Caracas Connect: October 2013

Caracas Connect, September-October 2013: U.S. Diplomats Expelled, Power Outages, Election Discontent, Coup Talk  

By: Dr. Dan Hellinger

The summer months in Venezuela have seen strains in both the government and opposition camps, as municipal elections approach.  A power-outage, which affected more than half the population, came at an especially unwelcome time for President Nicolás Maduro’s United Socialist Party of Venezuela (PSUV). Henrique Capriles has continued to dispute his narrow loss in April’s presidential election, appealing for support from the Inter-American Human Rights Commission (IAHRC) shortly before Venezuela’s long-announced withdrawal from the hemispheric covenant on human rights, which created the Commission and associated Court. President Maduro also paid a visit to China, just as U.S.-Venezuela relations have taken a turn for the worse. Meanwhile, a Chavista political scientist says it’s time to take talk of a coup against Maduro’s government seriously.

Venezuela Expels U.S. Diplomats, Relations Off-Course

On September 30, President Maduro announced the expulsion of three U.S. diplomats, including Chargé d’affaires Kelly Keiderling, the highest ranking diplomat.  As certain as dawn follows the night, the U.S. retaliated on October 2nd, expelling Calixto Ortega Ríos, the recently-arrived Chargé d’affaires, and Second Secretary Mónica Alejandra Sánchez Morales, who serve at the Washington embassy, and Consul Marisol Gutiérrez de Almeida at the Houston consulate. When Ríos was named to the post earlier this year, it was widely expected that he would have a mandate from Maduro to work to improve relations with the United States.

President Maduro accused the three U.S. diplomats of meeting with right-wing opposition groups and of financing economic sabotage, including attacks on the country’s electrical grid. U.S. officials deny the claim.  Venezuela’s opposition and sources quoted by the U.S. media claim that Maduro is attempting to distract the public from the country’s domestic problems.

The expulsions capped off a steady deterioration in relations between Washington and Caracas.

On September 13, the government of the United States issued its annual scorecard on cooperation with its “war on drugs.” The scorecard listed the governments of Venezuela and that of its close ally, Bolivia, as having “failed demonstrably” to cooperate.  Over the next two weeks, Venezuela announced 22 arrests, including the head of airport security at the international airport at Maquetía (near Caracas), after 1.4 tons of cocaine were discovered in 31 suitcases on an Air France flight scheduled to leave for Paris.

On September 17, the United States waited until the last moment to approve Maduro’s flight plan to cross Puerto Rico en route to China for a state visit. U.S. officials claimed the request was not properly filed. On September 23, another dispute over air transport occurred when Maduro charged that the U.S. government had not provided adequate security for his flight to New York to attend the United Nations General Assembly. Maduro cancelled his trip as a result.

While Maduro certainly confronts a sea of troubles at home and might want to distract the public, few media accounts have examined his claims that the three diplomats have meddled in the country’s politics.  They might at least examine Keiderling’s previous post in Cuba.  A book published earlier this year by a Cuban double agent on CIA activities claims Keiderling was actively involved in intelligence activities, specifically recruitment of dissidents, in 2005 during her posting at the U.S. Interests Section in Havana.

Chavista Discontent with Nominations for December’s Local Election
Between 1928 and 1994, Mexicans lived with the curious institution of “el dedo,” or the
“finger.” Not a rude gesture, “el dedo” referred to the practice whereby a president, upon completion of his six year term, would point to a successor – with the understanding that the outgoing president would thereupon retire from politics.
Now, Venezuelans have begun to call the process by which the PSUV has chosen its candidates “el dedo.” Despite promises to hold closed party primaries to select local candidates for the December elections, the PSUV national leadership has once again designated its nominees for the important mayoral races that will take place on December 8, providing fodder for the opposition.
To some degree, the power of “el dedo” has also tarnished the image of Henrique Capriles, the former presidential candidate, who has intervened to resolve local disputes among parties in his opposition coalition, the Democratic Unity Roundtable (MUD). The PSUV has not hesitated to attempt to capitalize on the charge.

As David Smilde points out in his blog for the Washington Office on Latin America (WOLA), the PSUV is likely to win control of a majority of local races because of its strength in small towns scattered throughout the more rural parts of the country. During his presidency, the late President Chávez repeatedly framed local, state, and legislative elections as a referendum on his own rule.  Now, it is Capriles who is attempting to turn the coming local elections into contests over Maduro’s popularity, hoping that the MUD will win a majority of votes, if not actual races.

As discussed below, the opposition could make significant gains in the coming elections.

However, if the PSUV were to win most contests and the national vote, it would be disastrous for Capriles. Regardless, we can expect another round of charges of fraud by the opposition against the National Electoral Commission.  The CNE may now be more vulnerable to accusations of fraud, because the terms of its remaining board members have expired. By law, a new board should be appointed, but the National Assembly, controlled by the Chavistas, has yet to put the matter on the legislative agenda.  It is very unlikely that the highly polarized Assembly deputies would be able to muster the 2/3 majority needed to appoint a new board.
The positive prospects for the opposition have reinforced unity in the MUD, but there are fissures that could easily widen. Henri Falcón, a former Chavista and the popular governor of the important central state of Lara, called on Capriles to “turn the page” on challenging the legitimacy of President Maduro. Falcón made these comments after Capriles called José Miguel Insulza, Secretary General of the Organization of American States, “inept and incapable” after Insulza said that the Inter-American Commission on Human Rights should not rule on Capriles’ demand that the Commission declare Venezuela’s April elections a fraud.

Polls Disagree on December Elections, Maduro’s Standing

Across the board, most of Venezuela’s polling performed poorly in April’s presidential election, generally over-estimating Maduro’s margin of victory. It is also more difficult to predict outcomes for municipal elections, given the way local conditions can vary. However, indications are that the opposition is likely to do well.

The races in the Caracas metropolitan area will be the most important both symbolically and in terms of real power. Libertador (Central Caracas) has been a Chavista stronghold in the past, and a loss in this district would indicate a serious erosion of PSUV appeal since the death of Hugo Chávez. In addition, control of the city center, where key national government offices are located, has important security implications.

A late July poll carried out by Datanalysis, a polling company owned by the opposition, showed responses to the question of whether voters would cast their ballots for the mayoral candidate of the PSUV or that of the MUD in a statistical dead-heat. The poll had the electorate split almost evenly between those who approved and those who disapproved of Maduro’s performance in office.

Another poll, carried out by Keller in September, found that a majority of those sampled disapproved of both Maduro and Capriles. Hinterlaces, which has tended to be biased toward the government, found that in the municipality of Libertador, the Chavista candidate led the opposition, but the race remained competitive. A poll by another company which tends to favor the government claims that the PSUV mayoral candidate is leading in the city of Maracaibo, the important oil capital of Venezuela.

In prior years, turnout in local elections has been approximately 40%, about half of the turnout rate in April’s presidential elections. Turnout will be a crucial determinant in this year’s contests. Will PSUV voters disgruntled with Maduro and the party simply stay home?  Will opposition voters be discouraged from voting by Capriles’ claims of fraud in April, or are they energized by the closeness of the contest?  We are unlikely to know until ballots are cast on December 8.

WOLA’s Iñaki Sagarzazu provides a complex analysis of a number of different polls, adjusting results for historical biases and overall trends.  His conclusion, drawn at the end of August, is that up until that point, Maduro achieved an overall stable approval from slightly less than half the population, but suffered a deterioration in his approval ratings from those who were neutral after the April election.

Economic Issues:  Shortages, Inflation, Exchange

Venezuela’s government continues to wrestle with difficult economic choices – but the news is not all bad.  The widely reported high inflation rate of 45 percent for the first eight months of 2013 is outside the norm for Latin America, but that rate has been declining recently – dropping from 6.1% for May 2013 to 3.2% for July and 3.0% for August.  And the second quarter saw robust economic growth.

The most vexing and politically damaging problems are shortages in staple goods, forcing long lines of consumers to wait hours outside of markets. The opposition-controlled private media and the international press blame government incompetency, while the government emphasizes hoarding and sabotage. There is reason to believe that the truth lies in a combination of both.

Shortages of toilet paper make for entertaining and embarrassing news coverage, abroad and at home. Bloomberg News seems especially fixated on the welfare of Venezuelan bums, blaming the government and dismissing its charges of hoarding. Government supporters blame economic sabotage and the failure of the Chavista government to implement socialist reforms of the economy more rapidly.
Speculation and corruption connected to the system of differential exchange is contributing to the shortages. A recent Guardian story details how the common practice of el raspaditohas contributed to the economic doldrums. El raspadito involves “scraping” a credit card abroad in order to obtain dollars at the official rate and then returning to Venezuela and converting the dollars back to bolívars at the “parallel” rate on the street.  Abroad, 6.3 bolívars buys one dollar; one dollar in Venezuela yields Bs. 48 on the street. To capitalize, wealthy and middle class Venezuelans travel abroad to withdraw the maximum amount permitted — $2,500. These dollars yield Bs. 120,000 on the “grey market” at home, roughly the annual salary of a domestic worker.
The differential exchange system is administered by the Currency Administration Commission (CADIVI), and it is intended to allow cheaper imports of basic goods and services.  In theory, this should lower prices and tame inflation, but the reality is that the manipulation of the rate fuels higher demand and triggers speculation. The practice of el raspadito is now so common that Venezuela is afflicted by a severe shortage of airline tickets, causing a three-month seating backlog, according to the Guardian report.
Differential exchange manipulation has bedeviled Venezuelan governments for nearly a half-century.  During the OPEC oil boom of 1973-1981, the government held a single rate at 4.3 bolívars to one dollar, inducing middle-class Venezuelans (and according the popular mythology, even maids taken along to Miami by their wealthy employers) to indulge in an orgy of consumerism at home and abroad. “Tan barato. ¡Dáme dos!” – “So cheap, I’ll take two,” was the common reaction of Venezuelans who realized how cheaply televisions, toaster ovens, and range of other appliances and goods could be acquired abroad.

When the system came crashing down with the collapse of oil prices and currency devaluation in 1983, a differential exchange rate system somewhat like the one used today was implemented, and with similar results. Manipulation and corruption contributed enormously to the loss of confidence in the two-party rule of Democratic Action (AD) and COPEI (the Christian Democrats).

The scandals, as well as pressure from the International Monetary Fund, induced President Carlos Andrés Pérez in 1989 to eliminate differential exchange and unify the rate, allowing it to fluctuate in response to market demands. The rate rose quickly from nine times its original value to Bs. 40 to the dollar, and continued to climb. On January 1, 2008, the government issued new notes replacing old bolívars with new ones at 1,000 to 1, creating the present currency, originally at 4.3 to 1 dollar.

For a middle-class person traveling to Venezuela, the official exchange rate can be prohibitive, raising the price of a $125 hotel room to $300 or $400 per night.  For Venezuelans traveling to the U.S. on legitimate business, tourism, or family visits, the controlled rate is crucial to affordability.

The implementation of free floating currency in 1989 did not stem inflation or the cascade of middle-class Venezuelans into the ranks of the poor.  However, the decline of living standards between 1983 and 1998, it should be acknowledged, cannot be reduced to exchange rate issues, but was due to a complex array of factors, including historically low international oil prices.  Still, the lesson would seem to be that neither uncontrolled or controlled currency exchange, in and of itself, is the solution to Venezuela’s deep structural economic problems.

Not without reason, a number of Venezuelan governments facing difficult economic decisions on price controls and exchange rates faced deliberate hoarding during the Punto Fijo era (1958-1998). Leftist governments have faced economic sabotage from both internal and external sources repeatedly. It is worth remembering, on its 40th anniversary, the economic sabotages carried out against Salvador Allende’s socialist government in Chile in 1973 – not the least of these instances.
More radical Chavista factions blame the shortages and inflation on the government’s failure to move forward with socialism and on the veto power of corrupt factions within the PSUV. A recent article on inflation from the Sur-Press blog (translated and available at Venezuelanalysis.com), argues, “It doesn’t make a lot of sense to keep talking about ‘inflation and scarcity’ when what we’re really talking about is speculation, usury, and hoarding.”

On the toilet paper front, the government announced on September 20 the temporary occupation of one of the larger factories producing the hygienic paper.  The intention behind the occupation – set to last 15 days – is to check account records to determine if the private owners have been hoarding or evading price controls. The action was carried out by a new government agency charged with policing producers of goods subject to control. During August, Venezuela’s government imported 50 million rolls to meet demand. In recent weeks, the daily press has been filled with government announcements highlighting authorization of currency to import toilet paper, discoveries of hoards, and plans to increase toilet paper production.

Is Sabotage or Poor Management behind Blackouts and Accidents?

The running battle between the government and opposition over the causes of market shortages is echoed in similar debates over the causes of other problems afflicting daily life in Venezuela.

On September 3, electrical blackouts left nearly 70 percent of the country, mostly in the western region, without electricity.  The results produced major transportation headaches, including an evacuation of the Caracas metro system. President Nicolás Maduro blamed the outage on sabotage by political opponents and announced the creation of a new security force to defend the country’s electrical system; the opposition placed the blame on failure by the government to invest in infrastructure.

Maduro’s claims of sabotage should not be casually dismissed, as the mainstream international media has tended to do.  Many professionals who lost their jobs in the oil industry after they participated in the lock-out of December 2002 to March 2003 have found new employment in the utilities sector.

However, President Maduro himself acknowledged that infrastructure problems contributed to the outage, even as he accused extremist sectors of the opposition of sabotage. “We must consolidate the balance between generation and consumption, focusing efforts on system security against calculated sabotage,” he tweeted.

The political fallout is made worse by the Chávez government’s promise to improve service after chronic blackouts occurred between 2009 and 2011.  At that time, infrastructure shortcomings, wasteful consumption, and a prolonged drought (affecting hydroelectric generation) prompted the government to launch efforts to improve transmission equipment and create more public consciousness about energy conservation.

Despite perceptions of profligate electricity use, Venezuelan consumption of kilowatts per capita, according to World Bank data, is greater than Chile’s and less than Mexico’s.

Whether sabotage or poor maintenance is to blame, the widespread nature of the blackout can be traced to a bottleneck in the distribution system.  The problem affected a portion of the grid where 50 percent of the country’s electricity passes.  Sabotage would not require a bomb; a computer virus would do the trick.

Just days before the outage, the government released a report about an explosion that killed 40 people at the Amuay refinery in Falcon State in 2012. The opposition charges the cause was poor maintenance, caused in part by the loss of skilled personnel after the lockout. The government says a suspicious quick release of gas points toward sabotage.

With a government desperate to recover popularity, and an opposition determined to blame every malady on the ruling party, sorting out fact from fiction is difficult.

Talk of a Coup

Nicmer Evans, a political scientist at the Central University and generally regarded as a moderate but critical voice within the Chavista movement, warns that incompetence by the government, made worse by deliberate economic sabotage, could lead to a coup. The administrative failures of the government and the inability of Maduro and the PSUV to inspire confidence in its socialist ideals raises serious doubts that the people would rally to the government in the way that they did in April 2002 in the coup against Chávez.

Evans argues that there are three “rights” in Venezuela today:  A moderate right that seeks to gain control of government through constitutional and electoral mechanisms; an extreme right that is willing to use economic and violent sabotage to destabilize the system; and an “endogenous right,” privileged, corrupt, and powerful sectors within the PSUV that use their connections to the government to enrich themselves. The incendiary charges of electoral fraud (see Caracas Connect, April) launched using limited evidence by Capriles after the April election have ratcheted up political tensions and encouraged the extremist sectors in the opposition.

Evans argues that these “rights” have connections with different sectors within the armed forces.  If he is correct, the disheartening reality is the threat of a coup that would touch off conflict among factions in the military.

Maduro to China; Venezuela Withdraws from Hemispheric Human Rights Organization

On September 10, Venezuela’s government formally withdrew from the American Convention on Human Rights, and thereby also leaves the jurisdiction of the Inter-American Court on Human Rights.  The Court hears cases referred to it by the Inter-American Human Rights Commission.  Venezuelans will continue to be able to appeal complaints directly to the Commission, but that body will no longer be able to refer cases to the Court that it deems to have merit.

Nineteen countries remain in the pact. The United States never ratified the 1978 Convention, and so has never been a member of the pact.

Tensions between the Commission and the Bolivarian government can be traced back to 2002, when President Chávez was angered by the Inter-American Human Rights Commission’s slow reaction to the coup attempted against him.  Chávez officially gave notice of Venezuela’s intention to withdraw in July 2012, after the Inter-American Court ordered Venezuela to pay reparations to Raúl Díaz Peña, a Venezuelan citizen, convicted of placing bombs in front of the Colombian and Spanish embassies in Caracas in 2003. Peña was on a work release program in 2008 and fled Venezuela for the United States.  The reparations were ordered as compensation for Peña’s claim that prison conditions had ruined his health.

Venezuela says that the functions of the IACHR are better carried out by the Union of the South (UNASUR) and the Community of Latin American and Caribbean Nations (CELAC).  The U.S. is not eligible for membership in either of these new regional organizations.

Maduro in China

President Maduro arrived in China on September 22 for a series of meetings and ceremonies. While there, he signed several major economic agreements.

In visiting China, Maduro sought to build his international stature and gain economic resources to meet his goal of increasing oil production.  The major deals with three of China’s most important companies will increase the export of one of China’s most abundant resources — dollars.  Not only will dollars flow into Venezuela’s oil sector, they are important in the government’s battle to strengthen the bolívar against U.S. currency.

Bilateral trade between China and Venezuela has risen from $350 million in 2000 to $23 billion in 2012, with the balance in Venezuela’s favor because of oil, and more specifically, the high price of oil.  As long as prices stay high, the balance will continue to favor Venezuela. Venezuela repays some of China’s loans in oil.  The announced new loans and investment amount to $50 billion over the next five years.

Many grassroots activists in the Latin American left have grown increasingly restive
about the Chavista government’s failure to break from the extractivist developmental model. One of the agreements with China significantly expands gold mining, something objectionable to Venezuela’s small but very visible indigenous sector. Also among the agreements negotiated is a $5 billion loan for various projects in agriculture, manufacturing and other non-oil related projects.

Chinese mega-loans already totaled $36 billion before the new tranches. Most have financed oil development, and the country has, in this era of oil priced over $100 per barrel, been mostly paid off.  However, the portion of these mega-loans intended for the centrally controlled development fund have not produced adequate results over the past decade and been plagued by fraud.

 

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