The Chavez Imitator

Venezuelan President Nicolas Maduro recently announced that his government and the state-run oil company PDVSA will need to “restructure their debt repayments”. This realization comes after the oil company was forced to pay $1.1 billion, costly for a country with only $10 billion in the bank. Maduro has been using oil to finance his military dictatorship, which has further destabilized the country and plunged it into a political stalemate. As his domestic popularity continues to fall, Maduro can no longer afford to enact socialist, Chavist policies (left-wing ideologies associated with Chávez) that drive the Venezuelan economy into the ground.

Less than half a century ago, Venezuela was not only one of the richest countries in Latin America but also one of twenty richest countries in the world. Its GDP was higher than Spain’s and Israel’s, and just 13% lower than the UK’s. The country has one of the greatest oil reserves in the world, sits on plentiful deposits of gold, bauxite and aluminum, and is blessed with natural resources and a remarkably long growing season. In 1999, then President Hugo Chávez ran the country on his specific brand of socialism, giving out free hats and TVs, fixing prices for basic amenities like flour and eggs. Although this raised the standard of living for the middle class, there was no way to pay for these policies. While the Venezuela economy was never the prototype of a perfect system, Chavez’s strategy was not a sustainable long-term solution. Even though this OPEC nation benefited from a decade-long oil boom in the late 1990s and early 2000s, the government’s socialist programs squandered much of this money. These social policies also deconstructed many mechanisms that were put in place to ensure Venezuela saved money when oil prices were high. Due to soaring price levels, Venezuela now lacks adequate currency reserves to import basic resources.

Many today are unable to afford basic resources, as food and medical shortages become more widespread and over one quarter of all Venezuelans remain unemployed. The Bolivar is worth less than one tenth of a US penny and inflation is bordering an alarming 700 percent. Experts expect prices to rise by 2000% over the next year. Venezuela has faced shortages in toilet paper, milk, diapers and other basic necessities, forcing over 6,000 people to cross the border to Colombia. Power shortages have compelled the government to ration electricity. The most extreme of these policies came into effect in 2016, when the government had to turn off the electrical supply in 10 states for four hours a day for more than 40 days. In 2016, the government couldn’t print its own money. Maduro even joked about a Maduro diet, but the reality is that many are starving on the streets. With a leader who is clearly unwilling to relinquish control, how soon will this deeply entrenched humanitarian crisis be solved?

Socialism has turned into little more than a method for Maduro to retain power. In 1998, when Venezuela first turned to socialism, hopes reigned high. Hugo Chavez not only promulgated a new constitution but also enforced reforms to redistribute land and wealth to poor in rural areas. However, any such advantages were widely overshadowed by rising oil prices. The situation worsened with the nationalization of U.S. oil companies, oil projects in the Orinoco Delta and the Bank of Venezuela in 2007. Price controls did little to help the impending disaster and by 2013, inflation had risen to 50%. 2014 marked the year Venezuela descended into recession. In continuing Chavez’s policies of stressing oil exports and ratifying price controls, Maduro is able to retain heavy control over the centralized economy.

Whatever temporary power socialism gave Maduro,  economic failure was always guaranteed to be the eventual downfall of his regime. Unlike its socialist ally China, Venezuela is suffering from what economists call an ‘oil curse’. Socialism enabled the autocratic government to centralize the economy, making the country unduly dependent on oil and neglecting other sectors. While the oil profits have protected Maduro’s power, the economy has slowly deteriorated and the government has stagnated, sacrificing peoples’ livelihoods. Over 90% of Venezuelan exports are oil and basic commodities like toilet paper and clothes are regularly imported. By cutting ties with the United States, Venezuela made its economy even more contingent on the fluctuating supply of oil. When oil prices were high in the first decade of the 2000s, Venezuela prospered. However, when the price of oil decreased dramatically from $100 a barrel in 2014 to $26 in 2016, Venezuelan income accordingly dropped to a fourth of what it previously was. In order to provide short-term relief, Maduro raised the minimum wage thrice in July 2017 and made it much harder for importers to obtain hard currency. This made the currency virtually worthless, overvalued the official exchange rate, and further intensified inflation rates.

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Unfortunately for Maduro, previously affluent countries with a progressive narrative are not spared from economic realities.

 

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The situation in Venezuela is disturbingly familiar to the Weimar Republic’s hyperinflation in the 1920s, yet many in the media have downplayed the relationship between the government socialist policies and the economic downturn in favor of a story of corruption and drugs. A Huffington Post article even praised Castro, Ortega and Chavez for representing the “socialist ideal”, “offering light where there was once darkness”. It is undeniable that extraneous factors like drugs and corruption were aspects of Venezuelan governance since Chavez. It is true that Chavez represented hope for many people, and his policies had short-term benefits for the people. However, such arguments ignore the long-term repercussions of the government’s extensive socialist policies that Ricardo Hausmann, former Venezuelan Minister of Planning, suggests were the primary causes of the domestic calamity. With Maduro’s narrative of “social justice redistribution”, the media often ignores the consequences of redistributionist tax policies (increased consumer spending and impulsive money printing) and tries to simplify the complexities of socialism versus capitalism into an underdog story. Unfortunately for Maduro, previously affluent countries with a progressive narrative are not spared from economic realities.

For years, legislation has given the state extensive power over the private sector, but selective imposition of such policies and liberal claims of reducing prices ‘for the people’ have made the legislation seem less authoritarian than it actually is. In 2013, Maduro used the suspected overpricing by a single electronics retailer as pretext for the inspection of thousands of businesses. Maduros Fair Price Law, enacted the year after to reportedly help fight inflation, increased the government’s currency control apparatus, making it harder for private firms to access dollars. It also extended Chavez’s prison sentence of six years to up to 14 years for crimes of holding inventories, food trafficking and “destabilizing the economy” (defined by the government as the export of subsidized goods by private goods to neighboring states like Colombia).

In reality, however, policies of fixing prices are not a sustainable economic solution. Chavez’s re-election in 2006 was followed by the expropriation of multiple manufacturing companies, supermarkets, banks, farms, power companies, oil production firms, etc. With bureaucracy institutionalized in these industries, productivity crumpled. If the media continues to shy attention away from addressing Venezuela’s history with socialism, there is a risk that lessons from such aggressive redistribution measures will not be learnt. It is not hard to imagine the economic crisis in Venezuela could spark an inflationary spiral along the northeast section of South America. Colombia may become overrun with refugee flows. This might destabilize Ecuador, which has its own problems of debt restructuring, and in turn, a very vulnerable Brazil. All the while, the crisis continues to torment the Venezuelan people, who have repeatedly asked for foreign intervention to no avail.

Accepting Maduro’s rhetoric makes it easier for the government to deny responsibility for the economic crisis. He has repeatedly blamed the current situation on U.S. sanctions on Venezuelan leaders, ignoring that these sanctions were placed on the vice president of Venezuela, an international drug trafficker with connections to a Colombian drug lord and a Mexican drug cartel. Maduro tries to dress this economic crisis in rhetoric of capitalist rightwing businesses sabotaging state-run socialism. Although it is true that the United States government has prevented Venezuela from receiving necessary foreign investment by pressuring investors and bankers to avoid deals with Maduro, the magnitude of the economic disaster cannot be accounted by solely blaming the US. With a GDP per capita 40% less than it was in 2013 and an estimated unemployment rate above 20%, Maduro can no longer look for scapegoats.

While Chavez was largely seen as a hero for the poor, multiple years of bad governance have bred a lot of domestic resistance against Maduro. Unfortunately, protests have failed to change this political and economic status quo. An 80-day protest rejected Maduro’s thinly veiled democratic excuse for a constitution with a clear dictatorial bent. However, this did little to stop him from continuing his rising military dictatorship. A wave of violence in February 2014 killed 43 and in June this year, a gunman in a helicopter threw grenades at the Supreme Court building in downtown Caracas. Initial support erupted on social media, vitalized by this indication that Maduro’s government may be reaching its termination date. However, many have suggested Maduro’s forces staged this incident as an excuse for institutionalizing more repression. No military action was taken against this rebellion and no one was injured. These allegations diffused any real reaction from the public and once again, the status quo in Venezuela prevailed.

While his recent announcement to restructure Venezuela’s debt repayment is an important step in right direction, it cannot be overlooked that the only coverage of this humanitarian disaster has come in the form of alternative media. Both Chavez and Maduro stopped publishing any reliable statistics, especially any data on economic growth and inflation. For all of Maduro’s claims of ridding Venezuela of corruption, the administration received bribes for construction projects worth millions of dollars, amassing substantial debt. The entire administration (from the military to the Supreme Court) holds the real power in Venezuela and none are willing to relinquish this hegemony.

The crisis in Venezuela is unlike any other seen before. Its general count outnumbers the United States’, its oil resources easily rival Saudi Arabia’s and Venezuela was clearly a developed country a few decades ago. Nevertheless it suffers from many of the same problems that have befallen developing countries – a one-resource dependent economy and a military dictatorship.

About the Author

Simran Nayak '20 is the Co-Content Director of the Brown Political Review. Simran can be reached at simran_nayak@brown.edu.

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