Venezuela and the Chavez Legacy

A fleet of rundown Venezuelan oil tankers carrying some 4 million barrels of oil and other fuels is wallowing in the Caribbean Sea. Not because of bad weather, or mechanical problems, but because Venezuela’s state-owned oil company, Petróleos de Venezuela SA, doesn’t have the cash to get them to their final destinations.

Beyond the obvious environmental risks, it’s doubly bad news for Venezuela, a country in dire economic straits and full-fledged crisis, with a political impasse, looting, dangerous food and health supply shortages, and massive protests. Venezuela is massively reliant on oil exports to bankroll government services. But the cash-strapped country can’t even find the money to service the vessels that carry its exports. And Venezuela needs the exports to get the cash to service the vessels. It’s a vicious circle.

Before ships can venture into international waters, international maritime law requires safety inspections, hull cleanings, and other services. Pd VSA, already mired in debt, can’t foot those bills, leaving crude-stained tankers in the lurch. Further exacerbating the problem is intermittent leaks at Venezuela’s poorly-maintained oil export terminals. The leaks stained incoming and outgoing tankers, creating a backlog of cleaning. Some tankers wait as long as two months for cleaning before being seaworthy, one inspector told Reuters, which first reported the story.

Venezuela, once Latin America’s most powerful petrostate, is on the brink of collapse after decades of economic mismanagement and boiling tensions between President Nicolas Maduro and opposition parties. Low global oil prices haven’t helped.

The global oil cartel OPEC agreed to slash global production late last year, but the small uptick in oil prices likely won’t provide enough reprieve for PDVSA to weather its debt storm; it projects its oil production will linger near a 23 year-low in 2017.

So while Venezuela’s political crisis continues unabated, its sole possible economic lifeline drifts at sea, in aging, dirty tankers.

The Economist: As Venezuela crumbles, the regime digs in

Nicolás Maduro draws the wrong conclusions from the economic crisis

EVERY weekday morning, a queue of several dozen forlorn people forms outside the dingy headquarters of SAIME, Venezuela’s passport agency. As shortages and violence have made life in the country less bearable, more people are applying for passports so they can go somewhere else. Most will be turned away. The government ran out of plastic for laminating new passports in September. “I’ve just been told I might need to wait eight months!” says Martín, a frustrated applicant. A $250 bribe would shorten the wait.

As desperation rises, so does the intransigence of Venezuela’s “Bolivarian” regime, whose policies have ruined the economy and sabotaged democracy. The economy shrank by 18.6% last year, according to an estimate by the central bank, leaked this month to Reuters, a news agency (see chart). Inflation was 800%.

These are provisional figures, subject to revision. They may never be published (the central bank stopped reporting complete economic data more than a year ago). The inflation estimate is close to that of the IMF, which expects consumer prices to rise by 2,200% this year. The Economist Intelligence Unit, a sister company of The Economist, puts last year’s economic contraction at 13.7%. That is still much sharper than the decline in Greece’s output at the height of the euro crisis. In 2001 Venezuela was the richest country in South America; it is now among the poorest.

Venezuela’s salsa-loving president, Nicolás Maduro, has responded to bad news with bluster (he blames foreign and domestic “mafias”) and denial. Soon after the leak of the central bank’s estimates he fired its president, Nelson Merentes. Mr Maduro may have held him responsible for the leak. Or he may have punished him for a botched attempt by the government in December to introduce new banknotes.

A currency swap makes sense. The 100-bolívar note, long the highest denomination, is worth less than three cents on the black market. Shopkeepers sometimes weigh them instead of counting them. They are to be replaced with a new set of notes worth up to 20,000 bolívares.

The government’s stated reason for making the switch—to punish hoarders—made no sense. Who would store up the world’s fastest depreciating currency? Its execution was tragicomic. After Venezuelans had queued for days to return to banks bills about to lose their value (sometimes in exchange for notes with even smaller denominations) the replacements failed to show up. Chaos ensued as Venezuelans returned to the banks to withdraw 100-bolívar notes. Their demonetisation is now scheduled for February 20th.

The change at the top of the central bank does not portend better policies. Ricardo Sanguino, the new president, is a Marxist former university professor who has spent 15 years as a loyal parliamentarian from the ruling socialist party. He will have less influence than Ramón Lobo, the newly appointed economy tsar, an economist with little high-level experience.

They are unlikely to deal with the causes of Venezuela’s penury. These include controls on foreign exchange and prices of basic goods, which lead to shortages and corruption; unrestrained public spending; the expropriation of private industry; and the plundering of PDVSA, the state oil company, which provides nearly all of Venezuela’s export revenues.

Ordinary Venezuelans have lost faith in the regime, if not in chavismo, the pro-poor populism espoused by the late Hugo Chávez, who ruled from 1999 until 2013. Mr Maduro, his successor, has an approval rating of 24%. In December 2015 Venezuelans elected a parliament dominated by the opposition.

Mr Maduro’s response has been to cling on to power more tightly. The electoral commission, controlled by the regime, has blocked a referendum to recall him from office. The supreme court, manned by government loyalists, has blocked almost everything the national assembly has tried to do. On January 15th Mr Maduro delivered his annual state-of-the-nation address not to the legislature, as the constitution requires, but before the court.

The regime says it wants dialogue with the opposition but has done little to enable it. Talks mediated by the Vatican and by Unasur, a regional body, broke down in December after the opposition accused the government of reneging on promises, including to release political prisoners and restore powers to parliament.

Mr Maduro’s recent appointment of a new vice-president suggests that the regime is moving further away from dialogue and reform. He replaced Aristóbulo Istúriz, a moderate by chavista standards, with Tareck El Aissami, a hardliner. One of Mr El Aissami’s first acts was to announce the arrest of Gilber Caro, an opposition politician. He had an assault rifle and explosives in his car, the government claims; his party says the weapons were planted.

Mr Maduro appears to be making two bets. The first is on disarray among the opposition. Divisions within the Democratic Unity alliance, a grouping of many parties, are widening as their efforts to defeat chavismo falter. It lacks a leader who can appeal to poor Venezuelans who feel betrayed by the regime’s empty promises.

Mr Maduro’s second hope is that oil prices will bounce back. They have already recovered from $21 a barrel in 2016 to $45. But PDVSA has been so badly managed and starved of investment that it will struggle to reap the benefits. Output fell by 10% last year and no rise is likely in 2017. Venezuela’s foreign reserves have dwindled to less than $11bn; its easy-to-sell assets are about a fifth of that. Mr Maduro vows that 2017 will be the “first year of the new history of the Venezuelan economy”. That will not shorten the passport queues.

This article appeared in the The Americas section of the print edition under the headline “Maduro’s dance of disaster”