By Kumar David –

Prof. Kumar David

When foolish socialists goof, enemies make hay while the sun shines: The simple reason why Venezuela collapsed

The scale of the collapse is staggering; hyperinflation at over one million percent per year with prices doubling every 19 days, three million people fleeing on foot to neighbouring countries, crisis proportion shortages of food and medicine – on average two-thirds of the population has lost 25 pounds in weight during the economic collapse. The root of the catastrophe cannot be laid at the door of US sabotage though Washington is crowing with delight and plotting covert military intervention given that Nicolas Maduro’s government is reeling. The root of the crisis is home-grown; economic mismanagement; nay unbelievable folly. Literally it is beyond belief that any government, left, right or centre, could be so inane.

Hugo Chavez (1954-2013) was elected president in 1998 on a populist platform. Rising oil prices in the mid-2000s flushed the country with money and Chavez launched the “Bolivarian programme” to improve economic, cultural, and social conditions of the poor and intended to stabilise political power through mass welfare. Thousands of free medical clinics were started and food and housing subsidies provided. There were achievements in literacy, skills enhancement, social inclusion and poverty reduction; the quality of life of the poor improved. Chávez’s popularity was anchored in the urban population, the working class and the poorest of the poor. So far so good, and this is the reason Maduro and the United Socialist Party of Venezuela (USPV) still enjoy a degree of support. The opposition is not ill-fed and dressed in rags, it is the middle and upper classes who feel threatened by the Chavismo project of social justice. They are now joined by a broader spectrum of society.

Then, the price of oil collapsed from above $140 a barrel in June 2008 to below $40 a barrel in January 2009 and Chavez’s programme was in tatters. Before 2010 of every $100 of state revenue $90 came from oil and its derivatives and what made the country tick was massive transfer of oil profit to the poor – some oil also went at below-market prices to allies like Cuba. The USPV had no plan other than taking oil profits and using it on subsidies for the poor. It had no growth perspective, no interest in investment in industry, agriculture, technology or services – Western or Chinese. From a long-term perspective this was a doomed economy. Just eat current revenue! When revenue dried up it was a colossal blunder to keep spending as before. It was folly to continue to spend instead of cutting expenditure when the revenue-stream dried-up. The USPV made excuses like imperialist interference and capitalist speculation and refused to accept the plain fact that good days flush with oil money were gone. The crux of the matter was a refusal to look reality in the face and hoping that the oil price would pick up again as it did somewhat in four years. But the root of the bungling was an obsession with oil and comprehensive neglect of economic development.

World oil price 2000-2015

And why was it not possible for the regime to face the truth and explain it to the people? That was because the regime had built its fame on populism pure and simple. “Look we are giving you all these good things. Enjoy, you don’t really need to understand the inner workings of our oil economy”. And later “the plunge in prices is only temporary”. Regimes built on superficial populism cannot face the masses when the good times end. Chavez erected his glory on handing out goodies and feared what would happen if hard times came.

Was Chavez not a Marxist; aren’t Marxists hard materialists; how come he couldn’t see the obvious? Marxist or plain politician, I cannot understand how Chavez and the USPV could not see so obvious a reality; nor does it make sense that no economic development activity was initiated when there was money. This foxes me as it should you, ideology aside. Chavez was not a serious Marxist; at times he called himself one, at other times he said “I am not a Marxist and I am not anti-Marxist”. His self-projection was as a “Twenty-first Century socialist” by which he meant a populist who cared for the poor and thought populism sans hard materialist decision-making would allow him to muddle through. He did declare an economic emergency in 2010 but was stricken with cancer in July 2011 and died in March 2013 and was probably ineffective in his last two years. 

By then the economy was in distress with inflation and shortages were going out of control. In the 5 years since Chavez under a Maduro presidency Venezuela has become an economic failed-state and descended close to political anarchy. US intervention, direct or indirect seems likely and could spark a civil war because though 35% answered ‘yes’ when asked if they would like to see American tanks roll down the streets of Caracas, there is also a big reserve of support for the Chavist legacy; these people will fight back. The military will split and Russia (and China?) will no sit by idly. Two Russian bombers have already arrived in Venezuela in a tit-for-tat for American overflights of the pro-Russian zone in the Ukraine.

Russia versus the United States

Washington has decided to drive Maduro from power while Putin has vowed to support him and warned of “catastrophic” consequences if the US gives military support to the opposition or to neighbouring anti-Maduro countries. Trump has blocked Venezuelan access to foreign currency and to $US7 billion in PDVSA (state-owned oil company) assets in US banks. In a similar confrontation in Syria the Russians won hands down. Russia used the Security Council recently to warn the US against intervention in Venezuela and accused it of attempting a coup. It has offered to mediate between Maduro’s “legitimate” government and the opposition. Putin will prevent regime change unless compatible with Russian interests and he has proved to be cleverer than Trump and Bolton. 

He has re-established Russia as a key player in the Middle East, a dealer in Asia and a global supplier of sophisticated weaponry. Now he mocks Trump in order to restore Russia’s reputation in the eyes of his domestic clientele. Nevertheless, condemning outlandish US interference – Juan Guaidó declared himself president after US Vice President Mike Pence advised him to do so by phone – cannot be taken by those opposed to Rajapaksa dictatorship to the extent of supporting Maduro.

What does Moscow stand to lose if it bungles the end game in Venezuela? Putin does not care two-bits for Maduro but Russia needs to protect its global vantage and its interests in Latin America. As a military ally Venezuela is peanuts but the returns on Moscow’s investment there is priceless. In exchange for loans and bailouts Russia now owns parts of five oil fields which include the Orinoco Belt, the world’s largest reserve. It is also entitled to 30 years of output from two Caribbean natural-gas fields. Venezuela has signed over 49.9 percent of Citgo, its US company which owns three Gulf Coast refineries and a web of US pipelines to Russia’s state-owned Rosneft for $1.5 billion in cash. What the Chinese are doing to us, the Russians are doing to Venezuela.

A Russian-US direct conflict is only a distant possibility, but right-wing governments in Brazil and Colombia could be instigated by the US. There has been no interstate war in South America for eight decades and one would be bloody and unpredictable. War between Colombia and Venezuela would be devastating – both have enough air power to bomb infrastructure and cities.

The domestic dynamics

Though international competition is of significance domestic dynamics is more important. To survive Maduro has to keep the military onside, and that means finding a way to keep the top brass comfortable. He has rewarded senior officers with positions in government and PDVSA but the rank and file and their families suffer the impact of the crisis. Jonathan Velasco, Venezuelan ambassador to Iraq and Gen Francisco Yanez, ai-force head of strategic planning have defected to the opposition. There have been defections by junior officers including the military attaché to the embassy in Washington DC and the consul in Miami.

Maduro was elected for his second term in a sham election and lacks majority public support.  Opposition leader Leopoldo López was arrested and barred from running for office and five years on still remains under house arrest. Opposition candidates have been barred from running for office, others languish in jail many have fled the country. Elections in Venezuela are neither free nor fair. Maduro’s re-election was not recognised by Venezuela’s opposition-controlled National Assembly. On 23 January the leader of the legislature, Juan Guaidó, declared himself acting president and said he would assume the powers of the executive branch from then on. This was a direct challenge to Maduro who had been sworn in to a second six-year term in office just two weeks previously. So, who’s the president? This would not be an unusual question to ask in Sri Lanka where an eccentric president precipitated chaos and the country had two prime ministers at the same time till the Supreme Court disciplined the dummy and set things right. 

Guaidó can mobilize mass support and has the backing of a chorus of US led countries but he has no influence over the levers of state power. The attorney general put Guido under investigation despite a practice that members of parliament are immune, then the courts froze his bank accounts and imposed a travel ban. Stalin would have winked at this skill in manipulating all the organs of state from legislature to Supreme Court simultaneously – shades of Rajapaksa.

Maduro should go

Maduro has twice survived challenges to his power. After mass protests in 2014, he targeted opposition leaders and threw them into prison. Unrest broke out in 2017 when Maduro side-lined the National Assembly when it switched to the opposition. Protesters were attacked, 120 killed and hundreds injured but Maduro succeeded in retaining power despite international condemnation. Whether he will survive the current challenge depends as much on international factors as domestic – the US, Russia and South American Countries, especially Columbia. 

A change of regime to dump Maduro and avoid a civil war by placing leaders sympathetic to the social gains made under Chavez in office is the best compromise. In Syria this way out proved too difficult to pull off. More bad times lie ahead for Venezuela since the economic disaster will persist, the political standoff is unlikely to be resolved since Guido has not undertaken to protect Chavist social reforms and the big powers have their own agendas. Nor have Washington and Moscow built the nuances needed to work out a compromise.