Venezuela: Trying to Stay Afloat

By Michael McCarthy* and Fulton Armstrong

Venezuela Oil Maduro

Photo Credit: Democracy Chronicles and Charles Henry (modified) / Flickr / Creative Commons

Venezuelan President Nicolás Maduro continues to receive increasingly bleak economic news, and his modestly positive policy responses seem unlikely to help.  Oil revenues dropped 293 percent from 2014 (US$37 billion) to 2015 (US$12.5 billion).  The value of oil exports, which account for 95 percent of the country’s export earnings, has dropped to a 30-year low ($30 a barrel), accelerating a recession, paralyzing shortages, and soaring inflation.  The Central Bank reported that inflation reached 180.9 percent in 2015, and that the GDP contracted for the second consecutive year (5.7 percent).  Maduro blamed an “imperialist strategy in a petroleum war” aimed at destroying OPEC.  He also asserted that Venezuela suffered from an “international financial blockade” that – by obstructing the country’s efforts to refinance its debt – was intended to force it “to its knees” and to “take over” its wealth.

Several days after celebrating a Supreme Court decision reaffirming his authority to declare an “economic emergency,” which the opposition challenged last month, Maduro this week announced several modest economic measures aimed at stemming the slide.

  • He ordered a 60-fold increase in gasoline prices – dramatic-sounding but preserving Venezuelan gas (about US$0.23 per gallon at the black-market exchange rate) as one of the cheapest in the world – but the decision is significant as the first increase in about 20 years. An increase in 1989 triggered riots – the famous Caracazo that most analysts cite as the beginning of the end of the old order that Hugo Chavez toppled definitively when elected President in 1998.  In allusion to this past, Maduro said he “hoped people on the streets would understand.”  (Caracas-based consultancy Ecoanalítica estimates that the existing fuel subsidy costs the Venezuelan government US$12 billion a year.)
  • Maduro also announced a 37 percent devaluation of the bolívar – from 6.3 to 10 to the U.S. dollar – for official exchange rates used for the essential goods like food and medicine. The bolívar trades at about 1,000 to one on the black market, but the decreased subsidy implicit of the official rate for necessities is nonetheless significant.
  • Venezuela’s proposal for an OPEC freeze in oil production, in hopes of driving oil prices back up, drew supportive remarks from Qatar, the United Arab Emirates, Russia, Saudi Arabia, and even Iran, but the scheme has lacked traction. Industry observers said one reason is that Tehran is eager to increase exports to regain market share as sanctions against it are lifted.
  • Maduro replaced economic czar Luis Salas – known as a hardline leftist – just five weeks after appointing him, and appointed in his place a more business-friendly economist, Miguel Pérez Abad, who had been serving as Minister of Commerce. Pérez Abad, whose appointment the President of the Venezuelan Chamber of Commerce described as a “friendly sign,” has publicly (and accurately) said that Venezuela must simplify its byzantine exchange rate system.
  • These changes come amid Maduro’s increasingly frank self-criticism about state corruption. He recently described a government food distribution company as “rotten” while calling for a restructuring of state-run food import and distribution outlets.

In a four-hour speech replete with foul language and insults against opposition leaders, the President argued that the measures are “a necessary action to balance things,” and he said, “I take responsibility for it.”  But his measures are piecemeal at best.  As opposition leaders have pointed out, he has not explained how he is going to pay Venezuela’s debt, obtain the foreign exchange to import sufficient amounts of basic goods, and guarantee food for the people.  With US$10 billion in bond payments coming due this year, the country has no clear path for avoiding default.  However painful for the population and politically costly for the government, measures such as gasoline price increases will have little impact.  The government wanted the opposition to share some of the costs for economic policy changes, but opposition politicians say that the gas price increase and devaluation are too little, too late. Most believe economic revival depends on dismantling the entire chavista system.  They are once again talking about removing Maduro through a referendum or other means – with one leader, Henrique Capriles, openly calling for a presidential recall, and another, Henry Ramos, the President of the National Assembly, calling for a constitutional amendment to cut the presidential term from six to four years.  The government’s measures suggest a welcome change from Maduro’s previous strategy of buying time through diversionary tactics.  However, the economic measures are likely to fail and, moreover, they increase the chances political temperatures will surge once again.

February 19, 2016

* Michael McCarthy is a Research Fellow with the Center for Latin American & Latino Studies.

Venezuela: Racing to the Bottom

By CLALS Staff

VenezuelaThe casualty figures from last Wednesday’s confrontation between government and opposition groups in the streets of Caracas – three dead, several dozen injured and many thousands angry – are clearer than the solutions to Venezuela’s current crisis.  The airwaves immediately flooded with the usual accusations of who provoked whom.  The protest leaders – who have shoved aside the opposition’s more moderate standard-bearer, Henrique Capriles – blamed toughs within the pro-government “colectivos.”  President Maduro blamed “small fascist groups” for the violence.  He has accused protest leader Leopoldo López of trying to orchestrate a coup, and a court is charging him with murder and “terrorism.”  López denies the coup-plotting, but he does state forcefully that, under the campaign slogan of “La Salida,” he wants to put millions in the streets to force Maduro to step down.  Failing that, he’s building a base from which to launch a referendum to remove Maduro when the Constitution allows in 2016.

As always, both sides in the dispute claim to have the support of “el pueblo” and to seek only to promote the people’s interests.  The people did speak, albeit by a small margin, in favor of Maduro in last April’s presidential election, but the opposition – especially the boisterous faction that’s orchestrating the current protests – has never officially acknowledged his legitimacy as president.  Maduro’s ad hoc reactions to Venezuela’s increasingly dire economic situation, including policies that he boasts are going to make the “bourgeoisie squeal,” appear desperate and counterproductive.  Confusing audacity for leadership, Maduro has signaled that if López and his followers want to take to the streets, he’s ready to accept the challenge.

Venezuelan politics has long been characterized by a vicious cycle in which each side strives to provoke the other into making mistakes that injure itself – and each side can’t resist rising to the provocation, fueling a downward spiral.  Maduro and the opposition hotheads have found soul mates in one another – feeding on each other’s extremism – and it’s happening just as Capriles and other opposition moderates were making progress in a decade-long effort to redefine political dynamics in the country.  Maduro’s tough talk and López’s battle calls for massive protests, for salida, and for recall referendums are reminiscent of 2002‑04, when Chávez grew steadily stronger as he survived a coup, a national strike, mysterious bombings and other clandestine operations by foes, a recall referendum and more.  For a young (42 years old) Harvard-educated man from the wealthy end of town to think that he can best Maduro in the streets shows the sort of questionable judgment that gives a little credibility to government allegations that his provocations are part of a bigger, externally directed plan.  The U.S. State Department spokesman insisted on Thursday that it “is absolutely not true” that Washington is interested in “influencing the domestic political situation in Venezuela.”  Whatever the merit of the allegations and denials,  Venezuelan elites on both sides of the deep divide seem ill-prepared to find a better way of doing politics.

Venezuela: Maduro versus Capriles, again

By Michael McCarthy*

Henrique Caprile / Photo Credit: ICP Colombia / Foter.com / CC BY-SA and  Nicolas Maduro / Photo credit: OEA - OAS / Foter.com / CC BY-NC-ND

Henrique Capriles / Photo Credit: ICP Colombia / Foter.com / CC BY-SA and
Nicolás Maduro / Photo credit: OEA – OAS / Foter.com / CC BY-NC-ND

Venezuela’s municipal elections on December 8 didn’t conclusively answer the single question on people’s minds:  Would the parties aligned under the leadership of President Nicolás Maduro or those under opposition leader Henrique Capriles win a commanding victory?  Attention centered on this question because Capriles had rejected the results of the April 14 balloting as fraudulent and this time called on voters to give a clear majority to his opposition “electoral bloc.”  Maduro came out ahead in last Sunday’s contest, with its complex ballot asking voters to choose mayors and councilpersons in 335 districts.  His alliance, the United Socialist Party of Venezuela (PSUV) plus left-wing parties, totaled 49 percent of the vote, and parties aligned with the opposition received 42 percent.

But Maduro’s crowing about a “great victory” that propels the Bolivarian Revolution forward with “greater force” and legitimates a “deepening of the economic offensive” rings hollow.  Some of the 9 percent of the vote that went to candidates identified as independents may lean toward him, but the PSUV aspires to be a hegemonic party, claiming a much stronger base, and some hardcore chavistas are complaining about the opposition’s resilience in major urban centers and victories in the capitals of three interior states, all chavista strongholds, including former President Chávez’s home state of Barinas.  In broad strokes, Maduro’s economic populism – attacks last month on so-called economic criminals and measures forcing stores to lower prices – gave him a late boost.  Polls indicate that, with annual inflation running at 54 percent, the move paid off.  Maduro’s blitzkrieg gave urban working-class voters a means to afford items ahead of Christmas and showed the radical base of chavismo his commitment to challenge crony capitalism.  The opposition failed to mount an effective counterattack.  Preparations next year for 2015 National Assembly elections will tell the staying power of this victory for Maduro and the effectiveness of his “economic offensive.”   Capriles, who offered a calm post-election speech, sounded confident of his strategic game, but some in the opposition are probably disappointed that they did not take more Chavista strongholds.

Even though the opposition didn’t win the global numbers game, its significant presence in city halls around the country gives it a position from which to build the outline of a governance model.  One important winner appears to be the electoral process itself, in which the technical machinery ran smoothly and no sustained allegations of fraud were made.  A second winner was governability.  Notwithstanding some bullying of Capriles campaign workers, no violence transpired during the campaign or on voting day, and both sides can claim victories.  Maduro’s triumphalist rhetoric confirms that Venezuelan politics is going to remain far from harmonious, but even a modicum of governability could go a long way as the country faces many tough, if not intractable, questions in the coming year and beyond.

*Michael McCarthy is Lecturer, Latin American Politics, at Johns Hopkins University, School for Advanced International Studies.