Latin
America – September 13th 2004
Global Economic & Strategy
Research
Stamford
ab
UBS Investment Research
(Extract on the Venezuelan Recall)
Venezuelan referendum (yet) again Latin American Economic Perspectives One
constant in Latin America is a complicated political scenario. In that context,
Venezuela continues to stand out, and we wanted to make a comment or two on
recent developments in the standoff between the government and the opposition,
and in particular, on the likelihood of a post-referendum .reconciliation.
between President Chávez and the opposition.
An important obstacle to even a limited reconciliation is the opposition.s
belief.whether right or wrong, a quite genuine belief, in our view.that the
referendum was fraudulently .stolen. from them. This belief recently received
analytical support from a study by noted Venezuelan academics Ricardo Hausmann (Harvard
University) and Roberto Rigobón (MIT). It is no secret that these individuals
are more sympathetic to the opposition than to the government, but they wrote a
careful piece of statistical analysis that we believe deserves to be read on its
own merits.
They are forced by data limitations into a somewhat indirect approach, and they
investigate the data in two main ways. First, they argue that errors from two
separate ways of predicting the referendum vote (by precinct) should be
uncorrelated, if there was no manipulation of the count. But some kinds of
manipulation (notably those that affect a subset of voting precincts differently
than others) would generate a correlation. And they find a strong correlation,
which they cite as evidence that the vote was manipulated. There are a lot of
steps in this argument, and some clever person might be able to come up with an
alternative explanation for the correlation, though to our knowledge none has
done so yet.
There is a separate section of the paper that we found even more convincing,
because the statistical argument is less indirect. The authors asked the
question, were the election results in the electoral precincts that were audited
by the Carter Center .typical. of those in the country as a whole, or were they
different? The question is a natural and important one to ask, because the
electoral council supposedly delivered a random sample of precincts for the
Carter Center to audit (though they were unwilling to allow the Carter Center to
provide the computer program designed to choose the centers, demanding that
their own computer program be used instead). However, if you think (as some in
the opposition do) that the electoral council.s program .steered. the audit
toward precincts that were undoctored, or less heavily doctored than the
precincts that the Carter Center didn.t get to audit, then there would likely be
differences between the audited precincts and the unaudited ones.
What Hausmann and Rigobón find (simplifying a bit) is that the correlation (across
voting precincts) between the referendum vote (as announced by the electoral
council) and the (much earlier) vote in favor of the petition to hold a
referendum was higher in those electoral precincts that were audited by the
Carter Center than in the centers that were not. As Charlie Chan would have said,
this is very interesting. In principle, any significant difference between the
statistical properties of the centers that were audited and those that were not
is suspicious, because a truly random process should have picked a sample that
is representative of the entire population of centers. There will, of course, be
statistical variation in the statistical properties of any subsample, but the
magnitude of this variation is quantifiable by normal statistical analysis and
the authors find it highly unlikely (in the jargon, .at a 1% confidence interval.)
that normal statistical variation explains the difference they found. Moreover,
the particular correlation that they identified seems like one that would be
found if the electoral authorities .adjusted. the results of a number of
machines (thus plausibly, though not necessarily, attenuating the correlation
between the announced vote and .true. preferences, as indicated by exit polls or
the earlier collection of signatures for the referendum) while leaving a subset
of the machines unaltered for later auditing by the international community.
Now what?
Did any of this happen? We have no idea, and are supremely poorly positioned to
make a judgment. Moreover, we don.t think a judgment is required of us in our .day
job,. because unless you think a potential fraud can be proven in the months to
come, which we consider unlikely, the existence (or not) of fraud is unlikely to
change the political context, or (therefore) have investment implications. But
the political context is importantly affected by the strong belief on the part
of the opposition in a fraud, and we want to finish up with some thoughts on the
lasting implications of this belief.
First, while the Hausmann-Rigobón analysis may or may not be right, it
highlights the genuine doubts that the opposition has about the validity of the
referendum results, and that these doubts are based upon more than self-delusion,
wishful thinking, or statistical illiteracy. As we.ve noted, we think the
prospects for a reconciliation between the government and the opposition, and an
easing of the political polarization, are severely reduced by the persistence of
these doubts. While some in the private sector will probably feel forced to cut
deals with the government to ensure their survival, the odds of a genuine
dialogue between the government and the opposition seem very low to us.
Second, the episode has done potentially lasting damage to yet another
institution in Venezuela, this time one that is critical for the functioning of
the country.s democracy. This is the first time in modern history that a
Venezuelan election result has not been accepted by the loser. Unfortunately, it
is unlikely to be the last.
Third, we highlight the fact that the government could easily have erased the
opposition.s doubts, and their very damaging consequences, by agreeing to a
count of the paper ballots that were emitted by the voting machines during the
voting process. It.s hard to understand why the electoral council and the
government have been unwilling to permit this recount, if they are genuinely
convinced that the vote was clean and sincerely interested in promoting some
kind of national reconciliation. The Carter Center may have absolved the
government of any external pressure to conduct a more thorough verification of
the results, but its blessing will not undo the damaging long-term consequences
of permitting a substantial portion of the population, rightly or wrongly but
certainly unnecessarily, to believe the voting process was subverted by fraud.