Venezuela’s Stalemate before the Storm

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[The following is the English original of a piece that appeared in the May 3 edition of the German magazine Welt-Sichten. It is written for an audience not extensively familiar with Venezuela.]

David Smilde

In December of last year, it looked like Venezuela was headed for a political sea change. Seventeen years to the day that Hugo Chávez had been elected president, beginning a leftist revolution with broad public support, Chavismo lost a branch of the government for the first time. In fact, the opposition coalition achieved a two thirds majority in the National Assembly, giving them far-reaching powers to push for change. Yet their momentum seems to have stalled, with President Nicolás Maduro and Venezuela’s Unified Socialist Party (PSUV) showing its institutional strength, most particularly its dominance over the Supreme Court (TSJ).

Already in December the government started to peel away the opposition’s majority, when the TSJ accepted a complaint that vote buying had occurred in State of Amazonas and suspended the proclamation of three deputies. In February they declared in effect a statement of economic emergency that the National Assembly had voted against. In March they limited the legislature’s  powers of interpellation to the executive branch, reducing their ability to question judges, the military and electoral authorities. And in April the TSJ declared unconstitutional the AN’s Amnesty Law aimed at the liberation of political prisoners.

But the opposition coalition is not simply a victim of Chavismo’s institutional power. While it successfully unified for last year’s legislative elections and has come together for a number of pieces of legislation in its first three months, on the biggest question—pushing for an end to the Maduro government—it has failed to put forward a plausible strategy. By February there was considerable agreement in the opposition regarding the goal of pushing Maduro from power. The most recent polling numbers show that 63 percent of Venezuelans would like to see Maduro end his term in 2016 instead of 2019. And there is an actual constitutional mechanism for this situation called a recall referendum. If 50% plus one voters support a recall of the president and the number of voters supporting a recall is greater than the number who voted for the president, snap elections are to be held within thirty days.

However, a ten day, closed door debate in March failed to produce an agreement to pursue this strategy. Instead, opposition radicals support a continuation of the strategy of street mobilizations demanding Maduro’s resignation. Others support a constitutional amendment reducing the presidential term from six to four years, leading to elections at the end of the year. Proponents of the last strategy suggest it would lead to a full presidential term for the opposition, while the recall referendum would only allow a new president to finish out Maduro’s term.

In addition, while the National Assembly could carry out a constitutional amendment largely on its own, a recall referendum would require a much more significant process of mobilization, something that has always been a shortcoming of the opposition. Just to get to a recall referendum the opposition would need to get 20% of the electoral registry, or 3.9 million people, to sign in the span of three days, in a process carried out by the National Electoral Council. Polls show that 63% do not want Maduro to finish his term, but only 52% of the population would vote to recall him. Indeed, some in the opposition think Chavismo should have to pay the consequences of the government’s mismanagement, and the opposition should not seek to take charge in the midst of an economic crisis. Thus the opposition has reason to be concerned about its success in a recall referendum.

Nevertheless, its strategy of attempting several tactics at once got poor reviews from commentators and seems to have left the population flat. The key to understanding the fractious, often self-defeating nature of the Venezuela opposition is to remember that it is not a party, but a coalition of parties ranging from social democrats to social Christians to far right movements with limited appreciation of electoral democracy. 

In the December elections the Maduro government was punished for a disastrous performance. According the Venezuelan Central Bank, in 2015 inflation was 180.9% and the economy contracted by 5.7%. To make matters worse, Venezuelan consumers suffered dramatic scarcities in basic goods such as cooking oil, corn flour and milk.

While the economy is being hammered by the decline in the oil price, even when the latter was over $100 per barrel Venezuela was suffering extensive shortages of basic goods and inflation. The root cause is an ever-more overvalued exchange rate. Hugo Chávez began to control the exchange rate in 2003 and over the following ten years it was frequently overvalued by 200-300%. While cheap consumer imports provided a boom in consumption, by the same token it led to a progressive decline in domestic production and an ever-greater dependence on oil exports for foreign currency earnings.

During Maduro’s three years in office this overvalued exchange rate has reached absurd levels. Currently the official exchange rate vis-à-vis the dollar is 1000% stronger than the black market rate. The overvalued currency provides extraordinary incentives for corruption. Ghost companies are set up that obtain official rate dollars to import goods but instead use them for capital flight or to put dollars back on the black market for fantastic profits. And many of the goods that do get imported with official rate dollars—including gasoline, milk, rice, corn flour, cooking oil—are spirited across Venezuela’s borders with Colombia, Brazil and Guyana where they can fetch ten to twenty times their Venezuelan price.

The situation has become much more difficult in the past year as the oil price has precipitously declined. The government has needed to dramatically reduce dollar concessions, meaning fewer goods are being imported. In 2015 it provided importers with 65% fewer dollars than in 2014, 76% less than in 2013. At the same time, the government has covered its deficits by printing money in local currency not backed by foreign reserves. The amount of money circulating in the economy increased by more than 60% in each of the last three years.

The end result is that scarcities of basic goods have surpassed 80%. This means that any basic good—for example powdered milk—is not available at eight out of ten stores. And the two stores that have powdered milk will also have lines of people waiting to buy it. In these lines over half of the people will be buying to resell, an occupation Venezuelans call bachaqueo after the carpenter ants that carry on their backs many times their own weight. They usually sell to resellers who sell at ten to twenty times the original price. The average citizen, then, is faced with either paying inflated prices on the informal market, or waiting in lines for hours to purchase whatever is available.  

The government blames Venezuela’s difficulties on an “economic war” carried out by the national bourgeoisie presumably in cahoots with imperialist powers in the US and Europe. They accuse capitalist enterprises of reducing production or hoarding products to undermine Venezuela’s socialist revolution. Even the bachaqueros are seen as part of a conspiracy and are called traitors by Maduro and others.

But just looking at the numbers above, the situation is not difficult to understand. Indeed it is hard to imagine an economy with ever fewer goods, ever more currency, an inflated exchange rate, and price controls, leading to anything other than the duplet of scarcities and inflation. And indeed the discourse of an economic war is dismissed by 70-80% of the population.

Having failed to come to an agreement and receiving limited public enthusiasm, the opposition’s current strategy seems to be to wait for a crisis of governance to topple the Maduro government. Indeed the economic numbers do not add up for the government actually being able to both pay its debt and feed its people. Analysts suggest that with oil at $30 a barrel, Venezuela will earn approximately $22 billion in oil revenue. But to service its debt and cover imports—even with a 35% reduction in imports from last year—Venezuela would need $49 billion, meaning it has a $27 billion deficit to cover. Unless the government finds significant new funding, it is not clear how it can both pay its debt and feed the people.

What is worse, Venezuela cannot simply default and try to move on without international credit. Venezuela needs to get paid for the oil it exports and has extensive assets abroad that could be confiscated, including oil tankers with tens of millions of dollars of crude that could also be embargoed. Knowing this, the government has prioritized paying its debt and citizens have increasingly felt the pinch through scarcities.

Before the economic crisis hits bottom, Venezuela will likely go through an electricity crisis. The cyclical El Nino drought has hit Venezuela harder this year than anytime this century. The Guri hydroelectric dam, the biggest of the hydroelectric works that provide 60% of Venezuela’s electricity, reached its lowest recorded level ever in the first week of April, almost two months before water levels traditionally recover with the beginning of the rainy season. This recently led the Maduro government to declare a four-day work week for the months of April and May and has already started to produce rolling black outs.

All of these problems could lead to serious social discontent and protests. Already last year there was on average one case of looting per day. Fortunately, only in a couple were people hurt. But all it would take would be a ham-fisted response by Venezuelan security forces to articulate these disparate protests into a larger expression of discontent.

The opposition seems to be counting on the economic and electricity emergencies leading to a crisis of governance that will bring the Maduro government down. However, Chavismo still has considerable institutional strength and seems intent on making change look impossible by styming opposition initiatives. It is not unlikely that they will try to further reduce the National Assembly’s power in the coming months.

But the real losers from this stalemate are the Venezuelan people who now more than ever need politicians that represent their interests. When asked, 90% of Venezuelans think the relationship between the opposition and the Maduro government will continue to be one of conflict. But incredibly, when asked what kind of relationship they would like to see, 85% each of: government supporters, government opponents and independents, suggested they would like to see cooperation to resolve Venezuela’s problems. This suggests that what we are seeing more than anything else in Venezuela is a crisis of representation, as two sides struggle for power, instead of collaborating to resolve the problems affecting average citizens.