Venezuela’s Scenarios After Chávez Comeback
By Andrés Cala
El comandante Hugo Chávez is back in Venezuela after spending nearly three months in Cuba recovering from his latest near-death battle against cancer. His futuret, as much as that of the Latin American left-wing movement he leads, is uncertain.
Chávez’s return was unannounced, keeping to the dramatic evolution of his health and Venezuelan politics. “We’ve arrived again in the Venezuelan nation. Thank you God. Thank you beloved people. We will continue our treatment here,” he wrote in Twitter. “Until victory always. We will live and will win.”
But Venezuela, with the world’s biggest oil reserves, has but one destiny: reform. The country has already entered a corrective phase of last decade’s unsustainable economic paradigm, either to consolidate or to abandon Chavismo.
The timing and effectiveness, which are critical to global geopolitics and economy, will depend on who leads this transition: Chávez, his handpicked heir Vice President Nicolás Maduro, or the opposition.
Most are not optimistic and just expect from Chavismo more of the same failed policies, demagoguery, and corrupted horse-trading and instability. But they underestimate the resilience of populism when it comes to reinventing and correcting itself.
Chavismo has evolved, intentionally or not, parallel to its leader cancer. Last October he spent his way back into a six-year presidential term, struggling to portray the strength of his revolution and of his health. But once there, his regime has moved into transition mode, both of the leadership and of the revolution.
Chávez knows the only hope for the survival of his revolution is to pump more oil to offset falling crude prices, while cutting public spending and putting the country’s finances in order. But they must do it without triggering popular backlash.
Macroeconomic problems have been mounting for years though. Oil revenue is also falling as resources are squandered in mismanagement, corruption, and inefficiency.
The population’s most pressing issues have not been sufficiently addressed either. Venezuela has poured more money to fight poverty than any other country in Latin America, but homelessness, insufficient agricultural production, crime rates, and polarization among the population have increased, all under a strictly managed government economy.
If Chavismo is unable to correct itself, Venezuelans will inevitably boot out the revolution, and the opposition will implement even more aggressive reforms.
Correct to consolidate
One weekend before his surprise return, Venezuela finally devalued its currency 32%, a long expected move that was inevitable to balance rising government spending, but that will also hike inflation and dampen economic growth, while only postponing more manipulative currency measures.
The devaluation will allow Caracas to cover a growing gap by increasing how much bolivares it gets for every barrel it oil it sells in dollars, but it will increase prices of imports. Simultaneously though price controls on many goods will limit how much they can rise, thus undermining economic growth. Another devaluation will thus be necessary. But it’s very significant that Chávez devalued the currency now, inevitably undercutting popular support for him and his handpicked successor –so far- Maduro. It’s a powerful indication of an evolving Chavismo has already entered a corrective phase.
“We have to learn to do a lot with a little, more with less,” Maduro said the day his provisionally-led government announced the devaluation.
The opposition’s leader Henrique Capriles, like most observers, is anticipating Chávez will give up power in favor of Maduro, and even if Chávez and his inner circle keep their plans a state secret, it appears likely that will be the case.
We hope “the president’s return means that Mr. Maduro and the ministers will get to work. There are thousands of problems that need to be resolved,” Capriles said in Twitter.
It’s unclear and irrelevant whether Chávez will be able to personally rule the country, or whether he will have to pass the torch of Chavismo to Maduro. Unlike a similar transition in Cuba (an ill Fidel stepped aside to let his brother Raul implement timid reforms), Chavismo does not have a repressive hold on power though.
The Venezuelan revolution’s survival thus depends on the ability of Chavismo to deliver much-needed reforms -that are ultimately pro-market- quickly enough to consolidate the regime through democratic means.
Oil and other pressing matters
The oil sector, which contributes most of the country’s public spending and in every shape and form has been the bread and butter of Venezuela for decades, embodies the failures of Chavismo. Petroleos de Venezuela, the state oil company, under Chávez’s management has been unable to exploit its huge resources.
This year and perhaps 2014 will be even harder for Venezuela’s economy as oil prices are expected to fluctuate around $100 a barrel, as US output floods markets amid tempered global demand as a result of the ongoing economic crisis.
Oil analysts, starting with the International Energy Agency, Opec, and the Energy Information Administration, calculate Venezuela is already running a deficit, with estimates of its breakeven price requirements to finance public spending ranging between $100 and $120 a barrel.
But Venezuela has failed to reverse falling production from depleted wells and to efficiently develop its huge resources in the Orinoco Belt, the single biggest oil treasure in the world.
The technology and knowhow are there, but Chávez has diverted much needed resources that PDVSA needs to finance his populist programs, not to mention politicized what was once one of the world’s biggest and most influential oil companies.
Production remains stuck at below 3 million barrels per day, despite ambitions plans and raucous contract signings with foreign companies that target doubling production by the end of the decade.
Unlike what the opposition and other Chávez critics claim, there are more than enough international partners willing to pour their billions to extract that oil, yet most projects remain in the planning phase. The reason: PDVSA, which by law owns 60% of all oil ventures, does not have the money to put up its share of the money.
Or as Maduro said, “We need to overturn the culture in which historically, because of oil, we’ve done little with a lot.”
