José Mora, Sadcidi Zerpa de Hurtado, Alberto J Hurtado. The Journal of Social, Political, and Economic Studies. Volume 46, Issue 1/2, Spring-Summer 2021.
The current crisis in Venezuela has such important origins and wide-reaching implications that it should not be underestimated by any country, by multilateral organizations and much less by Venezuelans themselves, regardless of their political stance. It is a crisis that began politically, and then spread policy was made, and is with dire political, economic, and social consequences. It is so serious that it has become a humanitarian crisis perhaps the worst humanitarian crisis in Latin America in many decades. It is not only affecting citizens in Venezuela, but also in neighbouring countries whose economies are affected by the massive migration of Venezuelans. These countries are unable to absorb this excess pressure on their own labour markets and the increased risks of marginalization, and poverty. Countries in the region also need the support of the international community. The solution to this crisis is not easy. There are many individual, group, and national interests, which means that any decision taken lightly could make the situation worse. A solution requires political and social consensus within Venezuela. It will also require political and economic support from other countries, an multilateral organizations will need to collaborate in the stabilization, recovery, and transition of Venezuela towards a “normal” economy. In this context, this article is written with the aim of facilitating an understanding of the Venezuelan crisis, and thereby contribute to a possible solution.
To achieve this goal, the article is organized as follows: The first section presents a general summary on the origin of the Venezuelan crisis. Section 2 explains the development and deepening of the crisis in the last five years. Finally, in the third section, possible scenarios and their likely short and medium-term economic implications are considered.
1. The origin of the crisis in Venezuela
Venezuela before Chávez
The beginning of the oil industry on 31 of July 1914, with the commercial exploitation of the Zumaque well in the state of Zulia, brought about important changes in the economic structure of Venezuela. By 1922 Venezuelan crude oil exports exceeded 1.8 million barrels per day. In 1929, Venezuela became a major oil exporter and the second largest producer of crude oil in the world.
The concessions granted before and during the 1920s to Shell, Gulf, and Standard Oil for the exploration, extraction, and export of crude oil were disadvantageous for Venezuela. However, new laws (starting with the Law of 13 June 1922), successively allowed the government to increase oil-related revenue as a result of better trade agreements and fiscal pressure. This gave the state a great deal of economic and political power, and for almost fifty years Venezuela experienced sustained growth, not only in the oil industry but also in light manufacturing, through the import substitution model.
The expansion of domestic demand that came with the growth of cities gave rise to the development of the cement and steel industries. The large cement companies were either publicly owned or were foreign-owned joint ventures with the state. This was the case with the Corporación Venezolana de Guayana (CVG)1 group of businesses. It was not until the mid-1970s that Venezuela took complete control of these companies, nationalising the CVG “strategic industries” (iron, steel, aluminium, etc.) as well as the oil industry through Petróleos de Venezuela (PETROVEN).
The national constitutions of 1947 and 1961 extended the role of the state in the political, economic, and social life of the country. The progressive increase in fiscal resources made it possible to build a state that owned a large number of enterprises resulting from development plans implemented by successive presidents. These companies were not only in the oil industry, as with PETROVEN’s subsidiaries MARAVEN, CORPOVEN and LAGOVEN. Nor were they just basic industries such as Electrificaciones del Caroní (EDELCA), Siderúrgica del Orinoco (SIDOR), Aluminios del Caroní (ALCASA), Ferrominera del Orinoco, and Venezolana de Aluminio (VENALUM). They also included health and education services at all levels, including airlines (VIASA, Aeropostal), hotel chains (Venetur), communications (CANTV), and television channels (Venezolana de Televisión). A total of 188 state-owned companies, 33 mixed capital companies, 32 state holdings, 27 foundations and 45 autonomous institutions were created between 1960 and 1980 alone. At the end of the 1970s, approximately 20% of the workforce was employed in the public sector. In this way, the Venezuelan state grew significantly in size and ended up becoming an inefficient bureaucratic apparatus, wasteful and corrupt. The oil boom in the 1970s increased the power of the state, but given the country’s ability to pay, it also served to increase its foreign debt by nationalizing the oil and mining industries. The political struggle exacerbated and political party elites concentrated on administering power by pursuing partisan interests isolated from the real objectives of the nation. According to Levine (cited by Araujo, 2010), the political elites created a system where the party was the main mechanism of participation. The popular vote became the element of legalization, and political parties centralized the manner in of resolving political conflict. This form of organization, the “party democracy,” had its origins in the well-known Punto Fijo Pact.
The 1980s brought major macroeconomic and social imbalances. The economy was overheated and the high investment levels of the 1970s did not translate into increased productivity and output. On the other hand, falling oil prices and over-valuation of the Bolivar were causing significant capital flight. This resulted in persistent balance of payments deficits, higher fiscal pressure and deficits, increased debt, high inflation and high unemployment. Faced with this situation, on February 18, 1983, the Venezuelan government devalued the local currency by 30% and imposed an exchange control scheme to reduce capital outflows. During the following years in the 1980s, several exchange rate adjustments were made and more control mechanisms were imposed to curb capital outflows. However, this not only negatively affected economic growth, debt service prices and unemployment. It also resulted in increased corruption.
In view of the need for a major change in the financing and structure of the state, the need to restructure the economy and a significant drop in international reserves, a severe neo-liberal-style economic adjustment program (derived from agreements with the International Monetary Fund (IMF) and the World Bank (WB), known as the Washington Consensus agreements) was imposed by Carlos Andrés Pérez days after taking office as Venezuela’s President in 1989. Popular rejection was not long in coming. On February 27 and 28, 1989, there was a mass social protest against fiscal austerity measures that had just been imposed. The consequences were disastrous: people were killed and injured, as well as significant losses to property. This event will be remembered historically as the Caracazo.
On the other hand, since the early 1980s, many non-traditional leaders began to cite the need for profound institutional adjustment, mainly changes in state centralism that had been introduced by the traditional political parties that alternated as ruling parties in democratic Venezuela. More specifically, there was the inefficiency of local and regional governments. This was due to a number of factors such as: 1) a lack of autonomy in their administrations: 2) a lack of preparation to deal with community problems: 3) political ties of local authorities to political parties: and 4) the dissatisfaction of communities with the performance of local and regional authorities. Decentralisation was necessary. Steps towards decentralization were taken as early as 1979 with the approval of the Organic Law of Municipal Administration, although this had many limitations, since all power remained centralized. The resistance of political party elites to state reform lasted until 1984 when President Jaime Lusinchi created the Commission for State Reform (COPRE). The purpose of this commission was to 1) propose a programme to decentralise central political power to regional and local spaces; and 2) allow civil society to participate in the decision-making process. In particular, the COPRE was supposed to: 1) stimulate political representation at all levels of government through the election of governors, mayors, single-member elections for local and regional councils and support for civil society organizations; 2) improve administrative structure in the regions by transferring powers from the central administration to regional and local authorities; 3) transfer economic resources to enable local authorities (through equitable distribution of constitutional fiscal transfers) to strengthen local and regional banking, improve regional planning decision-making, and reconcile national and regional economic development plans.
Despite strong opposition by the political parties, COPRE was supported by presidential candidates in the 1988 elections. In 1989, election laws were passed dealing with the removal of governors and mayors, the length of terms of office, decentralization, municipal administration, and limitation and transfer of public sector power.
Although these laws became effective in the early 1990s, they lacked adequate systematization, leading to inequities in the transfer of authority to regional governments. In addition, problems of exclusion increased and those with the greatest needs did not have access to fundamental services or participate in the benefits of the social programmes implemented to offset effects of market-oriented economic reforms. Social discontent had progressively risen, and protests against corrupt politicians and state policies had increased sharply.
The arrival of Chávez and his first presidency
On February 4, 1992, Hugo Chavez and collaborators attempted a coup ďétat. They were captured and taken to prison. Subsequently, another attempted coup d’état, on November 27 of the same year, was also foiled and most of its members were also captured. Many of the soldiers who participated in the coup attempts were released, but 97 of the main leaders were sentenced in military trials. However, in 1994 President Rafael Caldera overturned the sentences in his second presidential term, pardoning these political prisoners. It was not by chance that Chávez was in this group.
Reasons for these coup attempts were 1) dissatisfaction of the middle and lower ranks of the armed forces with the corruption of high-ranking officers; 2) subordination of the military to leaders of a corrupt political system; 3) repression during the Caracazo in February 1989; 4) President Perez’s statelessness in claims regarding the delimitation of marine and submarine areas with Colombia near the northwestern border of Venezuela; and 5) deterioration of conditions for those most in need – the victims of political, economic, and social exclusion.
Between 1989 and 1999 Venezuelan politics were quite turbulent. In 1993, President Carlos Andrés Pérez was removed after a trial in which he was found guilty of corruption. In his place, Ramón J. Velázquez was appointed interim president. That same year, Rafael Caldera was elected president. Caldera was a founding leader of the Christian Social Party, COPEI, but split from it after failing to secure support as a presidential candidate. He consequently founded his own party (Convergencia), obtaining a majority of the vote with the support of various political organizations, and became the eighth elected president during the democratic period. For the first time, neither the AD nor COPEI parties prevailed in the presidential election.
At the same time, the economy was not performing well. The 1990s brought economic volatility. According to IMF statistics, the 1989 adjustment programme caused a fall in real output of 13.9% and a price level increase of more than 80% in that year. Even though the following years saw signs of a slight economic recovery, inflation did not subside and averaged 46.3% with a peak in 1996 of 103.2% and a minimum of 20% in 1999. The dollar exchange rate increased more than 12 times from Bs/US$ 50.4 in 1990 to Bs/US$ 648.3 in 1999. The banking crisis of 1994 had a significant impact on the economy. An austerity plan was implemented, leading to a fall in real output of 2.3%. In addition to the banking crisis, the resignation of the President of the Central Bank of Venezuela, Ruth de Krivoy, on April 28, 1994, undermined confidence in the adjustment program. It also created strong exchange rate pressures and forced the government to impose exchange controls that would last until 1996.
Although it might seem that social discontent would have been directed at Hugo Chávez, in reality it was not. By December 1997 Chávez had a derisory 4% support in the polls, far behind Irene Sáez, the main challenger at the time. So how did Chavez get elected president of the republic in 1998, exactly one year later?
As Corrales points out, there are factors not only on the demand side, but also on the supply side. On the demand side, Corrales points to the collapse of the capital accumulation model in the 1980s, the lack of responsiveness to the most deprived population, the need for deep and extensive reform of democratic institutions, and the lack of civil society representation on issues of national interest (among others). On the supply side, Chávez and his main allies managed to form a political coalition between civilians and the military with leftist political leanings. The civilians were people of the left (or ultra-left), such as Douglas Bravo of the Communist Party of Venezuela (PCV), Teodoro Petkoff, José Vicente Rangel of the Movement Towards Socialism (MAS), university students belonging to political groups opposed to traditional political parties, retired university professors and intellectuals who during the 1960s and 1970s belonged to leftist organizations, and members of civil society who did not feel represented by any political party. Military supporters were middle and lower-ranking officers with leftist political tendencies or those dissatisfied with the corruption of high-ranking officers and the promotion system within the armed forces. Finally, Chavez had important support from economic organizations in Venezuela, particularly from Gustavo Cisneros (President of the Cisneros Group) and Juan Carlos Escotet (of the Banesco Group).
As promised, the first Chavez presidency began a profound institutional transformation that would progressively affect economic policy. Chavez won the 1998 presidential election with 56.2% of vote. He then called a referendum on whether to call a National Constituent Assembly (NCA). As expected, the referendum passed and elections were set for July 1999. Of the 1171 candidates, 900 belonged to the opposition. Chavez’s coalition (MBR-200) won 66% of the votes, representing 95% of the 125 NCA seats.
The NCA, intended to draft a new constitution, was the centerpiece of the country’s new political structure as approved in the December 1999 referendum. This .introduced significant changes, including: 1) an increased presidential term of office from five to six years; 2) an increased term of office (from three to five years) for public bodies (legislative, judicial, executive, citizen, and electoral), along with a two-term limit on re-election; 3) mandated a referendum on revocation of authorities; and 4) opened participation of minority representatives (especially from indigenous ethnic groups). Chávez thus managed to form a coalition between the executive, legislative, and electoral branches. This was a very important move that would later grant him increased power.
According to the new constitution, all authorities were revoked, a mega-election was called and the Fifth Republic Movement (formerly MBR-200) won a majority. Chávez won the presidency with more than 59% of the vote and began his new administration on January 10, 2001. Opposition continued to grow slowly despite the fact that, until then, Chávez had maintained the status quo in economic policy. However, this would not last long because in February 2001, the controlled floating system (or mini devaluations) was eliminated and a free floating system was established in the exchange market. At the same time and as a result of differences with opposition groups, he radicalized his political discourse and found important allies in Cuba, Nicaragua, and Brazil. Confrontation with the opposition led to the weakening and subsequent breakdown of relations with economic groups that supported his presidential campaign in 1998. By the end of 2001, due to the aggressiveness of his discourse and continuous confrontation with the opposition and other civil society groups (including Fedecámaras), political tensions exacerbated. This significantly affected macroeconomic stability, leading to volatility in the exchange market.
The years 2002 and 2003 were characterized by strong political turbulence with severe economic consequences. In April 2002, civil organizations, opposition political parties, leaders of workers’ confederations, and business leaders called for massive protests against the government. On April 11 and 12 of that year, the protests turned violent and led to an opposition march to the presidential palace in Miraflores where they confronted groups supporting Chávez. This confrontation resulted in 19 people being killed and more than 70 injured. On the night of April 11, Chávez, according to statements by some officials, resigned from the presidency. This coup d’etat failed, as in the early morning of April 13, Chávez, with significant military support, returned to power. These events were of such a magnitude that oil prices rose more than expected in light of the possibility that Venezuela would interrupt the supply of crude oil to the world market. The following months were very tense and Chavez started a radical campaign against members of the old political parties, AD and CO PEI, accusing them of having participated in the attempted coup d’etat. This political instability increased capital outflows and led to a significant depreciation of the bolivar. However, pressure from the opposition was increasing, and in December of that same year, together with the oil workers from Petróleos de Venezuela, S.A (PDVSA), they called for a national oil industry strike that began in December 2002 and ended in February 2003. Chávez fired almost all oil industry workers (more than 30,000) and managed to regain control of oil production, its derivatives, and natural gas. During 2002, the economy contracted by approximately 8.9%. In January 2003, free exchange convertibility was suspended and a fixed exchange rate of Bs/US$ 1600 was established with absolute restrictions on capital outflows, due to the fall in international reserves from US$ 20,471 million in 2000 to US$ 14,860 million in 2002.
Since the 1999 constitution opened up the possibility of revoking an elected authority through referendum, the opposition decided to play this card. In the August 2004 referendum, Chávez won more than 59% of the votes. At the same time (and since January 2002), oil and other commodity prices began a progressive increase that would continue until mid-2008, when oil prices reached levels above US$ 130 per barrel. Therefore, Chávez benefited from an oil bonanza, the profits from which he was able to use at his own discretion. He did so for a number of purposes: 1) to maintain the loyalty of his followers; and 2) to alert the international community that he was financing social programs not only in the Caribbean, Central and South America, but also in the United States and the United Kingdom (Mora Contreras et al). This international distribution of Venezuela’s oil revenue created allies. This strategy worked until his death and President Maduro still continues to benefit from these revenues.
On the other hand, it is worth noting the contrast in the growth of the economy between 2003 and 2004, when it went from a contraction of 7.8% to an expansion of 18.3%. Despite the fact that international reserves increased significantly and the economy grew steadily until 2008 (averaging 10.4% per year), the local currency continued to depreciate, but this time in the parallel market due to currency controls. Inflation and unemployment slowed but were nevertheless quite high despite price controls and labour immobility laws. Finally (start ing in 2005), Chávez began an extremely aggressive campaign of expropriation, nationalizing manufacturing and agricultural companies. Between 2000 and 2007 alone, the economy lost approximately 3,000 productive units.
In order to reduce political conflict in the early 21st century, win the support of working class voters, and prepare for the August 2004 presidential election, the Chávez government directed assistance-compensatory programs identified as social missions. This new social management regimen began on July 1, 2003 with the implementation of Mission Robinson, a strategy using adult volunteers to teach basic mathematics, reading, and writing. This later extended from education to security, health, housing, land, and production, with priority for the needy. The program was also extended to science, technology, culture, ecology, energy, music, politics, and services, reaching a total of thirty-four missions in the period 2003-2016. This social policy functioned as an operational platform for socio-economic assistance, with special interest in communities of extreme poverty. Its execution involved extra-institutional management (as they depended on new administrative structures quite different from traditional institutions), as well as the use of resources from the Venezuelan armed forces (FANB) and the oil industry (PDVSA), together with professionals from countries with cooperation agreements with Venezuela, mainly Cuba. The missions were used to distribute a significant amount of oil revenues via public spending and were implemented as the needs of Venezuelan society became more evident.
This social policy emphasized 1) the welfare nature of government management; 2) the responsibility of the public sector to meet the needs and difficulties of the population; 3) the interest of the governing party in gaining loyalty and launching new political projects; 4) the intention to facilitate providing goods and services generated by the use of price controls; and 5) the formation of conglomerates of missions (called large missions) to address various economic, political, and social issues. The dependence on the public budget and participation of political allies (both national and foreign), made this type of social management quite vulnerable, as it in turn depended on foreign exchange flow.
At the same time, financing programs were established for small cooperatives, which were considered the basis of the government’s domestic development program. All this was part of the social policy intended to distribute oil income to reduce poverty. There were several problems associated with these cooperatives including the lack of technological adaptation and ability to learn by doing, a lack of capacity to generate chains of production that generate value, and inability to operate on a large scale. In fact, of the 300,000 or more cooperatives created between 2001 and 2010, just over 13% (40,000) survived to 2011. Thus more than 260,000 cooperatives disappeared. These resources were not returned to the state. The same occurred with the socialist enterprises and the expropriated lands. The vast majority of these new business units stopped producing, eliminating any return from the public resources allocated. As a result, they became centres of corruption, part of a proliferation of new economic groups formed by revolutionary capitalists.
Chavez’s Second Presidency and the Five Engines of the Revolution
During his second term, Chávez intensified the revolution and proposed the First Socialist Plan, which included the five engines of the revolution: 1) the enabling law for the president; 2) constitutional reform; 3) reforms of the educational system; 4) a new geometry of power; and 5) the expansion of communal power. In the years that followed, Chávez managed to implement almost the entirety of this plan.
The years 2005 and 2006 brought electoral victories for Chávez as his coalition gained a majority in the National Assembly (NA) and a solid majority in the presidential elections. However, in 2007 he suffered a major electoral setback, losing a referendum to reform the constitution that would allow for his indefinite re-election. However, this small victory by the opposition was short-lived. Using the enabling law from 2009, Chavez was able pass a referendum for constitutional reforms, which abolished term limits on the presidency.
The oil boom created an illusion of Venezuela’s economic ability to face external crises (oil prices and oil exports, among others). This became evident in the 2008 global financial crisis. In fact, both President Chavez and Nelson Merentes (President of the BCV), and even Jorge Giordani (Minister of Planning and Development), dared to assert that Venezuela was shielded from the crisis. They claimed that measures taken thus far had been effective, and that the fall in oil prices since mid-2008 would not affect economic activity at all. On the contrary: The 2009 budget was calculated on crude oil priced at US$ 40/barrell, the budget cut by 6.7% and sales tax rate increased to 12%. The country endured recession from 2009 to 2010, even though oil prices had recovered on the world market. International reserves fell from US$ 43,063 million on February 1, 2009 to US$ 29,244 million on May 22, 2009 (a 32% decline). To avoid a further reduction in international reserves, the government resorted to two devaluations during 2010. As explained by Mora, devaluations in Latin America, and more specifically in Venezuela tend to be applied with a time lag, causing a shortterm recessionary effect. Not only the devaluation caused the economic contraction, but also the pro-cyclical economic policy.
In the years that followed, despite continued fiscal restrictions, the economy grew for three consecutive periods. How did this occur? The reason lies in other engines of the revolution, specifically the expansion of communal power. Through the enabling law, Chávez created and approved new laws that created a parallel public administration governed by the Organic Law of Communal Councils (and other laws). In the 2008 elections for governors and mayors, the opposition managed to secure five governorships and several mayoralties. Consequently, to forestall further opposition gains, Chávez reduced the resources that regional and local administrations should receive per constitutional right and distributed them at his discretion through communal power, a simple way of controlling allies and ensuring their support.
Communal power, according to Chávez, was the expression of power by the people. This was exercised through Communal Councils, the most basic unit of communal power, comprised of members of the same community and the Directorate of Communal Councils. Communal Councils do not depend on local or regional governments; on the contrary, they receive resources directly from the national government. The government also created Local Supply and Production Committees (CLAP) controlled by the ruling party (United Socialist Party of Venezuela, PSUV). The Mercal mission and PDVAL were no longer the main groups loyal to the president, since anyone could buy from these sites. The CLAPs, that appeared afterwards, provided food on a monthly basis to community council members loyal to the government. Those members who for some reason differed with the policy, or stopped supporting the government, would be excluded from this benefit by the Communal Council’s Executive at the request of the Communal Councils themselves. This was a mechanism of control, to monitor the loyalty of PSUV supporters to the government and President Chávez. Similarly, the national government’s accountability to the NA was based on budgetary revenues; and that budget was tied to the Venezuelan oil price. Since 2009, fiscal budgets are calculated at 40-50 percent of the oil price. This gave the president full discretion to deploy these revenues in order to maintain communal power. However, this fed corruption as Chavez continued to “buy” the loyalty of his followers and the international community.
Maduro comes to power
Despite having been diagnosed with colon cancer in June 2011, Chavez won the October 7, 2012 election over opposition candidate Henrique Capriles Radonski with over 55% of the vote. Capriles, a popular Jewish-Venezuelan politician, was strongly favored by the US. However, Chavez died on March 5, 2013. New elections were held and Nicolas Maduro Moros was narrowly elected (by less than 2%) over Capriles. In 2013 the Venezuelan economy contracted by slightly more than 1%. Reserves continued to fall from around US$ 29 billion to just over US$ 20 billion, a drop of 30%. In February 2013 the official exchange rate was raised from Bs/US$ 4.30 to Bs/US$ 6.30. That same year Maduro changed exchange rate laws (created in 2005) to enable prosecution for publishing parallel market dollar exchange rates. In addition, Maduro tightened price controls imposed in 2003 and the 2011 Fair Prices and Costs law. Shortages were constant, while corruption and social unrest grew. Maduro’s regime continues to be confronted with serious difficulties.
2. Deepening of the crisis
Institutional breakdown
2014 was characterized by increased political instability in the first half of the year. Falling oil prices and rising inflation led to a significant contraction in economic activity. Calls for street protests by opposition leaders (a frequent mechanism of pressure), gained strength, and police repression intensified, leading to killings in early February. In the face of these events, activist Leopoldo López was held responsible for the murders since he was one of the leaders that called people onto the streets. Lopez turned himself in to the authorities. However, protests did not stop and the main avenues and highways of Caracas and western and central-western cities became battlegrounds. The number of dead exceeded 40, and the number of injured and detained was in the hundreds and thousands, respectively. These protests died down in mid-April and the country returned to a tense calm after the government called opposition leaders to talks to resolve the crisis.
NA elections were held in 2015 and the opposition won an overwhelming majority. However, the government made an important strategic move. Using the control of PSUV representatives of the outgoing NA, they appointed new judges to the Supreme Court of Justice (SCJ) with very close ties to the governing party – before handing over the NA to the newly elected opposition. By doing so, the TSJ prevented two opposition deputies from taking office because of alleged election fraud, depriving the opposition of an absolute majority. This problem continues. After more than four years, the SCJ has not allowed elections for these positions, nor has it allowed duly elected representatives to become full members of the NA. This led to non-recognition of the NA by SCJ magistrates, since they were not appointed in accordance with mandated administrative procedures for their election. As a result, Maduro did not recognize the NA as the body before which he had to present his annual presidential report. In fact, Maduro presented his 2016 report to the SCJ. To make matters worse, on March 28, 2017, the Constitutional Chamber of the SCJ limited the immunity of NA members, invoking ruling 155. The following day, the same chamber, through judgement 156, assumed the constitutional powers of the NA while in contempt of court. On March 30, the SCJ stripped the NA of all constitutional powers and transferred them to the executive. This was described by many countries as an ‘auto-coup.’ On March 31, the attorney general, Luisa Ortega Díaz, expressed constitutional concerns regarding judgements 155 and 156. All these decisions triggered a series of street protests from April 1 until mid-August. Repression by the National Guard was not long in coming. The result: more than 130 people killed by state security agencies, hundreds injured, and thousands detained. During these protests, in May of that year, Maduro convened a National Constituent Assembly (NCA) and without any supervision or audit, held elections for deputies in August 2017. At the same time (July 2017), the NA appointed and swore in all 33 Supreme Court judges in exile, thus creating another Supreme Court. The following month, the NA ignored the NCA created in August 2017. Street protests ended when citizens realized that some opposition representatives had held secret meetings in the Dominican Republic with government representatives, without informing citizens. The purpose of those meetings was to achieve a negotiated solution for Maduro to leave power. However, the government had different plans: it wanted more time to develop its strategy, and that is what happened. Citizens felt betrayed by the opposition leaders and decided to boycott elections for governors and mayors in the last quarter of 2017. In fact, “opposition” candidates who won governorships and mayoral elections were forced to be sworn in before the NCA. This implied that they recognized the NCA. Those who did not accept their posts were considered non-elected and new elections were called. Civil society was disappointed, demoralized, and felt betrayed. The political situation seemed to have only one path: a Nicolas Maduro dictatorship.
In order to counter international pressure, the Maduro government called presidential elections in May 2018, but not transparently. The first step was to ensure that the main opposition leaders could not participate. The SCJ was entrusted with this task and many of the leaders were sent to prison or forced into exile. The candidate who ran for the “opposition” was Henry Falcon, a former Chavez collaborator, who had fallen out with the former President and joined the opposition. With the exception of the officials who were forced to work in the elections and members of the PSUV, citizens did not participate. There were no international observers. There were no opposition representatives at the voting tables. As expected, Maduro won. According to the pro-government CNE, voter abstention was almost 54%, but the real figure is estimated to have been over 70%. The “elections” were considered completely fraudulent not only by civil society, but by many countries, with the notable exceptions of Cuba, Nicaragua, Bolivia, Russia and China, (among others). Maduros inauguration was planned for January 10, 2019.
The economic crisis and the beginning of migration
The fall in oil prices from June 2014 triggered a series of important economic events. There were no resources to continue financing government expenditures, causing a sharp contraction in spending. This decrease in production due to the disappearance of a large number of businesses and enterprises (either by closure or expropriation) led to a shortage of food and medicine and aggravated inflation, which rose from 64.7% in 2014 to 154.7% in 2015. With expectations that Venezuela’s situation would worsen, people began to leave the country. In August 2015, due to differences with the Colombian Government, Maduro decided to close the border, arguing that it was justified due to the presence of paramilitary groups on Venezuelan territory. He unleashed a campaign of persecution against many Colombian-Venezuelans who lived in towns and villages along the Venezuelan border but worked in Colombia. During 2014 and 2015, real GDP decreased by 3.9% and 6.2%, respectively. This caused a massive exodus of people seeking to escape from misery. The shortage of food and medicine reached unthinkable levels and the situation became a humanitarian problem. The inflation rate in 2016 reached 302.6% and in 2017 it exceeded 960%. Although in 2016, people were allowed to travel to Colombia to buy food, due to scarcity and inflation, the real income of the population was only enough to buy a few products in the neighbouring country. The economy plunged into recession and during 2016 real output fell by 17.1%. In 2017, productivity contracted by 15.7% and in November of 2017 the variation in the consumer price index exceeded the 50% limit per month for the first time. The economy went from inflation (that began in 1983) to hyperinflation. In 2018, real output contracted further (-18%) and inflation reached 1,560,000%. The exodus of Venezuelans to other countries was strongly felt in Colombia, Ecuador, Peru, Chile, Brazil, and Argentina. It is estimated that more than 1.3 million people have entered Colombia alone.
Which countries are interested in the crisis? Relations with Cuba, China, Russia, and other countries.
Venezuela’s relations with Cuba, China, and Russia took off when Chavez assumed office in 1999. Chavez visited Havana in 1999, bringing a rapprochement with Fidel Castro. Castro became more like his mentor. But it was not until after the 2002 coup d’etat that Chavez sought advice from the Cuban government, specifically from Cuban intelligence, G2. Cuba and Venezuela drew closer economically and politically. According to Mora et al, since 2000, Cuba-Venezuela relations were governed by the Comprehensive Cooperation Agreement, where Cuba would supply Venezuela with services, technologies, and products. In exchange, Venezuela would deliver 53,000 barrels of oil per day in a preferential relationship for Cuba. Through other agreements, oil exports to Cuba would increase to 132,000 barrels per day (Cuba only needed 120,000 barrels for internal consumption). Cuba paid for the oil with services sold at international prices such as medical care (Mission Barrio Adentro), eye surgery (Mission Milagro), food products bought by Cuba from other countries, repackaged on the island, and then exported at international prices to Venezuela (Mission Mercal and later through PDVAL, and finally CLAP), and other programs, including political and intelligence advice. It is estimated that at the beginning of 2019, there were more than 20,000 Cuban agents in the armed forces of Venezuela. However, it should be noted that the Venezuelan crisis has significantly affected its oil and derivatives production, which in turn has affected the amount of oil that Venezuela sends to Cuba and other Caribbean countries.
Venezuela’s relations with China and Russia are based on Chavez’s need for powerful allies to counterbalance his increasingly hostile relations with the United States. Chavez began his rapprochement with China in 1999. Previously, trade with China had not exceeded US$ 500,000, but by 2009 it had reached US$ 7.5 billion. This made China the second most important trading partner for Venezuela, which subsequently became the fourth most important supplier of crude oil to China. China embarked on several joint projects in oil production (including Orimulsion, a low-density crude oil extracted from the Orinoco River oil belt and used by China for asphalt), telecommunications, and infrastructure. It is estimated that China’s loans to Venezuela exceeded US$ 60 billion. Venezuela still owes China around US$ 20 billion of this amount.
Russia found in Venezuela an important ally for two of its foreign policy objectives: 1) to provide new opportunities for Russian government and private companies to gain comparative advantage in the region (these opportunities were specifically in the energy and arms sectors); and 2) to find important political partners to build a multipolar world, thus challenging US hegemony. Although loans, investments, and exports from Russia to Venezuela have decreased during 2019, Venezuela still has an outstanding debt with Russia exceeding US$ 20 billion dollars. One of the problems that Russia and China have with Venezuela is that their most recent loans extended to Maduro’s government were not approved by the NA, because Maduro did not recognize it – hence Russia and China’s interest in Maduro retaining power. In addition, Venezuela has facilitated these countries’ strategic entry into the Americas.
3. New opposition leadership and current situation
2019 was full of surprises from a political perspective, with the unexpected emergence of a new movement that has given many Venezuelans hope for change. Juan Guaidó, the third in command in Leopoldo López’s Voluntad Popular party, assumed the NA presidency on 5 January 2019. He then announced that if Nicolás Maduro assumed the presidency of the republic (which he did), he would be committing an act of usurpation in accordance with Articles 233 and 333 of the National Constitution. Guaidó called on all civil and military forces in the country to join a national protest on January 23. Guaidó introduced himself and, in accordance with the constitution and as president of the NA, proceeded to be sworn in as interim president of Venezuela. He immediately set three objectives: a) an end to usurpation, b) a transitional government and c) free elections. The US immediately recog nized Guaidó as interim president, followed by most Latin American countries (except Cuba, Nicaragua, Bolivia, and Mexico, among others), and finally most EU countries. As Briceño points out, these three objectives are derived from eight strategic points against usurpation:
- Reaffirm the illegitimacy of and declare usurpation by Nicolas Maduro as president of the republic.
- The NA, on behalf of the people, as their legally elected representatives, shall take control of the presidency and represent Venezuela to the international community.
- An organ of the NA shall be created to restore constitutional order, fight against usurpation, and coordinate the legitimate authorities, civil society, and the armed forces.
- The NA shall take control of the process of restoring and appointing authorities to the usurped powers.
- The NA will appoint and recognize legitimate representatives before the international community.
- The NA will authorize the entry of humanitarian aid and will take direct control of dialogue with the countries that have offered their cooperation.
- The NA will create a fund for the recovery of assets lost from corruption, in order that those resources are returned to the nation when the usurpation ceases.
- A legislative agenda for the transition will be approved, including laws that allow for the recovery of the institutional structure.
This created an unprecedented milestone in the political history not only of Venezuela, but also of Latin America: a country with two presidents, two Supreme Courts of Justice, and two legislative bodies (the legally elected National Assembly and the National Constituent Assembly).
The last few months (January 2019 – March 2020) have been characterized by uncertainty and anarchy. Using his powers, Juan Guaidó took possession of Venezuela’s CITGO assets (a subsidiary of the state-owned company PDVSA) and requested the U.S. government to stop any transactions financed through the Venezuelan state. He also re quested the US to freeze accounts of the Venezuelan government and PDVSA (while the NA reorganizes the administration of resources), as well as impose sanctions against officials of the de facto government of Nicolás Maduro on the ground of corruption.
In February 2019, in the face of human suffering created by the unprecedented economic and social crisis, the government of Nicolás Maduro prevented humanitarian aid from entering Venezuela through San Antonio del Táchira on the border with Colombia. This operation was coordinated by Guaidó and his international supporters, primarily the US, Colombia, and Chile. Russia, China, Cuba, Turkey, Nicaragua, and Bolivia offered their support to Maduro. As a result, there has been an exchange of accusations of foreign interference in the Venezuelan crisis between Russia and the United States. On April 30, in view of suspicions that Leopoldo López would be transferred back to prison (he was under house arrest) and that Juan Guaidó would be arrested and taken to Fuerte Tiuna to a maximum-security prison, Guaidó and his group had to make a strategic move. As interim president, Guaidó issued an order for the release of Leopoldo López, and with the support of military personnel opposed to Maduro’s regime, managed to free López. López was granted protection by foreign embassies in Venezuela. Later, Ivan Simunovis (an important political prisoner) was also released and left the country. This operation was also the result of opposition approaches made to General Padrino López, in hopes of staging a coup d>état. Apparently, Padrino Lopez wanted to take advantage of the situation and assume power. Obviously, this shows that there are divisions within the armed forces. However, as a result of this failed coup d’etat, many members of the military and their families have been accused of conspiracy, persecuted, and deprived of their freedom. Others have been tortured and killed, as was the case with Lieutenant Commander Rafael Acosta Arevalo on 29 June 2019.
From January to July 2019 the economic contraction accelerated along with inflation due to increasing shortages of food and medi cines. Companies were making efforts to procure raw materials and supplies, replenish inventories, and restart production. Workers had difficulties commuting to their workplaces. They also will not earn enough to support their, families and feed their children. This crisis will have long term repercussions for economic growth since a high percentage of children (the future generation) suffer severe malnutrition, as stated in the FAO report. Endemic diseases once eradicated have reappeared. Since March of 2019, electrical outages have left entire regions of the country without power for up to five days. This also affects the supply of drinking water. From a public health standpoint, the situation is grim. There is a lack of medical supplies, and hospitals are in extremely poor condition, contributing to constant emotional stress for the average Venezuelan. This has intensified in recent months, leading to an increase of social pathologies and mental health problems. Suicides have increased in the last three years.
Also, there has been such a sizeable exodus of Venezuelans to neighbouring countries that Peru, Ecuador, and Chile have established visas to allow (or prevent) the entrance of Venezuelans. Xenophobia and discrimination against Venezuelans have increased. Venezuelan refugees feel frustrated, as they remember that for many decades Venezuela received a large number of immigrants from throughout Latin America, particularly from Colombia, Ecuador, and Peru, (as well other parts of the world).
More recently, Iran has entered the conflict. Although Iran is not interested in pursuing economic relations and has no investments whatsoever in Venezuela, it has an interest in spreading Islam and its terrorist cells (such as Hezbollah) to countries in geographic proximity to the United States. Venezuela has been cooperating by issuing passports to members of Hezbollah in preparation for increased conflict with the US. Also, Iran benefits as its relationship with Venezuela could strength their ties to Latin American terrorist groups such as the Ejército de Liberación Nacional (ELN) and former members of the Fuerzas Armadas Revolucionarias de Colombia (FARC). As a result, Venezuela could serve as an important ally to boost Hezbollah and facilitate exchanges of arms and military equipment for gold.
All indications are that the Venezuelan crisis will not be resolved in the near future – except through the cooperation of Tehran, Havana, Beijing, Moscow, and Washington, along with, the government of the interim president of Venezuela and the de facto government of Nicolás Maduro. Ideally, such a solution would create a transitional government and call for free and transparent elections. However, such a solution is not likely for various reasons, including: 1) tense relations between the U.S. and China, especially as the Covid-19 pandemic spreads; 2) negative effects of the pandemic on the US economy; and 3) the vulnerability of Venezuela’s deteriorated public health system in the face of a continuing pandemic.
Thus there is little optimism for any near term improvement in Venezuela’s situation, be it political, economic or in public health. This is a grim prognosis, though history teaches that anything is possible. Should the situation improve, Venezuela certainly has the resources and wherewithal to quickly return to its former situation of domestic well-being and international respectability.