Venezuela: A Situation Report

by Patrick Duddy

Venezuela remains in crisis. Popular support for the so-called Bolivarian revolution and its socio-economic model known as twenty-first century socialism has eroded dramatically.  Polling suggests there is a near consensus among Venezuelans that conditions are bad and that the country is headed in the wrong direction but support for the opposition has also declined in recent months.  International criticism of the Maduro regime is widespread. Countries representing over 90% of the region’s population have publicly called on the Venezuelan government to restore democracy. The economy is near collapse and both the country and the national oil company have been declared by various rating agencies and financial institutions to be in selective default. In response the Venezuelan government has looked ever more earnestly to China and Russia to bail them out. Recent assistance from Russia in particular has helped prevent a complete default but not improved circumstances inside the country

The government’s hold on power in Venezuela, however, still appears relatively strong. The opposition is in disarray. Months of mass street demonstrations failed to force Maduro to hold free, fair and internationally observed elections, to change the government’s economic policy or to all allow the international community to provide humanitarian assistance to alleviate the severe shortages of food and basic medicines. Instead the Maduro administration has worked to marginalize the opposition and consolidate power in the office of the president.  A sham election of delegates to a constituent assembly to rewrite the constitution and seriously flawed elections of governors and mayors deflated and divided the coalition of opposition parties known collectively as the Democratic Unity Group (MUD) which could not agree on whether to boycott or participate in electoral contests they considered illegitimate.

Relations with United States remain toxic notwithstanding the continuing importance of the U.S. as an export market for Venezuelan oil. The U.S. has ratcheted up sanctions on individual Venezuelans and severely limited the Venezuelan government’s access to the U.S. financial system, particularly its ability to negotiate new debt.

The current chapter in the story of Venezuela’s tragic fall dates from December of 2015. Following domestic and international pressure to hold constitutionally mandated legislative elections, the Venezuelan opposition won a two thirds majority in the national assembly, Venezuela’s unicameral legislative branch. Since that time, the Maduro government, with the collusion of the Chavista-dominated supreme court and national electoral council, has largely ignored the national assembly, impugning some of its members and inventing specious justifications for disregarding the constitutional mandate to secure the assembly’s approval for matters like contracting new debt. The Maduro administration also simply refused to hold a constitutionally permitted recall referendum on the president in 2016 despite the opposition’s timely presentation of more than the necessary number of signatures petitioning for the recall vote. Instead, last spring, Maduro and company tried to dissolve the national assembly in a move reminiscent of other authoritarian leaders, most recently in Latin America, Peru’s disgraced former President Alberto Fujimori.

The reaction of the international community to Maduro’s attempt to dissolve the national assembly was overwhelmingly critical, most seeing the move as an attempt to deliver a crippling blow to a democracy already on life support. The government backed off from the formal process of dissolving the legislature but the effort made clear that the Maduro government intended to preclude another electoral debacle such as they suffered in 2015.  Supporters of the opposition took to the streets in March and stayed there until July. Venezuela saw more than 100 days of demonstrations during that stretch. The human rights NGO PROVEA put the death toll of clashes between the demonstrators and the police at around 135. The NGO Foro Penal estimated that as many as 5000 demonstrators were arrested and that there are now as many as 600 political prisoners. Unable to placate the demonstrators and faced with an increasingly determined opposition leadership defiantly challenging the regime from the national assembly, the government announced its decision to hold a vote to elect a constituent assembly to rewrite the constitution. The new body, once sworn in, would supersede all other state institutions. Most observers considered the election of delegates to the constituent assembly a charade as the government had unilaterally imposed formulas for apportioning seats which assured a pro-government majority.  Nevertheless the vote was held.  Subsequently most also noted that participation in the government sponsored vote was well below that of an opposition sponsored plebiscite held two weeks earlier which had resoundingly rejected the idea of a constituent assembly. Despite virtually unanimous international criticism, the new body was sworn in. The opposition has seemed to be at a loss over how to proceed since.

There is good reason for alarm over conditions in Venezuela. Virtually all of the country’s political institutions have been co-opted by the executive.  Political liberties, especially freedom of the press, have been curtailed and criminal violence has reached epidemic levels.

The economy is in a shambles. Oil production is a million barrels a day lower than when Hugo Chavez was elected in 1998. According to OPEC, in fact, Venezuelan oil production has fallen to below two million barrels a day from a peak of well over 3 million barrels per day in the mid-90s. This, in combination with the fall of the price of oil, has left the government in desperate straights. Oil accounts for more than 96% of the country’s foreign exchange earnings and at least 50% of the government’s budget.

Other heavy industries are also now almost entirely in the hands of the government or its supporters as a result of wholesale expropriations and nationalizations. These industries are, with few exceptions, largely moribund. The agricultural sector has been decimated by the government’s land redistribution schemes. Consequently, the country now depends on imports to feed itself. Inflation is running at around 700% so far in 2017 and many analysts predict it will soar to well over 2000% next year. The national currency has essentially collapsed. Unofficial currency exchange houses trade scarce dollars for blocks of Venezuelan script the size of bricks. Some economists believe the country is now experiencing hyperinflation, the bete noire of many South American economies during the second half of the 20th century. Not surprisingly, the country’s fiscal position has become perilous. Foreign reserves are plummeting. Debt service threatens to drain what’s left in the central bank.  What was once the richest country in South America is now almost broke despite possessing the world’s largest oil reserves. The government’s response to its macro economic debacle has been entirely inadequate.  In part in reaction to the U.S. economic sanctions, it has indicated that it intends to create a crypto-currency backed by Venezuela’s abundant national resources and in the meantime will begin conducting its international business in currencies other than the U.S. Dollar. The region’s reaction has been derisive.

The astounding mismanagement of the economy has resulted in a humanitarian crisis. Food is often scarce and, when it is available, unaffordable. Daily lines outside of supermarkets remind those with a sense of history of the Cold War era breadlines in the Soviet Union of the 1950s. According to some non-governmental organizations, middle and working class Venezuelans have lost on average 19 pounds of body weight since Maduro took office in 2013. Even more alarmingly, shortages of basic medical supplies are now so severe that that many health indicators reflect aggregate changes it would have been impossible to imagine only a few years ago. Despite a decade of unprecedentedly high oil prices, poverty rates have slipped to at least  pre-Chavez levels despite the fact that oil, while down from its historic highs of several years ago, still sells for three or four times its price when Chavez took office.  Corruption is rampant, drug trafficking significant and criminal violence terrifyingly common. The Caracas metropolitan area, according many estimates, now has the highest homicide rate of any capital city in the world. Thousands of Venezuelans are leaving the country with huge surges of those registering as refugees in Colombia, Peru, Brazil, the Caribbean, the United States and elsewhere. Some estimates already put the number of those who have abandoned the country at well over a million.

Though the new constituent assembly has been sworn in, the National Assembly does not recognize it as legitimate and neither do most of the major countries of the region, including the U.S. The White House has called Maduro a dictator and sanctioned him, his vice president and others in the regime by name. More significantly, the Trump administration has also imposed the aforementioned economic sanctions restricting the Venezuelan government’s access to the U.S. financial system and making it all but impossible to negotiate new debt with or through U.S. financial institutions. The Common Market of the South (MERCOSUR) has suspended Venezuela. The Secretary General of the Organization of American States (OAS) has published several reports outlining the many ways in which Venezuela is now in violation of its obligations as a signatory to the Inter-American Democratic Charter. The Pope has called for dialogue and an end to violence. The opposition and government have met in the Dominican Republic to discuss conditions for future substantive talks. Many in the region have indicated their hope that the talks will break the political impasse but there is little optimism.

The current situation in Venezuela cannot be called a stand-off between the government and the opposition. The government has blocked every effort by the opposition controlled legislature to exercise its constitutional authorities.   At the same time the government’s decision to hold a constituent assembly implicitly conceded the legitimacy of the opposition’s contention that those constitutional authorities are real. In effect, the government has made clear its determination to take whatever steps it deems necessary to hold on to power, to dismiss constitutional challenges and to defy the international community. On the other hand, the demonstrations that characterized Spring 2017  have largely disappeared and the opposition appears to have no strategy for challenging the regime in the immediate future. Following the most recent round of local elections, which many of the parties of the opposition boycotted, Maduro announced that those parties which had declined to participate would not be allowed to participate in the next presidential election, scheduled to be held sometime in 2018. It is now widely expected that Maduro will formally call elections early in order to hold the vote before other problems become worse.

International concern remains high but no real solution to the crisis has emerged. At the most recent OAS General Assembly, a move to declare Venezuela in violation of the Inter-American Democratic Charter was staved off by Venezuela’s ideological  allies and Caribbean client states, despite the efforts of a coalition of member states representing the overwhelming majority of the region’s citizens. Since then, the major countries of the region, the European Union and the OAS Secretary General have been all been seeking leverage to push the Maduro government to restore democracy. The U.S. has been alarmed by the deterioration of Venezuela for years but until recently never applied economic sanctions. The Trump Administration has made the crisis in Venezuela a priority In the Western Hemisphere. While the U.S. has not blocked oil imports from Venezuela, the decision to restrict access to the U.S. financial system has intensified pressure on a regime whose policies have imposed great suffering on the Venezuelan people and undermined the viability of the state. (Note: State Department spokesperson Heather Nauert’s statement of December 15, 2017 points out that U.S. sanctions do not preclude the supply of “food, medicine and other humanitarian assistance to the Venezuelan people.”) U.S. policymakers clearly hope the latest sanctions, especially if other countries adopt similar measures, will convince the Maduro administration to alter its course. For now, most hope that Venezuelans will somehow find their own way out of their political crisis before the confluence of political, economic and humanitarian problems plunge the country into even more dire circumstances. No one wants to see a failed state in South America.