Can Venezuela Learn from Ukraine?
by Barbara Kotschwar |
Peterson Institute of International Economics, February 25th, 2014 | 01:37 pm
Even as the crisis in Ukraine abates, with an incumbent president on the run and a prominent opposition leader freed from prison, a similar crisis in Venezuela rages on. While the nature and details of the two conflicts differ, both have been spurred by a fundamental disagreement regarding the country’s economic development model.
Ukraine has stagnated while its neighbors, most prominently Poland, have modernized and grown more prosperous. The decision by President Viktor Yanukovich to withdraw from a European Union Economic Association Agreement and turn towards Russia touched off a firestorm of protest. In Venezuela, the accumulated effects of former President Hugo Chavez’s socialist model, carried forward by his hand-picked successor, Nicolas Maduro, have led to heightened crime, inflation and rampant shortages, compounded by suspicions of corruption and a lack of transparency. These conditions have touched off a series of protests.
Venezuela is a sharply divided society. Stark socioeconomic divisions stemming from decades of political polarization and the management of wealth by two alternating political parties led to the rise of Chavez. Chavez managed to redistribute some of Venezuela’s wealth to the poor and lower middle classes and gave a voice to many who were disenfranchised by the elitist power structure. He failed to put in place a sustainable economic model, however, and Venezuelans have suffered as a result. Venezuela’s inflation rate, about 55 percent last year, vies with countries such as Sudan for the highest in the world. While support for Chavez’s socialist model has endured for more than a decade, this month’s protests signify that the rapidly deteriorating economic conditions and the political controls required to continue with this model have exhausted some of that support. The presidential elections last year reflected this trend: Opposition leader Henrique Capriles won 49.1 percent of the popular vote against Maduro’s 50.6 percent.
Examples of the exhaustion of Chavez’s model abound. Shortages—famously, of toilet paper, but also of necessities such as milk, cooking oil, and medicines—have become a part of daily life in Venezuela. The exchange rate, officially at 6.3 bolivares per dollar, trades in unofficial markets at between 75 and 88 bolivares per dollar. Oil-rich Venezuela also suffers from regular power blackouts. Maduro blames these on sabotage by the opposition or by US conspirators, but a more likely cause is the deterioration of the electrical grid. Transportation infrastructure is in collapse. So is the economy. Crime is high and has been rising. The murder rate—brought to international attention by the January slaying of a Venezuelan beauty queen and her family—has quadrupled in the past decade and a half and now stands at 79 per 100,000 (122 homicides per 100,000 residents in the capital, Caracas).
While Venezuela protests have not yet risen to the scale of violence as experienced by Ukraine this month, at least eight people have died since the protests began in early February, and at least a hundred have been injured. Maduro seems to be following Yanukovich’s repressive lead, jailing an opposition leader, sending troops to border areas, threatening to cut off gas supplies to opposition areas and vowing to continue to crack down on the protesters and opposition. Maduro has also resorted to his default tactic of blaming the United States, expelling three US diplomats last week and revoking the press credentials of a number of CNN journalists.
The Ukrainian opposition to repression was sparked by its call for a closer relationship with the European Union, and EU diplomacy helped broker a deal calling for new elections and discussions for assistance in a post-Yanukovych era. Venezuela does not have an European Union to turn to. The closest proxy could have been the Mercosur, or Southern Common Market, the customs union whose largest member, Brazil, has considerable influence in the region. But with Venezuela chairing the customs union, it is unlikely that Mercosur can play a role.
The Maduro administration continues to receive domestic support, particularly from those who suffered most under the previous regime. Pro-government demonstrations match the opposition protesters. The question now is how long Maduro can last. Oil exports offer some policy space, although Venezuela is hampered by a rapid decline in reserves. The Central Bank reports $21.3 billion, the lowest level since 2004, when the price of oil was less than half the current level. Mercosur has emphasized the importance of democracy and supporting Maduro, and Argentine President Cristina Fernandez de Kirchner has proclaimed her solidarity with him as well.
Mercosur’s core principles include economic integration and the adherence to democracy. In fact, its “democracy clause” calls for the immediate expulsion of members who deviate from this system of governance.1 Since Venezuela joined the group in 2012, however, it has performed terribly on both economics and democracy. The power of the executive has increasingly grown. In November 2013, Venezuela’s National Assembly granted President Maduro the power to pass laws on economic and anti-corruption issues by decree for a period of 12 months, effectively limiting their own power of checks and balances. Limits have increasingly been placed on the press and other media. Opposition television stations were denied licenses, and content is regulated. Venezuela’s 2004 media law makes it illegal to disseminate information that could sow panic among the general public, and in November 2013, the telecommunications regulator ordered Internet service providers to block websites providing the black market exchange rate.
Last week Freedom House, in response to Maduro’s censure of international channel NTN24, which was covering the protests, condemned Venezuela for its effort to “tighten press restrictions, including censorship of media, as well as detentions and violence against journalists.” According to Transparency International, Venezuela ranks 160th out of 177 countries in terms of its corruption perception index—one step below Zimbabwe. None of these examples inspire confidence in the state of Venezuela’s democracy—or in Mercosur’s willingness to call out its member’s transgressions.
The other actor that could potentially play a positive role is the United States, Venezuela’s largest trading partner. US-Venezuela relations are bitter, however. President Chavez, citing diplomatic cables at the time, accused the United States of masterminding a 2002 coup against him, and the two countries have not exchanged ambassadors since 2008. Statements accusing the United States of sabotage and invitations to provide asylum for the antisecrecy activist Edward J. Snowden have not helped. However, Secretary of State John F. Kerry did meet with Foreign Minister Elias Jaua last summer, and bilateral thawing efforts have taken place intermittently. President Maduro has reportedly called for a high level meeting with the United States to provide information relating to the protests.
For Venezuela’s sake, President Maduro should be watching events unfold in Ukraine and act to avoid the sort of bloodshed that finally led to the ouster of Yanukovych. If he does, he may buy himself some more time to devise a strategy to unwind some of the most egregious economic distortions.
Last April, at the Peterson Institute’s spring Global Economic Prospects meeting, we predicted [pdf] that Venezuelan President Maduro would be unable to continue Hugo Chavez’s legacy of 21st century socialism because of serious economic and political pressures. Those pressures have only increased. With his own party far from united, question marks regarding the role of the military, and a strengthening protest movement, it is only a matter of time before Venezuela also reaches a breaking point. Perhaps helped by a coordinated effort by the Mercosur countries and the United States, Venezuela should step up to the challenge.
Ukraine has stagnated while its neighbors, most prominently Poland, have modernized and grown more prosperous. The decision by President Viktor Yanukovich to withdraw from a European Union Economic Association Agreement and turn towards Russia touched off a firestorm of protest. In Venezuela, the accumulated effects of former President Hugo Chavez’s socialist model, carried forward by his hand-picked successor, Nicolas Maduro, have led to heightened crime, inflation and rampant shortages, compounded by suspicions of corruption and a lack of transparency. These conditions have touched off a series of protests.
Venezuela is a sharply divided society. Stark socioeconomic divisions stemming from decades of political polarization and the management of wealth by two alternating political parties led to the rise of Chavez. Chavez managed to redistribute some of Venezuela’s wealth to the poor and lower middle classes and gave a voice to many who were disenfranchised by the elitist power structure. He failed to put in place a sustainable economic model, however, and Venezuelans have suffered as a result. Venezuela’s inflation rate, about 55 percent last year, vies with countries such as Sudan for the highest in the world. While support for Chavez’s socialist model has endured for more than a decade, this month’s protests signify that the rapidly deteriorating economic conditions and the political controls required to continue with this model have exhausted some of that support. The presidential elections last year reflected this trend: Opposition leader Henrique Capriles won 49.1 percent of the popular vote against Maduro’s 50.6 percent.
Examples of the exhaustion of Chavez’s model abound. Shortages—famously, of toilet paper, but also of necessities such as milk, cooking oil, and medicines—have become a part of daily life in Venezuela. The exchange rate, officially at 6.3 bolivares per dollar, trades in unofficial markets at between 75 and 88 bolivares per dollar. Oil-rich Venezuela also suffers from regular power blackouts. Maduro blames these on sabotage by the opposition or by US conspirators, but a more likely cause is the deterioration of the electrical grid. Transportation infrastructure is in collapse. So is the economy. Crime is high and has been rising. The murder rate—brought to international attention by the January slaying of a Venezuelan beauty queen and her family—has quadrupled in the past decade and a half and now stands at 79 per 100,000 (122 homicides per 100,000 residents in the capital, Caracas).
While Venezuela protests have not yet risen to the scale of violence as experienced by Ukraine this month, at least eight people have died since the protests began in early February, and at least a hundred have been injured. Maduro seems to be following Yanukovich’s repressive lead, jailing an opposition leader, sending troops to border areas, threatening to cut off gas supplies to opposition areas and vowing to continue to crack down on the protesters and opposition. Maduro has also resorted to his default tactic of blaming the United States, expelling three US diplomats last week and revoking the press credentials of a number of CNN journalists.
The Ukrainian opposition to repression was sparked by its call for a closer relationship with the European Union, and EU diplomacy helped broker a deal calling for new elections and discussions for assistance in a post-Yanukovych era. Venezuela does not have an European Union to turn to. The closest proxy could have been the Mercosur, or Southern Common Market, the customs union whose largest member, Brazil, has considerable influence in the region. But with Venezuela chairing the customs union, it is unlikely that Mercosur can play a role.
The Maduro administration continues to receive domestic support, particularly from those who suffered most under the previous regime. Pro-government demonstrations match the opposition protesters. The question now is how long Maduro can last. Oil exports offer some policy space, although Venezuela is hampered by a rapid decline in reserves. The Central Bank reports $21.3 billion, the lowest level since 2004, when the price of oil was less than half the current level. Mercosur has emphasized the importance of democracy and supporting Maduro, and Argentine President Cristina Fernandez de Kirchner has proclaimed her solidarity with him as well.
Mercosur’s core principles include economic integration and the adherence to democracy. In fact, its “democracy clause” calls for the immediate expulsion of members who deviate from this system of governance.1 Since Venezuela joined the group in 2012, however, it has performed terribly on both economics and democracy. The power of the executive has increasingly grown. In November 2013, Venezuela’s National Assembly granted President Maduro the power to pass laws on economic and anti-corruption issues by decree for a period of 12 months, effectively limiting their own power of checks and balances. Limits have increasingly been placed on the press and other media. Opposition television stations were denied licenses, and content is regulated. Venezuela’s 2004 media law makes it illegal to disseminate information that could sow panic among the general public, and in November 2013, the telecommunications regulator ordered Internet service providers to block websites providing the black market exchange rate.
Last week Freedom House, in response to Maduro’s censure of international channel NTN24, which was covering the protests, condemned Venezuela for its effort to “tighten press restrictions, including censorship of media, as well as detentions and violence against journalists.” According to Transparency International, Venezuela ranks 160th out of 177 countries in terms of its corruption perception index—one step below Zimbabwe. None of these examples inspire confidence in the state of Venezuela’s democracy—or in Mercosur’s willingness to call out its member’s transgressions.
The other actor that could potentially play a positive role is the United States, Venezuela’s largest trading partner. US-Venezuela relations are bitter, however. President Chavez, citing diplomatic cables at the time, accused the United States of masterminding a 2002 coup against him, and the two countries have not exchanged ambassadors since 2008. Statements accusing the United States of sabotage and invitations to provide asylum for the antisecrecy activist Edward J. Snowden have not helped. However, Secretary of State John F. Kerry did meet with Foreign Minister Elias Jaua last summer, and bilateral thawing efforts have taken place intermittently. President Maduro has reportedly called for a high level meeting with the United States to provide information relating to the protests.
For Venezuela’s sake, President Maduro should be watching events unfold in Ukraine and act to avoid the sort of bloodshed that finally led to the ouster of Yanukovych. If he does, he may buy himself some more time to devise a strategy to unwind some of the most egregious economic distortions.
Last April, at the Peterson Institute’s spring Global Economic Prospects meeting, we predicted [pdf] that Venezuelan President Maduro would be unable to continue Hugo Chavez’s legacy of 21st century socialism because of serious economic and political pressures. Those pressures have only increased. With his own party far from united, question marks regarding the role of the military, and a strengthening protest movement, it is only a matter of time before Venezuela also reaches a breaking point. Perhaps helped by a coordinated effort by the Mercosur countries and the United States, Venezuela should step up to the challenge.
Note
1. In fact, the democracy clause has been invoked twice—once, successfully preventing General Oviedo from effecting a coup in Paraguay in 1996, and the second time, more controversially, invoked against Paraguay in 2012 for impeaching its left-leaning president. This latter expulsion of Paraguay from the Mercosur cleared the way for Venezuela’s entry into the bloc.
