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Post Venezuela in 2018: A Forecast
Created by John Eipper on 01/03/18 5:22 AM

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Venezuela in 2018: A Forecast (José Ignacio Soler, Venezuela, 01/03/18 5:22 am)

John E asked me to make some predictions for Venezuela in the New Year.

The truth is that in order to maintain my mental health I have tried to remain indifferent to the current disastrous, almost irreversible, maddening, annoying and irrational situation in this country, but I will try to describe some of the more interesting aspects.

Although many reports of this kind can be found in the international press, this report is for WAISers interested in South American issues and particularly in this once wonderful country.

In a very short pessimistic phrase I would characterize the current and future state of things as follows: "It was very bad in 2017 and will be much worse in 2018." For those who remember, Venezuela today reminds one of a worsening version of the Período Especial in Cuba during the 1990s.

Though this kind of schizophrenic scenario is hard and difficult to describe and predict, here are some outstanding and salient facts in three crucial areas--economics, social and political. I will try to outline them and at the same time, for safety and censorship reasons, I must be cautious about what I can say publicly.

Economics

• Despite the government´s price and exchange controls, hyper-inflation in 2017 was around 2735%, the highest in the world. In 2018 it will probably be higher and controls will be reinforced in an ever-worsening spiral.  The causes for this are the scarcity of products, low local productivity, an excess of monetary liquidity and commercial speculation, but mainly the government´s incompetence.
• The scarcity of basic products, food, medicines and public services is estimated on average to be around 70%-80% (meaning, the percentage of times a product is needed but is not found in the shops). This grave situation will continue to increase in 2018 and in many items the scarcity factor is predicted to become around 90% or 100%.
• This problem has not been solved by the government´s social program (CLAP) to distribute packages of imported food to the public at controlled prices. By the way, this program is used as an instrument of electoral blackmail to gain votes and a source of corruption for its administrators.
• The black market is the only source for many basic items, impossible to obtain for most of the population.
• Adding to scarcity of products is the scarcity of paper currency, or cash, which as a consequence is traded on the black market with a 40% or 50% discount. In some residential areas the people have created their own local currencies.
• Oil production (96% of the country´s income) has declined to less than 2 million barrels/day, the lowest level of production ever, and only a small and limited number of oil wells are in production. Next year will most likely see this situation aggravated because of the lack of funds to sustain productive maintenance of the oil infrastructure. New investments in exploration, production, refineries and transportation will continue to be reduced.
• The government lacks foreign currency reserves to reduce scarcity, to import basic raw materials for industries, basic products, food and medicines. This scarcity of hard currency in 2017 caused a 2500% devaluation of the national currency. It is ironically called the Bolívar Fuerte (strong Bolivar); this problem will continue to worsen in 2018.
• Despite Russian, Chinese and Iranian concessions and investments in the energy and mining sectors, they most likely will not be a source of new and important fresh capital to solve the hard currency problem in 2018.
• The US sanctions, limiting the financing sector to trade with Venezuelan finance instruments, will continue to be an obstacle to solve the income deficit problem.
• In 2018, to somehow ease this lack of foreign currency and external financing, the Venezuelan government is trying to use the petrocoin, a sort of digital currency to pay for imports. This is an original but dubiously feasible and difficult initiative to implement, in addition to it possibly being illegal.
• The external Venezuelan debt is at high risk of default, further aggravating the economics of the country.

Social

• The difficult economic situation has raised population´s poverty and hunger. Nowadays it is common to see lots of people looking for food in the garbage piles and trash cans, and eating rotten food. Next year won't be different. It will be worse.
• The crisis has also had an impact on public health and social security in general due to the lack of medicines, medical instruments and general supplies. The mortality rates in childhood, newborns and chronically ill and terminal patients, have risen to unknown levels and will continue to grow in 2018. Illnesses such as tuberculosis and malaria, which were extinguished many years ago, are again reappearing.
• The critical and extreme economic and political situation has caused public protests almost every day--manifestations, riots, looting and pillaging--which are repressed with violence by the Guardia Nacional, the favorite repressive arm of the regime. This will only get worse in 2018.
• Public safety has sunk to unparalleled levels, to the extreme that criminals and delinquents are now not only committing traditional crimes, but are also assaulting and robbing you for food or other scarce items. This particular aspect is an enormous difference from Cuba, which despite its comparable social and economic situation, is a far safer country.
• An immediate effect on the population has been a wave of emigration to USA, Chile, Colombia, Brazil, Canada, Spain, etc. In recent years more than two million people have left, young and educated professionals, families from all social classes, but particularly from the middle class. This aspect reminds me of the Cuban exodus during the 1960s, ‘70s, and later. There is no reason why this Venezuelan Diaspora will not continue to grow in the near future.

Political

• Maduro has consolidated a dictatorial regime, and in 2018 this process will continue to be reinforced. The entire state structure is controlled by the regime and the army, with no democratic balance of power.
• The government still claims that Venezuela is a democracy because it holds elections. However these contests have been all manipulated in many ways, and they lack credibility. This situation will continue in the future. As I commented before on WAIS, democracy is not only represented by the act of voting, but by a complete division of power and the free social and political participation of the citizens, something difficult when rights and liberties are restricted or suppressed.
• The regime is strongly supported by the corrupt army, and this will continue in the coming years, particularly by the Guardia Nacional. Important government positions are in the hands of the military. For instance, a Guardia Nacional general was recently appointed president of the state oil company, PDVSA, la gallina de los huevos de oro. (hen of the golden eggs).
• Next year will probably be the year of the new constitution, assembled by the Asamblea Nacional Constituyente, the superpower institution recently elected in a dubious election. This constitution is likely to be a copy of the Cuban constitution, which everybody suspects will abolish for instance most private property rights, or will give the government additional power to exercise more repression.
• The free press and freedom of expression are limited and will continue to worsen, although still there are a few "free" media and newspapers of limited influence because of self-censorship. Most of the news in the country is circulated by word of mouth, first hand, or in the international press.
• The political opposition is weak, fragmented, lacks leadership, repressed, imprisoned or in exile. The people are frustrated and resigned; they lack motivation to change this status. It appears that nothing will change in the near future in this regard.
• Venezuela might now be considered a failed and isolated state, due to its own incompetence and corruption.
• Apparently the only reason Maduro´s government can sustain this situation is Cuban support, due to the island's own struggle for survival. The Cubans are the strategic minds, as well as the security and intelligence arm of the regime. Government policies are dictated from Havana, the army is controlled by the Cuban G2 (intelligence agency), the personal bodyguards of the president are Cubans with Venezuelan diplomatic passports. They have infiltrated all Venezuelan institutions.
• Finally, there is little hope that the current crisis will be solved in the near future, and the regime will continue to worsen in 2018 and forward.

Is Venezuela at the cusp of economic, social and political collapse? This is hard to say.  My personal opinion is that even if the economy collapses and social turmoil gets worse, the regime will survive from its ashes.  Why?

Several times in this report I have stressed the great influence of the Cuban regime, the similarities in some instances to Cuban revolutionary process, and its greater role in the near future. This is a fact.

Some might say this fact would not be so bad if some of the Cuban revolution myths and achievements were to be implanted in Venezuela, such as getting rid of criminals and delinquents, better social and medical services, or a better education system. But this remains to be seen in the future and the price to pay might be really great in terms of human rights and other sacrifices.

http://www.abc.es/internacional/abci-maduro-cubaniza-venezuela-marchas-forzadas-201712310222_noticia.html

JE comments:  This grim appraisal is extremely informative, Nacho.  Thank you.  Venezuela has apparently embraced the worst of the Cuban model, with none of the benefits such as public safety and education.

Hugo Chávez is now part of the pantheon of Cuban heroes--see this photo below.  Could Raúl survive without Venezuelan oil, and could Maduro survive without Cuban know-how?  It's a symbiosis of desperation.  In the meantime, the Venezuelan people somehow carry on, although many of them do so in exile.

Stay safe, Nacho.  Your WAIS friends are with you.

Martí, Fidel, Raúl, Hugo, Aldona: Viñales, Cuba



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  • Venezuela Postscript: Hausmann Calls for Military Intervention (José Ignacio Soler, Venezuela 01/04/18 3:53 PM)
    As a complement to the post I sent about Venezuela (3 January), this essay by R. Hausmann I just received is worth reading for another perspective.

    https://www.project-syndicate.org/commentary/venezuela-catastrophe-military-intervention-by-ricardo-hausmann-2018-01


    JE comments:  Economist Ricardo Hausmann prescribes the strongest medicine imaginable:  a call for the Venezuelan opposition to impeach Maduro and invite an international military coalition "of the willing" to remove him.  Wouldn't this mean civil war?  Hausmann defends his appeal by labeling the current tragedy in Venezuela a man-made famine, along the lines of Stalin's intentional starving of the Ukrainians during the Holodomor.  He pulls another analogy from his toolbox by comparing the liberation of Venezuela to that of France and the Netherlands in WWII.


    Critics might point out that Hausmann (a former government minister in Venezuela) is making his plea from the comfort of Harvard.  Others see no peaceful alternative to an ever-worsening economic and political situation.  (José Ignacio Soler showed us how bad things are in his excellent WAIS post of January 3rd.)


    What country would possibly want to intervene in Venezuela?  Hausmann may be a good economist, but he's a questionable historian:  Bolívar indeed liberated Venezuela from a base in neighboring Colombia, but he (Bolívar) was a native son, born in Caracas.  Any foreign invasion would immediately bolster Maduro as the defender of national sovereignty.  In Cuba, which taught Chávez/Maduro many tricks, you cannot walk five blocks without seeing the public slogan "Patria o Muerte" (homeland or death).  Precisely.

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