An Update on Venezuela, Post Chavez
Since President Hugo Chavez’s death in March of 2013, circumstances in Venezuela have markedly deteriorated. What Chavez called the Bolivarian Revolution is manifestly failing on all fronts. Chavez’s successor, former Foreign Minister Nicolas Maduro, has been unable to make real progress in any arena. The economy is slowly collapsing. Crime rates are soaring. Corruption is widespread. The power grid and other key elements of the country’s infrastructure are deteriorating. The role of the military is increasing. The space for independent media is shrinking. Oil production is stagnant. The country seems to be on the verge of unraveling. An eventual collapse could have serious consequences for the region, although debatably less so for the United States than for some other countries. Relations with the United States, in the meantime, are at least as bad now as when Chavez was alive. What does this unfolding geopolitical tragedy look like and why should we care?
According to the Oil & Gas Journal, at the beginning of 2014, Venezuela had nearly 298 billion barrels of proven petroleum reserves, the largest reserves in the world. Nevertheless, even after years of record high oil prices and unprecedented windfall profits, the country’s economy is in a shambles. This is in part because Chavez and his successor have relentlessly diverted revenue from the oil company to pay for unsustainable social programs, unnecessary arms purchases and a range of foreign policy initiatives designed to build support for Chavez’s political experiment. They have also assiduously worked to transform the country into a socialist republic, weakening—indeed, asphyxiating—important elements of the private sector. Capital investment in many key sectors, especially in infrastructure, has, for years, been underfunded or postponed. According to the state oil company’s own calculations, oil production in 2013 was still 20 percent below where it was 15 years earlier when Chavez was elected. The United States Energy Information Administration believes Venezuelan production was even lower. Exports to the United States fell in 2013 to fewer than 800,000 barrels per day and shipments to China to amortize debt substantially reduced revenue.
By the end of 2013, inflation in Venezuela had spiked to over 56 percent. Recent statistics suggest the rate at the end of 2014 will almost certainly be higher, perhaps more than 60 percent. The Central Bank’s own scarcity index has periodically confirmed that more than 25 percent of basic goods, including, importantly, many food items, are unavailable at any given time. There are regularly acute shortages of even basic medicines. The country with the world’s largest proven oil reserves cannot keep the shelves in the local grocery stores and pharmacies stocked. Unable to fix the scarcity problem, the Central Bank suspended publication of its scarcity index.
Many of Venezuela’s economic difficulties have been exacerbated by the country’s layered exchange rate regime. Hard currency is perpetually in short supply and the dollar trades on the black market at as much as eight times the official rate. International airlines servicing Venezuela have cut service by over 50 percent asserting that the government has refused to exchange more than four billion dollars in local currency accumulated by the airlines at the official rate at which seats were sold. Automobile production tumbled 83 percent in the first six months of 2014, according to the Venezuelan Automobile Manufacturing Chamber, because the major car assembly operations can’t get the hard currency necessary to pay for inputs. The problem affects many US corporations that continue to do business in Venezuela despite official hostility and an unpredictable regulatory environment. In July The New York Times ran a page one story in its business section “The Bolivar’s Black Hole: Profits Vanish in Venezuela After Currency Devaluation” highlighting the substantial write-downs some American companies have had to take because they have been unable to exchange local revenue for hard currency at the official rate.
Criminal violence has been at alarming levels for years but this too has gotten worse. The United Nations Office on Drugs and Crime (UNDOC) recently ranked Venezuela the second most violent country in the world among nations not involved in armed military conflict. According to UNDOC and other surveys, Caracas is now the world’s second most dangerous city. A recent Gallup Poll measuring perceptions of “insecurity” found Venezuela the most insecure country in the world. Beyond violence, Transparency International ranked Venezuela as the most corrupt country in South America, 160 on a global list of the 178 countries surveyed.
In February of this year, popular discontent with the deteriorating conditions in the country boiled over into the most widespread anti-government demonstrations the country has seen in more than a decade. The government was clearly alarmed by the scope and intensity of the mass rallies. President Maduro, who was sworn in after a disputed special election victory last April following Chavez’s death, characterized the demonstrators as “fascists” allied with right-wing elements in exile and encouraged by the United States. The government’s response to the demonstrators was not just vilification but repression. Between February and May more than 40 people were killed, hundreds injured and many more arrested. Several important opposition leaders were jailed and the most prominent remains incarcerated as of August. Reports of human rights abuses and even torture of demonstrators detained by security forces became so widespread and egregious, the nongovernmental organization Human Rights Watch published a special report, Punished for Protesting: Rights Violations in Venezuela’s Streets, Detention Centers, and Justice System. Video footage of uniformed security forces and armed gangs of government supporters on motorcycles generally called “motorizados” or “colectivos” violently repressing unarmed protestors have alarmed concerned observers in Venezuela and around the world.
In response to a rising level of international concern, the Maduro administration in the spring agreed to participate in talks mediated by the Union of South American Nations (UNASUR) and the Vatican. In May, the United States Senate Foreign Relations Committee held hearings on the protests and both houses of the United States Congress have considered bills to impose sanctions on human rights violators. The UNASUR mediated talks yielded no concessions from the government but social unrest eased as opposition unity frayed. The fading of the protests of the Spring, however, has done nothing to alleviate the country’s ulcerating social and economic problems. The government continues to demonize the opposition and to suggest that the country is the target of economic warfare.
One might expect that the problems with scarcity, inflation and a disintegrating currency would compel the government to walk back from the economic policies that have eviscerated most of the non-petroleum industries and resulted in stagnation even in the vitally important oil sector. While the government has in fact made some half-hearted attempts to reach out to the private sector and tried to enlist business leaders in an effort to reverse the trend lines, there has been no serious reconsideration of the direction in which Maduro and company are taking the country. Maduro did fire Minister of Planning, Jorge Giordani, a hardline leftist who was one of Chavez’s closest associates and, until recently, the most influential voice in the government on economic policy. Subsequently, Maduro removed Oil Minister Rafael Ramirez, transferring him to the Foreign Ministry. He also stripped Ramirez of the presidency of PDVSA, the state oil company. (Chavez’s cousin has been named the new oil minister and a long-time PDVSA executive as the new president of PDVSA.) Neither Giordani’s departure nor Ramirez’s transfer to the foreign ministry, however, seems likely to result in a real change in the economic direction for the government. Over the last 15 years, Chavez and Maduro vastly expanded the number of Venezuelans who depend directly or indirectly on the government. As a consequence, the base would be alarmed if substantial economic or political concessions were made to a private sector and political opposition that Maduro himself has accused of plotting to dismantle Chavista era social programs in order to restore their own economic fortunes. What the changes do suggest is that the government is becoming increasingly desperate to find a way to arrest the country’s decline.
Not surprisingly, recent polling suggests that the Venezuelan public is overwhelmingly unhappy with the current state of the country and a substantial majority blame the government for the mess. Indeed, one recent poll suggested that Maduro’s own approval rating has fallen to 38 percent and that if elections were held this year several opposition leaders would begin the campaign with more support than Maduro presently enjoys. Interestingly, however, according to most of the polling I’ve seen, the public’s unhappiness has not yet evolved into unambiguous support for the opposition. While support for Maduro has fallen, Chavismo retains much of its base, even though it does not now enjoy majority support. Support for the opposition is also solid but not monolithic. The bottom line, however, is that Venezuela remains deeply divided.
The current situation in Venezuela is probably unsustainable. The opposition and government have settled into a sullen standoff. The economy is sinking and an economic collapse is not unthinkable. As circumstances get worse on the ground, as people become more and more frustrated with shortages, blackouts and violent crime, further demonstrations demanding a more honest, competent and democratic government are likely. The prospect of new clashes is alarming, as this government’s response to legitimate protest to date does not augur well for the future.
Where does this leave the United States? What are our interests? What are our options? We have spent decades trying to restore and consolidate democracy in the region. We have made human rights a cornerstone of our political engagement. The hollowing out of Venezuela’s political institutions as well as the disintegration of the economy are both cause for deep concern. The government’s use of force with the demonstrators and the increasing hostility toward the independent media should concern all of the democratic governments of the hemisphere, not just us.
Throughout his long tenure, Hugo Chavez frequently blamed the United States for Venezuela’s many difficulties—as well as for the vast majority of Latin America’s social problems. As the Maduro administration has foundered, Maduro and company have often resorted to the same rhetorical tactics, clearly at times trying to distract the Venezuelan public from the government’s breathtakingly bad management of the economy with allegations of nefarious US support for efforts to destabilize the country. Indeed, anti-Americanism has long been a central tenet of the Bolivarian Revolution. In the current circumstance, the Maduro government would love to blame the unraveling of the economy on the United States or world capitalism. Clearly the United States should avoid fueling Maduro’s wild accusations. After 15 years in power, the government owns this crisis and, as multiple polls suggest, efforts to blame others are not plausible.
So, what should be the United States’ posture vis-à-vis Venezuela? In May, the Senate Foreign Relations Committee held a hearing to assess Venezuela’s political crisis and, in particular, the reports of widespread human rights violations. While there was consensus that the situation was serious, there was no agreement between the Senators and the State Department on what the United States should do about it except that economic sanctions were definitively taken off the table (correctly, in my judgment). Subsequently both houses of Congress considered bills to sanction individuals responsible for human rights violations and for promoting violence against unarmed demonstrators. The public reaction of the rest of the hemisphere was decidedly negative to the prospect of unilateral US sanctions even against individuals. The discussion has faded somewhat for the last few months as crises in other parts of the world have pushed the situation in Venezuela to the side and, as noted earlier, tensions seemed to ease.
In July, a former Venezuela general, Hugo Carvajal, listed as a drug kingpin by the US Department of Treasury since 2008, was detained at the behest of the United States in Aruba. Before he could be extradited, Venezuela pressured Aruba and the Netherlands to release him despite US interest and the seriousness of the crimes of which Carvajal was accused. Carvajal’s release was celebrated in Caracas as a victory for Venezuela. Days later the State Department announced visa restrictions on two dozen Venezuelans considered responsible for repression of demonstrators in the Spring. The announcement effectively underscored once again the degree to which bilateral relations have deteriorated, but the Carvajal episode also highlighted the degree to which Venezuela can put pressure on the smaller countries in its own near abroad.
Should the United States consider doing more unilaterally than sanctioning individuals if the current situation doesn’t improve? It is hard to see how that would advance US interests. We have leverage. We are still Venezuela’s largest trading partner despite Chavez’s and Maduro’s efforts to diversify away from the US market. In 2013 bilateral trade totaled nearly 45 billion dollars. Venezuela remains the fourth largest foreign supplier of oil to the United States. With increased US production, reduced US consumption and increased supplies from Canada and elsewhere, however, Venezuela’s oil exports to the United States are substantially less important than they used to be. They remain, however, immensely important to Venezuela’s economy and the country’s very vulnerability is one reason to refrain from what would certainly be seen as a bullying tactic to coerce change in the Venezuelan government’s behavior. Economic sanctions would be rejected by the rest of the hemisphere and could well collapse what is already an imploding economy. This would cause great suffering to the Venezuelan people as well as harming many of the small economies of the region, which have become Venezuela’s Petro Caribe clients. Such an outcome would not necessarily yield an improved human rights situation, greater respect for the Venezuelan opposition’s political rights or restoration of the debilitated political institutions. In the meantime, in what is clearly a demonstration of both the severity of the economic crisis and Venezuela’s determination to shrink its dependence on the US market, the government has secured new loans from China, by far Venezuela’s largest creditor, and acknowledged that the government is examining the possibility of selling CITGO, the state oil company’s subsidiary in the United States with its three major refineries and 48 terminals in the United States.
The near term prospects are not encouraging for the bilateral relationship, the Venezuelan economy or political reconciliation in Venezuela. The failure of the Chavista political and economic model will not likely surprise most—though some sympathizers will doubtless be disappointed. Venezuela has long since ceased to be a source of inspiration to other nations in the hemisphere. The outline of the country’s economic woes began to emerge well before Chavez’s death. The orchestrated hollowing out of the country’s political institutions and the polarization Chavez promoted to consolidate his own position in power soured many early admirers. Nevertheless there remain many in the region, especially in the Caribbean, who regard the possible collapse of the Bolivarian revolution with deep foreboding. For years Chavez and, more recently, Maduro have supplied many of these countries with deep discounts and concessionary financing for oil purchases. The survival of the Cuban economy may hinge on the oil it receives from Venezuela for little or nothing in the way of hard currency. These countries all know that the failure of Chavez’s experiment or even the defeat of Chavez’s successors at the polls may well spell economic hardship for their fragile economies. Many in and out of Venezuela understand that recovery for Venezuelans may also take a very long time. For the United States, relations with Venezuela will almost certainly continue to be difficult so long as anti-Americanism remains a central tenet of Bolivarian ideology.
Director, Center for Latin American and Caribbean Studies, Duke University
United States Ambassador to the Bolivarian Republic of Venezuela, 2007-2010