Sanctions, Deadly Instruments of Economic Warfare: A Conversation with Alexander Main (Part II)

A director at the Center for Economic and Policy Research explains the impact of the US sanctions on Venezuela’s economy.
Alex Main

Alexander Main is Director of International Policy at the Center for Economic and Policy Research in Washington, DC, where he monitors economic and political developments in Latin America and the Caribbean. His analyses have been published in a variety of outlets including The New York Times, Foreign Policy, The Los Angeles Times, NACLA, and Le Monde Diplomatique. In this interview, we discuss the impact of the sanctions on Venezuela’s economy and politics.

[See Part I of the interview here.]

Venezuela has been in a prolonged crisis at least since 2014 when the oil prices dropped. Then, in 2017, the financial sanctions were set in place, followed by the 2019 oil embargo and other subsequent measures. These external factors have gravely impacted the political and economic life of Venezuelans. However, some Venezuelan government policies may have also contributed to the current situation. Would you agree?

I don’t quite agree. If we go back to before there were sanctions in place, it’s true that government policy errors contributed to the country’s economic troubles at that time. But in recent years, it is primarily US economic sanctions that have been the cause of the worst economic collapse in Venezuelan and perhaps Latin American history. This is important because most of the media regularly publishes articles about Venezuela’s destroyed economy, and the human costs, with barely a mention – and often no mention at all – of sanctions. But the truth is, Venezuela could have the best economists in the world, and do everything right, and the economy would still not recover under the sanctions that are currently cutting the country off from the international transactions that are necessary for the economy to function normally.

If we want to look back at the state of the Venezuelan economy several years ago then, yes, one key aspect of government policy – a holdover from the Chávez administration – was a big issue: the foreign currency exchange mechanism. This regulated system has had several iterations including CADIVI [Comisión Nacional de Administración de Divisas, National Commission for the Administration of Currencies], set in place under Chávez.

The system served to stem capital flight for a while, which was extremely important. Between late 2002 and early 2003, during the oil shutdown, there was an enormous amount of capital flight that was crippling the economy. This happened at a time when there was what can only be characterized as an economic war being waged against the Chávez administration.

The foreign exchange mechanism helped mitigate capital flight, but over time it also led to imbalances within the economy stemming from an ever-growing difference between the official price of foreign currencies and the parallel, black market rate.

A significant gap between the two rates developed fairly quickly, but it was relatively sustainable for quite a long while. However, the gap began to grow dramatically between 2012 and 2014 as foreign exchange became more and more scarce. The black market price for dollars and other foreign currencies began to grow exponentially and the prices of goods, many of them purchased with black market currency, also took off. As my colleague Mark Weisbrot noted at the time, we began to observe an inflation-depreciation spiral. This is when scarcity of dollars drives up the black market price of the dollar, which drives up the price of imported or import-dependent goods, which then drives up the price of the dollar, and the cycle continues. This triggered an economic slowdown that actually began before the price of oil collapsed in mid 2014. Eventually we began to see very high and accelerating inflation, which can be a real nightmare scenario if it’s not dealt with quickly and decisively.

It’s important to underline though that US sanctions, by provoking an even greater scarcity of foreign exchange and causing foreign companies to cut off commercial relations with Venezuela, really drove the hyperinflation and made it virtually impossible to end it. For the last few years, sanctions have been the major cause of shortages of all sorts of essential goods, the main cause of vastly reduced oil production resulting in the worst economic collapse in Venezuela’s history. Hyperinflation and the massive economic damage it causes does not persist indefinitely without some powerful external cause such as a war or, in this case, far-reaching sanctions that isolate the country from international banking and finance and from normal trade relations.

Having said all this, there was an initial phase of very high inflation, before the sanctions were in place, attributable primarily to the foreign exchange mechanism. No adequate corrective measures were taken for several years, and that was really unfortunate.


Why do you think the government didn’t take any steps to address the problem with the currency exchange system?

I don’t know for sure but it seems to me very likely that it was because there was a great deal of political instability during that critical time, around 2014, 2015. A corrective measure such as unifying the exchange rate system and allowing the Bolivar to devalue significantly would have caused some short-term economic pain for many Venezuelans. When you’re politically under siege and there are massive protests, some of them violent, it’s difficult to take those sorts of measures.

A government is unlikely to want to take unpopular economic measures when part of the population contests its legitimacy and there’s a big movement in the streets that’s trying to topple that government. That seems like a reasonable explanation for why measures weren’t taken when they needed to be. Half-measures were taken but they weren’t enough to really fix the dysfunctional foreign exchange system.

The number-one issue today is US sanctions which are the main cause of the scarcity of foreign exchange in Venezuela. However, foreign exchange policy was a major factor in the economic troubles that Venezuela faced in the early years of the Maduro administration.

Were there any attempts to address this situation?

Yes. I know that there were a lot of attempts from sectors within the Maduro government to deal with this issue. There was also a UNASUR mission led by former Colombian President Ernesto Samper that offered economic advice. I think it was active from 2015 to 2016. My organization, the Center for Economic and Policy Research, was involved in it, as was Venezuelan economist Francisco Rodríguez and Brazilian economist Pedro Silva Barros. Everybody involved provided essentially the same advice: Venezuela has to completely overhaul its currency exchange system. There needs to be a unified exchange rate and the Bolivar will need to drop in value against foreign currencies. That would have been the only way to stabilize the economy at that time, although honestly it still would have run into trouble given that the Venezuelan opposition – particularly after it won the 2015 legislative elections – and the US government were already making Venezuela’s access to international finance more difficult, if not impossible.

The mission also proposed measures and policies to mitigate the impact that the reform would have on ordinary Venezuelans, in particular through a system of direct subsidies to poor and middle class citizens. There were several senior officials from the finance ministry and Venezuela’s Central Bank who provided extremely valuable input for the elaboration of the proposal and subsequently supported it. Yet it never saw the light of day.

It is not clear if the main obstacle was the resistance that existed in certain sectors within the government, for reasons that are unclear to me, or if Maduro himself opposed carrying out these policy reforms. Again, from my reading of the situation, the main issue was probably that the necessary reforms were not considered to be politically viable at the time.


Is it fair to say that Venezuela’s continued payment of an onerous debt through November 2017 – with debt service payments representing over 50% of the nation’s revenue beginning in 2015 – was a problematic policy?

Venezuela was heavily indebted. It still is of course. But already in the early 2010s the country’s debt service was extremely onerous, due to the very high rates of interest attached to a lot of Venezuela’s sovereign debt. Yet the Maduro government was for a long while extremely diligent in making the payments and making them on time. I understand why they did it. The government didn’t feel that it was in a position to restructure its debt.

I think the government feared being locked out of international financial markets, as ended up happening anyway as a result of US sanctions. Had they known that the sanctions were coming, then they probably wouldn’t have continued making enormous debt payments, because there wouldn’t have been much point in doing so. They ended up being forced into default on a big chunk of their external debt soon after the August 2017 sanctions, and then defaulted on the last of their PDVSA bonds after the oil company was hit with direct sanctions in 2019.

But I don’t think that onerous debt payments were a major destabilizing factor in the Venezuelan economy in the way that sanctions have been. In a stable economic context – without US sanctions and out-of-control inflation – the heavy debt burden would hinder other key areas of economic policy, in particular fiscal policy. But of course Venezuela has not experienced economic stability for many years.

In your opinion, are there economic policies that the government should be advancing right now?

Given that it remains targeted by broad sectoral sanctions, Venezuela is not in a position to carry out the economic policies that it would want to. What is needed is a massive recovery plan, with help from other countries and with an influx of cash derived from foreign trade, if Venezuela were able to once again engage in normal trade relations with other countries. But with the US policy of sanctions, it’s not an option.

In all this, the US government is attempting to come across as the good guy by saying that it’s trying to get foreign assistance into the country. Of course, foreign assistance has been extremely politicized by Washington. In February 2019 the “aid” was a sort of militarized convoy with parcels of aid that the US attempted to forcibly deliver to Guaidó – not the actual government running the country – while making appeals to the military to abandon Maduro and assist Guaidó in delivering the aid to the country! Additionally, the little amount of real assistance that Venezuela is getting from the World Food Programme and other humanitarian organizations is absolutely dwarfed by the effects of the sanctions. I think that’s what needs to be taken into account.

sanctions kill

What can people in the US do to end the sanctions?

People concerned about the situation in Venezuela sometimes ask me: what can we do to help Venezuelans? What kind of aid can we send? To what organizations? My response is that the best thing you can do is to lobby the US Congress and the US government to lift US sanctions.

I think there’s a growing awareness among people in the US who consider themselves progressive on foreign policy issues about how harmful economic sanctions are. This awareness is applicable to not only the damage being done by sanctions targeting Venezuela but also those targeting Cuba and Nicaragua – and when you go to other continents, you have the cases of Iran, Syria, North Korea, etc.

I think there’s a growing awareness that, by imposing sanctions, the US is violating peoples’ most basic human rights: the right to survival, to decent healthcare and food, and so on. In fact, though they claim to be sanctioning governments, they really don’t: the US government is sanctioning ordinary citizens through these policies. That is, hurting the very people – killing the very people – that they continuously claim to want to help.

It’s good that this awareness is growing, because for a long time, in supposedly progressive foreign policy circles in the US, there was this idea that sanctions were a far better option than military intervention (if one were to in fact consider any intervention to be necessary). They were considered more humane and acceptable, and an effective way to achieve a desired political outcome with little to no harm done to the country’s inhabitants.

However, when researchers actually look at social indicators and other data (including mortality) of countries targeted by sanctions it’s been shown pretty consistently that sanctions actually do a great deal of harm to ordinary people – they kill people – and don’t have their intended effect. They have killed tens of thousands, and possibly hundreds of thousands of people in Venezuela. One of the problems we face in the US is that there are very few, if any, progressive-minded individuals inside the Biden administration’s foreign policy machine. In addition to that, you have some very pro-sanctions individuals that lead key committees in Congress, such as the Senate Foreign Relations Committee, where you have people such as Bob Menéndez and Marco Rubio who are very gung-ho about lobbying unilateral sanctions on countries run by governments they don’t like.

There are many countries sanctioned by the US, which is by far the biggest perpetrator of sanctions in the world. Additionally, these measures generally have the most destructive impact because of US dominance of the international financial system: when the US imposes financial sanctions it often makes the sanctioned countries radioactive, not just for US investors, but for investors in all parts of the world. That is because all the big international private lenders tend to transit through the US financial system or have headquarters there. And sanctions can literally make it impossible, as in Venezuela, for many financial institutions to conduct business that is essential to the functioning of the economy, including vital infrastructure maintenance and healthcare.

Because of the growing awareness of how US sanctions hurt countless numbers of innocent citizens abroad, I think we are beginning to see a real push for change in the US. In fact, there is important leadership on this issue in the US Congress coming from progressives like Ilhan Omar and Jesús “Chuy” García and others. So I’m hopeful that there’s going to be some change, and that sanctions are soon going to be looked on more widely as the deadly instruments of economic warfare that they are. I think people will come to realize that sanctions cause just as many casualties as military interventions, if not more in a number of cases.

People need to stay informed and engage with US policymakers. They need to impress the importance of this on them. I also believe people outside of the US should call out the United States on this. We need to see worldwide protests against sanctions. This is an issue that should be enormously embarrassing for the US, especially now that we have an administration claiming to promote human rights internationally, while at the same time maintaining sanctions on Venezuela and on every other country sanctioned by the Trump administration! There really should be a lot more shaming of the Biden administration going on right now.