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Chaos in Caracas

Sunday, February 21, 2016

It’s been a busy week in Caracas, and the weeks look like they’ll get busier as the year progresses.

The opposition majority in the National Assembly—elected in December and sworn in since January—is shaping up for a confrontation with President Nicolás Maduro and his regime.

Meanwhile, the economy creeps ever nearer the brink. “It now is a question of when they default, not if,” says a well-placed investment banker in this week’s Economist.

Venezuela’s deputy minister for hydrocarbons leads a team to Port-of-Spain next week for more talks on the cross-border Loran-Manatee field. Those negotiations have been running for more than 12 years.

From this side of the Gulf of Paria, these talks are top priority in the face of a stuttering gas supply. For Caracas, they’re a sideshow. 

Optimists hope for a pay-off from Loran-Manatee after a few more years, allowing time for final talks, detailed planning and infrastructural work. 

But Venezuela needs US$2.3 billion to pay its creditors this coming Friday.

At current price levels, Venezuela’s oil exports will this year earn one-quarter of what they fetched in 2012. Around 40 per cent of that will be needed to service the debts of the government and the giant state-owned oil company, Petroleos de Venezuela SA (PDVSA.)

Supermarket shelves are empty. Inflation last year was more than 180 per cent. Malnutrition is on the rise. Electric power outages have forced government offices and private businesses to curtail their opening hours.

A run-down health system struggles to cope with the Zika epidemic. Poor planning has turned the El Niño drought into a national crisis.

Crime is out of control. On official figures there were 3,414 murders last year in the city of Caracas. Unofficial figures list 22,748 homicides nationwide, while 146 police were killed in the line of duty. 

The constitutional court on February 11 upheld a presidential decree declaring an economic emergency, overruling objections from the National Assembly. President Maduro last week announced a policy package, which his supporters say will set the economy back on track. 

He reformed the exchange rate system. For food and basic goods imported through official channels, the rate was devalued from 6.3 to ten bolivars to the US dollar. For most other goods, the rate was moved to 200 bolivars. On the parallel market, meanwhile, it has soared to 1,000—one hundred times the official rate.

Maduro pushed up taxes. And he increased the price of gas, hitherto almost cost-free. The cheapest grade is now either ten US cents or one-tenth of a cent per litre, depending which exchange rate you use; higher grade costs six times as much.

He increased the minimum wage by 20 per cent. It is now either US$25 or US$2,500 monthly, depending again on the exchange rate used.

A task force of Cabinet ministers with military support has been told to bring consumer prices under control. There will be a new state-monopoly food production and distribution company, while existing state-owned supermarket networks will be transformed into community distribution centres; 49 of their former employees have been arrested for corruption.

None of that will magic toilet paper into the nation’s bathrooms. Food is short because local producers have been forced to cut back operations, while there is not enough foreign exchange to pay for imports.

There’s to be a new military company to run mining, oil and gas enterprises.

The opposition remains deeply unimpressed. Also last week, they stepped up efforts to get the government out of office. 

Opposition leader and former presidential candidate Henrique Capriles proposed a recall referendum, to kick out Maduro before his term ends in 2019. An attempt to recall Hugo Chavez from office in 2003-04 collected 3.2 million signatures, but failed at the polls with only 42 per cent support. A new initiative against Maduro might be more successful.

Another proposal is a constitutional amendment to reduce his term in office.

Parliament passed an amnesty bill, which would if it becomes law free firebrand Leopoldo López and other opposition leaders locked up during anti-government protests two years ago. The president will use the courts to block it.

The National Assembly voted to investigate allegations of seven billion US dollars worth of corruption at PDVSA, covering the company’s pension fund, contracts with state-owned Colombian and Brazilian oil companies and apparent money laundering.

Government-appointed judges have hit back at the assembly. They have ruled that the government can pursue a challenge to the results of the December 6 election. If successful, this action could undermine the opposition’s super-majority.

And the president has established a rival body, the National Communal Parliament, to rival the opposition-controlled Assembly.

Venezuela looks close to dissolving into chaos. But on one front, all looks peaceful. There has been no move to stop ExxonMobil from drilling for oil in Guyanese waters claimed by Caracas, perhaps because China has a stake in that oil find. Guyanese oil may flow before gas from Loran-Manatee.


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