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Abstract
This article outlines the deepening political, humanitarian and economic crisis
facing Venezuela. It will further explain when did its oil empire – being a “petrostate”–
boomed and eventually burst into a hyperinflated catastrophe.
Overall, we argue that both government and opposition must take responsibility
for the present crisis as both have failed to offer coherent policy responses to the
problems facing the country. The government has failed to address the crisis with
enough consistency, and seems more concerned with maintaining power, while the
opposition MUD continues to offer the removal of the government as its sole solution to
the crisis. Yet its policy proposals are poorly developed and do not offer long-term
solutions to the country’s problems.
Instead, they seek alliances – the strategic interplays of US and Russia - from
different countries to back them up in engaging this internal affair. Finally, we suggest
that strengthening the military defense and political allies in making Maduro step down
is the best way for Venezuela to advance if it wishes to restore economic and social
stability and reduce political tension.
With all details here in pointed out, the scope of this study will only be concerning
about the Political Economy of Venezuela, and the adversaries of power struggle amidst
President Maduro's control.
Introduction
“We must not make a scarecrow of the law, setting it up to fear the birds of prey,
and let it keep one shape till custom make it their perch and not their terror.” 1
Western nations, led by the United States, have thrown their support behind self-
proclaimed interim President Juan Guaido. Russia, China and Turkey are standing by
Maduro who has vowed to remain in power for a second, six-year term despite
accusations of widespread election fraud.2
Maduro has accused the US of waging economic war against his socialist
government. But many economists and energy experts fault Maduro's policies and
those of his predecessor, the late President Hugo Chavez, for destroying the economy.
One thing that is not in dispute is the pivotal role oil has played. On the latter, this study
will provide a descriptive account and analysis of Venezuela’s adversaries as key
determinants to expand President Maduro’s power over his country struggling for
peace.
1
Angelo in Measure for Measure. Shakespeare, William. (2.1.1-4)
2
“What brought Venezuela’s Economy to ruin?”, Patricia Sabga, Accessed 4 April 2019,
https://www.aljazeera.com/news/2019/02/brought-venezuela-economy-ruin-190201152238535.html
Statement of the Problem
The significance of this study is to look at each of certain issues when and where did
the Venezuelan crisis start which led to grave power struggle.
OPEC. Venezuela joined Iran, Iraq, Kuwait, and Saudi Arabia as a founding
member of the Organization of the Petroleum Exporting Countries (OPEC) in 1960.
Through the cartel, which would later include Qatar, Indonesia, Libya, the United
Arab Emirates, Algeria, Nigeria, Ecuador, Gabon, Angola, Equatorial Guinea, and
the Republic of Congo, the world’s largest producers coordinated prices and gave
states more control over their national industries. That same year, Venezuela
established its first state oil company and increased oil companies’ income tax to 65
percent of profits.
The 1970s boom. In 1973, a five-month OPEC embargo on countries backing
Israel in the Yom Kippur War quadrupled oil prices and made Venezuela the country
with the highest per-capita income in Latin America. Over two years, the windfall
added $10 billion to state coffers, giving way to rampant graft and mismanagement.
Analysts estimate that as much as $100 billion was embezzled between 1972 and
1997 alone.
PDVSA. In 1976, amid the oil boom, President Carlos Andres Perez
nationalized the oil industry, creating state-owned Petroleos de Venezuela, S.A.
(PDVSA) to oversee all exploring, producing, refining, and exporting of oil. Perez
allowed PDVSA to partner with foreign oil companies as long as it held 60 percent
equity in joint ventures and, critically, structured the company to run as a business
with minimal government regulation.
The 1980s oil glut. As global oil prices plummeted in the 1980s, Venezuela’s
economy contracted and inflation soared; at the same time, it accrued ma ssive
foreign debt by purchasing foreign refineries, such as Citgo in the United States. In
1989, Perez—reelected months earlier —launched a fiscal austerity package as part
of a financial bailout by the International Monetary Fund. The measures provoked
deadly riots. In 1992, Hugo Chavez, a military officer, launched a failed coup and
rose to national fame.
Chavez also harnessed his popularity among the working class to expand the
powers of the presidency and edged the country toward authoritarianism: he
ended term limits, effectively took control of the Supreme Court, harassed the press
and closed independent outlets, and nationalized hundreds of private businesses
and foreign-owned assets, such as oil projects run by ExxonMobil and
ConocoPhillips. The reforms paved the way for Maduro to establish a dictatorship
years after Chavez’s death.
Venezuela, home to the world’s largest oil reserves, is a case study in the
perils of petrostatehood. Since its discovery in the 1920s, oil has taken Venezuela
on an exhilarating but dangerous boom-and-bust ride that offers lessons for other
resource-rich states. Decades of poor governance have driven what was once one
of Latin America’s most prosperous countries to economic and political ruin. If
Venezuela is able to emerge from its tailspin, experts say that the government must
establish mechanisms that will encourage a productive investment of the country’s
vast oil revenues. Petrostate is an informal term used to describe a country with
several interrelated attributes: (1) government income is deeply reliant on the export
of oil and natural gas, (2) economic and political power are highly concentrated in
an elite minority, and (3) Countries often described as petrostates include Algeria,
Cameroon, Chad, Ecuador, Indonesia, Iran, Libya, Mexico, Nigeria, Oman, Qatar,
Russia, Saudi Arabia, the United Arab Emirates, and Venezuela.
3
Venezuela: The Rise and Fall of a Petrostate, Rocio Cara Labrador, Accessed 5 April 2019
https://www.cfr.org/backgrounder/venezuela-crisis
4
Corrales, Javier (2015). "Autocratic Legalism in Venezuela". Journal of Democracy. 26 (2): 37–51.
Chávez. Upon entering the presidency, Maduro faced a high inflation rate and large
shortages of goods, problems left over from Chávez's policies. 5
Maduro has blamed capitalist speculation for driving high rates of inflation
and creating widespread shortages of basic necessities. He has said he is fighting
an "economic war", referring to newly enacted economic measures as "economic
offensives" against political opponents, who he and loyalists state are behind an
international economic conspiracy. 6 However, Maduro has been criticized for only
concentrating on public opinion, instead of tending to practical issues which
economists have warned about or creating ideas to improve Venezuela's economic
prospects. 7
By 2014, Venezuela had entered an and by 2016, the country had an inflation
rate of 800%, the highest rate in its history. The International Monetary Fund
expects inflation in Venezuela to be 1,000,000% for 2018.
In March 2019, The Wall Street Journal said that "Mr. Maduro has long used
food and other government handouts to pressure impoverished Venezuelans to
attend pro-government rallies and to support him during elections as the country's
economic meltdown has intensified." 8
Juan Guaido calls himself a survivor, and he proved that by defying the threat of
arrest to make a triumphant return to Venezuela on Monday, March 4. Since declaring
himself interim president in a challenge to Nicolas Maduro on January 23, Guaido has
shown skill in his power struggle with the socialist leader. Guaido failed 10 days ago in a
much-publicized bid to bring humanitarian aid in from Colombia and Brazil, but he did
get points for being bold.
5
Corrales, Javier (7 March 2015). "The House That Chavez Built". Foreign Policy. Accessed 6 April 2019
6
"Mr. Maduro in His Labyrinth". The New York Times. 26 January 2015. Accessed 6 April 2019
7
"New Year's Wishes for Venezuela". Bloomberg. The Washington Post. 2 January 2015. Accessed 6 April 2019
8
"IMF Projects Venezuela Inflation Will Soar to 13,000 Percent in 2018". Bloomberg. 26 January 2018. Accessed 6 April 2019
saying, "I swear to formally assume the national executive powers as acting president of
Venezuela to end the usurpation, (install) a transitional government and hold free
elections."
A Resource Curse?
That was especially true of the country's oil sector. When Chavez took power,
Venezuela pumped roughly 3.5 million barrels of oil per day. Production has since
collapsed to less than one-third of that. Oil is a capital-intensive business. To
secure future production, Venezuela needed to reinvest an adequate portion of
9
Rival rallies set up tense standoff in Venezuela, Agence France-Presse, February 02, 2019, Accessed 6 April 2019
https://www.rappler.com/world/regions/latin-america/222530-rival-rallies-tense-standoff-venezuela
windfalls from flush years into its state-owned oil company, Petróleos de Venezuela,
or PDVSA. Chavez failed to do this. His policies also gutted the sector of vital
expertise.
Ratcheting Up Sanctions
The economy was already on a downturn when Maduro took power, leaving
him with the unpalatable option of either dramatically slashing welfare spending or
running fiscal deficits. He chose the latter.
When inflation and shortages led to mass protests against his government,
the violent crackdown he unleashed in response led the US to impose sanctions in
2014 targeting individuals accused of human rights violations.
The US says it's targeting 6 Venezuelan military officers for stopping their aid
from coming through the border, while Moscow promises relief through President
Nicolas Maduro. The United States and Russia clashed Friday, March 1 over how to
assist crisis-wracked Venezuela, with Moscow pledging new relief channeled through
President Nicolas Maduro and Washington slapping sanctions over the blocking of US
10
VENEZUELA 2016: THE YEAR OF LIVING DANGEROUSLY, Barry Cannon, Accessed 5 April 2019,
https://www.redalyc.org/html/324/32453264017/
aid it tried to push through the border. A day after Russia and China vetoed a US and
European resolution at the UN Security Council that called for unimpeded aid deliveries,
Washington said it was targeting 6 Venezuelan military officers for stopping last
weekend's US-led convoy. Four people were killed in the melee as Maduro's forces
prevented the 178 metric tons of rice, beans and other food from crossing into the
country from Colombia. The leftist strongman says the aid is a pretext for a US-led
invasion. The United States also revoked the visas of 49 Venezuelan officials and their
family members, the State Department said. Venezuelan opposition leader Juan
Guaido, whom Washington has recognized as interim president, had hoped to triumph
in bringing in the stockpiles of food, which the United States coordinated with Colombia
and Brazil. Guaido has said 300,000 people could die without an influx of aid into
Venezuela.
Russia steps up
Warnings of force
President Donald Trump has not ruled out military intervention in Venezuela,
although even close US allies have said they would not support the use of force.
Republican Senator Marco Rubio, who has worked closely with Trump to seek Maduro's
ouster, appeared this week to suggest a violent climax as he posted on Twitter two
pictures of Libyan dictator Moamer Kadhafi – one relaxed and smiling while in power,
the other bloodied as he was lynched in an uprising. Defying a travel ban by Maduro,
Guaido went first to Colombia to try to bring in the aid and to meet with visiting US Vice
President Mike Pence. The 35-year-old political newcomer continued on to Brazil,
where he met the new right-wing president, Jair Bolsonaro, and on Friday traveled to
Paraguay and Argentina. Guaido has said he will return home "at the latest on Monday"
despite threats to arrest him. After meeting with Argentine President Mauricio Macri,
Guaido said: "The only step backwards in this process we have begun in Venezuela will
be when many Venezuelans are able to return home." Abrams said the United States
was "very concerned" about Guaido's ability to return home safely and warned of a
"very large reaction" if he is arrested.11
Guaido, who enjoys strong popular support, returned to Venezuela after a trip
across the Colombian border to help coordinate the entry of humanitarian aid — a
failed effort Maduro had blasted as a precursor to US military intervention. The self -
declared interim president — recognized by over 50 countries, including the United
States — avoided arrest upon his return, despite the fact he had violated a travel
ban.
Back on home soil, he vowed to ramp up protests and continue to make life
difficult for Maduro — namely by calling public sector strikes and asking the
European Union to tighten sanctions on the socialist government. This kind of
pressure could push military leaders to embrace Guaido and "collapse the regime,
paving the way for a transition with elections," Michael Shifter, of Washington -based
think tank Inter-American Dialogue, told Agence France-Presse. But first, sanctions
implemented by US President Donald Trump — including a fuel embargo — would
make life even harder for Venezuelans. That creates the potential to taint Guaido's.
In fact, some — including political scientist Luis Salamanca — believe Maduro is
betting on a strategy of "attrition" from Guaido. 13
This struggle is playing out as concerns the future of the armed forces.
Guaido is trying to get the military on his side, while Maduro tries to keep it behind
him.
11
U.S. slaps new sanctions on Venezuela regime as Russia ups support, Accessed 5 April 2019
https://www.rappler.com/world/regions/latin-america/224742-us-slaps-new-sanctions-venezuela-regime-russia-ups-support
12
Humanitarian aid used as weapon in Maduro-Guaido conflict, Agence France-Presse, Accessed 5 April 2019
https://www.rappler.com/world/regions/latin-america/223149-humanitarian-aid-used-weapon-maduro-guiado-conflict
13
EXPLAINER: Where is the Venezuelan crisis heading?, Agence France-Presse, Accessed 5 April 2019 https://www.rappler.com/world/regions/latin-
america/225375-explainer-where-valenzuela-crisis-heading
Presentation, Interpretation & Analysis
Just a few years after Hugo Chávez took office in 1999, he fired thousands of
employees at the state-run oil company, Petróleos de Venezuela, after a controversial
strike. That essentially rid the company of its experts in oil production and replaced
them with people who were loyal to him.
Then, in the mid-2000s, when oil prices were high, Chávez pumped the country’s
oil revenue into social-welfare programs, including setting domestic gasoline prices so
low that consumption soared. The plan was unsustainable. When global oil prices
tumbled from more than $100 a barrel in 2014 to less than $30 at the beginning of 2016,
the country’s economic woes deepened.
“This is when you saw the economic mismanagement of the last several years
combined with a really dramatic drop of oil prices just really start to hurt Venezuela’s
economy,” said Sarah Ladislaw, director of the energy and national security program at
the Center for Strategic and International Studies.
Over the past six years, Venezuela’s gross domestic product has been halved,
according to new projections released by the International Monetary Fund in January.
As Venezuela’s economic situation worsened, investors stepped back, concerned that
the government wouldn’t be able to repay its debts. “That decline we’ve been watching
the last three years was really by virtue of the fact people have not reinvested in new
[oil] production in Venezuela in a long time,” Ladislaw said.
Hyperinflation
Inflation in Venezuela has gone hand in hand with regular people’s inability to
purchase basic goods. As prices soared, food and medicine became out of reach for
many Venezuelans, who felt they had no option but to flee.
Last year, Maduro implemented a new plan to erase five zeros off the country’s
currency — his attempt to confront the rising inflation problem.
Late last year, the International Monetary Fund estimated that the country’s
inflation rate would reach 1.37 million percent by the end of 2018. For 2019, the IMF’s
prediction suggests inflation could reach 10 million percent.
Not all economists agree on the IMF’s numbers. Steve Hanke, a professor at
Johns Hopkins University who measures hyperinflation, which occurs when the monthly
inflation rate reaches 50 percent, told The Post’s Matt O’Brien in July that “you cannot
forecast the course and duration of hyperinflations,” and said that the IMF’s attempts
are “irresponsible.”
Venezuela once made significant progress in reducing its infant mortality rate,
and pledged to do even more. But research published Thursday in the Lancet Global
Health journal estimated that the mortality rate for infants in Venezuela grew from 15
deaths per 1,000 live births in 2008 to 21.1 in 2016. The study’s lead researcher, Jenny
García, told The Post that Venezuela “lost 18 years of progress.”
She and her colleagues blame the decline on cuts to health-care funding. And they
expect that as new data emerges for 2017 and 2018, the rate will only continue to rise,
as Venezuela has struggled with the reemergence of diseases such as diphtheria,
which they had once controlled. The model they used was “conservative,” Garcia said,
adding that she is “confident that it’s going to be worse than what we are showing.”
Fleeing population
Those fleeing included many professionals: teachers and doctors who could no
longer afford to eat or feed their families in Venezuela.
Summary, Conclusion & Recommendation
The government actions have done little to alleviate and much to aggravate the
current severe socio-economic crisis affecting Venezuela. Chief among these is their
failure to amend the Venezuelan currency regime, which many analysts identify as the
root cause for the shortages of food, medicines and other key goods, not to mention its
central role in enabling corruption. Second, we have also sought to show that the
opposition, while obviously not in the seat of power and therefore in the best position to
effect change, have nonetheless prioritized destabilizing actions rather than concrete
policy proposals—most particularly mobilizational actions that regularly resulted in
violence. When actual policy suggestions did emerge, these were primarily of a market-
oriented, neoliberal nature, with little evidence produced as to how these would resolve
the situation positively for poorer Venezuelans. Most importantly, neither side seems to
offer concrete proposals to resolve the country’s main underlying problem of continued
oil dependency. Hence, in conclusion, the study argues that both government and
opposition must share the blame for the contemporary state of affairs in Venezuela,
and, as such, both must play their part in offering a solution to the political and
economic crisis - contends that despite most Venezuelans wanting dialogue between
opposition and government, a polarizing electoral logic has been embedded in the
populace based on a psychologically, spatially, and materially divided population.
Perceptions must be altered so that the opposing camp is no longer seen as an enemy
to be vanquished, but rather an as an adversary to compete against and negotiate with
in order to achieve the collective interest. In order to move beyond the current impasse,
the exit costs for the upper echelons of the government, the PSUV, and the military
generals must be lowered, while the entry costs for the opposition to engage in
negotiation must also be reduced. It is imperative that an alternative narrative to the
polarized logic emerge, showing how both sides can exit the current impasse without
facing political annihilation. While it may appear that there are “two camps formed
across an impermeable boundary, with mutually exclusive identities and interests”, the
government and opposition are in fact fragmented. While this fragmentation makes
dialogue less efficient, it may offer “more space and flexibility for dialogue across the
boundary line and the creation of new coalitions”.
14
Grandin, Greg. 2016, 16 December. “Christmas in Caracas? Worse than the Grinch! Amid Today’s Crisis, What Is Salvageable from the Bolivarian
Revolution? A Conversation with Alejandro Velasco.” The Nation. Retrieved on 6 April 2019 from https:// www.thenation.com/article/christmas-in-
caracas-worse-than-the-grinch/
A further important element would be consistent support from international actors
for such a process and to help guarantee the peace accords or future treaties. United
States may be dealing with a style of ruthless pragmatism on Venezuela in providing
sanctions, but this will worsen the issue and Maduro's rigidness to step down from
Presidency. Russia on the other hand, still reigns their personal interest to Venezuela's
stockpile of oil. This political tactics of being a fraudelent aid does not focus on the well -
being of the Venezuelan people. It may turn out that this scenario is reminiscent of
previous pacts, such as that of the 1958 Punto Fijo Pact, which installed the regime
replaced by the current Bolivarian Republic and which was regarded as the source of
much of today’s conflict. The alternative, however, is a context of continuing
confrontation and polarization, with unknown outcomes for the peace and stability of the
country and the region.
References