type of people who would extract it, you need to have some sort of reliability in place, right? There has to be some sense of stability of the future. Otherwise, as we heard from our previous discussion, people just aren't going to want to go there and do business.

• 3:56Joe Weisenthal?

  Right. So one of the points that he brought up, which I think is very germane to the future and the questions about the country's future, is that, you know, he talked about if there was a talented engineer who worked in some sort of processing plant, in his case, he was talking about Cargill, obviously, if there was someone who was like talented in the sort of technical side of them, they hired them in Mexico, you know, they hired them elsewhere. So many people left. And when you think about the security situation on the ground, even again, let's say somehow the foreign money wants to come back in, this question of talent.

• 4:31Tracy Alloway?

  Yeah.

• 4:31Joe Weisenthal?

  And the question of like, where are they? And do they want to come back? And what it would take to get them to come back such that you can Actually sort of produce natural resources, among other things, profitably. That's a huge, difficult element, and there's no switch that you can flip.

• 4:46Tracy Alloway?

  I'm also just interested in Venezuela's economy from a historical perspective. One, because I feel like Central and South America have been a blind spot for us for various reasons. I've been to Venezuela once, but I think it was on a cruise when I was, the only cruise I ever went on, when I was like nine years old, and all I remember is getting off the boat and like, being there for a few hours and seeing a lot of stray dogs that I thought were really cute and I wanted to take home with me. That's all I remember.

• 5:16Joe Weisenthal?

  But other than that, it didn't.

• 5:19Tracy Alloway?

  I wasn't thinking about the economy. But also, I find it really interesting because here we have an economy which seems to have coalesced around one specific resource.

• 5:28Joe Weisenthal?

  Yes.

• 5:29Tracy Alloway?

  But as we learned from that episode, they do make some other things.

• 5:32Joe Weisenthal?

  Yeah.

• 5:33Tracy Alloway?

  And so I'm curious about the trade offs between, you know, encouraging the oil industry versus other types of jobs and businesses. There's a lot to discuss.

• 5:43Joe Weisenthal?

  And one other element before we get into this that I think is very important is you hear a lot about how prior to Hugo Chavez coming to Paro, Venezuela was a fairly well off country. But, and again, it speaks to maybe the current moment. We know just looking internationally, that there is really not any sort of obvious connection between natural resource endowment and the wealth of the public.

• 6:08Tracy Alloway?

  The resource curse.

• 6:09Joe Weisenthal?

  The resource curse, right? And there are plenty of places that have a lot of oil or some other commodity where the general public is impoverished or does not live particularly well. I think this is where you get a lot of that element of the rule of law and skilled labor and all of these things that are certainly unevenly distributed throughout the world and are not correlated necessarily with the existence of commodities. Anyway. Someone that we've had on the podcast before, who has talked a lot about these things, some of the preconditions for sustainable growth. We've talked to him about all this multiple times. He happens to be the perfect guest because he was previously part of economic policymaking in Venezuela in the

• 6:54Joe Weisenthal?

  90s. He was a minister of planning. He was also a member of the board of the Central Bank. Truly the perfect guest. So I'm thrilled to welcome back on the podcast Ricardo Hausmann, who is currently professor at the Harvard Kennedy School, director of the Harvard Growth Lab. So Ricardo, thank you so much for coming back on Odd Lots. Truly the perfect guest in the perfect moment.

• 7:14Speaker 05

  Thank you. Thank you so much for having me.

• 7:16Joe Weisenthal?

  Why don't you, I'm trying to think where to start. Why don't you tell us about, you've been at Harvard for 26 years, but as I mentioned, you used to be in policymaking in Venezuela prior to the Chavez years. Why don't you tell us a little bit about your history there?

• 7:30Speaker 05

  Well, if you want to understand Venezuela, you have to really understand the fact that it's a very mature oil country. Oil became important, starting in 1917 with Royal Dutch Shell. Then in the 1920s, Standard Oil of New Jersey came in, now Exxon. And by 1929, Venezuela was the largest oil exporter in the world and remained the largest oil exporter in the world until 1965, when it was taken over by Saudi Arabia. And in that period,

• 8:10Speaker 05

  going to say 1978, 1980, between say 1917 and 1978, say it was 60 years. Venezuela was probably the fastest growing country in the world, and it was the country with the lowest inflation rate in the world. And it it had a fixed exchange rate with the dollar. It had a, you know, a very developed financial market. It was a country of very, very large immigration. So that, say, in the census of nineteen sixty, seven percent of Venezuelans were born in Europe, in mostly Spain, Italy, Portugal.

• 8:55Speaker 05

  But also, it was a source of attraction of Colombians, Dominicans, Ecuadorians, et cetera. So it was a very prosperous country. And then got in the nineteen seventies, the oil boom. And the oil boom made us think very, very big. Then came the second oil shock of the Iranian Iraq war. And that brought in even more money. And then suddenly, in the nineteen eighties, the price of oil collapsed. Oil revenues collapsed. And the US jacked up interest rates like crazy in the early eighties. And that led to a debt crisis by nineteen eighty-three. And from nineteen eighty-three to around nineteen eighty-nine,

• 9:40Speaker 05

  it's what in Latin America was called the lost decade of the eighties. We were all in a big, you know, balance of payments crisis that was very painful, happened. Venezuela is the country in the world that went from triple A to default more quickly. It did so, it was triple A like in nineteen eighty-one, and it defaulted in nineteen eighty-three. Wow. So, so it was, and then the eighties were quite complicated. Then in the early nineties was President Carlos Andres Perez and his minister Miguel Rodriguez and others, Moisés Naim and and other ministers, I participated in that government.

• 10:23Speaker 05

  A very major structural adjustment was done, debt restructuring, opening the economy. And the nineties were a period of a difficult recovery. Oil was very volatile, going up and down. But by nineteen ninety-eight,

• 10:43Speaker 05

  You had the Russian crisis and the price of oil collapsed dramatically. Interest rates went through the roof. Financial markets dried up. And it is in that year, 1998, that we had elections. And the public said, what the hell? You told us that all these reforms are going to pay off. You know, where's the money, etc. There was no money because the price of oil had gone down to something like eight dollars a barrel. But the truth is that they voted for Chavez. Massively voted for Chavez. And Chavez started very moderately at the beginning.

• 11:20Speaker 05

  But as time went on and as the price of oil recovered and we had a spectacular boom between 2004 and 2014 in the price of oil. Well, Chavez felt that he was empowered. He had the money. The oil money was coming in. He thought, given all the oil money that was coming in, he could borrow against it. He put all these policies to restrict the private sector. He nationalized everything that moved. He created these socialist enterprises left and right. They all went broke eventually. But he imposed exchange controls, import controls, price controls. If it moved, you controlled it.

• 12:00Speaker 05

  And by 2012, he was very sick with cancer, but he ran for the election. He died probably immediately after the election. We don't know exactly the day when he died. Because he didn't appear publicly after early December. But they announced his death in March of 2013. The year 2012, the government spent as if the price of oil was at $200 a barrel, when it was only at $100 a barrel. So they borrowed as if it was going out of fashion. And then suddenly in 2013, 2014, the price of oil collapsed to something like in the 30s.

• 12:45Speaker 05

  So it's not that they had to go from 100 to 30 or, you know, it's that they were spending at 200 and borrowing. And when the price of oil collapsed, nobody wanted to lend to Venezuela. So suddenly they had no dollars, no dollars to import raw materials, spare parts, seeds, fertilizers, whatever, and production came tumbling down. And it was the biggest economic collapse that ever happened in human history outside of wars. And bigger than the collapse that happened in most wars. So without money coming in, they still had to pay for a huge public sector that they had created. So it just printed money.

• 13:27Speaker 05

  Maduro took out five zeros out of the currency. And barely three and a half years later, he took six more zeros out of the currency. This is a hyperinflation never seen before. Maybe, I don't know, in Germany in the 1920s and for a brief period in Germany after the Second World War. It's, it's something that has never happened. The financial system went from being like 80 billion dollars in assets to like 1 billion dollars in assets. Jeez. So it was a total collapse of the economy. Eight million people left the country. Now you have to ask yourself the question, what the hell? This is not the only oil country in the world. I mean, what happened to Saudi Arabia? What happened to Kuwait?

• 14:10Speaker 05

  What happened to the United Arab Emirates or Kazakhstan or Azerbaijan? We never heard of a collapse of this magnitude just because the price of oil went down. So what really happened is that the price of oil went down in a system that presumed that people had no rights and all the money was in the government. And when now the government doesn't have the money, people are left with no rights and nothing moves. And that's the underlying reason for the Venezuelan collapse.

• 14:54Joe Weisenthal?

  There are some market stories where you want every detail. Tracy and I have made quite a few podcasts on that basis, but sometimes you've only got 10 minutes and need to know what's moving markets and why. That's the Barclays Brief Podcast. Every week, experts from Barclays Markets and research get you up to speed on what matters and what to watch next. About the time it takes to grab a coffee, so search Barclays Brief wherever you get your podcasts.

• 15:20Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Maser. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume, so writes Bloomberg Businessweek's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 16:02Speaker 01

  and hiring practices, but according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.

• 16:43Tracy Alloway?

  That was a fantastic summary of Venezuelan economic history. I like speaking to professors because I don't even have to ask questions. Just listen.

• 16:52Joe Weisenthal?

  Yeah, because those are all the questions I was gonna ask.

• 16:53Tracy Alloway?

  Yeah, that was great. Okay, well, actually, a serious question, though. Were there any real efforts throughout, I guess, the 1900s, the last century, to diversify Venezuela's economy away from oil?

• 17:07Speaker 05

  Yes, that was the mantra in Venezuela. It's harder to do than to say, right? The mantra was that we were going to sow the oil.

• 17:18Speaker 05

  We're going to sell the oil. And so we developed our hydro potential in the south of the country. We have the best hydroelectric river in the world, the Carony River. It should be producing like thirty two gigawatts of power. And by the way, twenty four seven, if you want, three hundred and sixty five days a year. It's fantastic. From it's a hydrological marvel. It's not producing eight megawatts, eight gigawatts. So it's they they messed that up to it. We were going to use that to produce aluminum, steel. We have enormous agricultural potential, especially with the agricultural revolution

• 18:01Speaker 05

  that has happened in mostly in Brazil in the last twenty years. It didn't reach Venezuela during Chavismo. So we could be producing over twelve million hectares and we're producing on less than a million. So so the potential for diversification is huge. But the story of Venezuela has been the story of this incredible uncertainty over what the future brings because we have not managed the volatility in oil incomes in a way that protects the domestic economy. So more than, you know, just the old Dutch disease of being, you know, you're earning so many dollars that you're so appreciated that other things are not competitive.

• 18:43Speaker 05

  It's really that since the nineteen eighties, it's been up and down, up and down in oil incomes that has made the economy quite unpredictable. And the only way to deal with that is to protect the economy from oil price volatilities through stabilization funds. And those I wrote the law for the stabilization fund, but the moment Chavez got in, that's the first thing he killed.

• 19:07Joe Weisenthal?

  I was just gonna ask, since you were on the board of the central bank, you know, we know that in a lot of resource-rich countries, the approach of the central bank, they might just peg to the dollar, you know, something very simple. What was the sort of general philosophy of the central bank when you're on it? How did it think about sterilizing foreign currencies, preventing inflation? What was what was the framework that the central bank used?

• 19:33Speaker 05

  That's a very good question because Venezuela until 1983 had pegged the exchange rate to the dollar, except in one small crisis we had in the early 60s and then when the US devalued the currency in 1971, 72, when it abandoned the Bretton Woods Agreement, we, the US devalued, we revalued vis a vis the US. But we had fixed exchange rates, so it was very simple, fixed exchange rate. The market believed the exchange rate was fixed and pegged and it worked quite well until the 1983 crisis. And then in the 1983 crisis, first they tried exchange controls, multiple exchange rates. And when I was

• 20:16Speaker 05

  at the central bank, we decided to unify the exchange rate, to float and to adopt something more like inflation targeting. Got it. But it was, it was not easy to do because, you know, inflation targeting is easier to achieve when, when inflation is under control and things are more stable. So we had a pretty bumpy road.

• 20:38Tracy Alloway?

  You know, you mentioned that stability fund. As a policymaker, what was it like to witness, I guess, the transition to the Chavez administration and, I guess, see some of your, your work, your earlier work dismantled?

• 20:54Speaker 05

  Well, it was initially quite gradual. Chavez left, the finance minister from the previous administration. She gave some confidence to markets and he, first thing he did is he changed the constitution. And the constitution concentrated power in the presidency. It went from two chambers of Congress to a single chamber of Congress. And then, and then the checks and balances were eroded. And, but what really changed his mind was the moment the price of oil went up, he felt he no longer needed society. That the private sector needed him, he didn't need the private sector. So he started...

• 21:35Speaker 05

  He had the money to buy everybody off, but he expropriated, didn't pay for most of it, and created an environment in which people thought that they really had no rights. You had, your property could be taken away, you could not set prices, you could not buy foreign exchange without permission. And to buy, to get that permission, you had to behave. And so it created an environment, a quite oppressive environment. By the way, we had a free press, and now there is no free press whatsoever. So it's, it's this erosion of rights, property rights, information rights, voting rights, just political rights.

• 22:18Speaker 05

  So it was the complete erosion of all rights and the transformation of a longstanding democracy into a dictatorship. It was quite horrible to watch.

• 22:27Joe Weisenthal?

  I think one of the most surprising aspects, and now that I think about it from our recent conversation, was just how long have some of these businesses stuck it out under a deteriorating situation? You'd think, okay, you get this hyperinflation and you hear these stories about, okay, are there some warehouses full of sugar somewhere that we can sell abroad so that we could get the hard currency in in order to buy, you know, buy spare parts, et cetera? This idea that like, you know, it was not a, it was a sort of slow boil, so to speak. And the big international companies, they didn't leave right away. They actually, they kept trying to make it work for as long as they possibly could.

• 23:06Speaker 05

  Absolutely, and, and it was, I mean, Cargill is a good example in your, in your previous show. Cargill, you know, the government nationalized international trade. So you had to buy, you had to sell everything through a state-owned company that would buy on behalf of your customers. And they were the ones kind of siphoning the differential between the official exchange rate and the, and the, and the market exchange rate, or the black market exchange rate, which was at some stages, you know, 10 to 1, 100 to 1. So the best business was to sell a dollar at the parallel rate

• 23:51Speaker 05

  and convert that into dollars at the official rate. That would have been a rate of return of 10,000% in a day. So. So it was that craziness that led to the economic collapse that I mentioned before.

• 24:09Tracy Alloway?

  Since we're talking about dollars, talk to us a little bit about the impact of sanctions. So you were no longer a policymaker when those sanctions came into effect. But I think part of the difficulty when it comes to assessing Venezuela right now is we're trying to figure out how much of the economic issues there are the result of sort of homegrown structural issues versus external factors like the sanctions that have been in place for two decades now.

• 24:40Speaker 05

  No, the sanctions haven't been in place for two decades.

• 24:43Tracy Alloway?

  Oh, sorry.

• 24:43Speaker 05

  The sanctions were actually imposed starting around second half of 2017. And the economy imploded. The worst implosion was in the year 2016. In the year 2016, the government cut back on imports by something like 85%. Imports of food, imports of medicine, they just collapsed imports. I wrote an article in those days suggesting that Venezuela should go to the IMF and restructure its debt because since it had borrowed so much money and the price of oil had declined

• 25:24Speaker 05

  so much and it had no savings, it could not keep on servicing the debt and it would need to restructure its debt, ideally with some support from the IMF. So I asked the question in the title of that article was, should Venezuela default? And that got me banned from the country. So fortunately, I published it abroad, but it gives you an idea of how. What year was this?

• 25:55Speaker 05

  This was the year 2016.

• 25:57Joe Weisenthal?

  Okay.

• 25:58Speaker 05

  Before sanctions.

• 26:00Joe Weisenthal?

  Okay.

• 26:00Speaker 05

  2015, 2016, before sanctions. So it was, the writing was on the wall. The oil production had collapsed because in 2003, Chavez fired, the oil company had gone on strike because Chavez was messing with their meritocracy, with their hierarchical rules of, you know, what you needed to do to reach a certain level in the, in the structure of the company, which was a culture that we inherited from ExxonMobil and from Shell, that were sort of like the two large producers in Venezuela before we, they were nationalized in the seventies.

• 26:43Speaker 05

  But, so it was a deep culture in that, in that company. They went on strike. Chavez fired 20,000 out of 32,000, starting from the top. So he eliminated all the human capital of that company. And immediately, production started to decline. We had the capacity to refine 1.3 million barrels of oil a day. Today, we can't refine 100,000, we import gasoline. So, so they, this destruction way precedes any sanctions. Now, the sanctions were imposed because Maduro started to get farther and farther away from democratic norms. And it was a way of trying to force him

• 27:28Speaker 05

  to, to, to move back to democratic norms. And, and instead, he radical, he became more radicalized in his, in his thing. But just to tell you the importance of human capital in oil, you might say, oil is not that important, you know, human capital, it's kind of like a basic industry. When they kicked out Venezuelan oil engineers, they went to Colombia. There was a field in Colombia called Rubiales. It was producing 30,000 barrels of oil a day. Venezuelan oil engineers came in and in no time they was producing 250,000 barrels a day. So it's it's just you you need to know what it is that you're doing.

• 28:11Speaker 05

  Well, that human capital they kicked out. That's the real collapse of the Venezuelan oil production. And then obviously, he could have negotiated around sanctions, but he would rather be poor and in power than, you know, provide some more rights and norms and and and maybe risk losing an election.

• 28:33Joe Weisenthal?

  That's truly a remarkable statistic about that that Colombian oil field. I want to get to the present tense soon and talk about the challenges now, but maybe to help us understand, you know, through these years of deterioration, whether we're talking about the latter years of Chavez or the earlier years of Maduro, what was the constituency that allowed them to stay in power despite these disruptions? Because even the most absolute dictator anywhere, to some extent, has to have some credibility with some pocket that's powerful, something that preserves, I would I would think, etc.

• 29:15Joe Weisenthal?

  Talk to us about where was the constituency for this new trajectory of the country that sort that started under Chavez?

• 29:22Speaker 05

  So initially, the constituency was very large, but as the economy started to deteriorate and as people thought that there was less and less opportunities within that regime, Maduro had to get nastier. So Chavez was very, you know, liked, if you want. He was popular in in he could actually win elections. Maduro couldn't really win elections, and so he had to get nastier and nastier. So today, what you have is essentially extreme repression. Extreme repression, not only on civil society, but extreme repression on the military. They distrust the military to death. They have a secret police for civilians called Sebin,

• 30:05Speaker 05

  and then there's a secret police for the military called Dejesim. And the Dejesim has hundreds of officers in jail. They are the worst-treated political prisoners in Venezuela. They are starved, they are tortured. They have deeply penetrated all the communications of anybody in the army. The Cubans are deeply into it. They're using Russian technology so that they're trying to prevent the army from organizing against the government. So the army is not really there to defend the country. That's why the attack on January 3rd was such a cakewalk. It's that, you know, the army was there to be kind of controlled

• 30:47Speaker 05

  so that it wouldn't break from the government. So that's the, it's really, that's why in the election of July 28th, 2024, in spite of the fact that they didn't let 8 million Venezuelans abroad vote, in spite of the fact that they did not let 3 million young Venezuelans register for the first time in the electoral rolls, in spite of the fact that they did not let the candidate that won the primaries to run, Maria Corina Machado, she appointed somebody who nobody knew. She raised his hand, and he won 70/30. He would have won 85/15 if other people had been allowed to vote.

• 31:30Speaker 05

  Now, that's a margin, even 70/30, that's a margin that you haven't seen Trump win. You know, chain-bound, you know, nobody wins by those margins. So there is a huge political majority in Venezuela for change that has, that is behind one clear political leadership. So Venezuela is not Iraq. Venezuela is not a polarized country. Venezuela is a unified country. In those elections, the opposition won in all 24 states. They won in 90% of the 335 municipalities. That means it's a natural, there's a political majority in Venezuela that wants to go in a different direction. But there is a small clique that's trying to prevent it.

• 32:15Speaker 05

  And so that is the current situation. And that's my concern, that the Trump administration has announced that they want to rule indirectly by controlling that clique, when there is a big political majority that wants to go in a different direction.

• 32:48Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs, and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw, innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 33:30Speaker 01

  and hiring practices, but according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute, brought to you by ChatGPT. Get started at ChatGPT.com.

• 34:11Tracy Alloway?

  This was actually going to be my next question. So we're now up to January 2026. Maduro is gone. The US says it wants more private investment in Venezuela. So maybe, you know, some of the sanctions issues go away. But on the other hand, the acting president is straight out of the Maduro regime and it doesn't seem that you're having any significant political or structural change. Is that right?

• 34:38Speaker 05

  Well, it's very hard to read exactly what the Trump plan is for Venezuela. Marco Rubio had talked, has talked about three phases. First stabilization, then recovery, and then eventually a political transition. I think, and I have argued that it's the wrong phasing. Because there's going to be very little recovery unless you know what is the, those rules of the game, what is, what is the, what are the rights that people have. Right now, people in Venezuela are afraid to speak, are afraid to, to, to do anything because they're still being deeply harassed and put in jail for just, you know, tweeting something

• 35:22Speaker 05

  or for having an opinion or for, you know, they have put in jail young girls in order to pressure military officers that have, say, broke rank and they want them to, to, to turn themselves in. So it's a very oppressive regime. And, and the idea is that, yes, we are going to give this regime orders of what to do, even though at the heart, they are the ones that brought the economy to where it is. And the idea is, we're now going to eliminate sanctions, but it's not sanctions that destroyed the Venezuelan oil industry. It was the, the expropriations that were done in 2007 and 2009. It was the firing

• 36:06Speaker 05

  of all the oil workers in 2003. It was the rules that they created for the oil industry. In the oil industry, according to the law, production can only happen through the national oil company or in joint ventures with a national Where the National Oil Company has fifty one percent of its shares. The National Oil Company is broke. It's in default with all its creditors. So if if it were to receive some dollars in some bank account in the US. You know, there are judgments in US courts that would freeze those assets to pay creditors. So nobody wants that as a partner. So it is in this context that, you know, Trump says, oh, I want US companies to go back.

• 36:50Speaker 05

  Well, the law doesn't allow for those companies to go back. And if you want to change the law, who's going to change the law? Well, we had stolen elections last year for the National Assembly that the US does not recognize, Latin America does not recognize, Europe does not recognize. There is no legitimate power to change the hydrocarbons law. Right now, you have a dollar, the official rate of three hundred and something, and the black market rate is at four hundred, five hundred, six hundred, it reached a thousand. So if you are going to invest, at what exchange rate do you come in? At what exchange rate do you convert your profits back out?

• 37:29Speaker 05

  It's it's what the president of Exxon said, that Venezuela is uninvestable. It's just a description of reality. It's it's the in the the system was not designed for private investment, independent of sanctions. And that's that's what needs to change, but it needs to change through a government that has legitimacy to change things. That, you know, is perceived as being, you know, the the reflection of the will of the people that, you know, they are the ones who decided that, you know, what course of action to take. I don't think any serious investor is going to go in into such a messy situation.

• 38:10Joe Weisenthal?

  I certainly take your point, and it certainly sounds very logical, what you say, that you're never going to get real investment of capital. You're certainly not going to get this sort of perhaps re-migration of talent that's left and so forth, until there's some sort of political stability, until there's some sort of confidence this is the new thing. But how do you? Do that functionally? I mean, clearly, sanctions didn't work, right? Sanctions didn't have any effect on removing the Maduro regime. There's not an impulse to put boots on the ground, American troops and so forth. It doesn't seem like there's any appetite.

• 38:51Joe Weisenthal?

  So is there some mechanism in which the Trump administration, even if it wanted to take your advice and put political stability before economic revival? Does the tool exist practically to establish that sequence?

• 39:07Speaker 05

  I think it does, and I think you might see them moving in this direction in the coming days and weeks. And I think that it's important that they listen to the fact that, you know, they, this is not, you know, they are obsessed about not committing the mistake that the US made in Iraq.

• 39:25Joe Weisenthal?

  Right.

• 39:26Speaker 05

  But Iraq has nothing to do with Venezuela. Iraq is, you know, a country that goes back to Mesopotamia, was 5,000 years old. In those 5,000 years, until Salam Hussein, there had never been an election. There had never been political parties. Venezuela was democracy. We have political parties. We ran an election not 100 years ago, in 2024. We were able to secure the results of those elections because we had 600,000 people across the whole country supervising and protecting the votes for the opposition. You have a political organization, a majority political organization there.

• 40:08Speaker 05

  So what you need to do right now is to say, is to tell the army, we're not going to fire you the way they fired all the army in Iraq. You tell the bureaucracy, we're not going to fire you the way you fired all the bureaucracy in Iraq. Everybody's going to have their salaries, everybody's going to have their pensions, right? But they are going to be under civilian control. And if, you know, you tell them, you know, you, they have already seen what happened to Maduro.

• 40:40Speaker 05

  They are very clear that it's much cheaper a treatment à la Suleimani. Right? You don't have to put the special forces on the ground to extract somebody. In à la Suleimani, you just send some missiles and no boots on the ground. So there are pressures you can put to say, listen, guys, eh, let's define a timetable for elections. Let's define a credible electoral council to supervise those elections with international supervision. Let's have a date for those elections. Let's open up the roads so that young people can register and diaspora can register. And we have an election on a certain date.

• 41:24Speaker 05

  And by the way, you have to free all the political prisoners. You have to allow the diaspora to go back and you have to allow a free press. Otherwise, you get the Suleimani treatment. And I tell you that if you do those things, what is society going to do? They're going to want to participate in those elections, to organize for those elections, to start thinking about the future and to have the credibility that the future is going to be possible because there will be a democratic government committed to a market economy. Not a socialist government under threat of American attack and with a cash flow controlled by the American power. So that is a much better situation in which to recover the economy,

• 42:09Speaker 05

  to achieve social peace and to have Venezuela become prosperous again.

• 42:15Tracy Alloway?

  Could you have some sort of hybrid structure here where Venezuela maintains some aspects of socialism, but also tries to reintroduce those market signals that you've been talking about?

• 42:27Speaker 05

  First of all, I don't understand exactly the logic of a hybrid. You mean?

• 42:34Speaker 05

  Like when Trump won the election, did you say, "Why don't we have a hybrid? You know, why do a one-off trick? You know, why do we need a hybrid?" There is a majority political opinion in Venezuela in favor of One Direction. If it has to be done gradually for X or Y reason, let them figure it out. It's not, there is something that has failed and has failed catastrophically. There is no other catastrophic failure that you can compare to the collapse of the Venezuelan economy. People want change. There is a state that is not working. By the way, Venezuela is going to have free education, free healthcare, free, free many

• 43:17Speaker 05

  things, because that's kind of like in the DNA. Don't, it's always been, the consensus is, by US standards, relatively liberal.

• 43:26Tracy Alloway?

  By US standards, that sounds very socialist.

• 43:29Speaker 05

  Yeah, exactly. So, the problem is not socialism, not socialism. The problem is individual rights, freedom, property rights, free press. Those are the basic things, because those things convert individuals into agents of their own destiny, and that's how you get investment, that's how you get the economy going. If, if, if the Venezuelans abroad don't feel that it's a, it's a place where they can live in freedom safely, the human capital of the country has left, it won't want to come back. But if you tell them, "Look, recovery is coming in a free place with a government that, that wants a restitution of rights."

• 44:14Speaker 05

  Venezuelans have, has always been a country of immigration, not outmigration. It's a country that, that has been a, a source of attraction of people everywhere. So, that transition, I tell you, that transition can be done quickly and without conflict if enough pressure is put on the clique that has sequestered the government. That's why they can't get votes. That's why they, look, even in the voting centers, in military bases, the government lost 70 to 30.

• 44:53Speaker 05

  It's in spite of its repression. So let, let the majority of Venezuela, something that did not exist in Iraq, it did not exist elsewhere. It's a society that has undergone a catastrophe and has learned from that catastrophe. It has figured out what doesn't work and what course of action it wants to continue.

• 45:14Joe Weisenthal?

  So I want to say, I take your point absolutely that there, that as you put it very well, Venezuela in your view is not a polarized society. There is a consensus. There is a view both domestically and Venezuelans abroad that there needs to be major political change. And I certainly take your point, highly intuitive, that you're not going to get the influx of capital or talent until that political change takes place. On the other hand, you know, when you, when the US just kidnapped the head of state, which is a shocking turn of events. I think we're all shocked the day that we woke up on January 3rd. And you're talking about, you know, you say the Soleimani treatment. So that is assassination that you're saying should be, would be the threat against the

• 45:59Joe Weisenthal?

  clique. Do you see possibility that you essentially engender a sort of, I don't know about a necessarily defense of the existing regime, but a defense of sovereignty? That what is this other country doing kidnapping our head of state? What is this other country doing threatening to assassinate the people who run our government? This is our government, et cetera. Do you not see, or am I, is it completely off the mark to talk about risk of backlash there and the impulse to rally around the flag and sovereignty when another country is being this aggressive about controlling our government?

• 46:41Speaker 05

  I think that's why narratives matter.

• 46:44Joe Weisenthal?

  Okay.

• 46:45Speaker 05

  And I don't particularly like the narrative that sometimes Trump uses.

• 46:53Speaker 05

  The narrative about the US getting into Europe in the Second World War was we came to liberate, not to conquer. Okay? That's the idea. We came to liberate, not to conquer. Today in Venezuela, Trump is very popular. Getting rid of Maduro is super popular.

• 47:14Speaker 05

  Why? Because the perception is that we had been taken over by Cubans. You saw that in the attack on January 3rd. Cuba announced that 32 of its members were killed. Because that was the security apparatus around Maduro. Maduro didn't rely on Venezuelans for his security. He relied on Cubans for his security because he doesn't trust Venezuelans. So the perception was that we were a colony of Cuba, if you want. We were a colony of foreign interests. And now we want to get back to our freedom. So the narrative I would want the US to stick to is we came to liberate, not to conquer.

• 47:57Speaker 05

  We came to reestablish your freedom. And if freedom gets reestablished, Venezuelans will naturally be good partners of the US as they had historically been. The fact that Trump is popular in Venezuela is a condemnation of chavismo. It's how disastrous these guys have been, how aligned with foreign powers that have nothing to do with us. You know, they're aligned with Cuba, they're aligned with Russia, they're aligned with Iran, they're aligned with Belarus. So it's that kind of government that has taken over with no domestic political base that is being threatened to be kicked out.

• 48:40Speaker 05

  And that's why I think it makes the transition so much easier.

• 48:45Joe Weisenthal?

  Professor Hausmann, thank you so much for coming back on Odd Lots. Fascinating perspective, truly the perfect guest. Really appreciate you taking your time to chat with us.

• 48:53Speaker 05

  Thank you, thank you for having me.

• 48:55Tracy Alloway?

  Thank you, Ricardo.

• 49:08Joe Weisenthal?

  Tracy, that was a fascinating conversation from someone who, I guess I would say, has an unmatched perspective, right? That is an excellent view to get from someone who has both served in government but also has ...his career as an economist to talk essentially about some of these human capital problems that will certainly be set Venezuela for a very long time, regardless of how the political situation unfolds.

• 49:36Tracy Alloway?

  You know, I can't think of Ricardo without thinking about monkeys

• 49:39Joe Weisenthal?

  I know, I know.

• 49:40Tracy Alloway?

  swinging from trees and his description of how countries actually develop new industries

• 49:45Joe Weisenthal?

  Yeah.

• 49:46Tracy Alloway?

  and how one area can lead into a new, more technologically advanced area. But anyway, one thing stuck out from that conversation for me, which is, you know, the emphasis on institutional and structural decline versus the external factors like the sanctions.

• 50:03Joe Weisenthal?

  Yeah.

• 50:04Tracy Alloway?

  And it seems to me that that makes it more difficult in the current environment, right? Because again, US involvement in Venezuela, I don't even know how to describe it nowadays, would suggest that maybe dollar shortages aren't going to be as much of a thing as they were in the past, maybe sanctions go away, stuff like that. But if the major problem is that institutional decay and the acting president is still in, still from the Maduro regime, that seems a much harder problem to solve. By the way, your last question about whether or not US involvement maybe like coalesces Venezuelans around a sort of nationalist regime.

• 50:47Tracy Alloway?

  There's a headline out right now saying that Venezuela's acting president says she's had enough of US orders. So, you know, you get kind of like a glimmer of it.

• 50:56Joe Weisenthal?

  It seems very tough and to talk about the Soleimani treatment, there's a euphemism for assassination of

• 51:05Tracy Alloway?

  I'm not even sure it's a euphemism.

• 51:06Joe Weisenthal?

  It's not even, it's not even a euphemism at all. Look, I certainly take the point, though, that this idea of let's get the economic stabilization done first and then the political stabilization, that might simply be impossible. And I thought Professor Hausmann did a great job of laying out the sort of the reality of human capital and the idea that, you know, this is not just some vague thing, oh, we want talented people back. And that stat about the Colombian oil field, very remarkable. But then also some of the legal aspects of why the system is not designed as it currently is for multinational oil companies to come back into the country. But on the other hand,

• 51:45Joe Weisenthal?

  I mean, again, sanctions didn't work for years to get Maduro out. We've had sanctions against Cuba for how long they don't work. Like getting the government you want, even if you're much more powerful than the other country, is far from a trivial exercise in almost every example that we can think of.

• 52:03Tracy Alloway?

  Absolutely. Well, I'm also thinking back to, again, that episode that we did with the Cargill employee and this idea that, well, maybe, maybe if you have enough private investors, multinationals that come together and say, you know, we are interested in Venezuela, but we need to see the following changes. Maybe that acts as some sort of catalyst to strengthen up the rule of law. But it's a sort of chicken and egg situation, right? Because those companies need to be incentivized. They need to want to come in to Venezuela.

• 52:38Joe Weisenthal?

  Yeah.

• 52:38Tracy Alloway?

  In order to advocate for like the conditions that would make it possible for them to enter Venezuela.

• 52:44Joe Weisenthal?

  I wonder how much vacancy there is at the apartment complex where Assad is living in Moscow. Like, the question is, like, how many people need to be promised a very cushy retirement in a nice gated Moscow high-rise for them to say, okay, we're just, we'll just do this the easy way? I'm curious, like, what the, what the number would be and how much capacity there is for that movement. That would be the, it sounds like it could be a solution, but I don't know if that's really on the table.

• 53:14Tracy Alloway?

  That would be an interesting statistic. I don't think you're going to get it anytime soon. But anyway, shall we leave it there?

• 53:19Joe Weisenthal?

  Let's leave it there.

• 53:20Tracy Alloway?

  This has been another episode of the Odd Lots Podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.

• 53:26Joe Weisenthal?

  And I'm Joe Weisenthal. You can follow me at TheStalwart. Follow our guest, Ricardo Hausmann. He's at Ricardo Hausmann. Follow our producers, Carmen Rodriguez at Carmen Armin, Dashal Bennett at Dashbot, and Kale Brooks at Kale Brooks. For more Odd Lots content, go to Bloomberg.com/oddlots or have a daily newsletter and All of our episodes and you can chat about all these topics 24/7 in our Discord, discord.gg/odlats.

• 53:50Tracy Alloway?

  And if you enjoy Odd Lots, if you like these ongoing Venezuela discussions, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad-free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening.

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