Caracas Connect, September 2014 Report

Dr. Daniel Hellinger, Webster University
Emeritus President, Center for Democracy in the Americas

  • Maduro’s popularity declining, but opposition still divided
  • Much talk, little change about economic policy, as drought exacts toll
  • Musical chairs but murky implications for oil policy
  • US sanctions will play badly, but have little bite, in Venezuela
  • Gaza Crisis echoes in Venezuela, región

As Maduro loses popularity, opposition remains divided

It has been a long, hot summer in Venezuela; fortunately, there has not been a great deal of political violence. For the time being, President Nicolás Maduro is unlikely to face the kind of political unrest that plagued Venezuela earlier this year, but his political star continues to fall. A Datanálysis poll claimed that 62.3 percent of Venezuelans disapprove of his performance in government. Perhaps more telling is the poll’s finding that 59 percent of Venezuelans think that “Maduro has ideals different from those of Hugo Chávez.”

Yet, the weaker Maduro becomes the more divided the opposition seems to be over how to exploit the opportunity. Three issues have exposed divisions: (1) how to react to the jailing and trial of Leopoldo López, former mayor of a Caracas municipality; (2) the question of whether to take a hard line and demand Maduro’s resignation or to engage in talks; and (3) whether to welcome possible U.S. sanctions against Venezuelan government officials.

In August, Ramón Guillermo Aveledo resigned as General Secretary of the Democratic Unity Roundtable (MUD), the main opposition alliance. Aveledo, an ally of 2012 and 2013 presidential candidate Henrique Capriles, has not been able to bridge more moderate members (including Democratic Action, the largest party in the coalition) who favor talks with members who want to up the pressure on Maduro to resign. Among the latter are Maria Corina Machado, who went outside the MUD in calling for a “Citizen’s Congress” to chart a course to achieve La Salida, i.e., the “exit” both of Maduro and Chavistas in general.

López’s trial began in late July and is on-going. The government is arguing that his calls for demonstrations in late February, demanding Maduro’s “exit,” were an incitement to violence, during which approximately forty people including by-standers and members of the security forces were killed. López rejects the charges and claims that the court is unfairly denying him the right to introduce evidence of his innocence.

Meanwhile, on August 15, Venezuelan courts released 112 of 120 students arrested after a May protest blocked the entrance to the United Nations Development Program offices in Caracas.

Maduro can hardly celebrate the state of affairs within the governing Unified Socialist Party of Venezuela (PSUV), even though he was elected president of the party at the PSUV’s third national congress from July 26 to 31. Party officials had claimed to have 7 million members, but less than 1.6 million voted for delegates to the party congress in elections run by the National Electoral Council. The Council has not released the final count. Only 537 of 900 congressional delegates were chosen democratically. Leftists complained that the congress failed to deliver on its promise to debate and discuss the PSUV’s performance over the seven years since the last congress.

Maduro faces two threats within Bolivarian ranks: rising criticism from leftist sectors within the party, in particular the Marea Socialista (Socialist Tide), and low voter turnout, which could signal that the party will have difficulty mobilizing voters in next year’s national elections to determine control of the National Assembly. The Marea Socialista has become increasingly vocal in criticizing not only the government’s economic policies, but also its willingness to negotiate with business sectors.

Nicmer Evans, a political scientist and highly visible blogger critical of the PSUV, announced that he was joining Marea shortly after the PSUV Congress. Marea has not broken with the PSUV, but the gap between its activists and the mainstream political leadership of the party continues to grow.

The Economy: Change of Direction or Shuffling the Deck Chairs

On September 2nd, Maduro gave a long-anticipated speech and announced a major revamping of his cabinet. But, there were no major changes in economic policy announced, despite expectations to the contrary.

Perhaps the biggest change saw Rafael Ramírez, who served as Minister of Energy for 12 years and simultaneously as president of Petróleos de Venezuela (PDVSA), move to run the Foreign Ministry. Asdrúbal Chávez, a chemical engineer in PDV and a cousin of the late President Hugo Chávez, replaced him at the oil ministry. Eulogio Del Pino, PDVSA’s head of exploration and production, became president of the company. Ramírez also lost his portfolio as Vice-President for the Economy.

An Economist analysis claims that Ramírez had been the primary advocate for raising gasoline prices, reducing the money supply, and unifying the exchange rate:

“Venezuela is in trouble. Such trouble, in fact, that the central bank (BCV) has not published GDP figures since the beginning of the year and is two months behind with inflation figures. Leaks from inside the BCV suggest annual inflation is now well over 60% and that GDP fell by almost 5% in the first half of 2014. Shortages of food, medicines and other basic goods, including spare parts and tires for vehicles, have reached critical levels. Representatives of private health clinics say more than half have suspended elective surgery for lack of crucial supplies and parts for medical equipment. The government plans to address shortages by fingerprinting customers to prevent them from buying extra goods to sell on the black market.”

The Maduro government accuses the country’s large business associations of illegally raising prices and hoarding goods for price speculation.

In reality, there is plenty of blame to go around for the inability of the country to take advantage of the extraordinarily high oil prices of the last four years. In a tragicomic replay of the scandals that afflicted the country in the 1980s, CADIVI, the agency that administers the multi-tiered exchange rate, has been involved in several major scandals that have angered many in the Bolivarian movement and sapped the morale of others. Leftists with the governing United Socialist Party of Venezuela (PSUV) have sought a full audit of the agency’s operations, which would inevitably provide a trail in the private sector corruption as well. Another government agency, SICAD, also has a role by periodically auctioning dollars to bidders, an effort to tame inflation by absorbing bolivars off the black market.

The crisis is especially acute — and therefore politically dangerous to Maduro — in the health sector, until now the crown jewel in the Chavista record of alleviating poverty. In a recent interview, the administrator of a hospital in Petare, a massive and impoverished barrio, reported that Venezuela is facing “a scarcity of 22 of 30 drugs to treat cancer and of all medicine for hypertension, epilepsy, and diabetes; a 90% deficit of inhaled anesthetics; and a lack of roughly 95% of materials necessary to treat and operate on patients in emergency rooms throughout the country.”

The political opposition and FEDECAMARAS, the national chamber of commerce, blame government corruption and poor policies for shortages. The government blames corruption in the private sector. In reality, both the private sector and public sector have failed.

Dr. Zaira Medina, Director of the hospital in Petare, said,

“Through CADIVI and Sicad I, the government gives preferential dollars to corrupt companies, and that is why we have our current calamity with supplies and medicine. It is so severe that drugs are being sought out for patients with hypertension, diabetes, heart disease, lung diseases — catastrophic sicknesses. Many of these patients are going all the way to Bogotá [the capital of Colombia] to bring them back to Venezuela. In this situation, we have to ask ourselves, is the Bolivarian State really checking to whom it is giving its dollars? How many corrupt companies have been given dollars? This situation does not have to do with a shortage of corn flour. It has to do with the life and death of a patient, the shortage of drugs necessary to preserve the life of our citizens.”

A year ago, the largest of the exchange rate scandals broke when internal documents and pressure from labor unions exposed a $1.2 billion scam involving Ferrominería, a state-owned iron ore miner and processor, which sold iron ore to intermediaries at a fraction of the cost of production in exchange for kickbacks. Jorge Giordani, the former Planning Minister who lost his job in June, claims that of $59 billion passed to Venezuelan companies at a favorable exchange rate, $12 to $15 billion went to phony enterprises (note: this occurred under President Hugo Chávez’s watch).

Among the largest recipients of CADIVI funds between 2004 and 2012 were major foreign automobile companies and POLAR, Venezuela’s agribusiness giant. These transmissions were not necessarily fraudulent, but Chavista activists think an audit would reveal considerable financial chicanery. They also argue that with such generous subsidies, much of the blame for shortages should be attributed to the private sector.

Government supporters have been asked by the president to mobilize and report businesses accused of hoarding and price gouging, but some activists are claiming that local and state governments controlled by Chavistas are protecting businesses engaged in economic sabotage.

In his nationally televised speech, Maduro made no mention of his proposed national discussion about increasing the price of gasoline at home. His proposal, made at the PSUV party congress in early August, was initially received cautiously but favorably among his own supporters. In a reversal of the usual line-up on oil issues, it was most of the opposition that decided to play the populist card and criticize raising prices.

In addition to Venezuela’s other economic problems, a prolonged drought is threatening both water supplies and electricity. Three reservoirs in the Caracas area are at record lows, and the government has begun to implement rationing. The opposition says the government is to blame, as no new reservoirs have been built in the Bolivarian era. International authorities point out that the ratio of residents in the Caracas area to water supply is below standard even without the recent lack of rainfall. On the other hand, Venezuela is not the only country facing a potential crisis. Neighboring Colombia has seen rioting over water in some areas near the Venezuelan border.

Oil Politics: Challenges for New Leadership

As the May-June Caracas Connect discussed, PDVSA looks increasingly unsteady. Domestic consumption now absorbs nearly one-quarter of all oil produced. If previously announced goals had been reached, the company would now be producing 5 million barrels per day, up from the current total of less than 2.9 million barrels per day (bpd). (Note: International monitors often report production at approximately 2.5 million. This figure usually excludes extra heavy oil. The 2.9 million bpd figure is based on annual company reports.) The company depends increasingly on foreign investment, loans, and partnership for new production.

PDVSA remains saddled with responsibility for administration of social and economic projects (misiones) outside of its principal mandate. The company, like the military, was given a major role in these programs because of its administrative human resources. After the defeat of the opposition orchestrated shutdown of the company for three months in 2002-2003, President Hugo Chávez saw linking these programs to PDVSA as a way to solidify support for state control of the company against attempts by company executives to assert autonomy.

This brings us back to the change in PDVSA leadership. Though related to the deceased president, and considered part of the political team responsible for consolidating government control of PDVSA after the management-led work stoppage in 2002-2003, Asdrúbal Chávez still has credibility. He is an engineer with a long career in the company. After 2007, he became Vice President for marketing and supply.

Whether he shares his deceased uncle’s antipathy toward the oil policies of PDVSA is hard to say. He did graduate from the University of the Andes in 1979, a time when the university was the site of a study group affiliated with a leftist revolutionary organization. The circle included several young Venezuelans, including Ramírez, who would eventually play a prominent role as oil policy makers during the Chávez presidency. Chávez’s brother, Adán, was also a prominent member of the circle.

Eulogio del Pino, the new PDVSA president, is also an engineer, a graduate of the Central University of Venezuela with an MA in oil exploration from Stanford University. He reportedly was a key figure in maintaining the company’s capacity to produce during and after the strike. Del Pino acquired some fame – or notoriety – in 2012 after an oil spill contaminated the drinking supply of the city of Maturín. After the clean-up, in an attempt to restore confidence that the water was potable, del Pino was photographed drinking tap water from a glass. The action did not impress environmentalists who continue to complain that the production unit of the company has a poor record on such matters.

Del Pino reportedly had an active role in enforcing the government’s re-nationalization of joint ventures that were majority-owned by foreign enterprises. Chávez acted because many of the ventures, negotiated by PDVSA mangers during the “oil opening” of the 1990s, were in violation of the 1975 nationalization law, which requires majority control by the state of partnerships in exploration, production, and other basic facets of the oil industry. In a recent interview with a correspondent from the Caracas daily, El Universal, del Pino criticized officials from the pre-Chávez era for boosting production at the expense of maintaining prices in collaboration with OPEC (Note: prices collapsed in 1998, giving a boost the Chávez’s presidential campaign).

Still, the implications of the leadership changes remain murky. For example, the appropriate division of labor between the state (mainly the ministry), which makes decisions on policy, and the company, responsible for operational decisions, is unclear. There is no fine line between the two spheres, but basic decisions about production levels, relations with OPEC, the fiscal regime (especially royalty and taxation rules), and reconciliation of oil policy with issues of concern to the environment and indigenous peoples are considered political. In fact, the shutdown was ultimately about whether the government or the company would control these matters. The background of the two new appointees suggests that Maduro has attempted to combine ensuring state control over oil policy, which necessarily requires political know-how, with greater aptitude at increasing production, especially in heavy oil.

While the dual-appointment of Ramírez to head both the ministry and the company had its roots in Chávez’s attempt to regain control of the company for the state, combining the two positions in one person was always problematic in terms of the division of labor. The Ministry and the company separately occupy each of the two towers in one building located in western Caracas. There was little doubt that the most important business affecting oil was conducted on the company side, even after 2003. With political pressure building and with signs of public attrition in support for the state, the antagonism between state and company may build – despite the personalities and ideological positions of the two new appointments.

Sanctions

In late May, the U.S. Senate Foreign Relations Committee passed legislation imposing sanctions on Venezuelan individuals accused by Senator Marco Rubio (FL) of igniting last February’s political violence that left more than 40 people dead. Senator Robert Menendez (NJ), Chairman of the Committee, has been allied with Rubio in seeking sanctions. The House passed a similar measure earlier that month.

If ultimately passed and implemented, the sanctions would not directly affect Venezuelan trade. However, this subtlety has little meaning in Venezuela where the Senate’s action is viewed as a direct attack on the country’s sovereignty.  It has also become one of the main issues between those who want to maintain talks with the government and figures like Maria Corina Machado, who hold that the sanctions are evidence that hardline protests are successfully influencing U.S. opinion.

Just before Congress left for the Labor Day recess in August, Senator Mary Landrieu (LA) put a hold on floor consideration of the bill in the U.S. Senate. Landrieu is worried that the sanctions will lead to Venezuela cutting off oil supplies to Louisiana refineries owned by CITGO, a subsidiary of Petróleos de Venezuela (PDV), the state-owned oil company.

Reports in the oil trade press over the last month indicate that Venezuela has been looking for a buyer of CITGO. The company was purchased by PDV in two stages between 1986 and 1992. PDV officials argued that the purchase would guarantee access for Venezuela to the U.S. market. However, critics including former President Chávez saw CITGO as a haven where former PDV executives could hide profits through discount pricing and other maneuvers. The threat of sanctions by a trigger-happy U.S. Congress, as well as concerns the company’s three refineries might be vulnerable to seizure by U.S. authorities, may have reinforced the Maduro government’s interest in selling CITGO. The most likely buyers may be Chinese national oil companies.

Maduro has come in for harsh criticism by several US newspapers, including the New York Times, which singled out the prosecution of López and charges pending against February’s violent protests in an editorial. The editorial urged Brazil and other Latin American countries to block Venezuela’s ascension to the UN Security Council, even though Caracas is slated to assume a seat on the Council under the normal rotation established by the countries in the region.

Meanwhile, news in Colombia linking former President Álvaro Uribe to terrorist groups lends some credence to the Maduro’s claims about subversion. Venezuelan state television broadcast a recording (apparently of a Skype call) between two radical young Venezuelans in which one says, “On Saturday Uribe is coming here and on Monday we are going to take the bridge… Little by little we’re going to heat Táchira [a border state that has seen intense conflict between government and opposition] up.”

Venezuela Strongly Supports Gaza

Consistent with its past record of strong support for the Palestinian cause and its criticism of Israel, Venezuela strongly criticized the latter during the recent conflict in Gaza. Some recent news stories highlight, somewhat indirectly, that its support goes beyond words. Venezuela’s ambassador to Egypt says that an F-16 aircraft fired a missile (which failed to explode) very close to a Venezuelan humanitarian aid mission in Gaza along the Egyptian border. The mission was delivering 12 tons of humanitarian aid. The Venezuelan ambassador claimed that Israel was attempting to intimidate the Venezuela mission. Israeli spokespersons denied the claim.

In August, the Venezuelan government released photos of a “Hugo Chávez Shelter for Palestinian Child Refugees,” to be located the state of Aragua, located approximately two hours west of Caracas.

The Venezuelan response was part of a general Latin American response to the fighting. Latin Americans have been largely sympathetic to the Palestinian cause, but it is unusual that the region has reacted so strongly and in concert.