- The anti-government protest in eastern Caracas 13 March ended in clashes with Venezuelan police. Three more died in widespread protests. BBC
As protests continue against Venezuela’s faltering “oil revolution,” the political strategy of the chavista administration is striking for its intransigence. President Maduro has refused to recognize any grievances by students or other protesters. He calls protesters “fascists” and blames them for all the ills of the economy. Protests are attacked by the national guard and often by state-organized paramilitary gangs on motorcycles who are praised by the president.
The administration’s strategy so far appears to be that protests will burn themselves out if they can be delegitimized and contained within middle-class areas. Accordingly, the president’s rhetoric aims at inciting poorer citizens against protesters. All in all, this is a risky strategy. Protests have constantly intensified, with perhaps 25 persons dead now.
After a month of protests, the administration has taken urgent economic measures it hopes will undermine the protests and prevent their spread to poor and working-class barrios.
1. Ramirez announces Chinese and Russian loans and the launch of a very liberal Sicad 2
On 8 March, Raphael Ramirez, VP for Economy and President of PDVSA, announced that he had flown to China and Russia where he had secured extraordinary oil-linked loans totaling $7b. (Here is a video of the announcement, in Spanish, posted by El Mundo on 8 March 2014).
In China’s case, its $5 billion loan is to be repayed with oil exports, and in Russia’s case, its $2 billion loan is said to be for development of a joint Russian-PDVSA Faja oil field.
Then came a second announcement by Ramirez that the government was opening the new dollar market, Sicad 2, which it promised to do for almost a year–since shortly after Hugo Chavez died. He promised it would have very liberal rules, quite different from the Chavez legacy. According to Ramirez:
The state won’t impose restrictions on trading in the so-called Sicad 2 market … “There will be no pre-set band or rate, it will be a market with a free supply of foreign currency,” and “We will also supply currency to help the market flow.” (Bloomberg, 8Mar14)
The government had delayed this market for lack of dollars to offer. The new Chinese and Russian loans have finally allowed it to act. However, another reason it was delayed for so long appears to be insufficient consensus between chavismo’s factions on how liberal a policy should be adopted. The policy now announced, if honestly implemented, is clearly a blow to the old commandist economic policies of Hugo Chavez and his long-time economic mentor, Jorge Giordan
In any case, getting these oil-backed loans from abroad, and pushing inside the government for a more market-oriented policy were made urgent by the growing protest movement.
2: Maduro institutes a food rationing system
Then came the second of the administration’s economic measures to cope with unrest: President Maduro announced on 10 March a national food rationing card (see here
), using citizen’s identity cards to limit shopping frequency. While this is a system to merely manage scarcity, it was presented as a way to prevent the supposed “sabotage” of the economy and “hoarding” orchestrated by the “oligarchy” that the state says is the real cause of shortages.
Two reasons Beijing reversed its previous refusal to float Sicad 2
In September 2013, Beijing flatly refused to extend cash to the Maduro administration to float Sicad 2. Chinese officials reportedly had refused to even watch the Powerpoint pitch that Maduro and Ramirez had prepared (see my post
). But, now Ramirez suddenly has a new $5 billion loan from Beijing. Has the Maduro administration finally proven to Beijing’s satisfaction that it is financially competent?
In the first place, Beijing rationally has concerns that protests could get out of control. So, it agreed, but under the rubric of the Fondo Chino, which must be repaid with PDVSA oil deliveries. This is more restrictive than what Maduro and Ramirez asked for in September 2013.
(Aside: A similar fear that things could get out of control explains Mr. Putin’s sudden $2 billion loan in the middle of his occupation of the Crimea and right after an announcement by Russia that it intends to build military bases in Venezuela. I was quoted on the Russian base issue by Fox News Latino
. More on Russia and Venezuela another time.)
But, there is likely another factor.
Beijing has made strong demands upon chavismo in the past few years to improve its financial transparency, discipline and accountability. (See my posts on China’s frustration
s.) Beijing was likely pleased with the new more-liberal version of Sicad 2, quite different from what had been discussed last year, and from previous institutions formed under Chavez, called “Cadivi” and “Sicad I. This time, the price paid for dollars is supposed to float.
Just to clarify: Ramirez said both of the old institutions will continue. Cadivi will still offer subsidized dollars at 6.3 bolivar/dollar, and Sicad 1 at 11.8 b/d. Businesses importing certain vital necessities and others the state approves will still get these rates.
Of course, nothing implemented by chavismo is ever free from caveats and bureaucratic distortions. See M. Octavio, a Caracas trader, on the complex and non-transparent details of Sicad 2
. Still, at the minimum, this amounts to a significant de facto devaluation of the bolivar. As veteran Venezuelan economist, Francisco Rodriquez (Bank of America) sees it:
“This is positive because the government is devaluing the currency,” … “If the government is effectively channeling dollars that were previously used in the Cadivi or Sicad 1 systems and selling them at a higher rate, this would allow it to reduce its budget deficit and they would have to print less money.” (Bloomberg, 8mar14
It is not clear if these liberal characteristics of Sicad 2 were demands insisted upon by China, or if they come mainly at the initiative of the Maduro-Cabell0-Ramirez administration. Either way, they indicate that the demonstrations have finally begun to incentivize Maduro and Ramirez to push aside financial policies represented by Giordiani and other chavista hardliners.
Further indication in this direction are recent rumors in Caracas that Ramirez might soon step aside as PDVSA president, in order, it was being said, to focus on his new work as VP for Economy which requires putting all his efforts into the internal factional struggle against the Giordani hardliners.
Why would Beijing care about chavismo’s predicament?
This is not to say that if the opposition were to come to power it would be anti-China. The realities of the global oil market, of increased oil production in the USA and Canada, etc., guarantee that China and East Asia will increasingly be Venezuela’s oil trading partners, no matter who is in power.
However, if things got too rapidly out of control in Venezuela, there is little confidence that either Chavismo or the opposition could soon stabilize the county or the oil sector. This would be problematic for China’s loans and investments in Venezuela, and for its investments in building refineries and other infrastructure inside China as it moves towards substantial
horizontal vertical integration with Venezuela’s oil sector. [Corrected 28 Mar 14]
Are matters getting out of Maduro’s control?
The government’s plan depends on keeping demonstrations isolated to middle-class areas. However, many of the youth protesters demonstrating in middle-class areas of Caracas and other cities are actually impoverished youth from barrios who dare not protest openly in their own neighborhoods. There, the pro-chavista paramilitaries (so-called “collectivos”) patrol, enforcing allegiance to chavismo. The Tupamaros, of the high-rise 23 Enero barrio, are a prime example. In fact, they controlled this area long before Chavez was on the scene.
In many middle-class areas residents give students shelter in their apartment buildings when such paramilitary gangs attack. So too, contacts have told me that local police forces in middle-class municipal boroughs (alcaldias) tend to protect students from national guardsmen and paramilitaries. These indicate dangerous confrontations, obviously of an armed nature, can easily take place, between different police forces, as seen in the killing of a state intelligence police officer by Chacao municipality police on 11 March. (See: 12mar14, Caracas Chronicles), and in other incidents.
It has become clear that there are protests taking place also in barrios of the capital, where youth have set up barricades on a hit-and-run basis, residents have banged pots in concert during evenings to protest of government policies (cacerolazos), and at times more open protest actions occur. Though, indeed, the reports of relative calm there as compared to middle class areas are still generally accurate.
It remains to be seen if the new Sicad 2 market and the rationing cards will significantly reverse the lack of imports and widespread shortages of food and other goods. Clearly, a floating value for dollars cuts the government costs for subsidizing dollars. And, while any rationing card might be resented, it also might reduce the lucrative resale of low-cost subsidized Venezuelan goods abroad–especially to Colombia–which has contributed to shortages.
Nevertheless, the fundamentally unproductive character of the economy, both the non-oil sector, and the highly inefficient oil sector, is not being addressed, and life for Venezuelans in both middle-class and barrio areas will remain very difficult and complex.
These economic measures may be far too little, too late. In which case, the chavista administration’s strategy of intensifying repression and waiting for demonstrations to burn out in isolation from barrios, may well backfire.