Venezuela’s Agony

Venezuela
venezuela
Photo: venezuelanalysis.com

 

Dependence on Russian oil and gas causes Bulgaria a host of problems. However, a plethora of oil can be a curse too, as it encourages government theft and irresponsibility.  Venezuela’s current agony is a tragic case in point.

 

Venezuela is a natural paradise, with mountains and coastal breezes tempering the tropical heat. Spanning 916,000 square kilometers it is bigger than Bulgaria, Romania, Greece and the former Yugoslavia combined. Fifty years ago it was barely more populous than Bulgaria but now has 31 million people, of which 5 million live in the capital Caracas. After Castro took Cuba downhill it became the richest country in Latin America, thanks largely to its tremendous reserves of oil.

 

In 2000, by IMF estimates, Venezuela’s GDP per capita was about 30% higher than Bulgaria’s in terms of purchasing power parity (PPP). By 2010, despite much higher oil prices, and despite Venezuela’s claim to have more oil than Saudi Arabia, Venezuela’s GDP per capita was about 30% less in PPP than Bulgaria’s. Today the economy is in free fall. Inflation this year is estimated at over 600 per cent, but no one really knows as the state declares what most prices should be, store shelves are mostly empty, and publication of black market prices is forbidden. Even oil production is faltering due to equipment breakdown, lack of spare parts, and suppliers halting shipments until previous bills are paid. Worse, millions of Venezuelans are going hungry. It is reported that the average Venezuelan lost 7 kilograms last year; many say they’re too weak to protest.

 

How did this happen? The roots trace back to decades of corruption, weak protection of property rights, and big social divides between mostly European immigrant rich and mostly mixed-race poor. Deterioration quickened after Hugo Chavez came to power in 1998.  While elected, Chavez’s commitment to democracy was weak. He led a coup attempt in 1992, had the constitution rewritten in 1999 to strengthen the presidency and weaken the legislature, jailed critics or expropriated them, and armed street gangs to intimidate opponents. Chavez combined this with charismatic defense of leftist ideals, major redistribution to the poor, alliance with Cuba (including cheap oil shipments, which Cuba had lost when the Soviet Union collapsed) and support of fashionably anti-American causes.

 

In short, Chavez was a slower-motion, milder version of Castro with more electoral and foreign exchange support. However, there were two ways in which Chavez was arguably worse than Castro. First, he considered everyday policing a reactionary bourgeois concern and sought alliance with what Marx would call the lumpen-proletariat. The subsequent surge of street crime has made Venezuela one of the most dangerous countries on earth.  Murder rates are 20 times as high as in Cuba and 40 times as high as in Bulgaria. Second, Chavez seemed indifferent to practical business management, even at the state-run oil company PdVSA that was laying the golden eggs. Perhaps with oil prices so high he didn’t think he needed to. Perhaps he preferred expropriation. French anarchist Proudhon wrote that property is theft. Under Chavez, theft became property. One of his daughters, who has never worked other than as honorary ambassador, is alleged to own over $4 billion in assets.

 

Chavez died of cancer in 2013 after endorsing Nicolas Maduro as his successor. A bus driver turned union leader who never finished high school, Maduro lacks the good fortune of either charisma or high oil prices. He canonized Chavez and claimed to séance with him via a bird. He battled hyperinflation by outlawing the only legal tender worth more than one cent on the black market. His cronies ran drug for narcos and laundered passports for terrorists. He defied the recall mechanism authorized under Chavez’s constitution and has imprisoned every opposition leader of note or banned them from running for office.

 

The clock is running out as oil production declines, FX reserves dwindle, and debts mount. PdVSA has already pledged 100% of its US Citgo subsidiary in the US as collateral.  Venezuela’s government and PdVSA together owe about $140 billion, while foreign exchange reserves and gold have reportedly dropped to $10 billion. The only way they can pay the interest is to issue more debt at even higher rates of interest.

 

If Venezuela’s government didn’t style itself as leftist, populist and revolutionary, leftists, populists and revolutionaries would be clamoring for default, so as not to enrich lenders while ordinary Venezuelans starve. Even Wall Street seem shocked at the continued servicing, as Venezuelan bonds have bounced back enormously from previous lows. Why the new fealty to creditors?  A likely big reason is that they now include the regime’s main backers: China, Russia, and some self-dealing Venezuelans.

 

Despite overarching control of commercial media, Maduro’s popularity has sunk to 20%. When Maduro’s hand-picked Supreme Court outlawed the legislature and assumed its powers for itself, the Organization of American States denounced the “self-coup” and Maduro’s own Attorney General protested. Maduro made his judges overrule themselves and then flew to Cuba to denounce his opponents as fascists averse to peaceful dialogue. On his return, crowds pelted him with eggs and rocks. Even barrios that were loyal to Chavez have soured on him.

 

Despite shutdowns of municipal transport and police blockades, millions of protestors throng the streets. In their hope and peaceful determination, they recall the demonstrators who tore down the Berlin Wall. Enthused support for Maduro has dwindled to government-armed street militias called “collectivos,” which are hybrids of street gangs and left-wing brownshirts. The most saving grace so far has been that bloodshed has been limited. Let us hope it stays that way, for the protestors are unarmed and outside powers are loathe to intervene.

 

By Kent Osband

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