Notes on the Current Context

David Smilde  

Yesterday I met with an international journalist in Caracas. Since most of what you say in these interviews doesn’t get used, here is an edited version of some notes I wrote up to prepare.

On the Current Economic Situation 

The situation is very difficult, and has worsened significantly in the past two months. For about a year and a half we were in a context in which if people were willing to wait in line for hours a couple of times a week they could get some basic goods, and barter for or buy the rest on the parallel market. 

But since May it has gotten much more difficult. The government has dramatically slashed the dollars it makes available to importers which has led to a 40% decline in imports this year compared to last year, over 60% decline over 2012 when Hugo Chavez was reelected. That has a huge impact that has really hit home in the past two months.

But beyond that, during 2015 and the first several months of 2016, bachaqueo—the buying and selling of price-controlled goods—provided an important escape valve. Many people who were unemployed or underemployed found in bachaqueo a way of navigating the crisis, making several times the minimum wage. This kept a lid on people’s discontent. In fact, the whole system could have been turned into a quite interesting policy of popular economic activity: provide people with subsidized or wholesale goods like supermarket chains get, and allow them to distribute them for profit.

However, this is a government that does not believe in the market and instead portrayed bachaqueros as traitors, as saboteurs, or outright thieves. The government thus created the Local Committees for Provision and Production (CLAP) which are charged with distributing bags of food. The idea behind the CLAPs is to circumvent the informal market and get goods to people’s homes for their official price.

But of course like all of the government’s participatory initiatives, there is a lack of transparency, control and organization. While some of the CLAP surely work pretty well, others are politicized; others end up overcharging or stealing the products. In general terms, they are inefficient and simply do not cover the need. For example, here in my middle class neighborhood there has been no sign of the CLAPs anywhere. And there are people who could benefit from access to low cost food–retired people on a fixed income, for example.

And of course the real problem is not so much distribution as production. There simply are not enough goods to go around. The CLAP do not distribute additional goods. Rather they take them off the market and distribute them in a directed way. This has led to a lot of discontent among those who are used to waiting in long lines and obtaining some benefit who now find themselves waiting in long lines only to come up empty-handed. This is the spark that has set off some of the protests and lootings over the past month. Luis Vicente Leon has called this round of protests “The Rebellion of the Bachaqueros.”

An additional reason for rising discontent is that prices were raised on some essential goods. So now it is somewhat different from, say, six months ago in that you can go to supermarkets and find chicken and other goods that previously were scarce. But they are at prices that most people cannot afford.

For the past year and a half, we have had altercations in lines and lootings. In 2015 there was on average 1 looting a day. But in May 2016 there was on average ten lootings a day. And in the past two months there have been food protests, which is something we had not seen before. People in a specific area protesting with signs demanding food. This is something that I do not remember ever seeing before in the 20+ years I have been studying Venezuela.

There is not starvation in Venezuela right now. But there is significant hunger and malnourishment that could turn into starvation this year if something does not change. People are not getting the food they need. Some are only eating once or twice a day, or eat only root vegetables. And perhaps even worse, they are not getting the medicines they need. Medications for hypertension, cholesterol and diabetes, chemotherapy, psychiatric drugs, are all difficult to obtain and these scarcities can allow treatable diseases to become fatal.

And indeed it is likely going to get worse before it gets better. Two years ago the government could have changed its crazy foreign exchange distortions and straightened out the economy. But now, even if it does everything right in macroeconomic terms, it cannot straighten things out because there simply is not enough money coming in with oil below $50 a barrel.

The government has chosen to prioritize paying their foreign debts over people’s consumption and that explains why people are suffering. That is actually a defensible move since a default would be a catastrophe for Venezuela and its people. This is an economy that depends on exporting oil and having people actually pay for it. Venezuela sends tankers worth tens or hundreds of millions of dollars (depending on the oil price) filled with oil across oceans. It has refineries and other assets, all of which could be embargoed in a default. What is more, simply to produce its oil it needs to import light crude to mix with its heavy crude. Without doing that it can’t even transport it. 

What is not defensible is to go through this adjustment without external financing. Venezuela needs an infusion of resources if it is to avoid grinding its population into the ground. Given its ideology and history, it would be very difficult for Chavismo to go to the International Monetary Fund or the World Bank. But with the largest proven reserves of oil in the world it certainly has collateral. It is a matter of getting policies in place that would generate enough confidence that a multilateral bank, an ally like China or an investment bank or large corporations would lend them money (see Francisco Rodriguez on the issue of external financing).

The current economic situation is showing some changes that are not easy to understand. The Venezuelan Central Bank has slowed down emissions of money. Yet inflation has continued apace, most likely motored by the decline in production and importation of goods. This has created a scarcity of liquidity at many levels of the economy, with banks having daily withdrawal caps.

On the Political Situation

The political situation is very difficult. The Maduro government has basically stymied the National Assembly, using the Supreme Court to shut down most all of its initiatives. Now the opposition is pushing for a referendum, following the kafkaesque process the CNE has created to make it difficult.

The situation is such that there are many people within Chavismo who would like to see Maduro recalled in a referendum because they know he is taking Chavismo to the brink. But they want this to happen in 2017 so that it is the vice president that takes over, not the opposition. The thought is that in the last two years of the presidential term they could right the ship and come back, much as Hugo Chávez did in 2004. And the government really has all of the institutional tools they need to make this happen. They control the TSJ, the CNE, and the military. Their control of these latter two institutions is not complete, but is comprehensive.

The Maduro government is pursuing dialogue through Unasur. Of course it is a little hard to believe that the government wants dialogue given its comportment over the past six months. A democratic state is in effect an institutionalized dialogue. In theory, the AN the Chavista majority could dialogue with the opposition majority. And the Opposition AN could dialogue with the Chavista executive. But in fact, there has been next to no collaboration between Chavismo and the opposition in the AN. Almost all of the members of the Executive that have been called in for interpellation have declined to go. And of course the Executive has used the TSJ to stymie the AN and has repeatedly threatened to shut the AN down. So the opposition’s skepticism regarding this push for dialogue is certainly well-founded.

However, I don’t think it is correct to suggest that this is a way of putting off the referendum. The push for a referendum really runs on a separate track with its own processes and time frames. There is no reason that dialogue and the referendum push cannot take place simultaneously. And I think that even if the government is not sincere about dialogue, the opportunity always has to be taken advantage of because dialogue can take on a life of its own and go directions that were not intended by the actors.

What the push for dialogue does do for the Maduro government is burnish its democratic credentials at a time in which the other actions raise significant doubts about whether Venezuela should be considered a democracy. The Maduro government is violating some of the basic tenets of democracy such as the separation of powers, is intimidating its opponents by imprisoning activists on dubious claims, and is seeking retribution against people who signed in favor of a recall referendum. Worse yet, they are clamping down on the population, quickly repressing any protest or looting that gets out control, as they did in recent days in the Delta Amacuro. But to both domestic and international community they can say “look, we are seeking dialogue and the opposition will not sit down with us.” 

And indeed, while the opposition was quite open to the first rumblings of dialogue in April and May, once Secretary General Luis Almagro suggested he was going to invoke the Democratic Charter, the opposition’s interest set changed. It was the opposition that asked Almagro to invoke the Charter because they correctly see that this would help them in their challenge to the Maduro government. Simultaneously going to dialogue clearly saps strength from a push for the Democratic Charter. And indeed what carried the day in the OAS instead of the DC were resolutions and verbalizations of support for the UNASUR-led dialogue effort. 

Nevertheless, the balance of Almagro’s efforts was positive. Really the only thing that will get the Maduro government to go to a referendum this year is international, multilateral engagement. The three discussions of Venezuela last month in the OAS brought attention to the situation, made Venezuela realize that the international community knows what is going on, and focused their attention on their international democratic legitimacy. The US has also begun a process of engagement of Venezuela which I think is quite positive. What is needed is a full, multi-lateral, international engagement and dialogue that can make clear that the region is watching and is not going to allow a slide into full on authoritarianism.

Of course the US could make this known through sanctions and rhetoric or other more aggressive, unilateral action. However, at this point that would be a net negative, as Maduro would simply use it to play the anti-imperialist card, portray what is going on in Venezuela as the result of imperialist sabotage, and reduce what democratic space is left. 

The situation is very dangerous because the government has a completely unsustainable model of governance, but enough institutional power to prevent change. For there to be a democratic solution to the current crisis, there is going to need to be a process of dialogue, negotiation, and an exit strategy for Chavismo. Without the latter, many leaders would be willing to go down with the ship and take anyone else with them. What is more, Chavismo still holds the allegiance of twenty to thirty percent of the population and that requires democratic recognition and space.

On the Opposition

The opposition has long had serious divisions, and a long term difficulty in engaging average Venezuelans and proposing solutions to their problems. This is still true for the most part. However, a couple of things have changed. The opposition has actually been in power in the AN and passed a number pieces of legislation that have been popular—such as the effort to give beneficiaries of Misión Vivienda property titles–even if they were eventually struck down by the Supreme Court. They also, after spinning their wheels for six weeks or so in March and April, have actually worked in a unified and expeditious way to push for the referendum. And their support has increased accordingly. Datanálisis; most recent numbers suggest that approximately 42% of the population identify with the opposition, compared to 24% who identify with Chavismo. And Henry Ramos, who many of us thought was a terrible choice for the opposition to elect as president of the AN, is now the most popular politician in Venezuela with a 60% approval rating.


The following issue came out in our discussion. The journalist asked me how it was possible for an upscale restaurant like the one we were sitting in, to do business in this context. I said approximately the following. 

Restaurants like this in Eastern Caracas generally have providers that get their goods on the parallel market. They are going to pay much higher prices than the controlled price and that will be reflected in the menu. If you look at a good pasta here, it will cost 8 mil, which is a mere $8 at the parallel rate for a gourmet pasta that would cost you $20-30 in New York. But for a person making minimum wage in Venezuela that would be approximately two weeks of salary.

Venezuela is an oil country that lives on exporting and importing. That means there is a certain segment of the economy–consulting, legal services, technology services, public relations –that can charge in dollars and pay their employees in dollars or with salaries indexed to dollars. And of course there are people who own or work in commerce that services this sector, whose income floats relative to the price of the dollar.

For many of these people, these are unprecedented times of plenty, and they are the ones you are going to see eating at a restaurant like this. But this is not a good representation of the country as a whole. This is Venezuela’s 1%. In fact it is not the case anymore than a middle class person on a fixed salary can save up and go for a birthday treat to a restaurant like this.

There was one other conversation that was important.

The journalists’ fixer was along with us during the conversation. He lives in a Caracas barrio that in recent weeks saw a violent episode of looting and protest over food. I asked him how things were and if people had continued to protest. He said that many people were eating inadequately but that they seemed resigned. There is no longer anything left to loot and when they tried to protest a few weeks ago, the police crackdown convinced them that it was not worth it.