Venezuela: How could such a rich country become so poor (Part II)

Thursday March 21 2019

By LUIS FRANCESCHI
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In 1950, Venezuela was the world's fourth-wealthiest nation per capita. Today, this same country has by far the highest misery index score. The minimum salary is just below $6 per month and a loaf of bread goes for $3, if at all found. No food is being produced, farms have been abandoned, factories have closed and services have collapsed.

What caused such a mess? Why such hyperinflation? Why was the currency so badly devalued? Then President Hugo Chavez had nationalised the oil business; he had full control of PDVSA, one of the biggest and most successful oil companies in the world.

Mr Chavez also nationalised the biggest mineral corporations. This is not a small feat. Venezuela has the largest oil reserves in the world, with a lifeline to export oil for 300 years without fail.

Apart from oil, Venezuela is one of the biggest producers of coal, bauxite (with reserves of more than 5 million tons), iron ore and gold, with the second-highest gold reserves in the world.

Venezuela also owns around 50,000 tons of untapped uranium reserves, and there are fears of an undeclared Iranian presence in such mines…not to mention the public presence of Russia and China in the gold, bauxite, coal and diamond mines.

Mr Chavez also expropriated banks, food factories, land, buildings, farms… Additionally, he had full control of the Supreme Court (which in 18 years has never issued any firm decision against the socialist government), the electoral commission, the Office of the Public Prosecutor and Parliament, until 2015 when his successor President Nicolás Maduro lost the House to a united opposition. Communism had failed in Russia, Cuba, Vietnam, Eastern Europe… These countries had promised to deliver happiness at a price they could not afford. This botched dream turned their governments into repressive systems where lies dominated the mass media; where every failure, every theft and every death would find justification in the promise of a better future.

The same should not happen to Venezuela. Chavez knew he was different; he had everything in his favour! He was one of the most charismatic leaders in modern politics. He had a monopoly on power and his decisions went unchallenged. He had a never-ending God-given income. He could afford an expensive type of socialism, something never seen before in world history. With such a fortune at his disposal and less than 30 million inhabitants under his care, he was almighty.

Though he was not particularly handsome, his nerve and tough talk would make his followers fall into ecstasy. Mr Chavez called his governance model ''the 21st century socialism''. In his mind, his plan was perfect. He has a gross income higher than Iran, New Zealand, Hong Kong, Hungary, Singapore, Kuwait, Malaysia, Qatar, Egypt or Luxembourg.

Some thought he was a passing cloud, an empty-headed revolutionary. They were wrong. He was shrewd; he knew how to control and manipulate the crowds. He had a plan and went ahead to colonise all possible institutional checks and balances.

At some point, Venezuela was grossing around $109.5 billion (Sh10.95 trillion) per year just from oil, without including any other form of trade like gold, aluminium, iron or any other commodity.

Just compare this to Kenya’s 2018-2019 budget. We predicted a revenue of Sh2.9 trillion, where Sh1.9 trillion is to be raised from taxes and the rest (Sh1 trillion) is supposed to be raised from domestic and external borrowing, including international loans.

What went wrong and why? We could produce a litany of mishaps in the conceptualisation of Mr Chavez’ economic, social and governance model. But there are three outstanding factors. First, nepotism coupled with a deep disdain for competence or knowledge. Second, a dysfunctional and unsustainable economic model, and third, the rejection of the rule of law as an essential pillar of democracy.

NEPOTISM

At the sunrise of Mr Chavez’ revolution there were some brilliant minds committed to excellence. As years went by, and particularly after an attempted coup, these brilliant minds were systematically replaced by the president’s relatives, close friends and in-laws, regardless of their professional experience and ethical standards.

This is how Mr Jorge Arreaza, son-in-law of Hugo Chavez, became the current Foreign Affairs Minister, and Maria Gabriela Chavez (Chavez’ daughter) was appointed ambassador of Venezuela to the United Nations. One of Maduro’s in-laws is the president of the National Social Security; and Maduro’s son (Nicolasito) became a Member of Parliament and head of the ‘sistema’, a beautiful world-renowned musical programme that turned several million children into professional musicians. The 'sistema' is now dead. It turned out that Nicolasito had never studied music or music management and cannot play any instrument.

Ms Delcy Rodriguez, current vice-president in Maduro’s government and former Minister of Foreign Affairs, has a brother, Mr Jorge Rodriguez, who was vice-president before her, and who is now the Minister for Communications.

The wife of Mr Diosdado Cabello, the strongest man behind Mr Maduro, is the Minister for Public Works, and before that she was the Minister for Tourism. Diosdado’s brother was the head of the revenue authority, Minister for Industry, head of Caracas’ airport and president of the practically defunct national air carrier. There are many more examples, and sadly, none of these people hold the best credentials for such positions.

DYSFUNCTIONAL ECONOMIC MODEL

Mr Chavez did not need the private sector, so he choked it out of existence. The government could produce or import. Eventually, the government did not produce; all those expropriated factories and farms were abandoned, burnt or grabbed. All parastatals became a liability and corruption rocketed to the moon. The ransacking had begun. It created a new class, the ‘boli-bourgeoisie’ (boli for Mr Chavez’ Bolivarian revolution, named so after the independence 18th century hero, Simón Bolívar).

The government had enough money to import, but corruption, greed and gluttony ate everybody’s food and when oil prices collapsed government imports stalled. Hunger struck!

The wrong approach to currency exchange controls created a huge liquidity problem. The government did what it used to do in the bonanza days and it printed money. The more it printed, the more the inflation became, until things went out of hand. It is forecasted that inflation in 2019 will reach 10 million percent.

The biggest drama is that the government is in denial, and it does not allow the importation or donation of food and medicine. The result is disastrous: famine, death and total collapse of services, including water and electricity.

REJECTION OF THE RULE OF LAW

During a conference in Europe, I met a high-ranking Venezuelan judge. After a few beers, he confided to me, ''we have to call the presidential palace and ask for instructions before deciding any political case''. The result is clear; the government loses no case in Venezuela. In 2017, the Supreme Court declared Parliament and all its resolutions since 2015 null and void (when the opposition won Parliament by a clear two-thirds majority). Later the Supreme Court suspended its decision, but recently reaffirmed it.

The same happens at all levels of jurisdiction; there are more than 890 political prisoners in Venezuela, not counting some 1,000 army officers. After all, justice is on sale.

How can this nightmare end? Can Mr Maduro put things back together? Who is Juan Gerardo Guaidó and where did he come from? Is he a self-proclaimed lunatic? A true president or a puppet of the West?

To be continued.

Dr Luis Franceschi, Dean – Strathmore Law School, [email protected]