Is Venezuela in Crisis?

Bleak media reports about the country’s polity and economy are exaggerated.

Alvaro Vargas Llosa [Sp] wants us to believe that Venezuela is an example of a “new Latin-American dictatorship”. He even goes so far as to claim that President Nicolas Maduro rigged last presidential election (in spite of Venezuela’s electoral system that Jimmy Carter called “the best in the world”). Does the poetic license of his father, Mario Vargas Llosa, one of the greatest Latin American novelist, extend to Alvaro?

He is certainly not alone in his opinions. The Washington Post writes in its editorial last week about the “sickening spectacle” of “the unravelling of Venezuela’s economy and political system” and “the regime’s self-destruction”. The new scare-story from those proclaiming disaster is about the new powers granted to Maduro by the National Assembly on November 21 in order to fight corruption, speculation and usury. For one year the Venezuelan president will be able to make some laws by decree, which analysts in Miami have denounced as undemocratic.

In fact, these Enabling Laws are nothing new in Venezuela. Similar powers were granted to Hugo Chavez (during his 13 years in office they were granted four times). Moreover these decree-powers were granted to Venezuelan presidents before Chavez: in fact, Enabling Laws were used six times before he came to power in 1999. It is a constitutional authority granted by the elected legislature and can be overruled by that legislature. It is difficult to criticise the objective of streamlining administrative procedures on an issue as important as corruption; declaring that such a move puts democracy at risk is clearly an exaggeration.

Venezuela’s stable economy

Of course, the request of decree powers on economic issues is due to the recognition that Venezuela is facing problems in this area. But contrary to the myth peddled by the media and many analysts, especially those close to the US government, Venezuela is not nearing economic collapse. The economy, as has always been the case, is largely dominated by the extraction of oil which the country uses to purchase food and consumer goods. The earnings from oil exports are comfortably above spending on imports, so Venezuela is not facing anything like a debt crisis.

In fact in 2012 oil exports brought in $94bn, while imports (at historically high levels) were just $59.3bn. Today there are some $22bn in reserves at the Venezuelan Central Bank. There is also an account surplus that is currently at 2.9 percent of GDP. Given these very positive indicators, US-based economist Mark Weisbrot is quite certain that Venezuela will not face a future balance of payments (debt) crisis. His confidence is shared by US banking multinational Wells Fargo, which recently produced a report declaring Venezuela one of the emerging economies most protected against the possibility of a financial crisis and by Bank of America Merrill Lynch which has recommended investors purchase Venezuelan government bonds.  

Political roots of economic woes  

Although the economy does not suffer from any balance of payments or fiscal crisis, Venezuela is facing significant problems in the form of shortages of specific consumer goods and lengthy queues for some of what is available. But this is not so much an economic problem as a political one. Following the death of immensely charismatic Hugo Chavez (electorally one of the world’s most popular politicians), there followed a highly polarising election in which Chavez’s chosen successor former Vice President Nicolas Maduro was elected with a narrow margin. As George Ciccariello-Maher, Venezuela specialist at the University of Drexel, told us in a private conversation, “the tensions and destabilisation following the April elections result from the fact that Venezuela’s empresarios think they have a chance to get rid of the new government.” Specifically, the Venezuelan business elite has responded to the uncertainty surrounding the new government by taking money out of the country (capital flight) and deliberately creating chaos.

Currently the government earns Venezuela’s dollars through oil exports and then distributes them to importers at a controlled rate in a system not very different from that applied during the “economic miracle” in South Korea which moved that country “from third world to first” (Korean capital controls were actually much more stringent than Venezuela’s). This system of foreign exchange rationing should ensure that foreign currency is used to satisfy the needs of ordinary citizens and develop the country’s productive capacity. The difficultly for Venezuela is that business-people are using the dollars that are allocated to them for the purchase of vital imports to engage in speculative activities on the black market, and to swell their foreign bank accounts. And of course, this means that essential goods are not imported.

At the beginning of the year, the government responded to misuse of the foreign exchange which it provides by partially reducing the levels of dollars it makes available, but this has had the effect of exacerbating shortages and driving up the black market value of the dollar. Prices have also shot up in the last months because Venezuelan businesses have made use of their oligopolistic control over distribution networks to massively increase prices,as part of a campaign to reduce the government’s popularity in the run-up to the municipal elections in December.

In response to the problem of price increases, shortages, and the dollar black market, Maduro has now introduced a new strict system of price controls. The new measures place a 30 percent limit on mark-up levels. Nevertheless, the problem will not be resolved while the government relies on the private sector to import and distribute consumption goods, and this private sector is committed to a political conflict with the government despite their sizeable profit margins. Bringing inflation under control will require complementing price controls with measures to shrink the black market (i.e. an overhaul of the way the exchange rate is managed to make it more flexible along the lines of the Morales government’s approach in Bolivia). Such measures would reduce speculation and capital flight, and thus push the private sector into using dollars to make necessary imports.

Upcoming municipal elections

Only five thousand people participated in the protest march against the government called by the opposition leader Henrique Capriles in Caracas last Saturday, the first one since the presidential election in April. It is not a good sign for the opposition that it is currently trying to portray the upcoming municipal elections as a “plebiscite” on Maduro’s government. A poor showing for Maduro’s supporters would be used by the opposition to claim that the government lacks legitimacy. However, the opposition suffered a great defeat in the state-governor elections last December winning 3 out of 23 governorships and according to a poll by Hinterlaces, the government alliance is likely to win the majority of municipalities once again. The same source shows a rise in Maduro’s popularity to 55 percent [Sp] after the latest economic measures.

The achievements of the Bolivarian revolution are considerable. Poverty was reduced by more than 50 percent in the last decade and there have been enormous improvements in access to health and education. The FAO[Sp] (Food and Agriculture Organisation of the United Nations) awarded the government special recognition this year for its success in reducing hunger among the country’s poor. Nevertheless, continued political success will require bolstering support among the middle classes and this means streamlining the economy, something that will only be possible, if the government is able to rein in the speculative and rentier elements of the business elites. 

Ewa Sapiezynska is a PhD candidate in Social Science at the University of Chile. Hassan Akram holds a PhD in political economy from Cambridge University and currently teaches at the Faculty of Economics and Business at the University of Chile.

The views expressed in this article are the authors’ own and do not necessarily reflect Al Jazeera’s editorial policy.