The Roots of Venezuela’s Economic Crisis

As US sanctions against Venezuela take an ever-greater toll on the country and its people, it is important to understand how the sanctions work and the extent of the damage they have caused, say Steve Ellner and Greg Wilpert, in a joint analysis of the situation

 

 

The Roots of Venezuela's Economic Crisis

Story Transcript

SHARMINI PERIES: It’s The Real News Network. I’m Sharmini Peries, coming to you from Baltimore.

This week, the tire manufacturer Goodyear withdrew their operations in Venezuela, closing its factory there. This is a major blow to Venezuela’s transportation sector, which already is struggling with finding replacement parts for cars, trucks and buses. Why did they leave and what does this mean for the Venezuelan economy?

Joining me now to discuss these issues here in our studio is Steve Ellner. Steve is a retired Professor of History at Universidad de Oriente in Venezuela, and he joins us today in our studio for a change. It’s nice to have you here.

STEVE ELLNER: Good to be on the program.

And also joining us is Gregory Wilpert. Gregory is the author of the book, Changing Venezuela by Taking Power, and is the managing editor here at The Real News Network. Thanks for joining us, Greg.

GREG WILPERT: My pleasure.

SHARMINI PERIES: All right, Greg. So let’s tackle this very issue I posed in the introduction, which is Goodyear leaving Venezuela?

GREG WILPERT: Well, it’s interesting. I don’t know exactly how many, but I think it’s something like the fifth company to announce a major departure from and closing of factories from Venezuela. But it’s the first one to officially state that the reason is the U.S. sanctions, at least one of the reasons, and it’s a very important reason. In other words, they have been having problems importing the primary resources that they need in order to produce the tires, and the reason that they have these problems is because of the financial sanctions against Venezuela, which is of course something that most people aren’t aware of, because one always thinks of the sanctions against Venezuela, if one even is aware of them, in terms of financial sanctions that affect mostly the trading of Venezuelan debt and bonds and things like that, but its ramifications go way beyond this.

And the closing of the Goodyear factory, I think, is the first time that this really lays that out in the open. Although any close observer of Venezuela will have known that for a long time now, one of the reasons that Venezuela is struggling economically so badly is precisely because of the sanctions which have made it so difficult to import badly needed goods to Venezuela.

SHARMINI PERIES: Now, unless you are a trading partner with Venezuela, Steve, it’s hard to actually realize the extent the sanctions against Venezuela is impacting the economy of Venezuela. And you live there. Describe to us the effects U.S. sanctions are having.

STEVE ELLNER: Yes. I think that, as Greg said, it’s now evident that companies that are leaving Venezuela are doing so because of the sanctions or largely because of the sanctions. When President Obama declared Venezuela a threat to U.S. national security, Ford Motor Company and Kimberly Clark, a company that produces items of personal wear such as diapers and paper towels, they closed shop and left Venezuela. Now, at the time, the opposition was saying, and they’re still saying, that the problems of the Venezuelan economy are due to Maduro’s bungling. They claim that it has nothing to do with the price of oil having declined, having nosedived beginning in 2014, and they claim that the sanctions don’t have anything to do with the economic problems that Venezuela is facing. But now it’s evident, and it’s becoming increasingly evident, the effect of the sanctions.

When the sanctions were imposed on Iran just recently, several companies in Europe, countries that oppose the sanctions against Iran, for instance, Shell in England, the English government is opposed to the sanctions, as is the French government, but Total and Shell announced that they would not import oil from Iran. And Swift, a very important financial institution, announced that it would sever all transactions with Iranian financial institutions. And the statement that they issued was that Swift doesn’t want to destabilize the world’s financial system. So it’s obvious in the case of Iran, the media has reported this. That wasn’t the case with Venezuela.

These sanctions go back to 2015 when Obama announced the targeted sanctions against individuals in the Venezuelan government. And as Greg stated, a lot of people just thought that these were sanctions against individuals, which meant that those individuals couldn’t open bank accounts in the United States and they couldn’t get visas to travel to the United States. But the ramifications, as Greg stated, were much wider because they have created a situation in which companies and financial institutions throughout the world are afraid to deal with Venezuela. So it really amounts to a blockade more than anything else.

The Secretary of the Treasury, Mnuchin, Steven Mnuchin, has organized meetings, workshops with Japan, Western Europe, Latin America in order to track down the shadow companies or the shell companies, specifically of President Maduro, saying that they are going to find out where these companies are located, and making a big thing out of this, even though that is completely unnecessary. Because U.S. law, if Maduro is corrupt, which is what Mnuchin is saying, or if there is money laundering, U.S. law states, regardless of what country is involved, that those holdings will be frozen and measures will be taken. But there is a big publicity effort. And what that does is it creates fear on the part of companies and CEOs throughout the world. And so, in effect, it really amounts to a blockade of the Venezuelan economy.

SHARMINI PERIES: Steve, you mentioned in 2014 Obama introducing some of these sanctions. And that was a very important time, because in one sense, Obama was seen as somebody who was very moderate, opened up relations with Cuba after forty years, and he was open for economic relations. Many people around the world praised him for that. And I think almost the same week, he slammed the sanctions against Venezuela. So what’s the explanation for that?

STEVE ELLNER: Right. I think that rather than talk in terms of explanations, I think there are factors, several factors, that explain that. And they are not contradictory, I think they all tell part of the story. In the first place, I think Obama was trying to indicate that he was not soft on the enemy, in Cold War terms, the communist, even though Venezuela can’t be considered neither communist nor socialist because the economy isn’t socialist, but in order to make clear that he wasn’t soft on the enemy. So he reestablished diplomatic relations with Cuba, which is a very audacious move on his part. But at the same time, he demonstrated that he wasn’t soft on the enemy. Secondly, there was a strategy of placing pressure on Cuba to distance itself from Venezuela.

Venezuela and Cuba have been very close allies since Chavez was elected in 1998 and they’ve had close economic ties. If Cuba, in the context of a certain degree of liberalization following the death of Fidel Castro, if Cuba were to move away from Venezuela, that would be a blow both economically and politically for Venezuela. So I think that was part of the strategy, an unsuccessful strategy, let me add, because there isn’t any indication at all that that is happening. And in the third place, I think there was the feeling on the part of Washington that Venezuela was in a vulnerable situation beginning in 2014. In August of 2014, the price of oil started to decline, it nosedived, that affected the Venezuelan economy in a big way, as I stated before. And I think that the strategy also was to take advantage of that, to promote the destabilization in order to see if that would result in regime change.

SHARMINI PERIES: All right, Greg, Steve mentioned a blockade. I mean, we had a blockade for a few decades in Cuba, now that has shifted towards Venezuela. Is Venezuela going to be able to survive this blockade and what are some of the strategies that could be engaged in order to see themselves out of this mess?

GREG WILPERT: Well, I think it’s interesting. There have been a number of studies, actually, that show that these kinds of sanctions are actually really ineffective for bringing about regime change. So even from the perspective of the Trump administration or the U.S. government, this is not a very useful strategy, because if anything, it tends to consolidate the governments that are in office. Now, it certainly weakens them from an economic point of view, but politically, it tends to consolidate them. And I think you kind of see that in the case of Venezuela, even though Maduro’s approval rating is quite low, actually. It’s difficult to know exactly what the polls say because they’re very contradictory, but it’s certainly not very high. Because people do blame partly Maduro and partly the United States for the economic problems that are going on in Venezuela.

SHARMINI PERIES: Is that a fair charge in the sense that Venezuela is an oil producing country, the oil prices have gone back up. There is obvious other partners that Venezuela could be trading with. They could also boost their trading partnerships with China, Russia and Spain, and other countries, as well, other countries in Latin America like Mexico. So is that a fair charge, that most of Venezuela’s economy is dependent on the U.S. and U.S. sanctions are so harshly affecting it that it can’t see its way out?

GREG WILPERT: Well, I mean I think I would agree with Venezuelan public opinion in the sense that a large part of it is actually the Maduro government’s fault. I mean, errors in its own economic management, specifically having to do with the exchange rate policy. I think that’s definitely, and we’ve talked about this in other programs many times before, which is it created a number of distortions and have contributed to hyperinflation. But I think one should not underestimate the effect the sanctions have had in making a bad situation much, much worse. One of the things, recently there’s been some research done that seems very credible that shows that the Venezuelan government has lost something like six billion dollars in revenue just in the past year or two from the sanctions because the government has not been able to ramp up oil production because it cannot import the necessary materials that it needs in order to engage in oil production, as a matter of fact, actually to replace the parts that it needs.

So oil production has gone way low because of that. And then, of course, there’s the other factor that the Venezuelan government says that something like four billion dollars are being held up of products that they’ve basically paid for but are unable to import because of the restrictions on financial transactions. And one point five billion dollars of that alone are for medical supplies for medicines. So these are really crucial impacts. And if you can’t import them, what that means is that they go through other channels and much fewer get to the market, which means that the demand is very high and that the supply is very low, and that just fuels the hyperinflation as well. So you’ve got that additional factor that is playing a major role, and so that’s why I would say that it’s hard to say exactly what percentage is now the government’s own economic problems, that is, in terms of management, and what percentage is the U.S. government’s. But neither one should be underestimated.

SHARMINI PERIES: And Steve, in spite of the sanctions, the U.S. imports a great deal of oil from Venezuela. And has that dependency changed?

STEVE ELLNER: The dependency hasn’t changed and the critics are absolutely correct in saying that the dependency has not been severed in the case of Venezuela and in the case of the other progressive, so-called Pink Tide governments in Latin America, Brazil and Lula and Dilma Rousseff, in Argentina under the Kirchners, that didn’t happen, at least in an important, significant matter. But I think that that is a valid criticism. But I think that the positive sides also have to be brought into the picture. In the last couple of years, there have been critics on the left of the political spectrum, people who would consider themselves on the left side of the political spectrum, who have made this criticism, have expressed this criticism of the progressive governments, not only the government of Venezuela.

But those same critics, for the most part, do not discuss the positive sides of these Pink Tide governments, specifically the government of Chavez and Maduro, in terms of social programs that promoted popular participation of marginalized sectors of the population, that has given them a sense of empowerment, of participation, of incorporation, of a progressive independent foreign policy, of a concept of participatory democracy which was incorporated in the constitutions of Ecuador, Bolivia and Venezuela.

You know, just one minor detail. Here in the United States, there’s talk of how our system, the two chambers system of Congress, provides the rural population … is undemocratic in the sense that states such as the two Dakotas, which some say should be one state, have four senators between the two of them, and yet just a small percentage of the population of a state like California.

Well, in the case of Venezuela, that system of the two chamber legislative branch of the government was changed, was modified. There’s just one chamber, the Chamber of National Deputies. So there has been improvements in the area of democracy, of participatory democracy, and I think all those things have to be brought into the picture.

With regard to what you stated before with regard to the price of oil, that the price of oil has gone up again, I think that we have to make a distinction between what happened with the price of oil under Chavez and under Maduro. Because in the case of Chavez, the price of oil steadily increased. Chavez had a lot to do with that because of his activist policy within OPEC of promoting the stabilization of the price of oil at upper levels.

But in any case, the price of oil began very low. Venezuelan oil was very low when Chavez assumed the presidency in 1999, and it steadily increased. And it reached one hundred dollars a barrel for Venezuelan oil and one hundred and fifty dollars a barrel for OPEC oil. In the case of Maduro, it was just the opposite. It began at a hundred dollars a barrel and then declined rapidly to thirty odd, more or less thirty-five dollars. Now, it improved after that, it worked its way up, but now it’s going down again. So I think that that situation has to be brought into the picture, that it began at a very high level and then declined. When the price of oil is up around one hundred dollars a barrel, there are commitments that the government assumes that creates economic disorder and social disorder as a result of the decline.

And incidentally, when Maduro assumed the presidency, before that there was a power vacuum and that’s precisely when the price of the dollar got out of control. Under Chavez, the dollar fluctuated, the black market rate fluctuated between eight and nine Bolivares per dollar. The official rate was, towards the end there, four point three Bolivares days, so that the ratio maintained itself more or less two to one throughout the Chavez period. When Chavez went off to Cuba in late 2012, that’s when the price of the dollar got out of control. There was a power vacuum. Chavez was in Cuba, Maduro was acting president, but he didn’t really become president until he was elected in April of 2013. By then, that ratio of two to one became a ratio of something like fifteen or twenty to one. So you can’t really blame it all on Maduro. I agree with Greg that Maduro was slow to act, and I think that criticism is in order. But I think the context is also important to understand what happened.

SHARMINI PERIES: Greg, Steve, one of the problems Venezuela has is the way in which it is described by politicians and mainstream media in terms of its socialist intentions and its socialist governance. And some of us would argue that it is not really a socialist state, but that’s not what we hear in the United States. Let’s listen.

DONALD TRUMP: And you don’t give power to an angry, left-wing mob, and that’s what the Democrats are becoming. They will turn our country so fast into Venezuela. And Venezuela is not doing too well, folks.

SPEAKER ONE: You’re running on failed socialist policies, you’re going to lead a Nicolas Maduro wing for the Democratic Party? Good luck for that. We know that that won’t work.

SPEAKER TWO: If only there were examples of people fleeing lousy places that once were great before leftists took over. Oh yeah, Venezuela. I think we have the Democrat slogan for 2020. Zebra, it’s what’s for dinner.

DONALD TRUMP: Florida has a governor like that, and I know Florida better than I know practically anywhere, Florida will become Venezuela. It will be a disaster.

SPEAKER THREE: Maybe Venezuela is best used as an example for our own socialists here in America. Socialism is making great strides among young people. Venezuela could be one of those teaching moments. After all, in our schools and colleges, socialism is often held up as something wonderful. The sight of Venezuelans eating out of trash cans might open some eyes.

SHARMINI PERIES: All right, Greg. So Venezuela is obviously being framed by many people in the mainstream as a socialist state. Would you agree with that?

GREG WILPERT: Well, no. I think Venezuela has definitely tried to make movements towards socialism, but it’s under very, very difficult circumstances. And so, one has to take that into account. And for one thing, what we just talked about, which is the economic pressure that’s being placed on Venezuela in terms of the sanctions, and also other ways that Venezuela has been placed under economic pressure for a long time. I mean, for example, we can talk about the capital flight that has been going on. That’s a major source of pressure on any government, which also has implications later on, at some point, that the rates for bonds are sky high for Venezuela. It’s very difficult for Venezuela to borrow money on the international market. Usually, oftentimes had to take recourse to China or to Russia in order to get some extra funds.

So all of these factors combined have created heavy distortions in the economy that on the one hand, as Steve mentioned before, tried to institute participatory democracy and also participatory economics in the sense of more cooperatives and greater participation of the population in the economic well-being through redistribution measures and through the land distribution program, of course. And perhaps more importantly, also the social programs that were mentioned earlier. So all of these things together move Venezuela in the direction of a more socialist country, but under extremely, extremely adverse circumstances.

And so, of course, the use of Venezuela as kind of a bogeyman of socialism is very convenient for this moment, this historic moment that we’re in right now, which is trying to create a new kind of anti-communist, anti-socialist phobia, a new kind of McCarthyism, you could say, to discredit any kinds. Especially now we saw several efforts to link Bernie Sanders to Venezuela, which makes absolutely no sense whatsoever, because the policies are very different on top of it all. But it’s definitely an effort to use that as a rhetorical strategy that for anyone who knows anything about either the progressive Democrats or about Venezuela knows that it’s a completely false equivalency.

SHARMINI PERIES: And Steve, Bernie Sanders actually has distanced himself from being associated with Venezuela in this way. Describe that for us.

STEVE ELLNER: Right. He has signed a statement, along with other members of the Democratic and Republican parties, criticizing Maduro and buying into the narrative of the mainstream media. The statement that the crisis in Venezuela demonstrates that socialism doesn’t work doesn’t take into consideration, like Greg said, that Venezuela really isn’t socialist. In fact, eighty percent of the Venezuelan economy is private. So there are some people in Venezuela, some people on the left, who say that the crisis is due to the fact precisely because Venezuela’s capital is just not socialist. And they advocate the nationalization, expropriation and transformation, a quick kind of transformation to socialism. But in any case, the association between the model and the specific problems that Venezuela faces, it’s a repeat of what is always stated.

During the Soviet Union, the life of the Soviet Union, the same statement was made. Socialism doesn’t work, look at the Soviet Union. What they don’t state is if the model is inherently unfeasible, why is it that every time a government comes to power that supports socialism, there is such efforts, such hostility, such aggression against that government in order to bring about destabilization and regime change. Look at the case of Cuba. Fidel came to power in 1959 and just two years later, you had the invasion of the Bay of Pigs. Look at Chile under Allende, the same thing. If the United States or if the U.S. government or certain people in Washington felt that socialism doesn’t work, why didn’t they just let these countries show that that was the case? Just leave the country alone for five or six years. And then, if that’s true, if socialism doesn’t work, it will become obvious that the system is unfeasible. So what’s happening in Venezuela is part of a pattern that goes way back in time.

SHARMINI PERIES: All right, Greg, give me the last word. You have written a book on Venezuela, Challenging Venezuela by Taking Power. One very interesting thing is that Chavez, particularly after his second term, came out with a plan to change Venezuela into a socialist state. He came up with the 21st Century Socialism for Venezuela. And he was very ardent about wanting to implement that. And yet, we don’t actually see the results there. Why so?

GREG WILPERT: Well, first of all, I think that Chavez was an extremely strategic thinker. I think that was his strength, his is incredible gift. And I mean, he took into account so many different factors. It was really impressive. I mean, one of the problems that, of course, any government always faces in trying to create a transition toward socialism is the international context, which is what Venezuela faces right now. And that’s why he insisted so much on regional integration, on South-South integration, on anti-imperialism, this entire approach that would guarantee that Venezuela would be protected when it tried to do something different. Now, this all fell apart with the emergence of the right-wing governments in Latin America.

It fell apart, also I think, with Chavez’s own death and the coming to power of Maduro, who I think is less strategic. But he was also, of course, under very adverse circumstances. Chavez’s death provoked another bout of capital flight. But I think the United States, and as I said, the other countries, started ganging up on Venezuela, and so the economic circumstances were no longer given to do something different and actually were given to turn situation into a very, very difficult and bad situation, actually, economically speaking. And that’s something I think that the left in general needs to think about in terms of this transition aspect. Because I think very few have really thought it through, what that would look like, a transition from capitalism to socialism. There’s very little, as far as I can tell, that has really systematically been thought about it. And so, that’s why Venezuela, I think, stands as a very, very important experiment to study and to learn from in that sense.

SHARMINI PERIES: All right, Gregory. Well put. I thank you so much for joining us. And Steve, very good to have you in our studios here in Baltimore.

STEVE ELLNER: Good to be on the program.

SHARMINI PERIES: And thank you for joining us here on The Real News Network.