Market Research in Venezuela

In The Aftermath Of Chavez

Since the death of charismatic United Socialist Party leader Hugo Chavez in 2013, Venezuela has struggled during the presidential tenure of his hand-picked successor, Nicolás Maduro. With a one-product economy based almost entirely on oil production, the financial fortunes and the quality of life for many in Venezuela has plummeted in direct relationship to world oil prices. Already in decline during Chavez’ waning years in office, under Maduro the decline has devolved into an outright collapse.

Today, the government is unable to import or provide even basic products. People assemble for endless hours in long lines, waiting to obtain household items, medicines, and food. As conditions continue to unravel, incidents of protesting, looting and violence are becoming more commonplace. Maduro blames shortages on hoarding and smuggling, but government mismanagement is seen by many as the cause. National industries are hurting too, and their production levels have been run into the ground. Meanwhile, Venezuela’s credit rating is in junk territory.

Price controls are in effect to protect consumers from runaway inflation and currency has been shockingly devalued. Exports are shutting down and companies continue to leave the country or close down. Inflation has risen into triple-digit territory – the highest in the world – and salaries are far from keeping pace. Crime is on the upswing in Caracas and to a greater degree in the interior of the country.

It’s hard to imagine that just a decade before, Venezuela experienced one of the biggest commodity booms in modern history with gross earnings from oil estimated at nearly one half-trillion dollars, on par with Kuwait. Yet in the aftermath, economic mismanagement and falling world oil prices have left the country in shambles with little hope of any immediate relief. Social unrest is rife and the overriding feeling that Venezuela has reached a breaking point is pervasive. The government has so far been able to insulate itself from the turmoil, but a shake-up may well be coming. Will Maduro be the last Chavista leader? Time will tell. In the meantime, he is taking a more authoritarian, hard-line tone.

“Fearful of public unrest escalating into something more serious, the government has now deployed troops to control queues of disgruntled shoppers at the country’s half-empty stores. And it has introduced a system of rationing, limiting shoppers to two days per week at government-controlled stores. As Bloomberg cynically put it, “Venezuela reduces lines by trimming shoppers, not shortages”.1

Essentially, the unfolding Venezuelan disaster is seen as a textbook case in how not to manage an economy in an era of global capitalism. It’s a failed economic model without a doubt. At present, the dollar is a hundred times more valuable on the black market as it is on the exchange. It’s seen as quite possible that at some point Venezuela will have to default. With oil at less than $50-a-barrel, the country is constantly losing money. It is estimated that they are losing $2B in reserves every month. 

Would Higher Oil Prices Solve Venezuela’s Problems?

World oil prices historically fluctuate. While they are presently at rock bottom, most industry prognosticators feel that prices will inevitably rise once again. Unfortunately for big oil producing nations such as Venezuela, just when this might occur is uncertain. Certainly, a normalizing of oil prices would help to keep Venezuela solvent and operative. At $70-$80-a-barrel, it could sustain itself and feed its people. Concurrently, if the people do better, the Chavista government stands a far better chance of enduring.

As reported recently by Voice Of America, “Venezuela is among the members of the Organization of the Petroleum Exporting Countries most deeply wounded by the oil price fall. Its need for OPEC to cut supply to support prices has failed to shift the stance of Saudi Arabia and its Gulf OPEC allies, which are focusing on protecting market share.”2 Sans assurances from Saudi Arabia, OPEC, Russia and other petroleum-rich nations to curb production, the immediate financial outlook for Venezuela is grim.

Of course, other problems existed before the bottom fell out of the oil market. Even if and when oil prices rise, Venezuela will have to deal with its broken system, price controls, gas subsidies, rationing, and inadequate food supplies. Paying off creditors won’t help a hungry populace. An influx of cash also won’t restore political freedoms. Chavez and Maduro dealt with a lot of problems by throwing money at them. With the money gone, that’s no longer possible. At best, a new infusion of oil money might help them to kick the can down the road a bit further, but it’s no magic bullet.

Venezuela: Democracy Or Not?

Despite all of the accusations leveled against it, the Chavista government of Venezuela built its legitimacy on fair electoral processes and relatively clean elections. Today however, the playing field is uneven. The government controls all of the institutions and the people are unable to express their choices freely.  According to The Daily Beast, “Venezuela’s National Assembly approved President Nicolas Maduro’s (recent request) to govern by decree for a second time since taking office in 2013. The ruling grants the president special expanded authority outside of executive powers. Maduro called it a push to fight imperialism.”3

What remains is a managed democracy. Maduro’s opposition might call it a dictatorship. With the government controlling the lion’s-share of the media, they are able to use it to generate the vote. Government employees are asked to attend pro-government protests. Opposition candidates have even been barred from seeking office, to the chagrin of human rights groups. Maduro suffers additional woes because he plainly lacks the charisma that Hugo Chavez possessed and used to great advantage. One saving grace for the Chavistas is the opposition’s inability to unify and overcome its own infighting tendencies. They could lose in the upcoming parliamentary elections because they can’t coalesce.

Rating Venezuela’s Democratic Institutions

Venezuela has a long history of crony interests exploiting situations for their own gain. Even Chavez was seen as channeling the hatred of older political factions in order to obtain power. The Venezuelan constitution has been rewritten numerous times for political expediency. The State Assembly was often used as a rubber stamp to enforce Chavez’ power.  Intimidating tactics were and are frequently used to mute opposition leaders such as Leopoldo Lopez who is presently in jail on trumped-up charges that he was inspiring riots and violence against the Maduro regime.

Massive corruption is evident and the military seems to be complicit, with longtime army officer Diostado Cavelo being so closely aligned with Maduro that many feel he is secretly “running the show”. Cavelo is presently being investigated for alleged involvement with drug cartels and cocaine delivery to the United States. Unlike the separation of powers that is commonly seen in many countries, everyone marches to the orders of the Executive Branch in Venezuela.

Is Chavez Still A Hero The Poor?

Though it has been some time now since the passing of Hugo Chavez, his legacy and legend still live in Venezuela. This is especially true among the nation’s poor and among Chavista leaders. “Since Chavez’s death after a battle with an undisclosed cancer in 2013, the government and the PSUV party have made great efforts to present him as a national hero and capitalize his legacy. President Nicolás Maduro mentions Chavez in almost every speech, urging people to follow his example.”4  It’s true that no one has benefitted quite as much from attaching himself to Chavez’ enduring popularity as Maduro. Since his Chavez-endorsed election there have been chronic shortages, sporadic violence, inflation, and accusations of impropriety on many levels, but past association with Chavez allowed Maduro to cling to

power. However, when people can’t eat and have no money, their patience can begin to erode. Even Maduro is playing the “Chavez card” less and less, as it is a currency that no longer guarantees reverence or votes at election time. Many feel the true revolution died along with Chavez. Perhaps not even another compelling charismatic could revive it. From colorful murals on building exteriors to stories that still circulate among the faithful, Chavez image and his savior-status among the poor still survives, due to his personal magnetism, the work he did for the disadvantaged, and the way he stood up to and defied the establishment. The Oligopoly that he railed against did in fact exist, . It was a system that deeply entrenched the powers of a small group of the privileged  elite. Today, Maduro can still blame Venezuela’s problems these entitled few. It is this class-driven cleavage that makes governing extremely difficult. In truth, unless oil prices rebound and reverses the country’s economic fortunes, these lingering echoes of Chavista glory may fade forever.

The Significance of the Bolivarian Revolution

The Bolivarian Revolution resulted in a tremendous redistribution of wealth in 20^thCentury South America, leading to a complete transformation of Venezuela in the last 16 years. The oil boom allowed Hugo Chavez to lavish large amounts of money on generous social programs. Today, most of these programs have failed. Despite this fact, the poor continue to support the Chavista government, feeling that things would be even worse under right-leaning rule. Many would rather endure long lines and cheap merchandise rather than support an opposition they feel would raise prices even higher.

“Prior to its current domestic woes, Venezuela worked hard and often succeeded in establishing itself as a major alternative influence in Latin America, as a kind of “Bolivarian” power. Now, Venezuela must confront the fact that the conditions once anchoring its global aspirations – like excessive revenues generated by the petrostate – have evaporated. Venezuela’s capabilities for international power projection are constrained by domestic unrest, depleted international reserves, rampant inflation, low oil prices, and sluggish oil production, rendering prospects for prolonging the international Bolivarian project increasingly dim.”12

In essence, Chavez single-handedly transformed the Venezuelan psyche. He empowered the poor and ushered them into the political process. Maduro may be unpopular, but the heartbeat of the revolution still beats in the heart of many Venezuelans. They have not forgotten the better times. Opposition leaders make populist promises attempting to woo Chavista voters, but the people’s mistrust is strong. The roots of the revolution were based upon ending economic inequality, but corruption has stifled that intent. For international investors, lingering sentiment for Chavez is seen as a threat. For others, it is a dream of hope that, however marginalized, lives on.

Civil Rights, Human Rights, and the Living Conditions of the Poor …

In Venezuela today there is growing discontent and repression. There are long lines with hundreds of people waiting for subsidized food and supplies. Among the ranks of the waiting there is hatred, aggression and fear. The people, while not starving, are surely struggling and crime is escalating to the point where the people no longer feel safe. The police that might protect the citizenry are corrupt. It is estimated that of all the homicides committed in Venezuela (and it has one of the highest murder rates in the world) only 3% of perpetrators are ever prosecuted. The country’s prisons are among the world’s worst according to the U.N. At the root of this crime-wave is social inequality and the great and widening gulf between the haves and the have-nots that dates back over 100 years. 

Hugo Chavez’ socialism tried to address this inequality but it was ultimately unsuccessful. The Maduro government seems to have lost its ability to maintain previous populist policies. The resulting desperation manifests itself in burgeoning crime, smuggling, black market trading, and a diminishment of people’s incentive to work because of its ultimate futility.  Those that managed to escape poverty during Chavez’ glory years now find themselves slipping back into it. Segregation is evident and the pall of depression is palpable in the air. In addition, Venezuela is suffering from acute brain-drain, or, an exodus of professionals such as doctors, engineers, lawyers, and other professionals who have left the country in search of a less volatile place to do business.

Office-seekers and the people who vote for or against them are finding Venezuela to be an increasingly hostile place for politics. According to Jose Miguel Vivanco, Americas Director at Human Rights Watch, “The government of Venezuela uses the justice system as a façade, but the reality is that Venezuelan judges and prosecutors have become obedient soldiers. Venezuelan authorities have routinely abused their powers to limit free expression, undermining open, democratic debate that is especially critical with legislative elections coming up in December.”5 

Various political leaders have been jailed, driven from the country, or sued. Of course, jailing political prisoners on trumped up charges is a classic totalitarian approach. Intimidation is also an effective method of repression, and it’s often done in such a way that the government can wash its hands of any implications of wrongdoing. Chavista thugs and motorcycle gangs have been known to terrorize journalists under the guise of being independent citizens. Even Twitter users on social media have been jailed for inflammatory comments concerning Maduro, instilling fear in not only journalists, but voters as well. Protests are met with harsh police crackdowns and the journalists who cover them routinely have their cameras confiscated or worse. It’s estimated that 70-80 press members are presently imprisoned in Venezuela. Even the mayor of Caracas is under house arrest.

Emerging Leaders and Entrenched Political Figures

Perhaps no political arrest in Venezuela has been more high-profile than that of Opposition Leader, Leopoldo Lopez. The New York Times stated that, “The charges against Mr. López, a Harvard-educated former mayor of one of the municipalities that make up Caracas, were scurrilous. Mr. Maduro ordered his arrest in February 2014 and charged him with stoking violence as demonstrations against the government were spreading. The government, in its criminal complaint, preposterously claimed that Mr. López had incited Venezuelans to violence through subliminal messages.”6 Today, Lopez is the lone prisoner in the building where he is being kept, with six locked doors between his solitary cell and his freedom. Of course, he would not be incarcerated if Maduro didn’t perceive him as a threat.

Overall, many feel there is a dearth of leadership in Venezuela. On the Chavista side, Chavez was able to nurture a cult of personality, but wherever this occurs, a charismatic tend to be surrounded by mediocrity. Case in point,  Nicolás Maduro. Lacking Chavez’ personality, he enjoys none of his predecessor’s popularity with the people. He inherited the poisoned chalice of a nation with a bankrupt economic model. Imagine managing a place where inflation is edging towards 100% and people are lining up for hours for meager rations under an ID program that is being exploited by gangs and turned into a thuggish delivery of food. 

Diosdado Cabello, President of the National Assembly,  is a sly and ruthless enforcer, but he has no popular support. He would be a logical leader of any junta or military takeover.  Cabello excites, motivates, and elicits loyalty from the more radical elements of the opposition, but he has no currency with Chavismo supporters because of his radical Libertarian economic policies and his privileged background.

Opposition Presidential Candidate, Henrique Capriles, is a major player with good support, but he may be seen among voters a has-been. He has had chances in the past as an opposition leader to create change, so it is hard to imagine him creating much of a buzz. Chavista defector and Lara state Governor Henri Falcon is a moderate who is skilled in treading the middle ground. He manages to keep a low profile and is considered a dark horse to watch.

According to Fox News.com, “Venezuelan election officials have rejected high-profile opposition leader Maria Corina Machado’s attempt to register as a candidate for upcoming congressional elections. Machado announced Monday (9.28.15) that the National Elections Council had rejected her attempt to register to run in the Dec. 6 elections. Machado is calling the rejection of her candidacy a grotesque violation of her rights.”7

The Coming Elections: Predictions and Possible Outcomes

Venezuela’s parliamentary elections in December of 2015 are seen by some as a last the last hope for democratically leaning people to express their wishes and improve their country through the ballot box. After that it’s uncharted territory. Most think the opposition will do well, which is big news after many years of Chavista dominance at the polls. However, the opposition is not particularly united, so there may not be a single figurehead when the smoke clears. President Maduro’s ability to rule will hinge on how the elections unfold. Diosdado Cabello, as Head of the National Assembly, will try to harness any momentum the opposition can muster.  With some predicting an opposition landslide, there are questions as to whether the government will allow such a thing to transpire. As was mentioned,  opposition figures  Leopoldo Lopez and Maria Corina Machado have been jailed and/or  barred from participation in the elections. 

Another government advantage is near outright ownership of the media airwaves. The opposition candidates, once they declare, are immediately intimidated by the government and not allowed to have adequate airtime. For the most part they are denigrated, criticized, and are said to be fomenting violence and unrest. Of course, if the Chavistas lose, they won’t control all of the government anymore. In that event they may attempt to enact laws that limit congressional power. Regardless of the outcome,  “According to a leading Venezuelan polling organization, Datanálisis, 84 percent of the population believes that the country is on the wrong path and only 13 percent view Venezuela’s situation positively.”8

Freedom of the Press? Quality of Information?

Since Nicolás Maduro assumed power in Venezuela, journalistic opinion and information are allowed much less space in available publications. Local news outlets have been bought-out by government supporters or have been driven out of business altogether, their resources often drained by ongoing court cases. In many instances they are refused permission to advertise or broadcast. Even worse, journalists are often jailed or fined by a wary government intent on neutralizing negative reports on its conduct and policies. Freedom of the press is not altogether forbidden as it is in North Korea, but those who do publish anti-government content are almost sure to not be publishing much longer.

To circumvent measures the government institutes to stifle freedom of the press, many journalists have taken to the internet, using blogs and publishing through foreign outlets. However, the Maduro regime is beginning to act against social media expression, jailing six individuals for Tweets that cast the government in a negative light. Despite the danger and the obstacles to publishing free opinions, independence and resistance still exists among large segments of the press. Difficult economic conditions have seen many journalists exiting the country, leaving foreign correspondents in their wake.

The government is unable to crack down on foreign journalists because of the repercussions it would have internationally. No new reporters are coming in, but those already there have been allowed to stay. Ultimately, the aim of the government is to negate local press outlets and mute the foreign journalists with a war of attrition. Social media is a helpful alternative to traditional delivery mediums, but money, resources, and talent are necessary for the production of substantial, informative reporting.

Leaving Venezuela – The Cost of Nationalism

“In 2007, the Bolivarian government emitted a law-decree nationalizing all remaining oil production sites under foreign control and mandating that all oil extraction in Venezuela be undertaken within the framework of joint ventures, in which the state oil company PDVSA retains the majority stake. This move sparked a wave of lawsuits by foreign trans-nationals in international arbitration bodies demanding compensation for expropriated assets. In response, Venezuela withdrew from the ICSID in 2012, citing institutional bias in favor of transnational corporations on the part of the Washington-based body. “13

Where once Venezuela was home to many large multi-national firms, today only a handful remain. It’s difficult to make a profit because labor costs and the prices of goods are pre-determined.

The biggest firms are holding out, counting on better economic times in the future while smaller companies don’t have the luxury of waiting that long. Big oil companies are taking it on the chin financially, but the potential for future profits is too big to ignore.

ICSID, the International Center for Settlement of Investment Disputes has many pending cases involving claims that the Venezuelan government expropriated companies in the course of nationalization efforts. Exxon recently won a $1.6B case in 2014, and the country is said to owe billions to airlines that remain unpaid. Overall, Venezuela has become a difficult place to conduct commerce for international oil interests and large companies in general. For those that have left, it’s unlikely they will return until a new and more receptive government is in place.

Venezuela’s Importance To The Global Petro-Economy

For a time, Hugo Chavez’ Venezuela shone as a beacon for countries around the world that yearned to obtain greater independence from the U.S., and to control their own resources.  He was seen as that rare individual with the courage to stand up to the U.S. in defiance, and as a central figurehead in a worldwide alliance of left-leaning, socialistic powers. After world oil prices plummeted, the bottom fell out of Chavez’ plans and his mystique was weakened.  In his wake, successor Nicolás Maduro makes fiery speeches, but they have a muted impact. Programs like Petrocaribe, which supplied oil to Venezuela and Carribean nations, lost support when the money stopped flowing. Today, there are few nations left to stand up for Venezuela on the world stage.

No doubt, Venezuela can still be a major provider of oil. They have the largest reserves in the world, but theirs is a viscous, hard to process type of petroleum product that is expensive to refine. With current prices at a nadir, Venezuela’s role as an oil producer has diminished and their position as a lion of socialism has been undermined, as well. Globally, they are still a top ten producer of oil and they are important in that regard. Presently, there is a glut of oil on the global market, but this will not always be so. In the long-term, the world will need Venezuela’s vast reserves to supply an unquenchable need for petroleum.

UBS Strategist Julius Walker summed it up this way. “Venezuela is still important to the global oil market. Any production outage would cause a significant price spike. Any production shut-ins as a result of political unrest would almost certainly result in sharp price spikes, and a total production shortfall would severely strain global oil markets.”9

Is Oil The Only Answer?

Beyond oil, Venezuela is well-endowed with abundant natural resources; iron ore, aluminum, gold, diamonds, and natural gas. Diversification has been attempted in the past, but ultimately oil has ruled the 20^th Century and beyond. Up to this point in time oil has been so cheap to produce that the necessity of doing anything else was practically a moot point. Still, tremendous potential exists. Leave it to present-day Venezuela to throw up road blocks to advancement, namely capital and property rights issues that hinder diversification efforts.

Venezuelan Treasury Minister Julio Sosa Rodriguez summed the situation up well in a recent interview in Caracas when he said, “For my generation, it will be the first time that we have seen oil fall below half of the national budget. The most foolish thing of the last 20 years was to not diversify the economy.”10         It may take a good deal of foreign investment to invest and help the Venezuelan economy along, if and when that economy is stabilized. Opportunities will exist in many sectors if they are allowed to be actualized and seen to fruition.

Venezuela’s Relationship with other Latin American Governments

The left-wing governments of Ecuador, Cuba, Argentina, and Bolivia have historically had alliances with Venezuela. These affiliations are based more upon ideology than in copying Venezuela as an economic model. Latin American ties were especially strong when Chavez ruled and money and oil were flowing. However, relationships have deteriorated noticeably under the Maduro regime.

Brazil pretends to have decent relations with Venezuela, but there is no real respect for Maduro that isn’t based on fear of his power and of losing access to Venezuela’s ready supply of oil. After all, Venezuela used to give money to their allies, but in light of current economic woes, those days are gone. Some Caribbean nations such as Barbados rely on Venezuela for oil, so they are reticent to speak out against Maduro in any meaningful way.

While the embattled leader is struggling to hold together his frayed alliances, human rights groups are leaning hard on Latin American countries to hold the Venezuelan government accountable for its many transgressions against its political prisoners. Columbia has raised its voice to the issue, but it shares a border with Venezuela and isn’t too anxious to pick a fight. Cuba has long shared left-leaning proclivities  with Venezuela, but their recent thawing of relations with the U.S. has placed Maduro in an awkward position given the vitriol and disdain he regularly aims at Washington and Obama.

What About Russia and China?

If Venezuela is a strong ally of Russia and China, the relationship is mostly superficial. Venezuela has offered the two world powers a place to sell their products on preferential terms. The loans they have given are typically based on contractual obligations for the selling of Russian and Chinese products. When times were better, sales were good and everyone was happy, but today that business is winding down.  Russia claims continued alliance, but they have trouble to deal with of their own. It is China that has continued to lend to Venezuela, even when getting paid back for these loans seems unlikely.

According to The Economist, “President Nicolás Maduro announced a new $5 billion loan from China in his weekly television programme, which aired on September 1st. In the two-hour show (“In contact with Maduro”, “En contacto con Maduro”), he briefly announced that the deal had been signed, before panning to footage of marching Chinese soldiers and a clip of himself playing drums with Chinese dignitaries. … Since the loan will be repaid in oil, it did not need to be ratified by the Venezuelan parliament (as it will not officially count as debt).”11 

China’s place at the bargaining table is solid and they are not giving the money away for free. The strings are inevitably tied to the provision of a steady supply of oil in the future. Like Russia, China is dealing with its own economic turndown. Venezuela is located far away from China and the cost of refining the plentiful but viscous oil supply will be very expensive. The Chinese have made similar deals in Africa, leveraging present-day loans for long-term provisions of much needed oil.

International Allies and Opponents

Perceived alliances and friendships involving Venezuela and other nations are almost always based on oil, money, and left-leaning politics. For Iran, Russia, Syria, and China, any association is purely monetary in nature. Ideology is not a major consideration. Furthermore, any democratic nation is almost assuredly an opponent of the Venezuelan government.

Cuba is a long-standing ideological ally of Venezuela. However, their recent warming of relations with the U.S. has created problems for the Maduro government. Venezuela and Cuba stood in tandem for many years, railing against the evils of America. Cuba’s 180-degree turn has not only confounded Maduro, but it calls into question his very legitimacy.

Brazil’s friendship with Venezuela is of great importance to the Maduro government as Brazil is in good economic shape. Elsewhere, Algeria, Palestine, and the Assad regime in Syria have shown alliance to theVenezuelan government. Some believe that Maduro’s regime has been somehow complicit in helping Iran to conceal their ongoing nuclear development program.

As for enemies, there is no doubt that the U.S. is number one. Maduro has insistently claimed that the U.S. has been trying to assassinate him, even implicating Vice-President Joe Biden in those assertions. President Obama, doing his best not to provide Venezuela with reasons to tag the U.S. as imperialists, has been trying to thaw relations with the Maduro regime. On other fronts, Spain can be seen to be ideologically opposed to Venezuela, and Columbia has definitely incited Maduro’s ire. 

New Dialogue with the U.S.?

For Nicolás Maduro, any negotiations with the U.S. government are a risky proposition at best. After all, he and his predecessor, the late Hugo Chavez, have spent many years denigrating and spewing anti-capitalist venom at their reviled neighbor to the north. This being said, recent talks between the two nations have indeed been ongoing. As was recently reported by the Reuters news agency …

“The United States and Venezuela have embarked on their most extensive dialogue in years in an attempt to improve their acrimonious relations, according to a senior U.S. administration official. The quiet diplomacy, the extent of which has not been previously reported, is a sign that U.S. detente with Communist Cuba may be helping to reshape another troubled Latin American relationship. The official, who has direct knowledge of the high-level talks, cautioned that the process is at an early stage. The effort by Latin America’s most ardently anti-Washington government and major U.S. oil supplier to improve relations comes as President Nicolas Maduro struggles with a decaying state-led economy that has been left more isolated by close ally Cuba’s warming U.S. ties.”14

For the U.S, having a failed state in Venezuela is not a good thing. It creates increased security issues and opens the door to escalation in drug trafficking activities. The DEA has been investigating high ranking Venezuelan officials for believed involvement in drug-related criminality. To mollify the U.S., some arrests have been made in relation to the investigations. One possible scenario sees the U.S. providing financial aid to Venezuela, though some doubt this will happen. In the pursuit of U.S. dollars, it’s reported that the Venezuelan Head of the Assemblage, Diosdado Cabello recently met in Haiti with U.S. Assistant Secretary of State Shannon. In the meantime, Maduro continues to vent on TV against the U.S., blaming it for most of Venezuela’s ills.

Is Disaster Just Ahead?

Despite loans from China to keep it economically solvent and ongoing relations with the U.S. portending possible relief for Venezuelans, day to day life is still miserable for millions. Long lines of poor people stand in line for food and supplies. Constant shortages provide unending aggravation. Crime threatens the very lives of a vulnerable population. Many say that short of a quick and demonstrative intervention of some type, that Venezuela may soon be heading off the cliff. This makes the coming elections even more important. With external debts mounting and oil prices remaining low month after month, conditions are perfect for a cataclysm of the highest order.

According to Barclays, “Venezuela is suffering the deepest economic crisis in its history with output expected to contract 9.1 percent this year. The economic contraction will likely reach 16.5 percent between 2014 and 2016, while inflation over that period will exceed 1,000 percent.”15

The middle-class continues to protest, but unless they are joined by the poor, creating numbers too big to be ignored, little will change. True, petrol bombs, thrown stones, unrest and violence can lead to an awareness that might affect real change, but without organization and leadership, such protests stand little chance of uniting huge amounts of people and of being effective. With Venezuelan citizens so hungry and angry, it’s not hard to see why Chavez-worship is on the wane. An epochal event might be necessary to usher in a new era for the nation and to reinvigorate its beleaguered markets.

In The Long-Term…

Most experts agree that things will get worse in Venezuela before they get better. Even if oil prices rise, the best that might be expected is a few more years of “kicking the can down the road.” The country’s debts are astronomical. There isn’t enough food. Problems are myriad to the point that it may take decades for Venezuela to sift through the wreckage wrought by Chavez’ experiment, and by the fickle

nature of fossil-fuel markets. It remains to be seen whether the anticipated downfall of Chavismo will be resolved quickly, or if there will be a long and painful struggle out of the darkness. Whatever the resolution, it must involve a mandate by the people and not the will of old oligarchs.

Will a moderate such as Capriles provide the bridge to unite right and left in Venezuela? Can Chinese loans stave off default? China may well be tiring of waiting for their return on investment to pay dividends. On the upside, Venezuela is sitting on a sea of oil and there is no doubt that eventually, the world will need it. Oil prices are bound to rise and when that happens, Venezuela will be well-positioned to reap the benefits. Investors, meanwhile, are in a wait-and-see mode.

From LFPress.com; “The economy will continue to suffer, and there’s no political will in the government to take strong measures to address rapidly rising inflation and a deteriorating fiscal environment.  In fact, the public dissatisfaction that is playing out right now makes Maduro even less likely to implement painful reforms that could lead to reinvigorated protests. That means we will see further rounds of social discontent down the road.”16

Which Way Forward?

As improbable as it sounds, many feel the best course of action for Venezuela to take regarding its future would be to form a transitional government with representation from all sides, in the interest of national solidarity. This would include the opposition, the Chavista government, and the military. Some feel painful austerity measures presented by a unified front are needed in order to stabilize the economy. The IMF could provide emergency funding. The people will decide who they want to lead through fair elections monitored by the international community. The ultimate goal would be to achieve some type of peaceful democratic transition.

Other remedies that have been suggested include a de-valuation of the present exchange rate to incentivize companies to return to Venezuela. From an oil industry and international investment perspective, opposition control would be an improvement as there is major mistrust of Maduro and his policies. At present, it would be hard for the Maduro government to mend fences, as decrepit as the economy has become. This being said,  despite its failures, many still support Chavismo and entertain hopes of reviving the revolution.

Maduro still has four years left to rule, but it’s hard to imagine him surviving that long as bad as things have been. Should the urban poor mobilize and show their extreme discontent in the streets, Maduro’s tenure could be shortened. In an interesting article in the Huffington post recently, this assessment was published …

“A viable solution would be to find a new leader, one that potentially originates from the slums of Petare, San Agustín, or 23 de Enero; who is able to appeal to the many unsatisfied Chavistas who do not trust the current leaders of the opposition. The emergence of such a figure could potentially represent a common ground between Chavistas and the opposition and could very well signal the turning point in Venezuela’s political crisis.”17

What Venezuelans Really Want

Most experts feel that the wants of the Venezuelan people are actually not so complex or impossible to satisfy. Like everyone, they wish for the basics; food, shelter, clothing. They want to be able to eat and have a minimal amount of purchasing power. As one insider put it, “they want a peaceful nation with plenty to eat, drink, decent beaches, and they will be happy.” Venezuelans also want to be heard, to have a voice, a vote, and honest representation. In addition, they insist on a decent education for their children.

As it is, the middle class is pulling up stakes and leaving in the absence of opportunities to thrive. The poor really have very little hope that any relief from present miseries is forthcoming. Unfortunately, Venezuela is a polarized country. The wants and wishes of those who support the opposition and the Chavistas differ significantly. Many passionately want to see the demise of Chavismo policies while the poor and disenfranchised want continued social spending and left-leaning policies.

In addition, people want to feel safe on the streets and in their homes. They are afraid because violent crime has continued to escalate. Many people are hungry, as well, and they are tired of waiting in line for food and supplies. Their anger is growing. It is a lit fuse burning closer and closer to an explosion of cataclysmic proportions. What form that might take is unclear. It remains to be seen if that explosion can be defused quickly, before it’s too late. The future looks hopeful for Venezuela and its people. It is the present that is extremely volatile and problematic.

The following sources were utilized in the creation of this document:

1. http://www.forbes.com/sites/francescoppola/2015/01/13/the-impending-collapse-of-venezuela/

2. http://www.voanews.com/content/reu-venezuela-visit-mideast-press-need-higher-oil-prices/2729190.html

3. http://www.thedailybeast.com/articles/2015/03/17/maduro-s-dictator-move.html

4. http://latino.foxnews.com/latino/news/2015/09/16/hugo-chavez-keeps-climbing-hero-ladder-in-venezuela-with-4-new-holidays-to/

5. https://www.hrw.org/news/2015/08/06/venezuela-critics-under-threat

6. http://www.nytimes.com/2015/09/14/opinion/free-venezuelas-leopoldo-lopez.html?_r=0

7. http://www.foxnews.com/world/2015/08/03/venezuela-rejects-opposition-leader-machado-bid-to-run-in-congressional/

8. http://www.brookings.edu/research/opinions/2015/07/29-venezuela-elections-zovatto

9. http://www.thedailybeast.com/articles/2015/03/17/maduro-s-dictator-move.html

10. https://www.questia.com/newspaper/1P2-5653715/diversifying-economy-lifts-oil-rich-venezuela

11. http://www.economist.com/news/business-and-finance/21663169-cash-be-invested-oil-will-deliver-dubious-benefits-both-parties-why-china-loaning-5

12. http://millennialsdiplomacy.com/2015/07/29/is-the-bolivarian-revolution-dead/

13. http://venezuelanalysis.com/news/11439

14. http://www.reuters.com/article/2015/07/01/us-venezuela-usa-exclusive-idUSKCN0PB5WR20150701

15. http://www.bloomberg.com/news/articles/2015-09-25/venezuela-economic-crisis-to-only-get-worse-barclays-says

16. http://www.lfpress.com/2014/03/07/bremmer-no-springtime-hope-for-embattled-venezuela

17. http://www.huffingtonpost.com/stephanie-rudat/venezuelan-crisis_b_4863737.html