The cost of muddling in Venezuela

Caracas, January 12, 2016: Venezuelan President Nicolas Maduro receives a Workers of the Venezuelan State Oil (PDVSA) march (source: dpa)
Caracas, January 12, 2016: Venezuelan President Nicolas Maduro receives a Workers of the Venezuelan State Oil (PDVSA) march (source: dpa)

Thirty years ago, Moises Naim and Ramon Pinango published El Caso Venezuela (1984), a study concluding that Venezuela enjoyed a false sense of social harmony financed by revenue from crude oil exports. They pointed out that the country’s extraordinary mineral wealth had encouraged an increasingly corrupt and inefficient political leadership and growing income inequality, writes Dr. Joseph S. Tulchin.

Fifteen years later, Hugo Chavez exploited that corruption and inequality to build a populist political regime with massive public support that he called “socialism in the 21st century.” During Mr. Chavez’s 14 years in power (he died in office in 2013), the petroleum windfall was used to lift millions of Venezuelans out of poverty and provide them with housing, healthcare and access to education.

Everything has changed over the past year, when the price of oil collapsed from its historic high of $115 per barrel to just above $20 for the heavy crude that Venezuela produces. In 2014, the last full year of high oil prices, the federal government transferred more than $44 billion from the national oil company, PDVSA, to pay for its social programs. “Socialism in the 21st century” had become social welfare by petroleum.

Today, PDVSA has no more cash to give. Venezuela’s economy contracted by 10 percent in 2015; imports fell by one-third and inflation spiked to an annual rate of 700 percent.

Even more importantly, the country’s utter dependence on oil for its foreign exchange (crude accounted for more than 90 percent of Venezuelan exports under President Chavez and his successor, Nicolar Maduro) left it unable to pay for imports when energy prices fell. Approximately one-quarter of the country’s automobiles are inoperable due to a lack of spare parts. Hospitals have closed because there are no imported medicines.

This economic disaster, combined with Mr. Maduro’s growing authoritarianism, carried the united opposition (known by its Spanish acronym MUD) to a stunning victory in the December 2015 elections. Optimists saw MUD’s unexpected parliamentary majority as the beginning of the end for the Maduro government.

Yet the endgame has not unfolded this way. Why not?

First, the opposition has done little with its majority in the National Assembly. Instead, it has dithered on the economic crisis. This has given the government time to recover its balance and come up with its own response to Venezuela’s financial problems, which include a foreign debt more than twice the size of gross domestic product.

Secondly, the prospect of imminent ouster has encouraged the government and the military to close ranks. The decision by the United States to renew individual sanctions against government officials accused of human rights abuses has helped this consolidation, by increasing costs of giving up power.

As the price of heavy crude creeps back up toward $50, the authorities have gotten an economic reprieve. As long as MUD remains unfocused, the Maduro government just might survive. Regime change depends on whether the opposition gets its act together. The longer the situation remains unresolved, the greater the threat of violence. That poses a challenge to the international community, which may have to come to the rescue if Venezuela collapses in bloodshed.

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