Saturday, February 20, 2016

Mind boggling events in Venezuela.

I've been avoiding comment about Venezuela and the political events there. Frankly I find things are a bit mind boggling.

Let me recap some major events.

In the background,  but looming large is Venezuela's long dependency on petroleum exports and its dependency on imports for almost everything Venezuelans consume. A few years ago it might have seemed that Venezuelan petroleum would forever be the fat goose laying golden eggs. This mind set would have been a comfortable one. It had to be based on a belief that the United States wasn't serious about ending its dependency on foreign oil. It would have had to overlook American hostility towards Venezuela, Russia and Iran. Of course, fracking, solar and wind power and hybrid cars have other other motivations beyond political hostility towards certain petroleum exporting nations. There is money to be made, and there are legitimate concerns about climate change. In a market system each is at war with all. Consuming nations are in economic war with producers, capital is at war with labor and all other capital.

And so, when oil prices started to collapse, Venezuela was caught short - not much in savings,  weak agricultural and industrial development, and no foreign tourism worth mentioning.

And so, it should be easy to understand Venezuela's current distress - it's serious and getting more serious by the day.

These obvious factors do not tell the whole story by any means. Hugo Chavez, widely revered, had a tendency towards making announcements without preparation or follow up.  For example when he first mentioned forming the United Socialist Party he spoke of a highly select body of selfless and exemplary people who would guide the revolution. Then he announced that all of the parties that had supported him were to merge into the new party, but he had not approached any of them before going on television with the news. Very soon the party became a classic ruling party, and government employees were encouraged to join. When President Chavez's proposed constitutional reforms were voted down ( his only electoral defeat) the changes got fewer votes than the number of members of the ruling party.)

Chavez also announced a program of savings from oil income to hold for hard times and for investment in the country's development. This clearly never happened. In fact the country's enmeshed in debt.

Inside the Chavez movement questions and critics were and are frowned upon at best. In such a situation cliques of money grubbing yes man careerists and crooks can worm their way into positions of authority from which they will find theft opportunities.

Venezuela's multifaceted currency exchange system, designed to help the poor with subsidized food staples, and supposedly also to thwart capital flight seemed to work, at least the cheap food part, for around ten years. It also turns out that it was an excellent theft opportunity.  The dissident Chavista politician, Nicmer Evans,  says that his organization,  Socialist Tide, can demonstrate that  $450,000,000,000 have been embezzled from 1998 to the present. On Wednesday President Maduro acknowledged that Venezuelans have $300,000,000,000 stashed outside the country. Where Evans wants to prosecute and seize these assets, President Maduro announced that he is encouraging them to reinvest the money into Venezuela.

In 2013 the food lines and shortages and high inflation that anyone who follows the situation in Venezuela is familiar with started to appear, while oil prices were still at $100 a barrel.
Why? Venezuelan President Maduro points to an economic war being waged against Venezuela by the United States and its aligned businessman / oppositionists. True. But...

People choose and support political leaders in the belief that these leaders can thwart these enemies. On Wenesday President Maduro gave a five hour televised address where he revealed the plan. I'll get back to this, but I want to share some flashbacks of the past six weeks.

A month after he got his head handed to him by the voters, President Maduro announced a cabinet shake up. Keep in mind that were Venezuela's political system parliamentary Maduro would have resigned as both head of the government and leader of the ruling party. Elections would have been called. Perhaps it's good that this wasn't the case, because the opposition is fragmented,  just as corrupt as anyone else and it doesn't have the confidence of many Venezuelans.  These are oligarchs and their successors who took Venezuela down a path that led to a political revolution, the Hugo Chavez revolution.

President Maduro rehuffled his cabinet. Generals and Colonels in cabinet and sub cabinet posts were told to return to soldiering. This didn't much happen, and now the military is back with more power and responsibility than before. I'll get to that in a while. A sociology professor, also a leftist hardliner by reputation , Luis Salas, was named Economy Vice President and put in charge of a disperate team. A few days ago he resigned, citing family responsibilities. Some pundits say that he was fired. On the day that he left office Venezuela made a payment of  $72 million interest to bond speculators. It is said that Salas argued against paying the speculators while Venezuelans are going hungry. He was replaced by Miguel Perez Abad, a businessman and former lobbyist for small and medium sized businesses.  This news was met with cautious praise in the US media and no doubt high fives among the Wall Street bond trader bros.

Emma Ortega, a relative outsider, a respected farm activist and agronomist was brought into the cabinet. She got right to work, encouraging city dwellers to produce food, even if it were only an herb grown in a vase on a window sill. She was widely ridiculed and was gone in two weeks.

There have been some high profile corruption arrests of government food system managers and supermarket employees. The same kinds of images of seized hoarded staples that have been shown on government television for around two years now were on television once again. The government markets are being handed over to Venezuela's communes.  Many Venezuelans saythat most of the communes exist on paper and that some are enmeshed in nepotism and corruption.

The government will grant preferential dollars to businesses that use them to purchase food, medicines and inputs such as fertilizer. This is nothing new. The difference is that the preferential dollars now cost ten bolivars each, no longer 6.32. With black market dollars fetching over a thousand bolivars it remains to be seen how much food and medicine will make it to the shelves of Venezuela's retail establishments. Past results don't give much to be confident about. Gasoline will remain the cheapest in the world if you figure by the black market dollar, not so cheap for someone whose income is from a wage denominated in bolivars with 96 octane selling for the equivalent of  $2.85 a gallon. 91 octane gasoline is selling at the equivalent of 38 cents a gallon. Watch the 91 octane become unavailable. At the black market dollar rate these prices amount to ridiculously cheap.

A separate corporation, to be owned by the military, is being established by the President to be active in the petroleum and mineral areas. It is possible that this is a step in preparation for a bond default by the national oil company,  PDVSA. Venezuela is rich in Coltan, a rare mineral that's found in one of the remotest part of the country.  It's reportedly being illegally mined and smuggled out of the country. Venezuela has potential also in oil and diamonds.

Fair prices, which the government tries to impose on the markets will be redefined to account for production costs. ( Perhaps the fact that this is a new wrinkle would explain some of the difficulties shoppers have been experiencing.)

The government is issuing debit cards to be used for purchasing food. I don't know the details. Hopefully my friends in Venezuela will be able to fill in the blanks as that program gets implemented.

Meanwhile opposition governor Capriles,  who opposed the violent demonstrations of 2014 that were intended to force President Maduro to resign, is launching a recall petition against President Maduro. Maduro was elected president over Capriles in 2013 by a narrow margin. Some Chavistas believe that the president would be doing a service to the nation by resigning and handing over the post to his vice president. A recall petition has the potential for aggravating the polarized social and political scene.

                  Emma Ortega