What happened in Venezuela

Venezuela – a country of 353,841 square miles and more than 31 million people (estimated population for 2016 was 31,028,637, according to the Venezuela’s National Institute of Statistics; 27,227,930 people as of the latest Census which was in 2011) – is currently experiencing a significant shortage of food, drugs and cash, among other vital needs. As Francisco Toro, a Caracas resident and journalist, said on C-SPAN Radio on August 18 (in the following quote I paraphrased what I heard on the radio back then), “there is no food… the situation is rapidly deteriorating… many people are fleeing to neighboring Colombia and Brazil seeking medical help… [in a household survey] many people reported to have lost weight of the likes of 20 pounds due to the little food that they eat about just twice a day – rich on carbohydrates, poor on proteins… there is also shortage of drugs”. With regards to the household survey, he most likely referred to ENCOVI 2016 whose nutrition survey (page 17) reported on the weight loss.

One of the main reasons that led to the current crisis in Venezuela is diminishing oil prices. Looking at the data provided by NASDAQ, oil prices today are a fraction of what they used to be 10 years ago – from around $140 in mid-2008 to $46.44 as of 8/29/2017 – when, as Mr. Toro noted on the C-SPAN program on August 18, the central government in Venezuela was popular – with an approval rating of between 47% and 61% for the period between 2006 and 2012, according to Gallup World Poll – and the quality of life was comparatively good. Currently President Nicolás Maduro only has 17% approval rating, according to the latest Datanálisis poll. Meanwhile Gallup World Poll’s results show a similar picture: 20% approval rating for the Venezuelan leadership, which of course includes President Maduro.

Another reason that contributed to the crisis is poor food planning. To most people nowadays, especially in the developed world, the idea of food distribution is foreign. Going to the local grocery store (a private entity) and buying the food products that one deems necessary to prepare their food for a certain period of time (usually a week) is the norm. However, that appears not to be the case in Venezuela where the government distributes the food through a self-established system called CLAP (Comités Locales de Abastecimiento y Producción, or Local Catering and Production Committees). According to a Telesur TV article published on March 12, 2017, CLAP is in charge of food distribution for each household. CLAP consists of four organizations: National Women’s Union (UnaMujer), United Battle Bolívar-Chávez (UBCH), the Francisco de Miranda Front (FFM) and the various communal councils of each entity, as reported by Telesur TV, and its purpose is to sustain the so called economic revolution of Venezuela. The purpose of the communal council, as reported by BBC Mundo, is to identify the local census (all the people who live in the designated area) and identify the respective area’s catering needs. On that day, March 12, 2017, Telesur TV quoted President Nicolás Maduro’s office as reporting that CLAP assigned “300 million bolívares to the Capital District, 200 million for Anzoátegui, 500 million for Amazonas, 500 million for Apure, 200 million for Aragua, 200 million for Barinas, 500 million for Bolívar, 300 million for Carabobo, 200 million for Cojedes, 500 million for Delta Amacuro, 200 million for Falcón, 500 million for Guárico, 200 million for Lara, 300 million for Mérida and 300 million for Miranda, among other entities”. Bolívar is the Venezuelan currency, which, as of August 2017, is worth roughly $0.10 – meaning that 10 bolívares are worth $1 – and the above quote refers to subsidies of the food distribution scheme (which the Caracas Chronicles opines to be a scam operated at the highest level of the government).

A significant portion of that funding expectedly originates from income that the Venezuelan government acquires through its sale of oil. In the United States, Venezuelan oil is distributed through Citgo Petroleum Corporation which is owned by the state-run Petróleos de Venezuela, S.A. (PDVSA). Therefore, not surprisingly, when oil prices drop so does the availability of food. That also likely intensifies an issue that always has the potential to occur in a public distribution system: the issue of so called “bachaqueros”, or, as BBC Mundo explained, people who buy the food products at regulated prices (Venezuela has imposed price control on certain goods) and then sell them at the black market at much higher prices. The good news for the Venezuelan government is that Citgo Petroleum Corporation has apparently been spared U.S. sanctions related to the deteriorating situation in Venezuela so oil sales to the U.S. continue at the current market prices. On the other hand, considering the current alarming situation in Venezuela, it looks odd that Citgo Petroleum Corporation offered $5 million for disaster relief efforts in Houston, TX.

Shortage of medicine – and apparently at inflated prices despite price controls – doesn’t help most of Venezuela’s residents either. It even went as far as having President Maduro request help from the United Nations on addressing the crisis while newborns are being put in cardboard boxes.

Policy alternatives

Here are some of the policy alternatives that could be implemented in an effort to address the crisis in Venezuela. The following alternatives are not limited to a specific country:

  1. Continue with the status quo: This policy alternative looks like the least desirable of all but it is not deprived of logic or merits. The Venezuelan people are already fed up with the current government, as the low approval rating suggests, and it helps that Nicolás Maduro never reached a popularity nearly as close as what the late President Hugo Chávez had enjoyed. However, this policy alternative could also lead to bleak future for Venezuela as 2017 protests are already extremely violent (see especially under Protest Violence where there is data on the number of deaths per state, data was apparently generated from a discontinued website) and murderous with reported total of 163 deaths throughout the country – all that amid deteriorating food and drug crises. Furthermore, political opponents within the government are already being removed from decision making positions, such as a majority of the National Assembly (Venezuela’s legislative body) which – the branch itself – was dissolved by the Supreme Court on March 30, as well as the former Attorney General Luisa Ortega Diaz who expressed on March 31, 2017 her disapproval of having the Supreme Court take over the functions of the National Assembly and was later suspended.
  2. Military intervention: President Donald Trump recently suggested the possibility of a military intervention by the United States. However, Latin American countries, through their regional alliance Mercosur, apparently opposed this alternative. Therefore, while not impossible, a military intervention would be difficult to implement.
  3. Food and drug shipments: Whether as donations or at below-the-market prices such a policy alternative would address the crisis, though just in the short term and particularly for the duration of the policy. Russia already started doing it, as CLAP was quick to announce the first shipment of Russian wheat, which Telesur TV informs us to be a 10-year deal. Unfortunately such a policy only sustains a regime, which is what Russia, an alleged Venezuelan ally, is aimed at achieving. What could help achieve a long-term solution is to add contingencies to such shipments. However, keeping track of the success of such contingencies would be difficult.
  4. Complete economic isolation: The less economic interaction with Venezuela, the harder it will be for the Venezuelan government to stay in power, as suggested by Forbes Magazine contributor Kenneth Rapoza. Suppose that the U.S. sanctions extend to PDVSA (which, of course, also affects Citgo gas stations in the United States) – that would likely be a significant blow to President Maduro’s regime. It appears that such an action would also have a negative impact on Rosneft making Russia slightly more vulnerable while also having to compensate for the economic loss in its alleged ally Venezuela by providing more food shipments such as the wheat shipment mentioned above. And if other countries with whom Venezuela’s PDVSA does business with add such economic sanctions, the intensity of this policy alternative would likely multiply. However, the final result will still depend on the intensity of the government’s determination to stay in power coupled with its allies’ determination to support the current government. Such regimes are usually quite determined to stay in power despite the integrity with which its institutions count votes on election day (since the opposition won the parliamentary elections, it is comparatively safe to assume that votes are counted properly).

Conclusion

Due to food and medicine shortage Venezuela is on the brink of collapse. In order to prevent a humanitarian crisis within Venezuela as well as in neighboring and other close countries in the region it needs to be addressed.

1 Comment

Filed under Civil Rights and Liberties, Economy, Politics

One response to “What happened in Venezuela

  1. Pingback: It is hard to find information about Venezuela price ceiling plan | Evolution is the key!

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