Viewpoints on Energy, Geopolitics, and Civilization
Mac Margolis / Bloomberg:
Dollars to Feed His Cronies, Not His People
Yuri Cortez/ /AFP
Now accepting dollars.
Venezuela's market maneuvers reveal a leader
who wants to have his revolution and short it, too.
With the economy crumbling and millions fleeing the country, the heir and keeper of what Hugo Chavez branded 21st-century socialism has allowed once- taboo dollars to flood the market. Private companies, yesterday's enemies of the revolution, are peddling luxuries from designer rum to imported cars. The Caracas club scene is on fire. Maduro is even flirting with privatizing the state oil company PDVSA , the Bolivarian crown jewel.
So is this a deathbed conversion to the free market or a cagey survivor's pivot to authoritarian capitalism to save socialism? Neither. The more likely motive for Venezuela's careening toward free market practices is anomie in league with expediency — with a wink at felony.
The first part is no mystery. “There's no written policy shift behind these maneuvers,” said Venezuelan economist Juan Nagel, who teaches at the Universidad de los Andes in Santiago, Chile. A better explanation, he said, is that the government has become so hollowed out it has scant tools to keep a grip on the command economy. “You need a functioning, paid bureaucracy to enforce price controls, collect taxes and police contracts, and many of these guys have already left the country,” said Nagel. “The government simply isn't looking anymore.”
So much the better for Venezuela's well-heeled. Disarray has put some businesses, especially retailers, back in the money. Whether wired home by expatriates or flown in from Russia , dollars are rolling in. Oxford Economics lead economist Carlos de Sousa reckons that half the country's transactions are now carried out in cash, from euros and dollars to Brazilian reais and Colombian pesos. Banks charge native high rollers a 1% to 2% monthly fee to store the hard currency loot in their vaults. The upper middle class, no longer hostage to the ennui of scarcity, is living high again .
While Venezuela's less fortunate have little to celebrate, the recent lapse in enforcement of price controls has eased the chronic shortages that emptied stores shelves and turned grocery runs into scavenger hunts. Annual inflation has slowed considerably, from 2,688,844% in the year to January 2019 to 7,374% by December, reports Oxford Economics. Gross domestic product is still contracting but at a much slower pace . No one expects the estimated 4.6 million Venezuelans who have fled the country to rush back, although a few have returned on the tide of dollars . However, the estimated $4 billion a year the diaspora sends back home to friends and family help alleviate deprivation. More importantly for Maduro, every expatriate greenback is one dollar less his regime must spend on Venezuelan welfare, not to mention a welcome source of cash through remittance taxes and fees for a regime ring-fenced by U.S. sanctions.
In the Bolivarian republic, however, not all discontents are equal.
Keeping those with the deepest pockets in baubles and pleasure boats is a hedge against mutiny at the top. “Most Venezuelans with lots of money are regime people,” de Sousa told me. “They had investments abroad before U.S. sanctions and now can't move their money anymore. All of them are obliged to put their money in Venezuela. To be profitable, they need to get rid of price controls.”
Maduro also has gone out of his way to indulge another powerful cohort: the favored bureaucrats, political operators, military officials and assortment of felons whom he has regaled with patronage jobs, a cut of public concessions and even authority over basic bureaucratic functions, as Moises Naim and Francisco Toro recently wrote. Forget 21st-century socialism: This is a good old barony of bandits.
The trick of this arrangement is to relax the rules and look the other way at violators to encourage enterprise in the shadows, but never transcribe those practices into policy or law. “We know that a lot of Venezuelans have suffered and are starving. But there are also a lot of people who have profited from Maduro's maneuvers,” said Monica de Bolle, senior fellow at the Peterson Institute for International Economics. “These are not reforms, they're tidbits for cronies. It's all a balancing act."
To keep his footing, Maduro strives to preserve the optics of revolutionary socialism even as it spins out of his control. For that matter, so do some of the government's most strident international foes, who are invested in the conceit that Venezuela is the last socialist bastion in South America. Hence the strange consensus uniting devoted Bolivarians, who admire Maduro as an insurgent and leftist bulwark against imperialism, with archrival Donald Trump, to whom Maduro is a “socialist dictator” whose “grip on tyranny will be smashed and broken,” as he said in his state of the union speech Wednesday.
Venezuelan opposition leader and shadow President Juan Guaido knows better, but was caught in the middle as he brought his case for democratic diplomacy to the poisonous politics of Washington. Trump, in his speech, feted Guaido as a rebel for democratic freedom only to abruptly cancel a scheduled Oval Office joint presser the next day after Republican Senator Mitt Romney voted for impeachment.
Venezuela's opposition is also uneasy over Maduro's sudden affinity for capitalism's animal spirits. Guaido and his backers have long called for freer markets and relaxing rules for foreign investment , especially in oil exploration. What they want to avoid is for Maduro to make the call on reform, much less capture the benefits.
Not all of Venezuela's renascent profiteers are comfortable with his off-books workaround. The collapse of PDVSA has already forced the government to ignore constitutional strictures on foreign capital and surrender operations to international partners, such as Russia's state-owned oil major Rosneft. Now those same partners want to convert the de facto rule into a written one – a paradox that has turned Moscow into a leading voice for free markets and the rule of law. “Foreign companies want legal certainty,” said de Sousa.
The tone-deaf regime in Caracas may not heed their call any more than it did that of the 82% of Venezuelans who last year said they wanted Maduro gone by 2020. Maduro's market maneuvers bespeak a leader who wants to have his revolution and short it, too. For a country that has lost 65% of its national wealth since 2013 and seen extreme poverty spike from 10% of the population in 2014 to 85% by 2019, relief is still an illusion. Ersatz liberalism won't change that.
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Mac Margolis is a Bloomberg Opinion columnist covering Latin and South America. He was a reporter for Newsweek and is the author of “The Last New World: The Conquest of the Amazon Frontier. Petroleumworld reprint this article in the interest of our readers.
Editor's Note: This article was originally published by Bloomberg, on Feb. 10, 2020. All comments posted and published on Petroleumworld, do not reflect either for or against the opinion expressed in the comment as an endorsement of Petroleumworld.
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