- By Juan Cristóbal NagelJuan Cristóbal Nagel is a professor of economics at the Universidad de los Andes in Santiago, Chile, editor of Caracas Chronicles, and co-author of the book Blogging the Revolution.
The international price of oil has dropped by more than 40 percent in the past six months. To put it lightly, this presents a major challenge to oil-exporting nations. Many analysts agree that, of all oil rich countries, Venezuela is the most vulnerable. A combination of persistent fiscal deficits, out-of-control inflation, and plunging public support for President Nicolás Maduro threatens to make the nation of 30 million ungovernable. What can Maduro do to survive?
In order to answer this question, we must differentiate between what Maduro can do, and what he most likely will (or, rather, will not) do.
Maduro has been living on borrowed popularity ever since Hugo Chávez anointed him his successor. After Chávez’s funeral 19 months ago, Maduro won a disputed 1.5 percentage point victory. Since then, Maduro’s numbers have been dropping steadily. The latest poll from local pollster Datanálisis puts his popularity at just 25 percent, with 85 percent of Venezuelans saying the country is headed in the wrong direction. Other opinion polls confirm this drop.
This has everything to do with the Venezuelan economy. Reports of scarcity have been surfacing all year long. Venezuela’s recession makes it the worst performing economy in the hemisphere, and the government’s rapacious fiscal deficit (estimates put it at 17 percent of GDP) is feeding what is now the world’s highest inflation rate. Lack of confidence in the economy is driving Venezuelans to dump the local currency and find safer assets. The black market exchange rate on the dollar has soared, and some economists are already starting to discuss the possible threat of hyperinflation.
Maduro needs to adapt if he is to survive. In order to do that, he should look to some of his neighbors, who are doing a better job riding out the dip in the commodity boom by combining pragmatic measures and tacking to the political middle. The measures needed — rationality in monetary and fiscal policies, and working with the private sector in order to disentangle the web of price distortions — are obvious.
Sadly for Venezuelans, change is unlikely.
In Brazil, the drop in the price of commodities that make up much of the country’s exports has brought the economy to a standstill, prompting massive street protests. After barely winning reelection a month ago, President Dilma Rousseff has now tacked to the center, selecting a conservative finance minister for her second term.
Meanwhile, fellow socialist presidents Evo Morales of Bolivia and Rafael Correa of Ecuador are both popular thanks in part to the fact that their respective countries are outperforming the region. Both governments call themselves “anti-imperialist,” and both presidents are considered socialist firebrands. However, their economic policies have been remarkably orthodox, and the private sector in both countries is doing remarkably well.
The unpopular Cristina Fernández of Argentina cannot claim to have good relations with the private sector in her country. Partly as a consequence, her economy is suffering from recession and inflation, so she is stepping aside next year in order to give her political movement a chance at survival.
All four leaders understand that political longevity requires flexibility and constructively working with the private sector. When leaders are unable to deliver, they must either tack to the center or step aside. Can Maduro learn the same lessons?
Probably not. So far, Maduro’s response to the crisis has been to deny the problem exists and push aside any hints of substantive reform. He has ignored calls to dismantle the onerous price distortions crippling the private sector, while insisting that he is the victim of an “economic war” few in Venezuela believe exists. While he has announced a cut in spending and a tax hike, these measures are not extensive enough to seriously reduce the deficit.
In other words, Maduro seems incapable of shifting.
The president’s closest advisors seem equally at sea. Maduro recently dispatched his foreign minister to lobby OPEC members to lower production ahead of a crucial meeting. When the countries denied the request, it was an embarrassment for Venezuela. Finance Minister Rodolfo Marco has recently returned from China, where he was hoping to secure more loans to keep Venezuela afloat. He came back empty handed.
Sources privately say that Maduro’s cabinet has no grasp of the current economic maelstrom, singling out Marco — an army general with little formal training in economics — for not understanding the severity of the government’s problems. In a recent, well-sourced article, journalist Nelson Bocaranda claimed a group of people inside chavismo was lobbying the president to name Francisco Rodríguez, a respected Harvard economist currently working for Bank of America, to replace Marco the in Finance Ministry.
All of this is wishful thinking. Chavismo is a movement that feeds off price distortions, and elements of the military are deeply involved in the black market. A move to the center or a replacement of key players in the cabinet could upset the delicate balance between hardline socialists and the more pragmatic military clique in the chavista coalition.
Maduro postpones a solution at his own peril. Deep economic crises usually usher in political change, and in Venezuela, this could mean violence. If Maduro continues mimicking a deer in the headlights, and if low oil prices become the new norm, his political survival will be greatly imperiled.
The question would not then be “if” change will come, but rather “when,” or “how.”
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