Venezuela: Standing on the Edge of a Precipice – By Daniel Gauci

Meteors are a spectacular sight to watch, they shine bright as they travel at high speeds, only to be consumed and become these barren rocks travelling in time and space. The story of Venezuela home to over thirty-one million people shares some of the parallels with these fascinating rocks. In daily news bulletins, we are told how Venezuela is embroiled in hyperinflation, corruption, famine and on the brink of a civil war. It is easy to dismiss this nation as a failed state, for which one could be forgiven if he does not delve deeper in the rich history of this country.

The days of the Bolivarian Revolution

At its inception Venezuela was a dictatorship state whereby different dictatorships managed to hold the country together, always bouyed by oil agreements with countries,namely the United States. From the late fifties onwards a group of three political parties which later narrowed to two,monopolised Venezuela’s political scene blocking outsiders, fostering corruption and paving the way for a radical leader named Hugo Chavez.

The current president of the country Nicholas Maduro is the handpicked successor of the late Hugo Chavez. Hugo Chavez, a former lieutenant colonel in the Venezuelan army, had grown dis-enfranchised with the political system of Venezuela and after unsucessfully attempting a military coup in 1992, he went on to form his political party the Fifth Republic Movement, which saw him elected as president of Venezuela in 1998. The policy of the Chavez government from 1998 to 2012 was to nationalise key industries and launch costly large social programmes, providing care, education, food and shelter, at the same time he abolished the judiciary and the national assembly.

Fast forward to2018, the country has witnessed one of the most extraordinary transformative deteriorations, with general elections whose authenticity has been rejected by most of the international community. At the start of the Venezuelan presidency in 2019 the United States decidedto recognise an opposition leader as the interim president of the country, claiming that the 2018 election was a sham and the president elect Nicholas Maduro should resign. This led us to the current escalation whereby the country is on the brink of a Civil War.

The Hyperinflation

Compounding to the existing hardships ofordinary Venezuelans, as the economy tanked the Bolivar currency hit a downward trajectory. The currency hit a hyperinflation level of 80,000% per annumby the end of 2018. These levels of inflation can be compared to the historical inflation crises of the Weimar Republic of Germany in the aftermath of the First World War, and more recently the one of Zimbabwe in 2008. Measures to control inflation such as large increases in the minimum wage and a new official exchange system all proved fruitless, as there is no trust domestically and internationally in the Bolivar.

Trading in Venezuela mainly takes place only by barter, as the Venezuelans treat theirBolivars like ice cubes which they try to get rid of as soon as they recieve anything which could hold value, from dollars to cattle or even cigarettes. This situation has led millions of Venezuelans to flee theircountry into neighbouring countries such as Colombia or further apart towards the United States or Canada.

The Sanctions

The current economic collapse in Venezuela has been long building up. In response to the increasingly autocratic leadership of the Venezuelan government the international community (read OECD countries) have imposed sanctions, of which a new raft of economic sanctions came into place this January from the United States following its endorsement of Juan Guaido.

These sanctions further deteriorate the existing pressures over ordinary citizens, of hyperinflation, famine and poverty. Given that previous sanctions have not dented the current government’s will to remain in power at all costs, these sanctions could only help fuel the current discontent further to the point where a popular uprising overthrows the existing government. This seems to be the case as the country has been marred in strikes and protest and a string of uprisings aimed at eliminating the current president Nicholas Maduro. These have proven unsuccessful to date increasing the crackdown of the current government on its citizens.

The International Interests

The current political stalemate does not stop at the borders of Venezuela. There is an international dimension, which has increased the stakes for both the incumbent and the opposition. On one side China, Russia, Turkey, Iran, Syria and Bolivia stand in support of the current president Nicholas Maduro, while the United States, Israel, Canada, Australia, Brazil and most European countries support the opposition interim president Juan Gaudio.

We already came across these two same exact coalitionsof countries in other conflicts from around the world, which always happen to be on the opposite side of each other almost in every part of the globe. The level of escalation and the result of which side will cave in will mostly depend on the influence of the Venezuelan people and also on how large are the vested interests of the international actors in supporting one side or another.   

Looking Forward

The current situation is not tenable from all the different stakeholders’ perspectives. This has been the case for some time, whereby this country reaches ever deeper social and economic lows. What has been an outlier of the current president Nicholas Maduro, a former bus driver handpicked for the driving seat of this country following the unexpected death from cancer of Hugo Chavez is the obstination to remain in power whatever the cost may be to the people of Venezuela. Rightly so the current leadership fears reprisal from the oppressed population and the military power is the only lever of power protecting them from the people of Venezuela, after the other levers have been squandered. It is clear that the military complex in Venezuela is considering its options, especially the more the current government looks unstable.

Whoever emerges as leader of Venezuela from this tussle of power will have the un-rewarding task of re-building the independent institutions of the country of the national assembly and the judiciary, together with the need for hard reforms to invest in the country’s crippled infrastructure. The country has tremendous potential not only in natural resources and manufacturing but also as a tourist destination. Venezuela will need international assistance to realise its potential and being an object of competition between international powers in exchange for assistance will surely not benefit the country.

This article was prepared by Daniel GauciHnD Management, CeFa Investments, anInvestment Advisor at Jesmond Mizzi Financial Advisors Limited. This article does not intend to give investment advice and the contents therein should not be construed as such. The Company is licensed to conduct investment services by the MFSA and is a Member of the Malta Stock Exchange and a member of the Atlas Group. The directors or related parties, including the company, and their clients are likely to have an interest in securities mentioned in this article. Investors should remember that past performance is no guide to future performance and that the value of investments may go down as well as up. For further information contact Jesmond Mizzi Financial Advisors Limited of 67, Level 3, South Street, Valletta, on Tel: 2122 4410, or email [email protected];

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