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The Venezuelan Crisis and How the US is Reacting

Venezuelan Crisis
For decades Venezuela’s government and economy have struggled significantly. Entering Venezuela into a search engine will generate links to a multitude of foundations attempting to relieve the Venezuelan Crisis. What is the Venezuelan Crisis and how is the U.S. reacting?

The South American country’s history is full of political and social inequity. Venezuelan leadership has been rocky at best since Simon Bolivar led the country to independence more than 200 years ago. Despite his original constitutional implementations of extremely strict rules such as capital punishment for any public officer guilty of stealing 10 pesos or more from the government, the country quickly fell into corruption.

History of Corruption

The disorder apparent in Venezuela’s contemporary governmental and social climates stems from centuries ago when inefficient leadership set the precedent. The country did not institute a democratic election until 1945. That is more than 130 years after its founding and establishment of the civilian government. Turmoil ensued as Marcos Perez Jimenez, a military figure, overthrew the first elected President Romulo Gallegos within eight months. Admiral Wolfgang Larrazabel, in turn, ousted Jiminez and leftist Romulo Betancourt subsequently took power. This period of rapid regime change defined by government instability and disorganization instilled a distrust that still resonates in the hearts of Venezuelans today.

The trend of unreliable leaders continued until the late 1960s and 1970s when a beacon of light emerged. This age saw much-needed transparency in public assets, contrasting with previous leaders who were heavily corrupt. During this time, other South American countries even began to restructure their governments after the Venezuelan model. However, Venezuela lived this era of tranquility for only a short time because of one man: President Jaime Lusinchi.

Lusinchi served as President from 1984 to 1994. Even in the era of Nicolas Maduro, he stands as the epitome of Venezuelan corruption. In his 10 years as the country’s leader, a corrupt security exchange program stole an alleged $36 billion from the government. Additionally, many accused Lusinchi of stealing from the National Horse Racing Institute to promote the campaign of his successor, Carlos Andres Perez.

Venezuela’s economy functions almost solely on oil exports. The volatility of international oil demands, a market characterized by consistent inconsistency, historically parallels with the state of the Venezuelan market. A booming oil stock in an oil-dependent country naturally creates extraordinary temptation, a temptation that Lusinchi gravely fell into.

Making the national situation worse, the money Lusinchi stole from the government came from a temporary oil surge. Therefore, when oil prices normalized, the economy faced a much more difficult catching up than it would have otherwise.

For many Venezuelans, Lusinchi reopened recent wounds concerning government distrust. This fueled a wave of anger that the famous populist Hugo Chavez harnessed. Lower-class Venezuelans blamed government corruption and greed of the elite for the country’s extreme economic and social issues. The support of this large base played an important role in electing Chavez as President in 1998.

Today’s Dictatorship

To understand the current state of affairs under Maduro, it is vital to understand Chavez’s impact on the Venezuelan Crisis. Chavez’s policies raised (and still raise) enormous controversy as he led using traditionally socialist policies. Under these policies, Venezuela saw a 50 percent reduction in poverty and a dramatic reduction in the unemployment rate.

These policies were only achievable because of a 2004 soar in oil prices in the middle of Chavez’s presidency. His excessive spending on categories like food subsidies, education and health care was only possible through this boom. To get the Venezuelan people to reelect him, Chavez did not scale back these programs to match declining oil prices and set up his country to fail.

In 2014 Venezuelan oil prices crashed, leaving the economy in shambles as Chavez’s programs quickly racked up an enormous deficit. This also started the massive inflation of the Venezuelan bolivar that the country still struggles with today. Following Chavez’s death, Nicolas Maduro gained power in 2014, taking on the responsibility for the economy and deficit. Maduro failed to diversify the oil-rigged economy. This caused the petrostate to fall back into extreme poverty, currently wielding a poverty rate of around 90 percent, double what it was in 2014.

The Council on Foreign Relations quotes Venezuela as “the archetype of a failed petrostate,” describing it as a sufferer of the infamous Dutch disease. The transition to this began back in 1976 when then-President, Carlos Andres Perez, nationalized the oil industry creating the state-owned ‘Petroleos de Venezuela (PDVSA). Chavez’s mismanagement of this company led it to render weak profits. Internal issues such as insider business practices and drug-trafficking also littered the business with corruption. Chavez then sanctioned a series of other national businesses and foreign-owned assets tilting the country towards extreme socialism.

This progression of increased nationalization slowly opened the doors for Maduro to initiate authoritative rule. He abused this power in multiple facets which had devastating consequences on the well-being of the country and its people.

Early in his rule, Maduro placed his supporters in the Venezuelan Supreme Court and replaced the National Assembly with his own Constituent Assembly. Through this cunning, undemocratic move, he essentially eliminated all political opposition and erased any check on his power. This allowed him to pass extremely contentious policy such as the abuse of food importation. Because of Maduro’s extremely poor operation of a socialist economy, hyperbolic inflation rates currently plague the country. While the political elites operate on a 10:1 rate, the rest of the country uses around a 12,000:1.

To make matters worse, Maduro delegated food commerce to the military which has access to the significantly decreased exchange rate. To make enormous profits, it buys food at the 10:1 rate and then sells it domestically at a 12:000:1 rate. The 2017 statistic shows that Venezuelans lost an average of 27 pounds, highlighting the horror of Maduro’s corruption.

What is the US’s position in all of this?

As expected, the U.S. with its long history of an anti-socialist stance disapproves greatly of the Maduro suppressive regime. There is historical friction between the two, which emerged again during Chavez’s time in a battle between capitalist and socialist ideals.

After Maduro’s reelection, the Trump administration grew furious and decided to use aid as a tool against the dictator. In an act of defiance against the U.S., Maduro rejected all supplies from the capitalist power. The U.S. decided to use this move to its advantage, pledging to send copious amounts of humanitarian aid and urging Venezuela’s officials to defy their President’s orders.

As Dylan Baddour states in his article for The Atlantic, “Those who support the mission say that soldiers will be motivated by the impact Venezuela’s crisis is having on their families to switch sides and affect a peaceful transfer of power.” However, not everyone supports this mission because of the U.S.’s bittersweet past regarding Latin American intervention.

Citizens in countries like Chile, Nicaragua and Panama certainly are in living memory of times when American involvement only made matters worse. But as Baddour writes, in a situation as dire as Venezuela’s during the Venezuelan Crisis, “the world’s most powerful country showing up at Venezuela’s border with truckloads of food and medicine is much better than what it has done in the past.”

There is, of course, a concern that Venezuela could transform into the next Syria — where the majority of the population suffers because of one belligerent leader. But if the U.S. takes a proper humanitarian route with its aid, unlike previous attempts, it could do more help than harm. Hopefully, Venezuela will accept aid and transfer power peacefully and efficiently to someone that does not endorse such heinous policies. Until then, the U.S. simply providing its current amount of humanitarian aid is a positive step in the right direction to relive some of the effects of the Venezuelan Crisis.

– Liam Manion
Photo: Flickr

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US Cracks Down on Venezuela’s Oil-Backed Cryptocurrency

Venezuela's Oil-Backed CryptocurrencyVenezuela is a region rich in oil and minerals, yet it suffers from poverty and political turmoil. Venezuelan president Nicolas Maduro is launching a new blockchain currency called Petro, an oil-backed cryptocurrency. The U.S. believes this to be an attempt to circumvent sanctions against the Venezuelan government and is cracking down on Venezuela’s oil-backed cryptocurrency.

Venezuela suffers from the “resource curse,” a phenomenon whereby its large reserves of oil negatively impact its economic growth and stability. Rather than a blessing, these energy reserves lead to fraud, corruption, wasteful spending, military adventurism and the authoritarianism of the Maduro regime. This curse exacerbates global poverty through the destabilization of the oil industry, dulling the effect of foreign assistance and creating a breeding ground for terrorism and instability.

Although the country has a vast supply of oil money, instead of going to Venezuela’s poor, the money ends up in the pockets of the rich. U.S. Senator Marco Rubio tweeted on February 9, 2018, regarding the Maduro regime, “Soldiers eat out of garbage cans & their families go hungry in #Venezuela while Maduro & friends live like kings & block humanitarian aid.”

Venezuelans are deprived of human rights guarantees and press freedoms, facing political persecution and public corruption by the Maduro regime. The U.S. regards the Maduro regime as a dictatorship, whose power has overridden the democratic will of Venezuelans. The nation’s population is greatly subjected to sex trafficking and forced labor, sexual exploitation and domestic servitude. People from other nations are trafficked for sex and labor in Venezuela. Cuba trafficks thousands of Cuban citizens and doctors into forced labor in Venezuelan social programs, in exchange for the provision of resources to the Cuban government.

The most recent U.S. sanctions were imposed in August 2017 against Venezuela’s dictatorship, blocking U.S. citizens from buying new debt, bonds, dividends or other distributions or profits from Venezuelan government-controlled entities and its state oil company, Petroleos de Venezuela (PDVSA). This followed December 2014 sanctions imposed by the U.S., aimed at preventing U.S. entry by persons involved in the erosion of human rights guarantees, political persecution and public corruption. These sanctions do not target the people or the economy of Venezuela; they are aimed at protecting the will of Venezuelans and preventing U.S. involvement with the corruption of the Maduro regime.

Maduro responded to these sanctions by implementing strategies to free the oil-centered economy from the U.S. dollar, despite its universality in global trade. In September 2017, Maduro ceased publishing Venezuelan crude oil market prices in U.S. dollars, instead publishing prices in Chinese yuan. His December 2017 announcement to implement the oil-backed cryptocurrency was in direct response to the August 2017 sanctions, stating that Petro could “help defeat the financial blockade.”

Cryptocurrency is decentralized, uncontrolled by banks or governments. It can benefit those living in politically unstable regions, because the government can neither control its value nor transfer it from state to state. In Venezuela’s case, the cryptocurrency will be backed by oil, an industry largely controlled by dictators. Because Petro is a cryptocurrency, it is difficult for the U.S. government to regulate, threatening the U.S. sanctions that prohibit investing in PDVSA.

Petro is one of many foreign exchange (FX) mechanisms introduced by Venezuela. Most of the FX failed to meet market demand for dollars, resulting in Venezuela’s robust black market. Although FX is prohibited on the black market, it is the driving force of hyperinflation. Continuously on the rise, one U.S. dollar is now equivalent to 9.9875 Venezuelan bolívar.

The U.S. addressed Venezuela’s oil-backed cryptocurrency in a letter by senators Marco Rubio and Bob Menendez to the U.S. Department of the Treasury, stating “we are concerned that a cryptocurrency could provide Maduro a mechanism by which to make payments to foreign lenders and bondholders in the United States, actions that would clearly thwart the intent of U.S.-imposed sanctions.”

In early February 2018, U.S. Secretary of State Rex Tillerson toured Latin America and the Caribbean. Afterward, Tillerson alluded to U.S. considerations of restricting oil sales from Venezuela due to its worsening political situation. Developments in trade sanctions are imminent as the U.S. cracks down on Venezuela’s oil-backed cryptocurrency.

In opposition to the Maduro regime, the Venezuelan Parliament stated that Petro’s creation only serves to “evade financial sanctions, [and is] openly violating the Constitution and legitimizing illicit transactions.”

As the U.S. cracks down on Venezuela’s oil-backed cryptocurrency, the government aims to combat the use of Petro to circumvent U.S. sanctions, prohibiting investors on U.S. soil from profiting or investing in the PDVSA, the driving source of Venezuela’s poverty and humanity crisis. These policies and sanctions will be heavily enforced in the face of Petro’s introduction to the market and will serve to reject the political corruption and economic failure to its people of the Maduro regime.

– Alex Galante

Photo: Flickr