This country has been teetering on the brink of chaos for some time, but it is now closer to an implosion than it has been ever since Hugo Chavez launched his “Bolivarian Revolution.” His successor, Nicolas Maduro, is still desperately trying to avoid or at least delay a recall referendum. Whether he fails or succeeds, the tensions will keep worsening until they reach a breaking point. The 17 years of Socialist mismanagement have not only created an economic mess, they have also divided the population so deeply that a real revolution and even civil war can no longer be ruled out as possibilities.
It seems hard to believe that a country that sits atop the world’s largest oil reserves (larger than those of Saudi Arabia) has become what deserves to be called a failed state. Alas, the evidence of state failure is now apparent in every wrinkle of a government that is increasingly unable to provide its citizens with electricity, water, health services, personal safety or an economy that can supply even basic food staples. In what at first blush may appear as a positive, President Maduro earlier this year reiterated his regime’s intention to meet its debt obligations. Remarkably, so far Venezuela has indeed done so. In the process, however, the nation’s international reserves, which Chavez had shored up with gold to “free Venezuela from, the dictatorship of the dollar,” have plummeted.
Official gold stocks fell by almost one-third to under USD 12 billion in just one year, according to IMF data, and in the first quarter of 2016 alone the regime had to fork over USD 1.7-billion worth of gold to repay debts. Venezuela and its national oil company PdVSA have about USD 6 billion to repay in principal and interest this year, and they may be up to this challenge, but what comes afterwards is anyone’s guess. Total international debt is in the neighborhood of USD 127 billion and Venezuela has not only failed to use the years of plenty to accumulate a kitty for the rainy day, it has also deprived the oil company of the investment capital it would have needed to sustain a high rate of production. PdVSA reported its biggest monthly oil output decline in a decade in May, with a fall by 120,000 barrels a day to a total of 2.37 million bpd.
The current account of the balance of payments has been bleeding red ink since the middle of 2014. To an extent, the priority that is being given to foreign creditors is understandable. A default would lead to an Argentine-style debacle and, unlike in the Plata Republic’s case, creditors would have plenty of state assets to seize, such as Citgo Petroleum, the US-based subsidiary of PdVSA, and oil cargoes (China has lent Caracas more than USD 65 billion in return for deliveries of petroleum). Perhaps even more to the point, Venezuelan systems of patronage could crash if oil revenues dried up much more than they already have.
But to make debt payments possible Maduro has imposed at home the most draconian “austerity” measures imaginable. As I outlined back in March, poverty has been stalking most Venezuelans with increasing severity. Conditions are now tangibly worse than they were at the outset of this year, following a number of emergency measures such as the introduction of a two-day work week (with mandatory leave) for thousands of public-sector employees to save electricity. With the same goal, a power-rationing program was imposed, forcing some 100 malls to shut down for mid-day and evening hours on weekdays unless they can generate their own electricity. For Venezuelans the malls are well-used gathering places, especially at night, when much of the populace tries to stay away from crime-ridden streets. To “force the productive sector to increase output” the country’s economic czar, Miguel Perez Abad, recently insisted that imports this year would be slashed to about USD 20 billion from USD 37 billion in 2015. If he had his way, he added, they would be pared to just USD 15 billion.
Of course, none of this is the government’s fault. Rather, all the ills are due to opposition forces plotting a coup, or private businesses waging an economic war through “hoarding,” or the US and other Western countries undermining Venezuela (the “Washington-Miami-Madrid Axis”), or the weather phenomenon El Nino ruining crops. So the military, which already controls state companies importing the bulk of Venezuela’s food as well as the largest bank, a television station and a state mining company, has been put in charge of a new food supply system that is to transport and distribute basic goods and control prices, supposedly in the process also stimulating production. Never mind that history is replete with evidence contradicting the inane Socialist notion that price controls and the prohibition of profit make goods widely available and cheap. What they really do is create scarcities and inflation, as items that people must have and that are no longer available through regular channels have to be bought on the black market.
It seems that no one can talk sense into President Maduro, who claims to have discussions with the spirit of his predecessor manifested as “a little bird.” He has confiscated the nation’s most productive farms and handed them over to party hacks who don’t know the first thing about farming. If a factory can no longer keep its wheels turning because it lacks imported materials or components, it becomes a target for nationalization (“an idle plant is a plant the people will take”). Not surprisingly, store shelves have never been barer and the IMF is probably gilding the lily when it predicts that real GDP will contract by 8% this year after shrinking 10% in 2015.
Farmers can no longer buy the seeds or the pest controls they need to prepare a decent harvest. Tuna canneries have had to close because they no longer have access to the cans they used to import. Meat and eggs have all but disappeared from the supermarkets, toilet paper and toothpaste have become rarities, and even basic medications such as aspirin are no longer easily obtainable. Datanalisis, a well-regarded pollster, says that staple goods shortages in Caracas reached 83% in April and that 96% of Venezuelans identify food scarcity as their principal problem.
Quite obviously, these are forces pushing Venezuela toward a social explosion. There already have been thousands of protests across the country in recent months, and their number has been rising. For the most part, they were beaten down harshly by the National Guard and the Bolivarian National Police. So, for now most Venezuelans are still putting their hope into the possibility of a recall vote that would give the keys to Miraflores to someone other than the incompetent and paranoid Maduro. The electoral authorities have just approved the first of two petitions to hold such a referendum, but the opposition forces still face a number of daunting hurdles before a recall vote can go ahead.
They have to formally request permission from the National Election Council, which is a government body. Then they would have to collect nearly four million signatures (20% of the electorate) over a three-day period that is chosen by electoral officials, only to submit the petition for approval again. If they were to get this far, they would then have to win not only a majority of the votes but more than the 7.5 million that Maduro garnered in the last presidential election. And all along they would be strongly, perhaps violently, opposed by a military which is keenly aware that many senior officers are under suspicion of having been involved in organized crime and could be prosecuted if the Maduro regime lost power. The obstruction by the men in uniform does not even have to succeed in averting a recall vote altogether. All they need to do is make sure that it is not held before January 10. If it is, there would have to be fresh elections which, judging from the latest polls, would lead to a resounding defeat of the government. After January 10, if the referendum succeeded in ousting Maduro, the Vice President Aristobulo Isturiz would finish his term and the ruling party would retain control at least until February 2019.
Whether a country in which looting and food riots have become commonplace can still have a peaceful transition of power under these circumstances is highly doubtful. By the same token, it is quite evident that with Maduro in power the crisis will not be resolved. The upshot is that Venezuela, where inflation is likely to hit four digits this year, has become a time bomb of which the question is when rather than whether it will go off. And when it does, there is no way to know where the blast will take the nation.
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