Venezuela’s president is trying to hold on power by waging a war against imaginary forces. Meanwhile the time bomb he is sitting on keeps ticking
It doesn’t take a lot of mathematical genius to understand that Venezuela’s deep in the hole.
The country, which derives 95 percent of its trade revenue from oil exports, has seen its income drop 62 percent last year. Its current account deficit stood at $5.05 billion in 2015, and the central bank reckons GDP will contract by 4.5 percent in 2016. Caracas has to repay about $16 billion of debt by December. Its reserves currently amount to $15 billion.
Nicolas Maduro, Venezuela’s president, thus phrased it well when he declared an “economic state of emergency” on Friday. Except he did it for the wrong reasons. After last December’s elections produced the first opposition-dominated parliament in 17 years, Maduro is looking for ways to maintain his grip on the country. The decree he advanced last week would grant him extraordinary powers over economic matters for two months, bypassing lawmakers. He proposes to use this time to fight the “non-conventional war that attacks our homeland".
Exactly who's waging this war is not so clear. Ever since Maduro succeeded Hugo Chavez in 2013, "enemies of the Bolivarian revolution" has been a catchall label used by the regime to justify political imprisonments and discredit outside critics. There are some usual suspects, of course: the civil society, the United States, capitalist forces. But often the baddies have remained a rather loose bunch. “In Venezuela the opposition has not won,” Maduro said last month. “For now, the counterrevolution that is at our doorstep has won.”
Yet the president has very real enemies. The opposition would very much like to get rid of him; it could have done so with the supermajority it won before Christmas. But Maduro is a bad loser. In late December, before the new assembly took power, he packed the Supreme Court with friends. The judges then accused three of the opposition's lawmakers of electoral fraud, and ruled that the assembly could not convene until these were booted out. Disgusted but eager to start working, the opposition last Wednesday gave in. It is now short of a supermajority – by exactly three.
So the president may well survive his full term. But the opposition will still try to row back many of Maduro’s policies. Tight price and currency controls have been blamed by many for crippling industry and gutting supermarkets. With oil below $30 a barrel and wide-ranging subsidies in place, the government is struggling to pay for imports. Shortages of goods from rice to toilet rolls have triggered regular violence since the summer. Inflation runs at 145 percent, the highest in the world.
A crisis is looming. Venezuela’s oil production is dropping, largely because PDVSA, the national oil company, has reinvested little of its profits in the country’s petroleum industry. These have instead gone into paying for generous welfare programmes and political projects. Oil prices could soon cross Venezuela’s break-even threshold: analysts reckon the country will stop making operational profits should a barrel dip below $20. All this may cause a GDP contraction far worse than Caracas suggests (the IMF forecasts it at more than 10 percent). And it makes a default ever more likely.
The nation is running out of options. Venezuela has the world’s largest proven oil reserves, but fresh deposits are in areas that require significant foreign investment. Little of it is eager to oblige at the moment. The country can’t increase revenues by selling more to the United States – ironically one of its most profitable clients – because large volumes are tied to PetroCaribes, a programme designed to extend Caracas’ regional influence by delivering oil throughout Latin America on preferential terms.
Venezuela could try and knock on China’s door – again. Beijing has long been lending money to Caracas in exchange for crude. But as Venezuela’s gone back to China asking for additional loans to keep itself afloat, Beijing’s responded by promising more money and lengthening payment terms. Contracts also stipulate that the number of barrels shipped as repayment must rise when prices fall, a clause which very much applies today. All this is leading Venezuela to mortgage ever more of its oil to service Chinese debt. This geopolitical variant of a Ponzi scheme can’t last forever.
Democratic Unity, the opposition alliance, has a strong mandate for getting the country out of this quagmire. It shouldn’t expect much support from the government. Maduro hasn’t shown much willingness to dismantle state controls; he wants to keep sweeping powers over the budget to spend it as it pleases him.
Instead the opposition should seek international help. Members of the Organisation of American States have tools to act against leaders in clear breach of democratic practices. They should use them if Maduro continues to render the parliament powerless. The president seems ready to go to extreme lengths to remain in command, so it may be no silver bullet. But the language of war seems to be the only one he understands.
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