CARACAS CONNECT: Venezuela’s Agony

By: Daniel Hellinger, Professor of International Relations, Webster University

Although there is some dispute over just how and why economic and social conditions have deteriorated badly in Venezuela, there is little doubt that most of the country’s people are facing severe hardship. Absent compromise – and with the military reluctant to act – the specter of a coup, or even civil war, looms further down the road. President Obama has renewed sanctions against individual officials in Venezuela, to which President Nicolás Maduro responded by recalling Venezuela’s charge d’affaires from Washington, complicating diplomatic options. It will take international mediation, not U.S. pressure, to secure a political exit from the crisis.

Low oil prices have contributed to the crisis. They have rebounded recently, but not enough to stabilize the economy. The country seems to have staved off a financial default for the first half of 2016, but its debt burden and low oil prices continue to squeeze the budget, and have finally forced some adjustments in economic policy. However, Venezuela owes China and other foreign creditors much of its future oil production.

An Inside View of Deteriorating Social and Economic Conditions

Lisa Sullivan is a Maryknoll Catholic lay missioner who has lived and worked in Venezuela for over thirty years, and has frequently guided and spoken to visiting foreign delegations about the Bolivarian Revolution. She recently circulated a letter vividly describing how Venezuelans are experiencing the worsening social and economic conditions. In it, Sullivan writes,

“I watch [Venezuelans’] efforts to obtain food for their families become more desperate and more futile, and… I witness pounds dropping from their bodies… These people, my friends and neighbors and family, are literally being swallowed up by massive economic and political interests. A perfect storm of a collapse of global oil prices combined with massive internal economic errors leading to unbridled corruption on all levels of society has left these vulnerable sectors literally almost starving.”

Sullivan enumerates the “real, palpable” achievements of the Bolivarian Revolution but admits, “Today our reality is widespread hunger. The current government points to an economic war unleashed by wealthy business owners with international support from the U.S. that has led to hoarding and shortages of food.” Meanwhile, she writes, “the U.S. points to mismanagement and poor planning on the part of the Bolivarian government that led to…a totally rentier economy dependent on food imports.”

She identifies no simple remedy for the situation, and notes that Venezuela’s government has reason to be wary of a potential U.S. intervention, given the 2002 coup against former President Hugo Chávez, but clarifies that she faults the Maduro administration for exacerbating the crisis by being “ultrasensitive to critiques and suggestions, even within [its] own ranks.”

Sullivan concludes, “The grave humanitarian crisis in Venezuela today is real and not an invention of the press. And the contributions to this crisis lie on multiple shoulders. And the solution to this problem needs to be determined by the Venezuelan people with support from other Latin American peoples.”

A June 6 New York Times editorial criticizing other Latin American countries for not punishing Venezuela for democratic failings also called on Maduro to accept outside humanitarian aid. Although she terms the crisis as “humanitarian,” Lisa would be the first to reject using conditions as an excuse for U.S. military intervention, as Washington has done elsewhere. And, as bad as things are, Venezuela’s situation does not approximate the devastating state of affairs in parts of the Middle East and Africa.

Sullivan’s letter is a sobering call for a middle way, distinct from more extreme calls for radicalization, on one side, and U.S. intervention or a coup on the other. Lisa more fully elaborates her views in a subsequent letter.

Maduro on the Ropes?

There can be little doubt that the opposition coalition Democratic Unity Roundtable’s (MUD) success in the December 2015 National Assembly elections and the government’s reaction exposed the fragility of the country’s political institutions. Political polarization has reached levels comparable to the period between 2001 and 2004, years that saw the coup and oil export blockade orchestrated by the opposition with encouragement from the U.S.

Failing to find consensus around a single strategy, the opposition “united” in early spring around four different plans to evict President Maduro from Miraflores, the presidential palace:

  1. Large-scale popular mobilizations to force the president’s resignation.
  2. A recall referendum.
  3. A constitutional referendum to shorten his term to four years.
  4. A constituent assembly to rewrite the 1999 constitution.

So far, the MUD has had limited success with option one. Options three and four have proved unviable politically, but a recall referendum is more promising for the MUD. The opposition wants the recall to take place before January 10, because if it were to be held later, the vice president would automatically finish out President Maduro’s six-year term, and a new election would not be held until late 2018. President Maduro declared last week that even if the opposition completes the process to hold a referendum this year, “the recall referendum will be held next year. Period,” though he has also affirmed that the government “must respect whatever the electoral authorities decide.”

On May 2nd, the opposition coalition submitted to the National Election Council (CNE) a petition to initiate the recall process with 2.8 million signatures, well over the one percent of the electorate (around 200,000 voters) needed to advance to the next step; at which point, after the 200,000 signatures have been verified, the coalition would gather the signatures of 20 percent of the electorate (4 million signatures), thereby triggering the recall referendum.

Before a recall referendum may occur, however, the CNE must review and certify both the initial and subsequent petitions. Four of five members of the CNE are aligned with the governing United Socialist Party of Venezuela (PSUV). The opposition has accused the Council of deliberately slowing down the count. Even so, the process is moving forward: Earlier this month, the CNE certified that a sufficient number of the signatures were valid to allow the verification process to progress; between June 20 and June 24, 200,000 of the initial signatories must step forward and confirm their support with fingerprint scans to confirm their identity. Should that happen, the opposition will proceed to try to collect 4 million signatures to force a recall election. If a recall eventually takes place, the MUD must obtain more votes (7,587,579) than President Maduro won when he was elected in April 2013, with a turnout of at least 25 percent.

On June 10, President Maduro asked the Supreme Court, which is dominated by judges appointed in the Chávez era, to rule out any referendum, alleging massive fraud on the part of the opposition in the signature-gathering process. While the stakes are higher in this case, the maneuvering on each side is quite common in political battles over referendums and recalls. Parallels can be found in state-level politics in the United States – e.g. in the attempt to recall Wisconsin Gov. Scott Walker in 2012.

If a recall is held before January 10, 2017, Vice President Aristóbulo Istúriz, a Chavista, would temporarily take office, and new elections would have to take place within a month. The short time between the recall election and a new election would leave little time for either the MUD or PSUV and its allies to select candidates. President Maduro would be eligible to run, but it is entirely possible that the PSUV would prefer an alternative to the unpopular president. While Henrique Capriles may emerge as the MUD’s candidate, this is not a sure thing. The MUD is united around one goal: removing Maduro. Some factions, however, such as the Justice First party, are pushing for the immediate dismantling of Chavista programs, especially the housing program and land reform. Other MUD factions say they only want to administer the programs better.

The discussion forum of Aporrea.org, a website strongly committed to the Bolivarian Revolution, increasingly features posts by disgruntled Chavistas. Postings on March 14, for example, included a prediction that Maduro will be “miserably recalled,” while the author of another sarcastically proclaims his willingness to carry the new patriotism card that the president wants to issue to supporters, suggesting it bear the slogan, “Maduro, the best president history has ever seen.” Daily debates over shortages spare no one from blame – not the opposition, the business sector, or the government.

The presidential elections, set to take place in late 2018, are not as distant as they may seem. Were the country to limp to this showdown, it is even more likely that a second opposition candidate would emerge to challenge Capriles. In the PSUV, without Chávez to moderate among conflicting factions, it is not at all clear who would emerge.

Leopoldo López, a prominent jailed opposition figure and former mayor of Caracas, has differed with Capriles over strategy and policy goals, just one of several evident divisions in the MUD coalition. Acción Democrática (AD), the largest party of the pre-Chávez era and the single largest member of the MUD, has reportedly offered to accept a delay in the referendum until 2017 in exchange for the release of opposition figures jailed on allegations of promoting violence. The opposition forces supporting López still want to pursue changes to the constitution and street mobilizations.

Venezuelans are disheartened by both the ineptness of the current government and the crass political maneuvering of factions within the opposing blocs. Both the MUD and the governing PSUV occasionally put thousands into the streets, but both have failed to match the passion and numbers of the massive marches in favor of and against Hugo Chávez between 2001 and 2004.

This does not mean that the streets are calm. Protests have broken out over food shortages in various parts of the country. Many have occurred in poor areas that once were bastions of Chavista support, as poor Venezuelans have waited in long lines for basic goods, often to find supplies exhausted.

While middle-class Venezuelans cannot find staple products conveniently and may spend hours each day looking for some goods, the international media’s images of empty supermarket shelves are somewhat deceptive about who is suffering most. A Basque businessman recently posted images of well-stocked shelves of food and supplies, including imported luxury items, in the upscale Altamira area of Caracas on his Facebook page.

On June 9, the government announced it would import 115,000 tons of basic goods and distribute them directly to families, “house by house,” through the communal councils. This will be a major test for the councils to see whether they will distribute goods fairly to government and opposition supporters alike, as well as whether they can effectively control contraband purchases. It is not clear whether the government will use a similar system for medical supplies, which have also been subject to pilfering and sales on black market.

Another sign of unrest is the outbreak of popular violence against bachequeros, people who buy staple products in large quantities cheaply in subsidized markets in order to sell them at higher prices in middle-class communities. One report indicates that bachequeros may make up to a 1,000 percent markup by trading in the 47 commodities whose prices are government-regulated. Lisa Sullivan says that a kilo of flour, which costs 2 cents in a government market, goes for more than $2 on the black market. The international media tends to blame socialism for the crisis. In response, Jorge Geordani, the former Finance and Planning Minister for Maduro, blames fraud and manipulation of the exchange rate by the business sector and charges that companies, including Polar, Venezuela’s biggest food conglomerate, drained the government of $20 billion by importing products using cheap dollars and then selling them on the black market at highly inflated rates.

The government has encouraged supporters to organize neighborhood committees to combat the illegal trade, and mob violence in the form of raids on warehouses and markets has become more widespread. The threat of vigilante justice, including the lynching of alleged robbers, emerged last year and continues to appear periodically.

The Maduro administration contends that food riots are not spontaneous and have been sparked by opposition forces supported by the U.S. The U.S. has used the tactic of exacerbating economic conditions as a means of destabilizing and undermining elected governments, such as in Chile in 1973 and in Nicaragua between 1979 and 1990. On the other hand, sparks only set off fires where there are combustible conditions, and although hundreds of arrests have been made, no evidence has been presented directly linking the opposition to the outbursts.

Margarita López Maya, a prominent Venezuelan sociologist who moved into the opposition late in the Chávez administration, thinks the situation is deteriorating, but that neither a coup nor a rebellion on the scale of the Caracazo riots of 1989 are likely in the short term. In a recent interview, she pointed out that Venezuelan business leaders are highly dependent on government subsidies and have tended to stand back and allow the political opposition to carry the burden of mobilizing against President Maduro. While insisting that former President Chávez prepared the way for the crisis by concentrating power around himself, she also faulted the opposition for its political missteps, most notably its decision to boycott the 2005 National Assembly elections.

Financial Survival, Modest Economic Reforms, Continued Hard Times

Despite many news reports of an impending default, the government has thus far avoided this outcome with what the Financial Times calls an “almost kamikaze-like commitment to keep servicing its international borrowings.” According to the Financial Times, Venezuela needs to service $10 billion of bond repayments, plus approximately $6 billion of loans from China this year. The country may receive just $22 billion from oil exports for the entire year. Venezuela can still draw on dollar reserves of $13.6 billion, but this figure represents a precipitous fall from $21 billion in April 2015. Reserves were $43 billion in 2008.

As anticipated in an earlier Caracas Connect, China seems ready to negotiate on the terms of Venezuela’s repayment of $10 billion scheduled for this year, out of a total $50 billion loaned since 2007 (some has already been paid, but the amount has not been made public). China is already substantially invested in heavy-oil production in Venezuela’s Orinoco region. In addition, much of China’s credit to Venezuela is repaid through oil exports, and as the former’s economy cools compared to higher growth levels in the last five years, so too does its immediate energy appetite. It may be in China’s interest to defer deliveries.

Since January, President Maduro has announced several significant economic policy changes, including a modification to the exchange rate system. The overvalued Bolívar has, according to many economists, been the most serious drain on the country’s accumulated dollar and gold reserves. Additionally, President Maduro announced a two-day work week, due to electricity shortages and blackouts exacerbated by an extraordinary drought that has radically reduced the capacity of Venezuela’s hydroelectric dams, which provide its main source of power.

The modest rebound in oil prices may help President Maduro and the economy, if it is sustained. The basket price of Venezuela crudes hovered around $45, up from $25 two years ago. As a result, the official value of bolívars that the government provides at a fluctuating rate has risen, and the black market rate has fallen, though the black market rate remains three times higher. The president of PDVSA, Venezuela’s oil company, says that a price of $50 would allow the company to meet demands of its creditors.

U.S. Policy, Mediation, and the Impact of Venezuela’s Crisis on Cuba

The victory of center-right candidate Mauricio Macri in Argentina and the “constitutional coup” that has at least temporary removed Dilma Rousseff from the presidency of Brazil were blows to Venezuela’s alliance-building strategies in South America. However, the impact should not be exaggerated. With the sole exception of Paraguay, Latin American nations rejected the attempt by Luis Almagro, Secretary General of the Organization of American States (OAS), to invoke the Article 20 of the organization’s so-called “Democratic Charter,” by which Venezuela could be suspended for alleged human rights and constitutional irregularities. Venezuela regards both Almagro and the OAS with suspicion, if not contempt. On June 4, Cuba’s President Raúl Castro reiterated his government’s support for Venezuela and warned the region against accepting OAS intervention against Venezuela. The OAS convened a special session of its permanent council on June 23, where Almagro reported on and presented recommendations for the situation in Venezuela. After four hours of acrimonious debate, the session ended with a vote that authorized continuing discussion of the possibility of invoking the charter.

Three former international center-left leaders are conducting the most promising mediation efforts thus far to resolve Venezuela’s political upheaval peacefully: Spain’s former Prime Minister José Luis Rodríguez Zapatero, Panama’s former President Martín Torrijos, and the Dominican Republic’s former President Leonel Fernández. The two sides remain far apart. Despite Venezuela’s differences with the OAS, the Maduro administration has asked the OAS’ permanent council to meet with the mediators.

It is possible that the Obama administration is exercising what has in other cases been called the “two-track policy”: hoping for an opposition victory through constitutional processes, which would presumably help stabilize the country, while at the same time working to unhinge military support for the government in the hopes of provoking a coup. Capriles has presented himself as the moderate alternative to López, but he has also made provocative remarks, stating on May 4 that the “the army must choose” between supporting President Maduro or the constitution.

There are reasons to think that the U.S. would prefer either a “soft coup” or an electoral path to the opposition taking power. As President Obama recently told CNN Español, “It’s not in America’s interest to see Venezuela fail, because if Venezuela fails then that could have an impact on the economies of Colombia or Central America or Mexico, and that in turn can affect U.S. economies.”

On June 13, Secretary of State John Kerry met with Venezuela’s Foreign Minister Delcy Rodríguez; and they each expressed interest in reestablishing ambassadorial relations. Kerry also expressed U.S. support for the opposition’s recall petition.

José Rangel, a notable journalist with close ties to the PSUV, believes that even the U.S. prefers that President Maduro finish his term. According to Rangel, Thomas Shannon, Undersecretary of State for Political Affairs and a long-time U.S. diplomat in Latin America, has told conservative congressional leaders that the Obama administration thinks Maduro finishing his term would be better for Venezuela’s stability than the process and uncertain outcome of a recall referendum. There is no independent confirmation of the report of his, but the U.S. may indeed prefer a weak President Maduro to the possibility of military rule or political chaos. There is also the prospect that President Maduro could be replaced by an even more radical Chavista. Shannon met with Venezuelan officials in Caracas this week, his third such visit in the last year.

The weakening of the Maduro administration, the decline in oil prices, and Venezuela’s general economic crisis is likely cause for apprehension for Cuba’s government, as Venezuela has been a vital supplier of oil to Cuba. Barclays claimed a year ago that with oil prices at their nadir, Venezuela’s oil shipments to Cuba and the Caribbean had already dropped by half since 2012, from 400,000 to 200,000 barrels per day. Specific numbers for Cuba are harder to find, and Venezuela’s government has not announced any changes to oil shipments recently, but it seems that Venezuela expects Cuba to devote some portion of its rising tourist revenues to replace discounted oil. The conservative governments in Latin America appear to have little interest in seeing a return to hardline, unilateral U.S. policies toward the region, but it remains to be seen whether key players, such as Brazil and Argentina, will remain a solidly behind Venezuela and Cuba as they did under leftist control.

Despite Venezuela’s decreased oil exports to the region, and possibly to Cuba, cooperation between Venezuela and Cuba is set to continue through the year. In early April, President Maduro announced that Venezuela’s government will spend $428 million in 2016 to strengthen collaboration with Cuba in programs for health, education, culture, and sports, and that much of the funding would go toward producing medicines for the program.