Saturday, February 15, 2014

Storm Approaching in Venezuela

Laguna de Mucubají, Merida, Venezuela (December 18, 2010)

A storm is gathering at the feet of the Andes. It has been brewing for years. El Comandante kept the lid on the pressure cooker, enchanting el pueblo with his mesmerizing words, but the steam had been building up. Now that he is no more,  the valve is broken and the country is bound to deflagrate. 

I am talking of Venezuela, of course, and the storm that is brewing has nothing to do with the thunderclouds that brought us rain during my last visit at the Kettle Mucubají in 2010 (large photo above). I am referring to the government policies that have transformed Venezuela into a failed state, with a broken social texture and a tanked economy. Being an oil-rich country, Venezuela does not have any reason to be on the verge of financial collapse. Yet, traditional high level of corruption and misuse of government funds have prevented the country from creating the necessary infrastructure that would have lifted the lower classes from the bounds of poverty, and developed the local economy beyond the oil export. The great hope was the raise to power of Hugo Chavez, a left-leaning populist that introduced reforms and economic aids aimed to alleviate the isolation and disadvantage of the Venezuelan poor: free clinics, schools, house development projects, basic food at subsidized prize. These reforms did have a real effect in reducing poverty and illiteracy in the country, despite the opposition of the middle and higher classes, that felt excluded by the action of the government. This created a very polarized situation in Venezuela, pitting the poor majority against the minority middle class and the elites. In 2002 the situation exploded, with a CIA-backed failed coup against Chavez, followed by a strong reaction from the government that successfully managed to marginalize the opposition, politically and economically. As a result of this process Chavez assumed full control of the nationalized oil company, and its revenues. This was the beginning of the end of the democratic "bolivarian" revolution started by Chavez (so called after Venezuela's independence hero Simon Bolivar), and its transition towards a paranoid kleptocracy with unparalleled heights of corruptions.

The calm before the storm
The main engine of corruption, of course, is the state oil company. Traditionally managed as an independent company, after the 2002 events has been converted into the cash cow for Chavez's party, with all revenues siphoned into black-box companies with unpublished books. It has been estimated that with this mechanism Chavez managed to stash away over 100 billion dollars, which have then been used to buy votes through populist projects (e.g. free refrigerators for all eligible Venezuelan just before elections) and to fatten the pockets of government officials (the so-called "boliburguesia"). A second engine of corruption is the exchange control, also instituted after the 2002 coup to prevent the flight of capitals and protect the Venezuelan economy from real or perceived foreign (US) economic sabotage. By fixing the exchange rate of the bolivar with respect to the dollar, the Venezuelan government found itself in the quandary of having to subsidize each and every currency transaction, by paying the difference between the official rate and the actual market value of the currency. As inflation grew to the current 56% annual rate, this mechanism became unsustainable. Foreign companies doing business in Venezuela found themselves unable to get paid in real dollars, and stopped importing into the country. This is the root cause for the extreme shortages that have brought the situation in the country to the point of breakage.

You have to remember that the economy of Venezuela is totally dependent on oil export and import of everything else. The country is not even self-sufficient in terms of its food needs. Stopping food imports in Venezuela would mean famine: some analysis predict that Venezuela will soon default on its currency exchange scheme, after which it will be unable to keep importing basic food needs. These is the perfect storm that is approaching in Venezuela as I am publishing this post.

It has in fact already started to rain. On one side the middle class, exasperated by the soviet-kind lines that are now necessary to buy everything from corn meal to toilet paper, is filling the streets banging pots in protest against the government. On the other side the government and its assault troops, bands of bikers armed by Chavez party that are intimidating the protesters by shooting on the crowd (three deaths just yesterday, and we could hear the rioting in the street behind Mayli's mother house while we were Skyping with her the other day). The government has also emitted an arrest order against an opposition leader, Leopoldo Lopez, under the charges of murder and terrorism, and is blocking part of Twitter. It won't be long before the start of the storm.

Strada del Paramo, Merida, Venezuela (December 18, 2010)

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