Report on the Venezuelan Crisis
“Injustice anywhere is a threat to justice everywhere.” – Martin Luther King
This essay represents a snapshot of my own understanding of the Venezuelan crisis. It started as a very limited effort to better educate myself in order to write my representatives and argue against a U.S. military invasion of Venezuela, however I soon uncovered far more than I had anticipated when I began, and furthermore discovered that most of this information flatly contradicted what we are reading in the mainstream press and hearing from most politicians. All of the opinions expressed are my own and they are based upon reading the references provided for the reader in this report.
Venezuela has the largest proven reserves of oil on the planet, as well as enormous reserves of natural gas, gold, diamonds, iron ore, and bauxite: the source of aluminum. About 98% of the Venezuela’s income is from oil. The oil industry was nationalized into the state company PDVSA in 1976, long before Chávez was elected.
To obtain a better understanding of the perspective of the poor and disenfranchised in Venezuela before and after Chávez was elected in 1998, I highly recommend reading “Cowboy in Caracas: a North American’s Memoir of Venezuela’s Democratic Revolution” by Charles Hardy.
To obtain a better understanding of Venezuelan politics from a source independent of the corporate media, I recommend the site: https://venezuelananalysis.com
I. Venezuela has been the target of economic warfare
Venezuela has been struggling to survive under the burden of economic warfare that has been waged against it ever since the beginning of the Chávez regime in 1999, and very intensively waged since 2012. After Guaidó illegally declared himself president Venezuela has also been suffering under sanctions as the United States and its allies attempt to completely shut down a 30 billion dollar economy and literally starve the population into submission. As I write something similar to the Berlin Airlift appears to be taking form, with Russia recently delivering 300 tons of humanitarian aid to the Caracas airport. Perhaps we should call it the “Caracas Airlift.”
It is not possible to pass judgment on the efficacy of the economic policies of any government that is the target of economic warfare. This is because the usual rules of macroeconomics that would form the basis of informed government policy are simply no longer applicable.
A report outlining the economic warfare waged against Venezuela was presented by independent expert Alfred de Zayas to the 39th session of the U.N. Human Rights Council during September 2018. This report describes the regular practice of planned shortages, hoarding, exchange rate manipulation to induce inflation, and the unfair assessment of lending risk to create the false impression that the economic policies of the government must be failing. De Zayas emphasizes that all of these means violate the U.N. Charter, which strictly prohibits political coercion of a country by economic means. https://chicagoalbasolidarity.wordpress.com/2018/08/30/just-released-official-un-report-on-venezuela-by-alfred-de-zayas/
The mainstream media and many politicians in the United States have supported the economic war waged upon Venezuela by simply refusing to acknowledge that it even exists, then choosing instead to blame Venezuela’s concomitant economic difficulties on mismanagement by the government.
De Zayas communicated extensively with Venezuelan economics professor Pasqualina Curcio Curcio who wrote the book “The Visible Hand of the Market: Economic Warfare in Venezuela.” This book is available online and in English and it is written in a pedagogical style that makes her arguments accessible to the layperson; it provides the reference for the remainder of this section: http://www.15yultimo.com/wp-content/uploads/2017/03/THE-VISIBLE-HAND-OF-THE-MARKET.-ECONOMIC-WARFARE-IN-VENEZUELA.-PASQUALINA-CURCIO-C.pdf
The economic war against Venezuela is conducted largely by proxy using transnational companies that operate in Venezuela or banks that extend credit to Venezuela. The three most important tools used for economic warfare against Venezuela, listed in order of their importance, are manipulation of the foreign exchange rate to induce inflation, planned shortages, and the assessment of country-risk by financial institutions. The drop in oil prices, often touted in the press as the primary factor for the collapse of the Venezuelan economy, is believed by Prof. Curcio to be of marginal importance compared to the three tools of economic warfare listed above.
Venezuela is very vulnerable to economic warfare. Imports represent 35% of the economy, and foreign exchange is only provided to 3% of the economic entities in Venezuela to manage these imports. This invites oligopolies and monopolies of large transnational companies to fix the prices of imported goods. The dependence of Venezuela’s economy on oil to acquire foreign currency also makes Venezuelans very vulnerable to the recent sanctions on oil.
A. Planned shortages
In Venezuela there are frequently shortages in retail stores for food staples, medicines, toiletries, and household products. There have also been shortages of spare parts for cars. These shortages require people to stand in long lines, or to search through many stores to find what they need, or to buy the item at a greatly inflated price on the black market. The shortages generally spike during important elections and at other times of political tension.
The food items that experience shortages share several noteworthy characteristics: they are high-consumption and indispensable items in the Venezuelan diet and culture, the production and distribution of these products is in the hands of a small number of businesses, and the items are non-perishable and easily stored for long periods of time. Examples of foods that experience shortages are pre-cooked corn flour, rice, pasta, coffee, and black beans. Examples of foods that do not experience shortages are locally grown fruits such as plantains and guavas, and meat products that are expensive to preserve such as chicken and beef.
Opposition parties and the corporate media argue that shortages occur because the government has not supplied sufficient foreign exchange to private companies for them to import the required goods and parts that are not produced in Venezuela. This causes a lack of supply and a drop in production which both induce the high shortages and inflation in Venezuela. Hence – their argument goes – shortages and inflation demonstrate that the socialist government is a failed model that is incapable of taking appropriate action to bring an end to the economic crisis.
Professor Curcio demonstrates in her book that examination of the economic data easily refutes this argument. For a shortage to exist, there must either be an expansion in demand or, if the demand has not increased, a contraction in supply. The shortages experienced in Venezuela were for basic staples so there has not been an increase in demand, therefore there must have been a contraction in supply. This contraction may come about in several ways: a decrease in imports due to insufficient foreign exchange available to companies (as the opposition has argued), a decrease in production, or a decrease due to a failure in distribution: by hoarding the goods in warehouses instead of putting them on the shelves, or by to smuggling the goods out of the country.
To help select among these possible explanations for the contraction in supply in Venezuela one may compare the economic data from earlier years such as 2004, a year of low shortages (7%), with later years such as 2013 through 2015, when the annual average shortages were severe (>20%).
Shortages have not been caused by insufficient foreign exchange allocated by the government to private companies and shortages were not caused by falling imports. For example, foreign exchange allocated by the government for imports totaled 16 billion dollars in 2004 when shortages were low but doubled to 30.9 billion dollars in 2014 when shortages were severe. Food imports were 2.1 billion dollars in 2004 but had increased to 7.7 billion dollars in 2014. Imports of medicines increased even more dramatically, from 0.6 billion dollars in 2004 to 2.4 billion dollars in 2014.
Shortages have not been caused by a decrease in production. The GDP in 2015, when the level of shortages was 30%, was 34% higher then in 2004, when the level of shortages was 7%. Unemployment has also decreased over this period; that would not be consistent with the picture of businesses and factories shutting down and massive layoffs.
Finally, economic data shows that the consumption of basic staples in Venezuela has actually been flat over this period. The Venezuelans are eventually obtaining the goods, either by waiting in long lines or by paying much higher prices in the black market. Therefore the goods must have been imported or produced. Because Venezuelans are paying higher prices they have had to reallocate more of their household budgets to obtain the indispensable (inelastic) goods such as food, medicine, and hygiene products. Hence there has been much less demand for other more dispensable (elastic) goods and this lack of demand has harmed businesses that import and produce these items.
The Johnson & Johnson Consortium runs several companies in Venezuela and provides a concrete example. These companies provide infant and nutritional formulas, personal care products, and healthcare supplies. Between 2004 and 2011 there were no shortages of these products on the shelves and the consortium received on average 2.8 million per month in foreign exchange. In 2014 the consortium received 11.4 million per month in foreign exchange – four times the amount between 2004 and 2011 – yet there were shortages for all of its products. Furthermore Venezuela experienced great political unrest with violent opposition demonstrations during 2014.
The specific examples mentioned above and in the remainder of this discussion are supported by numerous charts of economic data provided in the book “The Visible Hand of the Market” that reflect general economic trends after 1999 when the Chavez government began. I highly recommend interested readers to review this data for themselves.
B. Induced inflation
The most effective tool of economic warfare against Venezuela has been induced inflation. Economic theory teaches than inflation depends upon liquidity – the amount of money in the marketplace that is available to chase a fixed quantity of goods – and also upon demand. Professor Curcio argues that in Venezuela inflation has no relation to these two variables. Instead, inflation is tied to an exchange rate that is fixed by an illegal parallel or black market. The black market itself is affected by the planned shortages that were described in the previous section.
The value of the black market exchange rate has increased gradually and linearly together with the fixed exchange rate between 1983 and 2012. But beginning in 2012 the black market exchange rate has increased exponentially, with no relation to the fixed government exchange rate. This catastrophic increase in the black market exchange rate is highly abnormal.
Under normal market conditions the exchange rate should be controlled by two variables: the size of international reserves and the liquidity of bolivars in Venezuela. Higher foreign reserves provide a higher supply of dollars and hence a lower exchange rate by the law of supply and demand. But if there are more bolivars in the hands of the public – or a higher liquidity of bolivars – then there is more demand for foreign currency and the exchange rate increases.
Under normal circumstances we would expect an exponential increase in the exchange rate after 2012 to be accompanied by either an accelerated increase in liquidity of bolivars in Venezuela or by an accelerated decrease in international reserves. Neither of these trends is observed. Apparently the mechanism driving up the exchange rate on the black market has no relation to standard macroeconomic principles. What then is actually happening in Venezuela?
When large transnational companies exchange bolivars for dollars from the Venezuelan Central Bank they obtain dollars at a low exchange rate that is fixed by the government. The low exchange rate enjoyed by these companies is an attempt by the government to subsidize costs of imported goods for the population such as food and medicine. These companies pay for overseas goods in dollars, import the goods to Venezuela, and then price the goods in bolivars based not upon the government exchange rate, but instead upon the far higher illegal black market exchange rate. Notably the illegal exchange rate spikes during elections and other events that cause political unrest.
The black market exchange rates used on the books for these companies are published on websites. Perhaps the most infamous website is called “DolarToday”. This site is run by Gustavo Díaz, a hardware salesman who works at a Home Depot store in Hoover, Alabama. Before he obtained asylum in the United States he was in the Venezuelan military and involved in the short-lived 2002 coup that replaced Chavez for two days until the population rose up and rebelled: https://www.wsj.com/articles/venezuelas-nemesis-is-a-screw-salesman-at-a-home-depot- in-alabama-1479672919
The site DolarToday has been sued by the Venezuelan government: https://www.scribd.com/document/286783980/Venezuela-Central-Bank-v-Dolar-Today- USDC-Delaware-23-October-2015?mod=article_inline
This is the manner by which oligopolies of large transnational companies operate as proxies for the economic war against Venezuela. Once the black market exchange rate has been artificially boosted to an exorbitant level – a level with no basis at all in sound economic principles – it affects the entire chain of production. 79% of imported goods are not directly consumed but serve instead as parts or raw materials for production in Venezuela. The increased cost of production produces a contraction in supply of the finished goods which are now offered at much higher prices. This phenomena is known as “aggregate supply shock” and is the origin of induced inflation.
C. Arbitrary assessment of country-risk
Another important weapon of economic war against Venezuela is the international financial blockade. This is a blockade of international credit to both the government and domestic companies, most notably the nationally owned oil company PDVSA. This blockade is not an outright denial of loans to Venezuela: it works by portraying Venezuela unfairly as a credit risk so that interest rates on loans become increasingly costly. When interest rates for credit become too costly for a country to manage the country may need to turn to the International Monetary Fund for low interest loans, but this requires the country to submit to a set of “macroeconomic stabilization” or austerity policies.
Country-risk is an index intended to measure the ability of a country to fulfill its financial commitments. Country-risk is assigned in points: every 100 points increases the interest rate by 1% over the interest rate assigned to a United States Treasury bond. Country-risk is calculated by the following banks: Credit Suisse, Bank of America, J.P. Morgan, Morgan Stanley, and Deutsche Bank. These are private entities that notably hold stock in large companies and in the mass media. The country-risk index assigned to Venezuela is the highest in the world: 2323 at the time of publication of “The Visible Hand of the Market”. The second highest country-risk index was assigned to Ecuador at 745.
The country-risk index would be expected to decrease with a higher compliance on the payment of foreign debt, but for Venezuela, increasing compliance with payments on foreign debt has been associated with an increased country-risk. For the case of Venezuela one might expect the country-risk to be correlated with the price of oil because most of Venezuela’s foreign exchange comes from the sale of oil, but instead the country-risk has shown no correlation with the oil price. There is also no correlation of country-risk with the level of foreign reserves, although we would expect country-risk to decrease with increasing foreign reserves. There is also no correlation between country- risk and production or the GDP.
There is however a strong correlation of country-risk with inflation, and as noted earlier both the black market exchange rate and shortages are highest during elections and other periods of political tension.
II. Maduro is the democratically elected president of Venezuela
It has been repeated ad nauseam in the press and by politicians that the Venezuelan presidential election in May 2018 was a complete sham, however all of the evidence that I have been able to find has demonstrated exactly the opposite. I do not regard a simple statement or accusation by an opposition party member or by the press or by any politician to provide valid evidence about the integrity of an election. However the report of an impartial expert assigned to monitor the election is a different matter entirely.
Elections are normally held in December in Venezuela, but the last presidential election was held early, in May 2018, at the request of the opposition. Two popular opposition party leaders were prohibited from participating in the election: Leopold López and Henrique Capriles. Leopold López was under house arrest for inciting extremely violent protests against the government during 2014 where 43 died: https://www.mintpressnews.com/the-violent-past-of-venezuelan-opposition-leader- leopoldo-lopez/229679/
López leads the party Voluntad Popular, a far right-wing party that was founded by Juan Guaidó. The deadly protest tactics and callous disregard for human life of the Voluntad Popular party have helped to fragment the opposition against the Maduro government. Guaidó himself did not participate in the May 2018 presidential election even though López could not run. Perhaps this is not surprising: 80% of Venezuelans had never even heard of him until January 23 when he declared himself to be President. The phenomena of Guaidó is discussed by Professor Aline Piva in the video at the link below, including other relevant topics to the present crisis such as the circumstances that forced the creation of the Constituent Assembly: https://www.youtube.com/watch?v=mRwrHO4Zi1g
It is worth adding here that although Guaidó was virtually unknown to Venezuelans, he was apparently well known to the United States government. This link discusses the history of Guaidó and discusses how he had been groomed by the United States to implement regime change in Venezuela by a CIA funded group known as CANVAS: https://grayzoneproject.com/2019/01/29/the-making-of-juan-guaido-how-the-us-regime- change-laboratory-created-venezuelas-coup-leader/
Henrique Capriles was involved in a violent attack on the Cuban Embassy during the 2002 coup attempt against Chavez and has also played a central role in organizing violent protests, especially in 2014. He has been charged with corruption for misappropriation of government funds. For these reasons he was prohibited from participating in an election for 15 years: https://www.telesurenglish.net/news/Venezuela-Bans-Capriles-From-Running-for- Office-for-15-Years-20170407-0019.html
If these two opposition leaders – Leopold López and Henrique Capriles – had committed the same crimes in the United States, I cannot imagine that they would have been allowed to run for office in the United States.
In 2012 the Carter Center observed the Venezuelan election where Hugo Chávez defeated Henrique Capriles. President Carter commented that the Venezuelan elections were the “best in the world” out of the 92 elections that the Carter Center had observed. https://www.globalresearch.ca/former-us-president-carter-venezuelan-electoral-system- best-in-the-world/5305779
The opposition to the present government is divided into several political parties. In general the opposition is supported by wealthier Venezuelans while the government is supported by the poor. During the May 2018 presidential election many of the opposition parties including Voluntad Popular boycotted the election. Although an election boycott displays contempt for the democratic process it certainly does not impugn the integrity of an election.
In spite of the boycott, 46% of the registered voters participated in the election. Maduro won the election for a second term as President with 67.8% of the vote or 31.7% of all registered voters. I believe it is worth comparing these numbers to the 2016 presidential election in the United States: Trump won 46% of the vote or 27.3% of all registered voters. The best-known opposition candidate who did participate was Henri Falcon who won 21.0% of the vote.
Impartial observers were invited to the election and about 150 international observers from over 30 different countries and international organizations participated in observing the May elections in Venezuela. These impartial observers pronounced the elections to be clean, fair, and well executed, reflecting the will of the voters. The conclusion of three different groups’ findings on election integrity were presented in this article: https://venezuelanalysis.com/analysis/13849
- Report by the Consejo de Expertos Electorales de Latinoamerica, a group of observers from Latin American countries: ELECTORAL ACCOMPANIMENT MISSION IN THE BOLIVARIAN REPUBLIC OF VENEZUELA.
- Report by the African Mission
- Report by the Caribbean Nation Representatives.
The fact that all three of these reports are highly favorable comes as no surprise following the comments of President Carter in 2012. Based on the links provided above, I am now convinced that the 2018 Venezuelan presidential election was definitely not a “sham”, and that Nicolás Maduro is indeed the democratically elected president of Venezuela.
III. Guaidó is not the legitimate president of Venezuela
Guaidó has been recognized as the president of Venezuela by the United States and many other countries including Brazil, Colombia, Ecuador, Peru, Chile, Spain, Germany, Canada, France, Australia, Israel, and Great Britain. In spite of this grand consensus – and also quite shockingly – Guaidó cannot possibly be the president or the interim president of Venezuela according to the Venezuelan Constitution. The Venezuelan Constitution is posted in English here: https://www.constituteproject.org/constitution/Venezuela_2009.pdf
If the reader chooses only a single reference to review out of all the references listed in this report, please choose this one: the constitution instructs on the replacement of the president in Article 233 (p. 62). These instructions are clear and concise. If the president permanently vacates his post before the inauguration, then the president of the National Assembly becomes interim president and must hold elections for a new president within 30 days. But if the president vacates his post after the inauguration, then the vice president – not the president of the National Assembly – becomes the interim president and must hold elections within 30 days.
A historical example of Article 233 was the death of Chavez on March 5, 2013. During that period Maduro was vice president, so he became the interim president and elections were held on April 14, 2013. This missed the constitutional deadline, but only by a few days. Maduro decided to run in that election and he was elected to complete the remainder of the Chavez term.
Because Maduro has not vacated his post in any way, he cannot be replaced under Article 233. Suppose for the sake of academic argument that Maduro had died a day before the inauguration on January 10, 2019. Then Guaidó as president of the National Assembly would have become the interim president and Article 233 would have required elections for the new president to be held on or before February 9. Next suppose, for the sake of argument, that Maduro had died on January 23 – the same day that Guaidó declared himself to be president. Then the vice president would have become the interim president – not the president of the National Assembly – and the vice president would have scheduled a presidential election for February 22 or earlier.
There is simply no defensible argument that Guaidó is the legitimate president or interim president of Venezuela: his declaration that he is president is illegal, and recognition of Guaidó as president by the State Department is also illegal.
IV. Conclusions and Recommendations
I have presented all of the references and most of the arguments that have convinced me that much of what we are hearing from politicians and the mainstream press about Venezuela is simply false: Guaidó cannot possibly be the legitimate President or interim President of Venezuela, Maduro is indeed the democratically elected President, and Venezuela is the target of an economic war campaign so intense that it is impossible today to pass any judgment on the efficacy of the government’s economic policy.
As Alfred de Zayas has written in his report to the U.N., coercing any government by overt or covert economic means violates the U.N. Charter. The United States is a signatory to the U.N. Charter and therefore obligated to comply by the constitution. Venezuela is a sovereign country and Venezuelans must manage their own resources, their own economy, and their own system of government. It has been reported in a recent poll that 86% of Venezuelans oppose military intervention. https://www.globalresearch.ca/86-of-venezuelans-oppose-military-intervention-81- against-us-sanctions-local-polling-shows/5666962
V. Possible solutions
The people of the United States are overwhelmingly against the U.S. entering more wars, as demonstrated in many polls and surveys. As our government unfolds the narrative of regime change once again in Latin America, many people are starting to reject this narrative and are supporting the people of Venezuela for their right to self-determination.
The United States Government must rescind recognition of Guaidó as president of Venezuela, end sanctions on Venezuela, and return the assets it has stolen from Venezuela to the Venezuelan government. The Venezuelan constitution allows for recall elections midway (3 years) into the presidential term; this provides an opportunity for the Venezuelan people to legally replace Maduro, if they so choose to, with a democratically elected opposition candidate.
I have had a brief communication with U.N. independent expert Alfred de Zayas. He tells me that he agrees with the following legislation recommendations as potential solutions to help end the illegal economic war against Venezuela:
- Audit American companies and subsidiaries when they import goods to Venezuela: the price for imported goods in Venezuela must be a reasonable markup (< 15%) using the official foreign exchange rate, not the black market exchange rate
- Make it illegal for DolarToday and similar websites to publicly list the black market exchange rate of another country
- Banks must publicly justify the assignment of country-risk indices based on a standard formula
- American companies must publish warehouse inventories and distributions of products in Venezuela and these results must be made available to the government of Venezuela
Zapalac is a physicist working in Santa Clara, CA in photovoltaics. His other interests include climate change, election reform, and U.S. foreign policy. Geordie joined the Green Party after the 2016 primary elections and volunteered for the Jill Stein presidential campaign.