war on the rocks

Takeaways from Venezuela’s Long Descent

August 20, 2018

This month’s highly publicized drone attack on President Nicolas Maduro is but the latest manifestation of the crisis gripping Venezuela. By now, the extent of the country’s downward spiral is well known. Last month, the International Monetary Fund reported that Venezuela’s economic decline has reached a level not witnessed in decades, and is reminiscent of the crisis in modern-day Zimbabwe and the German economic collapse of the 1920s. I suspect these aren’t comparisons any government would welcome!

Indeed, the latest statistics are ominous — Venezuela’s economy is forecast to contract by 18 percent this year, the third straight year of double-digit decline. Just consider — the U.S. economy contracted by 0.3 percent in 2008 and by about 3 percent in 2009, following the worst financial crisis since the Great Depression.

Not surprisingly, the current crisis has spawned a well-documented wave of social misery, including chronic food shortages, a spike in crime, and a collapsing health care system. But rather than catalogue Venezuela’s mountain of woes, it’s probably more helpful to highlight several concrete lessons that can clearly be drawn from the country’s decades-long decline, and consider their impact on U.S policy going forward.

At the Root, a Domestic Political Problem

By the time that President Hugo Chavez arrived on the scene in the early 1990s, the country’s political system was already in crisis, marked by a dysfunctional power-sharing arrangement between the two main political parties that in the preceding decades had blocked political newcomers, encouraged official corruption, and produced rampant government inefficiency. In the years since Chavez became president, both he and now Maduro have taken the flawed political system they inherited and made it much worse. They have embraced a similar approach to leadership — consolidate personal political power, scapegoat and delegitimize political opponents, politicize key power centers such as the military and judiciary, undermine the press, and favor corruption over transparency. The resulting chaos is their legacy.

Dysfunctional Politics Have Profound Economic Consequences

As bad as Venezuela’s political system was prior to the 1990s, Chavez inherited a country that was still relatively affluent and with its budget in decent shape. This was due, of course, to the country’s vast oil reserves and a relatively well-managed state-run petroleum company, Petroleos de Venezuela (PDVSA).

Early in his presidency however, Chavez publicly attacked PDVSA for its “shadowy” ties to business elites and nefarious interests in the United States, and pledged to use Venezuela’s vast oil wealth to implement his pledge to reduce poverty and inequality. After a lengthy PDVSA strike in late 2002, Chavez seized the opportunity to assert his control over the company and to acquire access to its financial assets. He fired 18,000 of the company’s workers, many with deep technical expertise and management skills, and replaced them with political loyalists. In the following years, he siphoned off money from PDVSA’s operating budget to fund pet political projects and reward his political cronies, which, in turn, triggered a massive underinvestment in the company’s aging infrastructure. Maduro has adopted a similar approach in recent years, extracting money from the company, arresting employees, and eventually appointing a trusted general — with no expertise in the oil industry — to lead the company. The results have been a disaster for both PDVSA and the country.

The government’s poor economic stewardship hasn’t been limited to PDVSA, however. During Chavez’s tenure, he also expropriated millions of acres of land and nationalized hundreds of private businesses and foreign-owned assets, driving down productivity and scaring off much-needed foreign investment.

One statistic in particular reveals the cost of this shocking mismanagement. According to World Bank data, poverty in Venezuela fell from 50 percent in 1998 to about 30 percent by the end of Chavez’s tenure, but has since come roaring back. The latest estimate is that more than 80 percent of Venezuelans now live in poverty.

Venezuela’s Friends Have Done More Harm Than Good

For most of the past two decades, Venezuela’s allies have proven to be anything but helpful. Consider the case of Cuba. Early in Chavez’s tenure, Fidel Castro recognized that the malleable Chavez could be a useful ally. After a whirlwind courtship, the two countries agreed in 2000 to a heavily one-sided services-for-oil trade deal, in which Cuban doctors, teachers, and military advisers would work in Venezuela to help advance Chavez’s agenda. In return, Venezuela agreed to ship Cuba approximately 105,000 barrels per day of heavily subsidized crude oil. It’s uncertain how the cost of Cuba’s services were to be calculated, and both governments have gone to great lengths to mask this information, but long after most Cubans have departed — most left by 2016 — Venezuela continues to meet Cuba’s energy needs. There were reports from this spring that even as Venezuela’s oil exports were plummeting, PDVSA purchased nearly $440 million of foreign crude and shipped it directly to Cuba.

At the same time, China and Russia have also been eager to trade their financial and diplomatic support to Venezuela for the promise of increasing claims on the country’s oil industry. China, for example, has reportedly lent Venezuela more than $60 billion since 2001 and is the country’s largest creditor. In return, Venezuela last year shipped China roughly 330,000 barrels per day for which it reportedly earned little or no revenue. Russia, meanwhile, has since 2000 been a large exporter of military hardware to Venezuela and a lender of last resort in exchange for increasing amounts of Venezuela’s crude oil, some of which it has subsequently resold on the global market. Both China and Russia appear determined to establish a long-term foothold within Venezuela’s oil sector, and they are unlikely to abandon the inroads they’ve made even after Maduro departs the scene.

But the problems are not just related to Venezuela’s partners. The troubled country also has a strained relationship with the United States, to put it lightly.  Sustained efforts by Washington and its regional allies to isolate the country and the regime have, unfortunately, done little to improve the situation. Instead, they provided first Chavez and then Maduro with a tailor-made excuse to blame the country’s ills on Washington and its allies, and as justification for establishing more sweeping government control over key institutions of government and the economy.

Troubles are not Confined to Venezuela’s Borders

According to the Red Cross, more than one million Venezuelans have crossed into Colombia in the past year or so — and that’s only counting those who have crossed at official checkpoints. Tens of thousands of Venezuelans have also fled to Brazil, Ecuador, Peru, Guyana, and Trinidad, putting enormous strain on many of these countries that are already facing their own political, economic, and security challenges. In just the last week, Ecuador declared a state of emergency in three northern states and tightened its border entry requirements after a large number of Venezuelan migrants entered the country via Colombia. The refugee situation is now so dire that many experts are calling it Latin America’s worst migration crisis in modern history.

The U.S. State Department also reports that because of Venezuela’s weak government, corrupt judiciary, and porous borders, the country has emerged as a major drug transshipment point for South American drugs flowing to Central America, the United States, Western Africa, and Europe. And if that’s not enough collateral damage, the World Health Organization reports a sharp rise in preventable diseases in Venezuela, including malaria, with more than 400,000 malaria cases reported last year (up nearly 70 percent from 2016). This is raising concern among global health experts about a potential spread of several relatively uncommon diseases into other parts of Latin America. Last week, Brazil publicly complained that Venezuela was doing nothing to stop the spread of an outbreak of measles in Brazil, which it attributed to Venezuelans entering the country.

There is No End in Sight

Even in the face of a full-blown economic crisis and rock-bottom personal popularity, Maduro and his allies still appear to have the upper hand politically, and a near monopoly on the use of force within in the country. This increases the likelihood that they will retain power for longer than most people anticipate, despite the enormity of the country’s problems. Maduro also seems perfectly fine with allowing large numbers of Venezuelans to voluntarily leave the country, using refugee outflows as a release valve on discontent, a cynical ploy that his Cuban mentors have employed on at least two occasions. And as the brutal regimes in Iran, North Korea, and Syria, have repeatedly demonstrated, governments with the determination to cling to power and a willingness to use force to suppress dissent can hold onto power indefinitely, even in the face of diplomatic isolation and a disastrous economy.

The View from Washington

So, where does this leave U.S. policymakers? As a starting point, it’s fair to say that the nature of Venezuela’s crisis has, for most of the past two decades, left Washington with few good policy choices. Keep in mind that any direct American military intervention in Venezuela, which the press claims has been discussed in the White House within the past year, would be strongly opposed by countries throughout the Western Hemisphere, given the region’s overwhelming commitment to the principle of non-intervention in other’s internal affairs. Moreover, if there is an effective playbook for dealing with a democratically-elected president who gradually undermines democratic institutions, creates a culture that embraces corruption over the rule of law, adopts the politics of resentment over inclusion, and is unconcerned about the long-term negative implications of his policies, it has yet to reveal itself in Latin America or indeed anywhere in the world.

At the moment, then, Washington’s best course of action is probably to contain the damage as much as possible, and continue signaling its displeasure by sanctioning specific government leaders engaged in objectionable activities, rather than broad-based sanctions that will only further immiserate the population. U.S. policymakers might also redouble efforts to identify creative ways to ease the humanitarian suffering both inside the country and in countries of first asylum — America’s U.N. ambassador’s recent trip to Colombia and pledge of $9 million in relief assistance was an excellent demonstration of prudent leadership. In my view, much more of this type of support is required. And finally, U.S. policymakers, in close consultation with regional allies, should probably begin planning in earnest now for the day after Maduro.

We obviously can’t know precisely when this regime’s house of cards will come tumbling down, but its unlikely to be a soft landing when it does. Therefore, any progress that can be made now in identifying a path to rebuild the country’s devastated infrastructure, especially the critical oil sector, may help shorten the time that’s eventually required to return to Venezuela to normalcy. In the end, perhaps a region-wide effort to help Venezuela rebuild and reawaken from its decades long crisis could be the lone bright spot to emerge from what has been for the Venezuelan public a painful and extended national nightmare.

 

Michel P. Dempsey is the national intelligence fellow at the Council on Foreign Relations, a fellowship sponsored by the U.S. government. He is the former acting director of national intelligence. All opinions expressed in this commentary are solely those of the author.

Image: Voice of America