Venezuela is on the brink of bankruptcy. For decades, Venezuelans enjoyed unparalleled prosperity through their vast oil reserves, which are supposedly some of the largest in the world. But for the foreseeable future, that time has come to an end. Inflation has skyrocketed; the bolivar is useless. Venezuelans face a loss of basic services and scarcities of food and medicine. The government has responded to unrest with force and President Nicolas Maduro has consolidated his power.
Venezuela needs help, and in the short term that should mean shipments of aid to alleviate the massive shortages from which millions are suffering. In the long term, Venezuela needs vast political and economic reform to help recover from the circumstances that allowed the crisis to begin.
To make that happen, U.S. economic sanctions will likely bring Maduro’s government to heel and make the petroleum industry more receptive to American-led revitalization. Perhaps then the United States and Venezuela can move toward diversification of the national economy so as to help prevent another enormous recession and erosion of political legitimacy.
Since oil prices plummeted in 2014, former President Hugo Chavez’s successor, President Maduro, has struggled to maintain Venezuela’s prosperity as Chavez defined it: a powerful state to spread the wealth of oil. Ninety five percent of export revenue comes from oil. The Chicago Tribune reported Venezuela’s economy has shrunk “by about 35 percent since 2014 — more than the U.S. economy did during the Great Depression.” In August, President Trump issued an executive order forbidding American companies from doing business with the Venezuelan government, or its state-run petroleum corporation, with the supposed aim of halting Maduro’s “dictatorship.” The state oil corporation’s wealth channels directly to the central government, and so by attacking it, the goal is to weaken Maduro.
Earlier this week, Argentina’s president, Mauricio Macri, urged the United States to issue an embargo on all Venezuelan oil, thereby crippling the Maduro government. In turn, Maduro has accused the United States of trying to force Venezuela into bankruptcy. He has proven himself paranoid and power-hungry, and hopes to present the outside U.S.-led world as hostile to Venezuelan sovereignty. He wants to rally his people to his defense by suggesting Venezuela can stand up to the world, but time will prove this to be false. The economies of the U.S. and Venezuela are closely intertwined.
The United States is the single largest largest trading partner Venezuela has in terms of cash. Unlike other large trading partners, such as Russia and China, U.S. importers pay “oil import invoices in full and on time,” according to a Forbes story this July. Venezuela thus depends on the United States for nearly all its cash.
The sanctions currently in place make it very difficult for the state oil corporation to function properly. Russia has extended credit in exchange for oil, and Maduro has leaned heavily on this to stave off default. But this is only a short term solution. Russia lacks the economic heft to change the game for Venezuela. Reforms clearly must come, and the United States can help make them happen.
A specific target of recent sanctions is Simon Zerpa, the finance vice president of PDVSA. He is a firm friend of Chinese investors, so much so that he is known in the media as “Zerpa the Chinese.” The U.S. Treasury Department has expressly forbidden American companies from working with him, and for good reason. He is a fine example of the Chavez era of enthusiastic socialists who can tow the party line but are nevertheless ill-qualified for the positions they are gifted. It’s a system that has thus run itself into the ground and begs new management.
The old Venezuelan prosperity of Hugo Chavez’s revolution is not likely to come back. It was built on promises, and infrastructure languished for years before the 2014 downturn revealed the revolution’s inherent lie. Oil can’t simply subsidize social welfare programs. Venezuela needs economic diversification, and should abandon the pretense of socialist haven. It needn’t function as an ideological opponent of its largest trading partner, the United States, as it has for several decades.That is the problem facing the president at the moment.
Maduro already has a delicate hold on power, despite his attempts to circumvent the National Assembly, the chief lawmaking body in Venezuela, which has similar powers and dignity to the U.S. Congress. Much of the nation is in revolt against his policies. They may not warmly regard American interference as a rule, but it’s quite possible that the National Assembly would be receptive to U.S. aid and advisors to restructure the oil industry.
Maduro’s government must be brought to account for its excesses, and the Venezuelan people need an opportunity to elect a new president. We can’t topple a banana republic like the supposed good old days, but we can continue to put pressure on Maduro to allow the reforms that Venezuela so desperately needs.