Venezuela: chronicle of a disaster foretold
The country holds the largest oil reserves in the world, but shelves in stores are empty. The population is hungry. The fall in oil prices revealed the disastrous state of the nation's finances following Chávez's experiment. A default could be a matter of time.
- Monday, 16 February 2015
The lines that "wrap" blocks in Venezuelan cities are an everyday scene. In Caracas, a woman sitting under a tree with a child said that she and her husband had been taking turns standing in line since 4.30 am to buy milk. There was no more milk, though, nor diapers. Another woman said that she would stay in the line hoping to be able to buy soap. She got a number. This means that she already passed the first check for products subject to rationing.
Soldiers are deployed at the entrance of the supermarket and along the line through the parking lot. People are disciplined, but anything can spark an outburst: "Minister! Come and see: there is no meat, no chicken!" There is a shortage of chicken, because there is no money to import avian vaccines.
The state’s coffers are empty. Years of perverse subsidies, for petrol and foreign currency included, and of politicians managing the nation’s finances shrank over time reserves to 20 billion dollars. With the Venezuelan economy depending for an 95% on oil, that would not be enough to even start planning to compensate for lost revenue due to the fall in crude prices.
Data on reserves and other economic indicators, such as a ballooning inflation rate — 56.2%, prompted in January Moody's to downgrade the Caribbean nation once more, considering a default on its debt a possibility. The markets sold off its sovereign bonds, and yields shot up. Brazil asked Caracas to secure a 5 billion dollars loan with gold. Some analysts forecast a 50% probability of a default in 2016, whereas some Venezuelan economists, such as Tamara Herrera, suggest beginning to plan for an orderly default.
If the economy was already on its knees, it is now flat on the ground. The president Nicolas Maduro had a very busy month. He first travelled to Qatar and to China in search of fresh money. The trip was successful but not in a conclusive way. A week ago his government launched a new, unwieldy, three-tiered exchange rate system. One dollar is worth 6.30 bolivars if you import food or medicine, 12 in the case of other products, and a market-determined rate for the rest. De facto, those who want to get hold of dollars will obtain them at the discretion of the monetary authorities depending on the kind of import they are intended to. Foreign Policy explained that, having with the “right” connections within in the Chavista establishment, one could buy dollars with the 6.30 rate stating as purpose the import of a commodity product, then use only a small part of the amount to buy that product, and sell the rest of the dollars on the black market, where $ 1 pays 180 bolivars. The profit could reach a stellar 2600%.
The government fixed last week the price of sugar at 26.50 bolivar. The result is that now in Venezuela two pounds of sugar cost four times more than in the US. The difference between the actual price and that imposed by the exchange is still paid by the government, which keeps bleeding-to-death. Some observers say that it keeps the 6.3 rate in place in spite of its cost, just to make the Chavista nomenclature — its major beneficiary — happy.
Someone must have benefited also from the funds made available for 958 new health facilities projects, whose sites never saw a shovel. In the World Day of the Sick, the number of people waiting in deteriorated hospitals appeared higher than ever.
The popularity of the president dropped to 22%, but this implies principally that the government will keep its grip on critics of the regime, on the opposition and the media tighter than ever.
Being a journalist in Venezuela today, or just being seen with a microphone or a camera, heightens the risk of harassment by the National Guard and the police, if not of full-fledged physical assault. More than 100 media people flew the country in the last few months.
Last week marked also the anniversary of the student protest against censorship, insecurity and corruption that cost 18 young lives. Caracas woke up to a number of wall paintings and slogans remembering the male and female students killed.
Perpetrators are still to be identified. Three students, writes El Nacional, are kept detained in a prison known as "The Tomb" in downtown Caracas. Five floors below ground, even breathing is difficult there, the lights are kept always on, as are the speakers, which uninterruptedly play back Chávez’s speeches. Another student was killed following a tweet in which he complained about police violence. Students have also been beaten and stripped naked by the paramilitary "collectives" Tupac Amaru, the once Chavez militias now escaping any control. The call of the United Nations did not help so far.
Given all these problems, Maduro’s team seems to have chosen distracting the population as the strategy to follow. It spent $ 35 million (but this is just the official figure) to build two mega stadiums, but it cannot find funds to allocate to the many social programs that have earned the Chavista regime a huge consensus.
"The situation is not getting out of control because the government keeps families busy many hours a day seeking food, trying to get back home safe — and not becoming one of the 25,000 deaths recorded yearly in Venezuela, or getting arrested for protesting about empty shelves," sums up Zairena Barbosa, a journalist. And it does not burst also because the opposition is fragmented. And poorly funded. If companies do not stick to government rules and give it support, they risk bankruptcy or even prison for its managers.
Censorship and repression are certainly not new in South America. In Venezuela’s case today, however, they are related to the economy more directly than in others: because of oil exports dependence, because the Chavismo has created a very profitable system of power for its establishment, or worse, as the news go, because the Bolivarian state could be hiding a less "fair" but much more profitable narco-state.
According to a scoop by the Spanish paper ABC on 27 January, the monopoly of the 5 tons of drugs that transit through Venezuela each week — that is 90% of all the drug produced in Colombia — is in the hands of the Sole cartel, which is formed by militaries (the sun is their symbol). This was revealed to US authorities by a commander of the Venezuelan Armed Forces that flew the country. The case could become a headache for the government because the officer now in the US was for many years the assistant of Diosdado Cabello, the president of the National Assembly, and former candidate to succeed Chávez. He is said to be so powerful that "half Venezuela depends on his money."
The general elections are scheduled to be held in November; Maduro has therefore time to devise an electoral strategy hoping that in the meantime the price of oil rises. Instead, the business press looks forward with anxiety to March 16, the expiry date of payments for 2 billion dollars. And the 12 million poor in Venezuela, well, they are busy organizing how to stand in line the morning after.