By Michael McCarthy* and Fulton Armstrong
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.