Venezuela’s President Backtracks as Caracas Burns
This article has been corrected. A few months ago, Venezuela watchers predicted that the time of reckoning for the chavista model had come. Stagnant oil prices — Venezuela’s main source of tax revenue — and years of profligate spending had left the country with a budget deficit larger than that of Greece at the time ...
This article has been corrected.
This article has been corrected.
A few months ago, Venezuela watchers predicted that the time of reckoning for the chavista model had come.
Stagnant oil prices — Venezuela’s main source of tax revenue — and years of profligate spending had left the country with a budget deficit larger than that of Greece at the time of its default. A byzantine foreign exchange regime had made a habit of importing goods on a ridiculous scale, though the country didn’t have enough oil dollars to finance the splurge. A web of price controls meant many staples had disappeared from supermarket shelves.
The task at hand, many thought, was for the government to go back to basics and begin undoing the severe distortions feeding this debacle. President Nicolás Maduro’s administration appointed several pragmatists to top jobs, giving people hope that more sensible times were ahead.
A few months ago, Rafael Ramírez, the long-serving CEO of the country’s top oil company and the minister of oil and energy, was named economic super-minister. His appointment led many — including myself — to crown him the country’s most powerful man, more so than even the president.
After his appointment, Ramírez did everything he could to stir up hope that more sensible policies were coming.
He talked repeatedly about the expensive and wasteful nature of the nation’s vast gasoline subsidies. Gas is practically given away for free in the country, promoting a lucrative cross-border smuggling business that the government is unsuccessfully trying to quash. He also spoke about the insanity of having many different exchange rates, which cause many distortions, and allow the well-connected to get rich quick by obtaining access to cheap dollars and selling them at the black market rate. In private, he reassured investment bankers that Venezuela’s more questionable policies were on their way out, criticizing some of the government’s expropriations and dismissing price controls.
Ramírez was so confident of his power that he even made his pitch of proposals to the leading governing party activists gathered at a convention a few weeks ago. The session was closed to the media, but well-sourced journalists reported that the activists seemed to have approved of the "package."
In hindsight, that assessment seems premature. On Tuesday, Maduro demoted Ramírez, sacking him from the two oil industry positions he held. This is a political earthquake considering he had led the industry unrivaled for more than a decade. Maduro has replaced him at the top of the economic cabinet with a military yes-man. Maduro gave Ramírez a consolation prize by naming him foreign minister, but it was clear that he had been demoted, and that the hopes for sensible policy-making had been temporarily quashed.
What happened? It’s difficult to know for sure, but early signs suggest that the party faithful were not too keen to undo the late Hugo Chávez’s signature policies, even if the country could no longer afford them. The military, in particular, had much to lose from the dismantling of some of the rigid price and currency controls on which its employees depend.
Chavismo has never been so unpopular with the public. A series of opinion polls are showing its approval ratings in the mid-to low 30s, and most Venezuelans blame the government for their woes. A sizeable majority even wants Maduro to resign. Inflation is the highest in the world, so high that the Central Bank has simply stopped reporting the monthly rate.
It is not surprising that, faced with these facts, Maduro was hesitant to implement obviously painful measures. The problem for the president is that the alternative may prove to be much worse.
In the aftermath of the "shake-up," as the government termed the cabinet shuffle (other ministers were moved around, but the sacking of Ramírez was by far the most notable of the announcements), many expect the government’s policies to remain in place. The government has said that more controls are on their way, including a proposal to put fingerprint scanners in grocery stores in order to ration the purchase of goods and, hopefully, stem hoarding.
It will be all for naught. As the Bank of America said in private a research note Thursday morning, the government has chosen to confront its dwindling resources not by defaulting on its debt (a sizeable payment of foreign bonds is due later this year, but everyone expects the government to pay), but by cutting off the supply of dollars to the local economy.
In other words, price controls, exchange controls, and empty shelves are here to stay. Yet with popular backlash high and seemingly on the rise, the future of Maduro’s government isn’t as certain.
*Correction, Sept. 5, 2014: President Maduro announced that he would be removing Ramírez from his posts on Sept. 2. An earlier version of this article incorrectly stated that he made this announcement on Aug. 27.(Return to reading.)
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