In Freefall: Scarcity in Venezuela

BEN LEVY

The lines begin to stretch around the block well before 5:00 each morning. People wait for hours, hoping that there will be something left by the time they reach the door. They’re waiting for a loaf of bread.

These scenes have become commonplace across Venezuela, even in the once prosperous capital city of Caracas. A humanitarian crisis has reached previously unseen levels in this country of over 30 million people. There are shortages of basic medicines, goods, and above all else, food. About 85% of medicines are in short supply, maternal mortality and infant mortality are up 65% and 30%, respectively, and mosquito-borne illnesses like Zika virus and malaria are on the rise. Meanwhile, 75% of Venezuelans reported losing 19 pounds on average in 2016, and one in three are eating two meals or less a day. Caritas Internationalis, a religious charity, has measured the Global Acute Malnutrition (GAM) rate – the proportion of children from six months to five years of age suffering acute malnutrition – to be hovering around ten percent, the WHO’s benchmark for a serious crisis.

Protesters march daily on the streets of Caracas to demand early presidential elections, banging together empty pots as a symbol of the food shortages. In response, the government has cracked down, with security forces firing canisters of tear gas, or even live ammunition, at demonstrators. To date, government forces have killed at least 64 people since April of 2017.

Like so many other food crises, Venezuela’s is both human-caused and preventable. Until recent years, Venezuela was performing well by many standards. It has the largest proven oil reserves in the world and a socialist government dedicated to providing social programs for poverty alleviation. For years under Hugo Chavez, the President from 1998 until his death in 2013, those socialist policies succeeded in reducing poverty from 55% to 34%, helping 1.5 million adults become literate, and delivering healthcare to 70% of the population with Cuban doctors, paid for with oil revenues.

In recent years, however, the government has become increasingly authoritarian. First under Chavez, then continuing under his successor, Nicolas Maduro, the ruling party gradually consolidated its power. Courts and electoral authorities have been filled with Chavez supporters, known as Chavistas, while press freedom has significantly deteriorated. This past March, the government-controlled Supreme Court tried to dissolve the opposition-controlled National Assembly, although the ruling was later weakened after massive protests broke out.

So what is causing the dire crisis in Venezuela? American news outlets such as the Washington Examiner, Fox News, and New York Magazine, have described it as the inevitable collapse of socialism. According to Maduro, the crisis is due to the political opposition collaborating with the United States to bring down the People’s government. As always, the reality is more complicated than both sides make it out to be.

External factors

The main causes of the crisis are economic. A significant reason why Venezuela cannot buy food is because the government is out of money. Ninety-six percent of government revenues come from oil, so when the price of crude oil recently plunged to a twelve-year low, the government could no longer afford to pay subsidies to farmers or give food vouchers to the poor.

On top of a decrease in national revenues, creditors are pressuring the government to put any limited funds towards paying down debt to avoid restructuring bonds (a term for government debt) rather than feeding people. This has prompted some economists to assign the epithet of “hunger bonds” to Venezuelan bonds. Emerging market bonds funds, such as JP Morgan’s EMBI+, have a significant stake in Venezuela, since Venezuelan debt is so risky that it has five-times the rate of return compared with other countries. These funds stand to lose massive profits if Venezuelan debt is restructured, so they are pushing the government to take actions like curbing imports to free up money to service the debt.

Internal factors

Volatile oil prices and callous bond traders both fit into the Maduro government’s narrative that Venezuela is a victim of external imperialist forces. However, the government is itself at fault for the consequences of years of mismanagement, corruption, and short-sightedness. When oil prices fell, Venezuela had next to no currency reserves, since it had spent more than all of its oil revenues on social programs. To pay its bills, the government began printing money, which increased the currency supply and drove up inflation. At the same time, the government fixed the exchange rate of Bolivars (Venezuela’s currency) to dollars and mandated that prices for basic goods like bread be kept at low levels. The result was runaway inflation – which is when the value of the currency decreases extremely rapidly – and a massive black market for US dollars and all other goods. Since Bolivars are so plentiful, the bills are hardly worth the paper they are printed on.

The situation places farmers, bakers, and shopkeepers in a precarious situation. Facing persecution from the government for failing to meet quotas, many produce the bare minimum amount of food and sell it at a loss. They then sell everything else on the black market so they can afford to feed their families. Many farmers have simply left their fields vacant because there is no one to pay them.

A high level of corruption means that officials often enrich themselves from Venezuela’s byzantine price control system. According to Transparency International, Venezuela ranked 169th out of the 180 countries surveyed for the Corruption Perceptions Index in 2017, as well as the most corrupt in the Americas. Corruption leads to mismanaged nationalized companies, and significant barriers to doing business.

An Inevitable Failure?

For right-wing critics, this is a classic case of a populist, socialist government’s inevitable failure. The argument goes: price controls, overspending, and mismanagement are not the exception, but the rule as far as socialism is concerned. The oft-cited whale of Venezuelan mismanagement is Petróleos de Venezuela S. A. (PDVSA), the national oil company. In the 1990s, the board and much of the upper management were replaced by pro-Chavez Bolivarian socialists. The revenues were subsequently redirected to pay for large social programs and not reinvested to develop the company. PDVSA became the government’s chequebook, which it used to buy influence, such as by giving cheap subsidized oil to Cuba in exchange for medical care. In 2002, Chavez responded to a PDVSA strike by firing between 20,000 to 30,000 workers and replacing them with loyalists, which severely reduced the company’s operational efficacy. In 2014, over USD 11 billion was reported stolen from the company.

Yet a Venezuelan crisis is hardly the fault of socialist policies alone. One need only look at Venezuela’s neighbour, Bolivia. Both countries are quite similar in having a socialist and natural resource-reliant government. However, Bolivia is not experiencing anything like Venezuela’s crisis. The country has no shortages of basic goods; poverty has reduced from 66% in 2000 to 39% in 2015; and inequality has shrunk. This is mainly due to the fact that while Venezuela spent itself into debt during the Golden Decade of 2003-2014, Bolivia built up its international reserves to USD 15.1 billion by the end of 2014. As a result, Bolivia can afford to feed its people even while government revenues are down. Though Bolivia suffers from many of the same issues Venezuela faces with respect to corruption and free speech, the success it has had with socialist policies paint a different picture from that imagined by some American critics of Venezuela.

Hungry for change

On August 4th of 2017, President Maduro inaugurated a brand-new Constitutional Assembly, with near-unlimited power, to rewrite the 1999 constitution and to bypass the opposition-held National Assembly. The 545 members of the assembly were elected in a disputed election on July 30th. The election was boycotted by the opposition and rife with allegations of voter fraud on the part of the government, even coming from Maduro’s attorney-general, Luisa Ortega. As well, there was no option for people to vote against having an assembly; they could only choose which Maduro loyalists would represent them. Although Maduro claims that the body is independent from him and his government, among the members are Maduro’s wife, his son and his former foreign minister Delcy Rodriguez, who is the assembly’s president.

In response to the Maduro government’s actions, US President Donald Trump has undertaken the extreme measure of sanctioning Venezuela’s president, citing the government’s ongoing repression of free speech and civil liberties. Further, the Trump administration has threatened to cease all imports of Venezuelan oil into the United States. This would dramatically worsen the crisis, as the US is the largest buyer of Venezuelan oil by far.

Although there are plenty of valid criticisms of Maduro, Slate’s Josh Keating notes Trump’s hypocrisy: he praises leaders like Russia’s Vladimir Putin, the Philippines’ Rodrigo Duterte, and Saudi Arabia’s King Salman, yet singles out Maduro as the only real dictator. This discrepancy takes on an especially unsavory connotation, as it would be cruel and unjust for the US to plunge Venezuela further into famine, especially given a brutal history of US interventionism against leftist Latin American governments in the name of “democracy”. Even if one believes that Maduro must go, if the cause of Maduro’s fall is a US oil embargo, that only plays further into the government’s narrative that Venezuela’s problems are entirely foreign-caused. Any change in Venezuela must come from within.

Politicians may find it hard to see the tragedy while deep in the weeds of political bluster and economic jargon. Yet, children are nonetheless dying or being permanently stunted, and families are having to choose who gets to eat on a given day while perfectly fertile fields lie unsown. This crisis was, and still is, entirely avoidable. Whether Maduro stays in office or reaches an agreement with the opposition, it won’t matter who holds power in a broken country.

Maduro recently called a snap presidential election, which is taking place in May and is being boycotted by the opposition. Along with the election and the recent announcement of an oil-backed state cryptocurrency, it seems as though the Maduro administration is grasping at straws to stay in power. The question is how many more will starve as a result of Maduro’s efforts to stay afloat. The answer, as of yet, is far from clear.

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