Chavez Government: If you can’t handle it, create another layer of Bureaucracy

March 18, 2010

(The Destructive Matrix)

When Hugo Chavez was elected in 1998, one of his campaign themes was how he was going to reduce the size of the state, get rid of Ministries, airplanes and bureaucrats. He has don exactly the opposite. While he initially reduced the number of Ministries, by now there are more of them than in the country’s history, almost double the number of public employees and the number of public institutions has multiplied without control.

But what has been most amazing, has been how Chavez has tried fixing problems by creating new layers upon layers of bureaucrats in the belief that this will somehow fix problems. Case in point is the beleaguered electric system, where Chavez had CADAFE coordinating policy, created CORPOELEC, a whole new company on top of it and later created the Ministry for Electricity. Thus you have three layers of decision makers before you get to where the action is. Add to this that Chavez nationalized the private electric sector, held rates constant and you get an idea why the problems are so severe.

This also reflects how the Government does not admit that they don’t do things right.

So, after the financial crisis, which was due to lax supervision and the abuses of a bunch of members of Chavez’ Bolibouregois, the first step should be to professionalize and strengthen supervision.

But not for Chavismo. Without studies of any kind or even consulting with those affected, the glorious Venezuelan National Assembly approved this week a new regulatory body which will oversee the three components of the financial system: Banks, brokers and insurance companies. Thus,you create another layer on top of a system that showed that did not work well, but if the three regulatory bodies underneath remain filled with crooks, people without experience or no clue about what they are doing, this will change absolutely nothing.

But since they were at it, they went even further and decided to completely dislocate the whole financial system by introducing sweeping changes in regulation which may sound fine at first sight, but will not be if good regulation is not in place.

The Bill you see, separates the three businesses from now on. Banks will not be able to own insurance companies or securities brokers and vice-versa, as the three sectors will be obligated to work completely independent of each other. That is, now cross-ownership, no co-branding, no cross-managing, no connection, personal or institutionally among the three sectors of finance.

In a well regulated world, these changes may seem to be ideal and reasonable. But in a system still reeling from the financial crisis, it may be asking for trouble.

First of all, you are going to force some of the best run and sound banks to get rid of their insurance arms and to get out of the securities business. For most banks, getting rid of the securities business implies shutting it down: They exist to provide the service to the bank’s clients and departments. Without the affiliation with the bank, its distribution network, its name, they are worth very little, if anything.

The insurance arms are worth something, but when you are obligated to sell them, you will not get a good price. And who will be the buyers? Certainly there will not be high quality buyers for the many insurance companies owned by the Venezuelan banking system.

And you are forcing these same banks to get rid of their securities business and leave it to the brokerage sector, which has recently been battered by the crisis as well as the elimination of the “Mutuos” one of their top two products.

Because in the end, banks did not fail because they used their brokers illegally. Banks failed because they used other brokers unrelated to them to lend to their own brokers, but in some cases simply used companies owned by the banks owners. So, in the end, the financial engineering that went on, originated on the lack of supervision and not in the structure of the system or its regulations. As an example, the two regulators of the securities industry named by Chavez until the crisis are a) In jail, b) being sought by Interpol for their crimes related to the financial crisis. These were people who had no connection, knowledge and/or experience with the securities business prior to being named to their positions.

Thus, all of this change for the sake of change will do little to correct the problems unless the four regulatory bodies, the insurance, banking and securities regulator, plus the new and improved Super Regulator are run by professionally qualified people and not by political and loyal appointees with no clue, track record or professional experience in the area.

Thus, the financial system will be shaken up by all this, many institutions will be in a holding pattern until the new rules are known and regulation will not improve because there is a new regulator on top of the old one. But Chavismo is like that, they believe anyone can do a job, anyone can improvise and it is always someone else’s fault.

And if it does not work, add another layer, because this time, it is surely going to work. Yeah, sure!

28 Responses to “Chavez Government: If you can’t handle it, create another layer of Bureaucracy”

  1. FYI Says:

    US Government decided Bond swaps are illegal.
    International Narcotics Control Strategy Report

    Volume II: Money Laundering and Financial Crimes
    March 2010

    “U.S.-related currency transactions:
    U.S.-Venezuelan commercial ties are deep. The United States is Venezuela’s most important trading partner, with U.S. goods accounting for about 26% of imports, and approximately 60% of Venezuelan
    exports going to the United States. In turn, Venezuela is the United States’ third-largest export market in Latin America. Venezuela is one of the top four suppliers of foreign oil to the United States. There is also a large movement of currency between both countries (in the billions). However, Venezuela has strict currency exchange controls and limits the access of its citizens to the US dollar. Despite these controls, dollars are illegally offered for sale on the black market at almost twice the official rate. The US dollar is the currency of choice in Venezuela and the surrounding region for narcotics-trafficking organizations.”

  2. Bubba Says:

    The article, ” The Destructive Matrix.”

    I find this to be of great interest. One post relates this to German history.

    I can see similar lines of action being done in the usa with obama, his appointments of thirty plus people, ( referred to as, “czars.”), at the white house, the cabinet level appointments, and many of the elected congressional people on capital hill.

    If you don’t think that americans are more than a little concerned about this turn of events, turn your radio dial….

  3. Criollito Says:

    VENEPIRAMIDES: Antigua, Venezuela y otras 5 jurisdicciones caribeñas en la lista de los lavadores de dinero


    Sr. Bernardo:

    “No hay peor mentira que la verdad ligeramente deformada”. Bernardo entiendo que sea gringo pero eso no deberia quitarte objetividad. ¿Sabes de dónde vienen los estafadores más grandes del mundo? Te informo: de los Estados Unidos de America. Ellos son, entre otros: Bernard Madoff, Allen Standord, Goldman Sachs (artífice de la estafa a través de CMOs, CDOs, etc), etc, etc. En la lista deberían estar los Republicanos y Democratas, pues al permitir el financiamiento de hipotecas “sub-prime” garantizadas por las agencias apoyadas por el estado americano, fueron los verdaderos creadores de la crisis. ¿Qué me dices del conflicto de interés de Paulson y Geithner? Como cabezas del Tesoro y el FED de NY, se encargaron que sus “patrones” de Goldman Sachs recibieran sus “bailouts”, directa e indirectamente al 100% de sus valores, mientras que a muchas otras instituciones no les dieron ni 1 céntimo. Las “agencias” son de los Demócratas y Republicanos son: Freddie Mac and Fannie Mae.

    Por otra parte, la lista completa de “Major Money Laundering Countries in 2009” fueron: Afghanistan, Antigua and Barbuda, Australia, Austria, Bahamas, Belize, Bolivia, Brazil, Burma, Cambodia, Canada, Cayman Islands, China, Colombia, Costa Rica, Cyprus, Dominican Republic, France, Germany, Greece, Guatemala, Guernsey, Guinea-Bissau, Haiti, Hong Kong, India, Indonesia, Iran, Isle of Man, Israel, Italy, Japan, Jersey, Kenya, Latvia, Lebanon, Liechtenstein, Luxembourg, Macau, Mexico, Netherlands, Nigeria, Pakistan, Panama, Paraguay, Philippines, Russia, Singapore, Spain, Switzerland, Taiwan, Thailand, Turkey, Ukraine, United Arab Emirates, United Kingdom, United States, Uruguay, Venezuela, and Zimbabwe.

    Insisto Sr. Bernardo, el hecho que desprecie a los Venezolanos y/o que sea Gringo, no debería quitarle objetividad, ya que ud. dice ser periodista, y de nuevo, “No hay peor mentira que la verdad ligeramente deformada”.


    Un Venezolano.

    P.S: Dada su tendencia a la censura, dejo copia de esta respuesta en uno de los Blogs que dice seguir: “The Devil’s Excrement”

  4. Alex Says:

    Miguel, what have you heard about the situation in Guri?

  5. loroferoz Says:

    Yet again the time-honored, infamous Venezuelan custom of grabbing a heavy load of money and shooting it as if with a shotgun (or a blunderbuss) at a problem without much regard to being accurate or efficient.

    That, rather than trying to remove the causes of the problem, to find an optimal solution, or to even begin to analyze what is wrong. Saves a lot of brain power, and wastes a lot of money

    It is called (substantive) “Realazo” “a Realazo Limpio” (adverbial form).

    Hugo Chavez and chavismo in government have, for all their claims to being revolutionary, not gotten over the old style. In fact, from their very start, the “Realazo” has been their preferred mode of action. Remember Plan Bolivar 2000?

  6. firepigette Says:


    “That wasn’t a quote. That was me.”

    Hey….if someone quotes you, it is just as much a quote, as when someone quotes someone else:)

  7. […] promissing to lower the number of government ministries, Devil’s Excrement reports that “Chavez has tried fixing problems by creating new layers upon layers of bureaucrats in […]

  8. Antonio Says:


    In 10 years publics employers pass from 1.4 millions to 2.2 millions, not counting the last nationalizations, is like 100.000 new employers every year, and another million receive the misery helps money (very low quantity from basic salary) from the missions, most of them forced to make inscription on list of PSUV, to receive money.

    And “State” is a very serious word for the buyer. Anybody know that the buyer is Chavez using people money, I call it fraud. Did you hear him said: “expropriate it.

    Regime is more appropriate that “State” as the political organization, because is a failure, like Zimbabwe or Somalia.

    This is my last reply to you, not have credibility.


  9. HalfEmpty Says:

    What strikes me as interesting is how this process has occurred in Venezuela without the help of frequent changes of administration.

    Insightful. Is this more cultural or structural?

  10. Roy Says:


    That wasn’t a quote. That was me. But, feel free to use it.

  11. Antonio Says:


    In 10 years publics employers pass from 1.4 millions to 2.2 millions, not counting the last nationalizations, is like 100.000 new employers every year, and another million receive the misery helps money (very low quantity from basic salary) from the missions, most of them forced to make inscription on list of PSUV, to receive money.

    And “State” is a very serious word for the buyer. Anybody know that the buyer is Chavez using people money, I call it fraud. Did you hear him said: “expropriate it” avery single day.


  12. Adolfo Says:

    Buyer: The State! No. of new employees is ?

  13. Antonio Says:

    I fully endorse the comment of Megaescualidus, if you have a half of active people working for the government you control the “political discussion” in the work place. And they became, at least, like phantoms in the political arena.

    Try to critics Chavez loud in PDVSA, CADAFE and recently in Banco de Venezuela, and You will loose forever any opportunity to get a promotion.

    Now near the elections you will always heard the rumor that your vote will not be a secret, and the regime will know if you vote for opposition, and of course you will loose your work. That’s why Chavez is hurry up in nationalizations.

  14. Kepler Says:


    That was intended as a criticism from Marx.
    Marx wrote quite a lot against bureacracy…but then he wrote a lot about a lot of things.
    Marx did carry out a generally outstanding analysis of capitalism for the XIX century, his proposals and his forecasts were an absolute disaster, of course.

    Marx could live mostly off Engels and Engels was a burgeois who made a lot of money from his dad’s business. Unlike what Wikipedia says, he enjoyed very much the life that his shares and surplus value made possible.

  15. capitankane Says:

    I found a Karl Marx quote which reads:

    “The bureaucracy is a circle from which one cannot escape. Its hierarchy is a hierarchy of knowledge. The top entrusts the understanding of detail to the lower levels, whilst the lower levels credit the top with understanding of the general, and so all are mutually deceived.”

    I guess when Hugo declared himself Marxist, he wasn’t kidding. He’s hit the nail right on the head!

  16. Luis Says:

    I am a student of Latin American public administration, and I must say that this occurs in almost every Latin American nation. I’m not justifying this, I’m just stating that its a tendency that flourishes within our paternalistic cultures and patron-client societies.

    “Government” seems to flourish in Latin America – except for spurts of austerity and privatization measures (which are often unpopular, imported, or reversed somewhere down the line).

    In some cases it’s worse then others, as some government actually and consciously facilitate this (as you note in your article).

    In Puerto Rico, new administrations find themselves with their hands tied, unable to lay-off previous administrations’ employees (who were all placed there due to political favors or vote fishing). What they do is create another layer on top of that with new, trusted, “empleados de confianza”. So you get a similar layer cake effect.

    What strikes me as interesting is how this process has occurred in Venezuela without the help of frequent changes of administration.

    Great article and keep up the good work. I have been reading your blog for years but believe this is the first time I’ve posted.

  17. DP Says:

    Palangrismo del mas sucio y asqueroso.
    A falta de la jugosa tajada por concepto de propaganda oficialista en su pasquin, lo unico que le queda al inefable Miguel Salazar es la extorsion como medio de subsistencia.
    La pregunta es quien esta pagando por estos ataques.
    Miguel O… keep blogging and tweeting!
    A loyal reader and ‘twitter friend’…

  18. concerned Says:

    “True genius in management lies in knowing how and when to prune the tree to keep it producing fruit instead of just more branches.”

    That’s good stuff….

  19. Kepler Says:


    He forgot one before “Very good”: “Orgasmatic”

    Here you can see Jesse’s forgotten blog:


    He does not update it anymore as he must be busy hiding the stolen money, or using it, but he writes this:

    “¿Que opinión le ha merecido hasta el momento la campaña de Jesse Chacón comparada con otras?

    * Es el único candidato que realmente tiene una propuesta en el Municipio Sucre
    * Es mejor que la de los otros candidatos

  20. Hard to take seriously such a silly accusatipn, its probably paid by someone, second time the almost identical text appears, last time in Quinto Dia in February. The US Govt. Knowd how to find me, the White House did, no? In any case what Chavez has said about banks and the finanvial system in Alo Presidente is infinitely more incendiary than anything I havve ever said

  21. jen Says:

    As for Miguel Salazar…

    At the very end there is a survey he asks “what do you think of this new page?” Choices are 1. excellent, 2. very good, 3. good and 4. no opinion… Am I missing something? Where are the negative options???

    Carlos I read his site… and I’m not running to Peru… but I won’t be reading him again…pure crap…

  22. CARLOS Says:

    Como que nadie lee la columna de miguel salazar? o ya estan corriendo para peru?

  23. Roy Says:

    This doesn’t just happen in schizophrenic totalitarian governments. Left to their own devices, this is what will happen to any organization. Read “The Peter Principle”.

    In the words of some unknown pundit, “The bureaucracy is expanding to meet the needs of an expanding bureaucracy.”

    True genius in management lies in knowing how and when to prune the tree to keep it producing fruit instead of just more branches.

  24. rwg Says:

    What is the permanency of bureaucratic layers. The top layers are those most loyal to Chavez but the most ignorant of running their business. The lower levels run the business in spite of Chavez.

    Once people are employed, it is impossible to get rid of them. Layers of bureaucracy will remain a defining characteristic years after Chavez is flushed from office.

  25. An Interested Observer Says:

    Robert: bingo. “No tengo la culpa.” We’ve heard that before. And to the uninformed, this looks like fixing the problem.

    Separating banks and insurance I can maybe understand (not accounting for the timing issue), but banks and securities? Besides, the fact that these now separate areas are being “supervised” by the same authority should tell you something about the commonalities, and hence the logic of allowing the same entity to do more than one.

  26. Frank Says:

    OT: Miguel,

    Have you seen Miguel Salazar’s column today? What is he talking about?

    “CANDELA. A propósito de la intención de reglamentar el Internet: en Estados Unidos se adelanta una averiguación acerca de unos blogs de información financiera sobre Venezuela. El Gobierno estadounidense alega que durante los últimos 8 meses estos blogs violan disposiciones norteamericanas. Los blogs investigados son Venepirámides, Noticias Candela y El Excremento del Diablo. Acá en Venezuela, también la AN y la Sudeban investigan el asunto. Se trata de blogs que mantienen una campaña sistemática contra algunos bancos venezolanos. Detrás estaría el presidente de una poderosa entidad bancaria, quien pretende ser el enfant terrible de la banca venezolana. Hasta ahora se escuchan los apellidos Dalmady, Octavio y Marín.”

  27. Robert Says:

    I look at this as Chavez adding another layer of insulation to protect him from the fall out. If you run out of people to blame, just appoint more people to blame.

  28. Megaescualidus Says:


    Your comment about the government creating bureocracy layers upon layers reminds me that this tactic, as I’m sure you know, is not new. It has been put in practice before as a very effective way of keeping people (or groups of people) in check by virtue of on one hand these groups always trying to please the leader, and on the other hand, trying to annihilate the adversary group/layer. Though adversary layers of bureocracy may not in theory be intended to perform the same function (they may be named differently), in practice they may end up being fully redundant (hence, overall a larger bureocracy is continually being created). Case in point was the Nazi regime, which used this same practice extensively. It is, by the way, not the only similarity I can come up with between today’s venezuelan regime, and the one which ruled Germany from the early 30’s to the mid 40’s.

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