Venezuela's Maduro Dooms Himself With Tepid Reforms
With Latin America's most troubled economy heading toward default, there was hope that Venezuelan President Nicolas Maduro might discard half-measures and pull his country back from the edge. Instead, last week he announced policy changes that amounted to an optical illusion.
To wit, although he raised the price of the world's cheapest gas by as much as 6,000 percent (for high octane fuel), he kept the price fixed -- and thanks to government subsidies Venezuelans can still fill up for a world-beating four cents to the gallon. He simplified the confounding, multi-tiered exchange rate system and devalued the bloated national currency, but by not nearly enough: On the street a greenback costs 1,000 bolivars, at least five times the official government rate.
So much for Nobel Peace Prize laureate Oscar Arias's warning from the floor of the Venezuelan National Assembly last week that "it's not possible to overcome the crisis by deepening the current model, only by abandoning it."
Yet Maduro's less-than-half measures did succeed in one thing: solidifying the consensus among Venezuela's opposition for his removal.
When exactly management of Venezuela's "Bolivarian" revolution shifted from profligate to incoherent is hard to say, but the latest contortions in Caracas attest to a new level of official distress: an annual rate of inflation that could reach more than 700 percent and gross domestic product set to shrink by 8 percent this year. Plunging oil revenues threaten the government's ability to cover more than $20 billion in bond payments, oil sector imports and loan repayments to China falling due this year. The only way to avoid default is if oil prices rebound to around $70 dollars, the consultancy Oxford Economics wrote in a client note; Venezuela's heavy crude currently fetches less than $30 a barrel.
Even then, the government may be forced to slash imports of food and medicine more deeply, worsening chronic shortages and potentially sparking social revolt.
The prospect of insolvency has moved the government, however, to take measures for its own preservation. Consider its recent creation of a new oil company that will report neither to Maduro nor to the troubled state oil major PDVSA, but solely to the Defense Ministry.
The most cynical reading of this maneuver is that the military wants a direct cut of the spoils from the only reliable source of hard currency. "That would be robbery, pure and simple," said Gustavo Coronel, an oil consultant and former PDVSA director. Another version has it that the government wants to protect oil assets by shifting PDVSA's holdings to a new company theoretically beyond the reach of creditors.
A more troubling theory is that the armed forces are taking an even more controlling role in Venezuela's economy, much like Cuba's "military executives" or Iran's enterprising Revolutionary Guard. "This would confirm that Maduro is a military puppet," said Coronel.
What's clear is that frustration over Maduro's floundering leadership is mounting, along with predictions that he might not finish his term, which ends in 2019. Colombia is reportedly weighing asylum for Maduro should he step down.
In a proper democracy, the legislature would step up and help forge a national consensus. But after 17 years of bitter politics and executive ring-fencing under the late Hugo Chavez and his successor Maduro, that's unlikely. Last month, the opposition-led National Assembly rejected Maduro's bid for exceptional powers to tackle the economic crisis. So Maduro simply turned to a pliant Supreme Court -- which he'd taken care to re-stack in his favor in December -- and overruled the congress, essentially shredding the constitution and declaring an institutional crisis. "The Supreme Court is our Berlin Wall," said former Venezuelan diplomat Diego Arria, a prominent dissident.
As long as Maduro remains in control, breaching that wall looks unlikely. The good news is that the impasse has brought the country's quarrelsome opposition factions, each with their own ambitions, closer together: Even as one generally conciliatory leader has called for a popular referendum to cut short Maduro's term, another has argued that Maduro be charged with "abandoning his post," a move which would require a simple majority of congressional votes.
Removing an elected leader who has put a nation at risk is politically dangerous -- millions of Venezuelans remain loyal to the revolution, if not to Maduro -- but it's also a safeguard written into the national constitution. Venezuela's democrats need to walk that line if they are to enlist the broad support they'll need to rescue the nation from its government, right the failing economy and stop hardship from devolving into social convulsion.
It's a measure of Venezuela's despair that such extreme propositions are now on the table.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
To continue reading this article you must be a Bloomberg Professional Service Subscriber.
If you believe that you may have received this message in error please let us know.
- The Problem Is Facebook, Not Cambridge Analytica
- Putin Won at the Ballot Box. He's Losing Elsewhere.
- Cambridge Analytica Behaved Appallingly. Don't Overreact.
- This Is No Way to Run the U.S. Stock Market
- There's a Blamer-in-Chief in the Oval Office
- Warren Buffett Is Just an Average Employee
- The Population Bomb Has Been Defused