Government shakeup won’t improve Venezuela’s investment climate
The reshuffling of Venezuela’s executive branch was meant to boost President Maduro’s popularity and increase confidence in the United Socialist Party’s economic policies. However, the reshuffle does not incorporate impartial and moderate economists, which makes substantial change to the Venezuelan investment climate improbable.
Venezuela keeps sinking. In late August, the state-owned oil company (PDVSA) leaked that it is contemplating importing light crude oil for the first time ever (from Algeria) as a blending stock to boost sales of its own extra heavy oil.
Well aware of Venezuela’s slipping oil productivity and barrage of negative international publicity, President Nicolas Maduro announced a major cabinet reshuffle and change in the organizational structure of the executive branch. Maduro justified the change as an “eco-socialist” revolution, thus deepening the Bolivarian revolutionary movement initiated by the late former President Hugo Chavez more than a decade ago.
The changes to the élite levels of the executive branch are pervasive: most ministers have been moved, demoted, or sacked, and ministries have been clumped together into six vice-presidencies working under five revolutionary axes. One of these vice-presidential pillars focuses strictly on the economy.
The most notable cabinet change is the demotion of Rafael Ramirez, an élite Chavez confidante in charge of Venezuelan oil since 2004. Ramirez will be replaced by Stanford-educated Eulogio del Pino, a Ramirez ally and fellow moderate Chavista. Although del Pino is a Chavez supporter, he can be classified as an educated technocrat, favoring the status quo. The Chavez bloodline is also back in power. The next oil minister will be Asdrubal Chavez, cousin of President Chavez.
The underlying motivation driving Maduro’s organizational change, however, is to revive the economy through socialist policy prescriptions. This pragmatic “shake up” aims to boost confidence in Maduro and the ruling socialist party as well as reward strong factions impatient with Maduro’s performance. Indeed, some of the changes in the organizational structure of the executive branch are positive and in line with Venezuela’s social reality.
For example, the creation of a consolidated vice-presidency dedicated to science and technology promotion and another vice-presidency for security and food sovereignty will directly address two major problems for Venezuela’s economy—basic food shortages and massive emigration of high skilled talent. Yet it seems unlikely that the creation of six new vice-presidencies and demotion of oil strongman Ramirez will fix Venezuela’s economic woes and create investment confidence.
To start, Maduro did not bring independent-minded economists to his cabinet team. Rather, in a move resembling the musical chairs game, he appointed other elite, hardcore Chavistas to top posts across all the newly formed vice-presidential pillars. While investors were expecting fresh, educated, reform-friendly faces in the Maduro reshuffle, they now have to negotiate with staunch Chavistas with unreliable track records.
With Ramirez as head of PDVSA, foreign investors knew what to expect—although corrupt, he was ideologically moderate and had been in the same position for 10 years, creating a sense of stability. Gauging from Maduro’s choices, he is more concerned with keeping Chavista, technocratic, and Bolivarian military factions satisfied than regaining investor confidence in PDVSA and the Venezuelan economy.
Moving on to the end of this traumatic 2014, investors may be no less concerned that Maduro shied away from choosing moderate economists to cabinet positions and newly formed vice-presidencies. The probability of adopting economic reforms and partial liberalization, e.g., reducing oil subsidies, is now extremely low. Maduro’s rhetoric and personnel selection indicates that he will continue with the current economic trajectory, which depends on unsustainably high oil and transport subsidies.
Venezuela is considered the most corrupt country in Latin America. With all of Maduro’s recent rhetoric about better governance, it is surprising that he did not emphasize the need to curb corruption and increase bureaucratic effectiveness. It is problematic that these very crippling issues were absent from his organizational reforms. Maduro continues to ignore Venezuela’s need of apolitical economic adjustment measures. This latest set of moves is a further move to the political left and an attempt to politicize the executive branch, de jure.
For the rest of Maduro’s presidential term, investors should not expect that he will meet the opposition movement halfway on economic reforms. Based on their track records and political alliances, this new cabinet team, like the last, is not feeling the economic crunch that non-subsidized middle class Venezuelan households are feeling at the moment.
