VENEZUELA’S COL­LAPSE HAS HAP­PENED

The Star (St. Lucia) - - COMMENT - By Me­la­nius Alphonse

Hit hard by 75% plum­met­ing crude oil prices over the last 19 months has been cat­a­strophic for Venezuela. This is com­pounded by Pres­i­dent Ni­colás Maduro’s bad macroe­co­nomic pol­icy, so­cial­ist id­iocy to pla­cate the pop­u­la­tion, with phony hege­mony that like­wise buys friends and so­cial­ist regimes.

Since Jan­uary, and fol­low­ing a de­ci­sive vic­tory, the op­po­si­tion Demo­cratic Unity took 109 seats and now con­trols 65% in Congress. Op­po­si­tion politi­cian Henry Ramos Allup, a lawyer, fourterm con­gress­man and cur­rent Speaker of the Na­tional As­sem­bly, who is 72 years old and pre­sides over Venezuela’s sin­gle-cham­ber leg­is­la­ture, is seek­ing a demo­cratic path to oust Pres­i­dent Ni­colás Maduro.

Ramos Allup be­ing the leader of the So­cial Demo­cratic Ac­tion Party comes with con­cern to us; a mem­ber of Venezuela’s “old guard” that al­ter­nated in power for four decades be­fore Pres­i­dent Hugo Chavez was elected pres­i­dent in 1998.

“We rep­re­sent an al­ter­na­tive. We are not go­ing to be anti-es­tab­lish­ment, rather an au­ton­o­mous leg­isla­tive power. We ask peo­ple to watch us, to de­mand more of us, and keep an eye on what we do to make sure we hon­our our com­mit­ment.”

The word “so­cial” to­gether with be­ing of Le­banese de­scent and other groups such as COPEI, Primero Jus­ti­cia, Venezuela Pro­ject, Alianza Bravo Pue­blo, Un Nuevo Tiempo and a host of oth­ers pop­ping up each day when­ever ba­sic ser­vices and goods are not avail­able is very trou­ble­some. Just imag­ine leav­ing a “vac­uum” to be oc­cu­pied by any of th­ese var­i­ous groups with dif­fer­ent political agen­das.

In Venezuela the political, fis­cal and hu­man­i­tar­ian cri­sis is made worse by the in­abil­ity of the political sys­tem, at present, to ad­dress the sit­u­a­tion. Grass­roots Chav­is­mos are aware that the ir­re­spon­si­ble so­cial­ist ad­min­is­tra­tion of Maduro’s mea­sures to mess with the mar­kets, and the largess of cronies are over. Chav­is­tas know, and Maduro’s ad­min­is­tra­tion knows, that for Venezuela to solve this col­lapse de­pends on his res­ig­na­tion or a con­sti­tu­tional amend­ment, a ref­er­en­dum (to re­voke his term) or calls for a con­sti­tu­tional as­sem­bly.

In re­cent weeks, Venezuela and Rus­sia tried to lobby Saudi Ara­bia and other ma­jor pro­duc­ers into agree­ing to crude oil out­put cuts. But OPEC’s five largest pro­duc­ers (Iran, Iraq, Kuwait, Saudi Ara­bia, and the United Arab Emi­rates) are not in­ter­ested, feel­ing com­fort­able at run­ning 70% of daily out­put.

The pro­jec­tions are that de­clin­ing US oil pro­duc­tion is ex­pected to force oil price marginally up to US$50 per bar­rel by the end of the year. Venezuela’s fis­cal break-even price is $117.50 per bar­rel. Crude oil is trad­ing well below $30 per bar­rel. The econ­omy con­tracted by at least 7% in 2015. Hyper­in­fla­tion is dom­i­nant; the cur­rency is worth less than a penny, while cit­i­zens carry large quan­ti­ties of cash to buy ba­sic goods that are in short sup­ply.

Ex­ter­nal debt is es­ti­mated to be $185 bil­lion, with im­pli­ca­tions for the Bo­li­var­ian Al­liance of the Amer­i­cas (ALBA) and Petro­Caribe, the Mother Teresa of so­cial wel­fare in the Caribbean re­gion. De­clin­ing oil prices means Venezuela’s fi­nanc­ing gaps have grown dif­fi­cult to fund, while de­pend­ing on oil ex­ports for 96 per­cent of hard cur­rency and 40-45 per­cent of the fed­eral bud­get.

Some are of the opin­ion that an agree­ment with China might give Venezuela some breath­ing room to help spark eco­nomic lib­er­al­iza­tion and even­tual re­vival while sit­ting on the world’s largest re­serves. How­ever, Venezuela al­ready owes China $50 bil­lion. The Fi­nan­cial Times is re­port­ing Venezuela will earn less than $18 bil­lion from ex­ports this year, while it owes $10 bil­lion in pay­ments on the $120 bil­lion in debt it has racked up. That leaves $8 bil­lion for im­ports.

Ninety per­cent of the prod­ucts made in Venezuela need for­eign raw ma­te­rial. Do­mes­tic food pro­duc­tion is in­ad­e­quate for 30 mil­lion peo­ple who in­creas­ingly de­pend on food im­ports that are govern­ment con­trolled. On top of that, se­vere drought caused by El Nino has brought 18 of the coun­try’s hy­dro-elec­tric dams to crit­i­cally low wa­ter lev­els. This means en­ergy ra­tioning and a fur­ther drop in work­ing hours will im­pact on jobs and hard cur­rency to com­pound de­fi­cien­cies caused by macroe­co­nomic im­bal­ances.

In any event, two pub­li­ca­tions by Don­ald Trump come to mind: ‘The Art of the Deal’ and ‘Think Big – Make It Hap­pen in Busi­ness and Life’ would have made a per­fect gift for Pres­i­dent Ni­colás Maduro with his ex­treme eco­nomic weak­nesses and er­ro­neous eco­nomic de­ci­sions. At least he would have had se­cond thoughts not to pla­cate cit­i­zens and client states into com­pla­cency through waste­ful so­cial spend­ing that has dug a deep fi­nan­cial hole, giv­ing ex­perts rea­son to con­clude that de­fault in 2016 is “dif­fi­cult to avoid”. But it would be a sur­prise if an ap­peal is made to the In­ter­na­tional Mon­e­tary Fund (IMF) as ac­cess to pri­vate loans dry up and Venezuela’s fi­nan­cial re­serves are ex­hausted.

This means as long as oil prices stay his­tor­i­cally low, a power strug­gle looms and a new round of in­sta­bil­ity could keep grow­ing.

The de­clared state of “eco­nomic emer­gency” would do best to ad­dress the political re­place­ment of the so­cial­ist govern­ment ide­ol­ogy and, on the fis­cal front, ease its spend­ing poli­cies and de­plet­ing for­eign as­sets. Other mea­sures in­clude a vol­un­tary bond swap or the op­tion to sell in­creas­ingly lim­ited as­sets, that of the coun­try’s sta­te­owned oil and gas com­pany Petroleos de Venezuela (PdVSA); trans­for­ma­tion of gas and oil in­dus­tries, pri­vatis­ing in­fra­struc­ture and pro­duc­tion sec­tors and a re­turn to mar­ket econ­omy.

The fur­ther con­trac­tion of im­ports would be painful but nec­es­sary to im­prove agri­cul­tural out­put and in­crease lo­cal pro­duc­tion to help out the food cri­sis. Cash re­serves on food im­ports would likely im­prove and help cur­tail a ma­jor source of so­cial un­rest in the coun­try.

Maduro’s ‘flam­boy­ant op­tic in au­toc­racy’ is poised to have rip­ple ef­fects on sov­er­eign debt re­pay­ments from client states in the Caribbean re­gion. This is, how­ever, likely to cre­ate new op­por­tu­ni­ties for real trade and com­merce and the en­try of new play­ers, in­stead of de­pen­dency on Mother Teresa’s so­cial wel­fare. A re­turn to a struc­tured and ac­cept­able mar­ket econ­omy is most ad­van­ta­geous.

For ex­am­ple, prime min­is­ter and min­is­ter for fi­nance in Saint Lu­cia, Kenny An­thony, of­fered his thoughts on the wealth of tal­ent in govern­ment em­ploy­ment, say­ing: “The pub­lic ser­vice has in­cred­i­ble tal­ent, enor­mous tal­ent; when you look across the re­gion . . . and whether we are max­imis­ing the tal­ent that is avail­able.”

But how re­al­is­tic is this when the an­swer lies in back­ward so­cial­ist govern­ment sys­tems, out­dated ide­ol­ogy, poor lead­er­ship and the lack of in­de­pen­dent thought process and abil­ity from the top? The ex­pected re­sult is a free for all, happy to re­ceive grants and hand­outs, and a non-pro­duc­tive state en­ter­prise that drains tax­pay­ers.

Glob­ally, the Ar­gen­tine cri­sis of 2001 is seen as the barom­e­ter for Venezuela, in ad­di­tion to the lessons learned in the 1990s when the Soviet Union ended its so­cial­ist night­mare. In re­turn they re­built a new cul­ture of pro­duc­tion, ef­fi­ciency and prof­its. Like­wise, the Brazil and Mex­ico cur­rency crises in the 1990s re­bounded to for­tunes rel­a­tively quickly.

Maduro and his cronies have made count­less er­ro­neous de­ci­sions try­ing to run the econ­omy. Ob­vi­ously, they can’t ne­go­ti­ate; they are boxed into a cor­ner of weak­ness. It is time to go and al­low Venezuela a fight­ing chance to di­ver­sify its econ­omy, get back to mar­ket en­ter­prise and a pos­i­tive out­come.

But Maduro’s ide­o­log­i­cal bent, val­ues and pri­or­i­ties that clamor for the mem­ory of Hugo Chávez, are un­sound ra­tio­nales that are lim­ited in turn­ing ideas into poli­cies and lead­ing the coun­try past so­cial­ist de­face­ment.

Some Venezue­lans chal­lenge that if Maduro’s ad­min­is­tra­tion, his mil­i­tary and pow­er­ful Chav­ista con­gress­men like Dios­dado Ca­bello, Cilia Flore, and Elias Jaua had com­pet­ing ideas and a strong com­mit­ment to ad­vance­ment they would at least en­gage with pro­pos­als and vi­able al­ter­na­tives to move Venezuela from a col­lapsed state. Many as­sert that the Maduro ad­min­is­tra­tion’s strong com­mit­ment to the sta­tus quo would find such ef­forts ob­jec­tion­able and refuse to dis­cuss but in­stead suf­fo­cate the process and the pres­i­dency by virtue of their power and in­flu­ence.

How­ever, his­tory has proven that the un­think­able can hap­pen. Des­per­ate times call for des­per­ate ac­tion, as the as­sem­bly looks into scan­dals and cor­rup­tion, even to in­ves­ti­gate cur­rency con­trols and em­bez­zle­ment.

Venezuela has over­shot both on the high side and on the low side. It is time to cut the de­nial and ac­cept; it is time to look to the fu­ture.

Me­la­nius Alphonse is a man­age­ment and de­vel­op­ment con­sul­tant. He is an ad­vo­cate for com­mu­nity de­vel­op­ment, so­cial jus­tice, eco­nomic free­dom and equal­ity. He can be reached at: malphonse@rogers.com

Saint Lu­cia’s prime min­is­ter with Venezue­lan leader Ni­co­las Maduro dur­ing a re­cent state visit and the fur­ther ce­ment­ing of ties. But un­der the cur­rent cir­cum­stances how much can Saint Lu­cia con­tinue to ben­e­fit from Venezuela?

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