Friday, 25 October 2013

VENEZUELA: Nicolas Maduro's Troubles

Nobody can accuse Venezuela’s President Nicolas Maduro of not trying hard enough. But the results of his efforts in trying to turn a struggling economy around are difficult to see. He agreed a deal on a visit to China in September 2013 to sell nearly one million barrels of oil per day (bpd), up from the current level of 600,000 bpd to China, making Venezuela the supplier of more than 20 per cent of Chinese oil imports.

In return, China has promised to make investments in Venezuelan petrochemical plants and help develop a new heavy oil bloc, known as Junin 1, which is expected to produce 200,000 bpd.
The China Development Bank has also agreed to extend a US$5 billion line of credit for social development.

These are impressive deals. But over the past decade, the Chinese and Venezuelan governments have signed agreements worth more than US$20 billion. Except for deals directly related to the sale of oil, and credits to Venezuela in exchange, almost none of the investments has materialised. It remains to be seen what will come of the current round of deals.

The domestic situation in Venezuela is deteriorating and is in danger of spinning out of control. The rate of inflation in the past 12 months has increased to 45 per cent.

The downward spiral started under the stewardship of Hugo Chavez, Venezuela’s president for 14 years. Mr Chavez largely escaped blame because of his enduring charisma and political mastery of using social subsidies to quell discontent. But he left Nicolas Maduro, who was elected president in April 2013, shortly after the death of Hugo Chavez, with a catalogue of problems.

Even for a country awash with cash as Venezuela has been since 2004, Chávez's spendthrift ways have left behind a worrisome level of debt, fiscal deficit, and independence on imports. Maduro, Chavez' successor must make an economic adjustment, to borrow a phrase from the International Monetary Fund.

The national oil company has been bled dry and cannot maintain production. Private investment has been taxed so much that it has dried up. Government controls on the exchange market have driven billions of US dollars out of the country, and the exchange rate has soared. Domestic production of some basic goods has come to a halt because of bureaucratic inefficiency and a crazy array of regulation and taxes.

The most recent problem was the sudden shortage of toilet paper. President Maduro sent the army to the Manpa factory, in the northern city of Maracay where it is produced, to supervise production.
Shortages of food are also widespread. They are often accompanied by power cuts because of inefficient management of Venezuela's power grid.

The Maduro government has signed an agreement with the government of Colombia to import US$600 million worth of foodstuffs in the coming 12 months. Venezuela is the only country in Latin America that is a net importer of foodstuffs. The president is convinced that his government is faced with a covert economic war, financed by the United States and led by Venezuela’s opposition.

Maduro's most recent moves were to expel three US diplomats in September 2013, accusing them of supporting plots to sabotage Venezuela's electrical grid and the economy, and to order the seizure of a research vessel, the MV Teknik Perdana, off the coast of Guyana, which had five Americans on board.

Caracas accused the ship’s crew of carrying out ‘illegal activities’ within a maritime area claimed by Venezuela. The ship, which has now been released, was under contract to the Houston-based Anadarko Petroleum Corporation, which was working for the government of Guyana.

It seems to me that Maduro has not learnt something valuable from Chavez. Chávez enjoyed provoking the Americans, but only to certain point, and never so much that the United States brought an embargo down on his head. He played his anti-Americanism conservatively. But also, contrary to conventional wisdom, Chávez's spending habits matched only by his selling habits.

Between 1999 and 2011, Venezuela exports to the United States, mostly oil and oil products, totaled $341 billion. This was a extraordinarily large sum for an anti-imperialist bastion of only 29.2 million people. Indeed, Venezuela is almost as dependent on oil sales to the United States today as it was before Chávez. He wanted to be remembered as the most anti-American leader the world has ever seen since Fidel Castro. In reality, Chávez broke with Fidel's approach to the Yankee empire early on.

President Maduro is in trouble. The next round of local elections is in December 2013. If the food shortages and power cuts continue, even people who voted for him in the past presidential election will vote for the opposition. The inefficiency of the state bureaucracy is a major factor in the economic breakdown. The popular disenchantment is exacerbated by the rising rate of crime, especially against the poor in Venezuela's major cities.

President Maduro has few options. He cannot change course because the military and leaders of the political movement that Hugo Chavez created would probably kick him out and put in another of the inner circle. He must hope that the Chinese will come through with the money they have promised and that the national oil company finds a way to produce more oil. But the main indicator to watch with Venezuela is the price of oil. If it falls towards US$100 per barrel, the government will get increasingly nervous.

By Guylain Gustave Moke
Political Analyst/Writer
Investigative Journalist
World Affairs Analyst

Photo-Credit: AFP- Venezuelan President Nicolas Maduro's photo