When Venezuelans lined up to fill their tanks the morning of February 19th, they encountered an unpleasant surprise: gasoline was over a thousand times more expensive than it had been at nightfall. Such extreme variation in gasoline prices was virtually unknown to those in the queue. Given the country’s vast oil reserves and the state oil company’s monopoly over the sector, the government had been able to maintain a stable price for the past twenty years.
But oil wealth is Venezuela’s blessing as well as its curse. Approximately 95% of the country’s export earnings derive from oil sales; with falling world prices and dwindling productivity, that source of revenue has started to dry up. Venezuela’s economy is expected to shrink 8% this year, and the government is running a budget deficit of 20%. Now that gas prices have been increased, the administration hopes domestic consumption will fall and a greater share of output will be sold abroad for higher profit.
Even after the price increase, Venezuelans pay less for oil than for mineral water. Gasoline prices remain so low because of high government subsidies. In 2011, these subsidies cost Venezuela $27 billion – an amount greater than the government’s healthcare and education budgets combined.
The magnitude of the oil subsidy is emblematic of the economic mismanagement at the root of Venezuela’s crisis. Former president Hugo Chávez was infamous for lavish government spending, and the administration of his successor Nicolas Maduro has continued the trend of fiscal irresponsibility. Other well-known governmental excesses include the expropriation of private businesses and land, the inefficiency of public sector enterprises, and the maintenance of a government-controlled currency exchange system. As a result, the country faces severe stagflation: a 720% rise in prices is expected to accompany economic contraction this year.
President Maduro has responded to the crisis by blaming the opposition, the private sector and the United States of waging an “economic war” against his government. His administration has instituted a complex system of price controls to deal with inflation, based on the idea that market speculation is responsible for rising prices. But rather than curbing inflation, the measures have discouraged production. Scarcity, in turn, has fueled the growth of a vibrant black market. Venezuelans either have to queue for hours to buy a few bags of flour or a couple cartons of milk or pay exorbitant prices to a street vendor – if such products are available and they have disposable income, which is often not the case. Medicines are even harder to come by: the national stock of basic pharmaceuticals is down to one fifth of what it ought to be.
Even these dire figures fail to convey the full humanitarian cost of the crisis. According to a study conducted by a consortium of national universities, 73% of the country’s households were poor and 50% were extremely poor in 2015. So while gas is still fairly cheap, filling a tank now costs hundreds of Bolívares instead of a couple, an expense not everyone can incur.
When people are struggling to procure food and medicine for their families, even the smallest hike in prices can be devastating. Such misery poses a serious threat to social and political stability. With fights over basic products, looting and mass robberies on the rise, it’s worth asking: Is Venezuela on the brink of a social explosion?
A look back at the country’s history indicates that this might be the case. In 1989, during Venezuela’s last severe economic crisis, an attempt to implement IMF-backed reforms led to large-scale riots in the capital. El Caracazo, as it came to be known, was sparked by a hike in public transport fares due to the elimination of the oil subsidy. The riots left hundreds dead and serve as a painful reminder of the humanitarian dimensions of economic crises and the need to safeguard social stability.
With this in mind, the government ought to institute overdue structural reforms, such as substantive currency devaluation, the ceasing of attacks on the private sector and the dismantling of the price control system. But so far, its response has been more of the same. The administration’s Emergency Economic Decree, which is responsible for the recent hike in gasoline prices, merely creates more control mechanisms and even larger government enterprises. It doesn’t address Venezuela’s mounting foreign debt or include measures to increase national productivity. On the contrary, economists argue that it is likely to exacerbate inflation, recession and scarcity. Given the plan’s inadequacy to solve the country’s economic woes, the opposition-controlled National Assembly rejected it in January. However, Maduro circumvented the Assembly’s decision by appealing to the pro-government Supreme Tribunal of Justice, which ruled in his favor.
Against the backdrop of this economic, humanitarian and political crisis, Venezuelans face two options: keeping Maduro in power, or regime change. Given the urgent need for sensible economic policies that relieve suffering and defuse the risk of social instability, the authoritarian character of the current administration and its evident lack of will and ability to solve the economic crisis, the opposition – and the country as a whole – should seek to institute a new government.
Yet, not everyone agrees with this diagnosis. One argument against regime change, articulated by Amanda Quintero on the Venezuelan opinion site Caracas Chronicles, is that further economic contraction is inevitable and handling it will require unpopular adjustment policies. Rather than strive for governmental change, the opposition should use its legislative power to limit the prerogatives of President Maduro. This would allow the Assembly to pass some of the necessary economic measures, while also ensuring that Maduro bears the political cost of economic adjustment. Doing so could even benefit Venezuela’s economy, because bondholders “prefer institutional stability over social chaos”. However, this argument ignores the possibility that the Maduro administration disposes of its assets abroad irresponsibly, leading the country into bankruptcy. Additionally, it assumes that a democratic transition will be feasible once Venezuela “hits rock bottom”, ignoring the fact that a bankrupt state and an impoverished people are the perfect recipe for authoritarianism.
A second argument in favor of regime maintenance is similarly pragmatic. Since the Maduro administration controls both the judiciary and the electoral commission, it could easily thwart any attempt at governmental change, leading to political stalemate. Instead, the opposition should try to negotiate with the executive, offering its support for unpopular but necessary economic reforms in exchange for the realization of some of its demands, such as granting amnesty to political prisoners. However, this faith in the potential for fruitful negotiation was proven naïve by Maduro’s decision to go forward with his current economic policy despite the National Assembly’s opposition. Not only was the president unwilling to negotiate with the opposition, he has also been unwilling to implement the necessary economic reforms to solve the crisis.
In a recent article for Caracas Chronicles, Efraín Salazar and Jesús Gorrín argue that an opposition government would accomplish much more in the short term than Maduro’s government ever could. The opposition enjoys credibility among investors and creditors. Hence, it would be better at restructuring the country’s debt and could jumpstart recovery by attracting investment with a sound economic agenda. Besides, Venezuela can still dispose of the $14 billion in the Central Bank and of assets abroad, whose value ranges between $50 billion and $100 billion – resources which would be rendered useless if the government restructured its debt poorly or continued to spend money irresponsibly.
The political arguments Salazar and Gorrín offer for regime change are even more compelling. Now that it controls the National Assembly, the opposition is expected to resolve the country’s economic crisis – an unlikely outcome under the current government, as we have seen. If the opposition fails, Venezuelans might reach the conclusion that the problem lies not with the policies of the current administration, but with weak leadership. This possibility is especially worrisome given the country’s long history of rule by caudillos and the immense power of its military. If the state is bankrupt, its people are impoverished and the opposition does not generate solutions fast, radicalism from either end of the political spectrum may triumph.
On March 8th, the opposition announced it will push for a recall referendum and a constitutional amendment to shorten the presidential term, measures that, if successful, would effect a governmental transition. It’s unclear whether these proposals will succeed, but it is clear that regime change is necessary. Otherwise, Venezuela’s economic and humanitarian prospects will become even darker and the looming threat of instability or a coup d’état even greater. Whatever path the opposition chooses, it needs to remember one thing: the greater the popular participation in the transition process, the harder it will be for the government to obstruct it and the more likely it is to result in long-lasting political change.