Crisis besets Venezuela: A failing regime?

Crisis besets Venezuela: A failing regime?

Economic downturn, trading tensions with the USA, and international sanctions have all begun to play a role in the destruction of the Maduro regime. The possible results of this are civil unrest, economic collapse and ultimately, a failed state. 

Economic turmoil and international intervention continues to strain the relationship between the government and the people in Venezuela. The nation is still learning to live in a regime of orphaned populism under President Nicolás Maduro, the successor to former President Hugo Chávez. The socialist system Chávez created has allowed for Maduro to keep a grip on Venezuelan politics, economics and foreign policy. Maduro has used his state’s rich resources to further his authoritarianism by creating an inner circle established by patronage power on revenues from national industries, complicating international trade. Additionally, Maduro has been rumoured to have embezzled billions from his people, and to be abusing human rights in Venezuela. This continues to place further  strain on relations with Western governments. These difficulties are complicated by the USA’s involvement in the region and its latest series of sanctions to oust the President. These factors combine to create a complex picture, and suggest significant difficulties for the regime.

Economic Decline in a Socialist State

Despite the nationalisation of the oil industry in Venezuela, production and revenue from the industry has since begun to dry up, forecasting an uncertain economic future for the state. Under the Chávez government, industries such as oil production were brought under public ownership as a way to reverse the neo-liberal policies of Carlos Andres Perez and Rafael Cadera. Chávez’s policies aimed to reduce wealth inequality, but instead produced, and continue to produce, widespread economic problems. The PDVSA (Petroleos de Venezuela S.A) has seen its revenue and production further decline under the Maduro government. In 2013 the company produced 3 million barrels per day (b/d), and had the refining capacity of 1.2m b/d. In 2015, this decreased to 2.7mn b/d produced. Since 2015, PDVSA has not released its figures. To combat these declining figures, The Homeland Plan Act set out a push to put production up to 6m b/d and the refinement at 1.8m b/d. There does not seem to be any evidence to prove that the organisation reached this goal. 

In addition to the mis-management, widespread corruption within the industry further places the blame of economic strife on Maduro. The case in Venezuela represents a textbook example of the Oil Curse. This is the belief that there is a complex set of political and economic dysfunctions that afflict many oil producing countries across the world. It is often corruption and clientelism that has developed in the state because of an oil-focused economy.

If Venezuela is unable to reverse this general decline in production, it is likely that economic inequality will create a greater gulf in Venezuelan society. The lower class citizens will become agitated by the inequalities and rise in living costs that are associated with a declining state economy. Since the re-election of Maduro in 2019 it has been estimated that  40 people have been killed and 850 people jailed from such anti-Maduro demonstrations. This displays a pre-existent and growing discontent within the Venezuelan population. As the claims of the protestors get stronger and more universal as a result of falling oil revenues, the legitimacy of the current government is increasingly thrown into uncertainty.

Sanctions and its accompanying coup

The controversial win of Maduro was the impetus for a fresh round of US sanctions on oil production. President Donald Trump has held a hostile stance towards the Venezuelan and there is growing evidence that these sanctions are part of a wider attempt to oust the president. The recent coup – Operation Gideon – is the latest example of a wider attempt by the US to install the percieved legitimate President, Juan Guaido to take office and begin a new dialogue with the US. The US currently does not recognise Maduro’s presidency and instead see Juan Guaido as the interim President. The US considers the Venezuelan National Assembly, which Guaido leads, to be the only legitimate federal institution. 

The sanctions placed on the PDVSA, central bank and senior officials of Maduro’s inner circle, have led to the accounts of Maduro and his family being frozen. The struggling Venezuelan economy has allowed Trump’s administration to utilise sanctions like the freezing of Venezuelan assets in the USA. These are affecting the Venezuelan trading revenues as intended by preventing the PDVSA from being paid for its exports to the US. The lack of revenue from the US to the nationally owned industry has resulted in Venezuela defaulting on $60 billion of sovereign and corporate debt.

Naturally, Maduro has attempted to blame the “US’s Imperialism” for the ills in Venezuela. It is clear however, that these sanctions do further hamper the Venezuelan economy for two reasons. Firstly, the sanctions themselves damage the way Maduro governs. The assets are required for Maduro to buy off his citizens and military, as opposed to facing democracy; by utilising oil rents to finance public spending, Maduro can temporarily improve the status of an individual’s finances to a long term detriment. Additionally, the military is made loyal through growth in pay and bonus packages to make the regime profitable for them.  Secondly, as the US is one of Venezuela’s largest trading partners, the declining oil revenue accounts for a possible $3.2 billion dollars worth of bilateral trade lost to the Venezuelan economy.  

Rising government backed illicit trade and hyperinflation 

Crippled refineries and sanctions have increased discontent among a weary and already disgruntled population, paving the way for a possible coup.  The ground has opened up beneath Maduro and he is beginning to slip.

The crushing sanctions led by the USA, have bitten into Maduro’s revenue causing defaults on loans, making it more difficult for Maduro to support his regime. A dwindling economy that is reliant on illicit trade and being attacked by sanctions is at risk of collapse, inflation is currently positioned at 2358.50% and the GDP decreasing from $9092 in 2016 to $2427 so far in 2020, with the forecast predicting further decline. This could inevitably cause civil unrest within Venezuela due to the cost to its citizens. The cost of groceries are rising rapidly from hyperinflation, making food staples highly expensive, with milk retailing at a quarter a month’s pay for those on minimum wage. With assets being frozen, Maduro has had to locate illegal, unsustainable  revenue streams which may jeopardise his citizens in the future, as well as contributing to their claims of poor governance. 

Instead, the regime looks to be funding itself on gold mining, money laundering and narcotics; ultimately unsustainable and internationally condemned forms of revenue that hamper Venezuela’s trading relationships. This has been difficult for the US government to sanction against effectively and has led to Maduro maintaining a small grip on power in Venezuela, as he can continue to pay for the military’s loyalty. 

Risk Developments

The dangerous mix of falling economy, continuing US sanctions and Maduro’s poor responses are creating a storm within the region. The dwindling economy that could plausibly collapse leading to protests and civil unrest within Venezuela. This civil unrest will likely culminate with the ousting of Maduro from Caracas because of the sanctions being attached to his presidency and the illicit trade that the regime has undertaken since the beginning of the sanctions. This would restore faith in the Venezuelan government for the USA as they already have trust in Guaido. 

The youth of the regime means the reliance on the citizens faith in the government is key to its survival. Therefore, continuing strife looks set to increase the ongoing exodus of people leaving Venezuela. Some 5.1 million people are estimated to have fled the state; these figures will only increase as the situation worsens, putting pressure on the region more widely. It is plausible that we are watching the beginning of a fragile state becoming a failed state in the making. A loss of economic power, societal control and growing international pressure will surely create a lot of pressure onto the Maduro regime.

Categories: Economics, Latin America

About Author

James Vickery

James specializes in political developments relating to nationalism and populism throughout different regions of the world. He recently finished studying for his MA in International Relations from Aberystwyth University, where his research focused on populism in Latin America and North America. James obtained a Bachelor’s in Political Studies from Aberystwyth University, with his studies focusing on human rights, security, and political theory. James is interested in the geopolitical developments in Latin America as well as sub-state nationalism in Europe.