Thursday, July 28, 2016
CARACAS -- A decree by the embattled Nicolas Maduro administration ordering civil servants and private sector workers alike to work in the fields for two to four months at a time is raising eyebrows in Caracas. And that is saying a lot these days.
“The will of the worker has been annulled,” wrote analyst Angel Alayon in a post Wednesday.
This is the latest in a series of measures aimed at reducing food scarcity, this time through accelerated production of foodstuffs by increased manpower. The government of Maduro, which describes itself as socialist, already has vast control of the economy, including ownership of the company that provides the country with more than 90% of all its hard currency (state oil company PDVSA), price control and currency exchange controls.
It also nationalizes foreign and private owned companies regularly: just last week Maduro took control of the local subsidiary of U.S. paper-products maker Kimberly-Clark after it stopped production. Shortages have actually become more acute since they began in 2013, with analysts saying that price controls, the root cause of scarcity, are not being addressed properly.
The move to force people to work in the fields -- as was called for during the Allende term in Chile and is still in force in Cuba to this day -- has been denounced by labor and business owners alike. The text (see below) says it’s “mandatory” to assist the government in growing crops and other agricultural activities.
Froilan Barrios, a workers’ rights activist said that “actions such as this one represent a grave danger for everything we workers have won historically and culturally over the centuries. What little is left of the productive apparatus of the country is being completely dislocated and the Venezuelan economy loses its sense.”
The President of Fedecamaras, the country’s main guild of business owners, Francisco Martines, said the government was treating the workers as chattel and that, in growing crops, 60 days was not enough to see a result. Venezuela has typically a dry season of six months and a rainy season of similar length.
Venezuela has 3 million civil servants in a total population of about 30 million people and a severe shortage in key foodstuffs, some of which were, until very recently produced locally. Venezuela it April reported a high unemployment rate of more than 7%, but the government says it’s “the lowest in 20 years," according to Planning Minister Ricardo Menendez.
Menendez also said last week that there was no hunger in Venezuela, and that more than 90% of the population was getting three meals a day, a figure the opposition says is false, pointing to the long lines at grocery stores and the "humanitarian corridors" of hundreds of thousands seeking food and medicine in Brazil and Colombia
Wednesday, July 27, 2016
Two of Venezuelan President Nicolás Maduro’s nephews have confessed to attempting to traffic 800 kilograms of cocaine into New York from Venezuela, identifying the owners of the drugs as the Marxist terrorist group FARC.
According to documents, newly introduced in the trial of Efraín Antonio Campo Flores and Francisco Flores de Freitas – related to Maduro through his wife, first lady and legislator Cilia Flores – the two men admitted they had planned to make multiple cocaine deliveries from Venezuela through Honduras to the United States on behalf of the Revolutionary Armed Forces of Colombia (FARC), a half-century-old guerrilla terrorist group. Many of the revelations come from conversations Campo Flores and Flores de Freitas had with undercover DEA agents before their arrests flying into the United States from Haiti in November 2015. The DEA agents were posing as Mexican drug traffickers seeking to aid the transport of the merchandise in exchange for a cut of the profits.
The FARC remains active, despite its 50-year history, currently negotiating a deal with the government of Colombia for members to reintegrate into society without having to spend time in prison for their crimes. The group has long enjoyed friendly relations with socialist Venezuela, with Hugo Chávez lending them safe haven. The group is so accepted in Venezuela that, in 2014, they hosted a 50-year anniversary celebration in Caracas.
In addition to identifying the drugs as coming from the FARC, the nephews claimed that they were shipping drugs to generate funds for their aunt’s legislative campaign. Campo Flores later admits to a DEA agent, however, that they lied about the use of the money. “Campo declared that friends in the drug business had told him to be careful not to get robbed and, to protect himself, he made his declaration regarding his aunt’s campaign,” the document notes. The declaration implies that any wrongdoing against Campo Flores would incur the wrath of the Venezuelan socialist government at large.
Campo made one other political statement to undercover agents: “We are at war with the United States.”
The Flores nephews had previously told law enforcement officials that the true owners of the cocaine were Diosdado Cabello, then the nation’s second-in-command and currently the Assembly minority Leader; and Tarek El Aissami, the socialist governor of Venezuela’s Aragua state. The FARC claim is the third such ownership claim the nephews have made.
Witnesses who have defected from Venezuela’s socialist government have identified Cabello as the drug lord behind the Cartel de los Soles, one of Latin America’s biggest drug trafficking operations, believed to be run by the Venezuelan military. Cabello sued multiple media outlets, including The Wall Street Journal, for publishing reports with evidence linking him to the cartel. While Maduro himself has not been linked to drug trafficking operations, he has been accused of accepting campaign donations from drug traffickers.
Both Cabello and Maduro have accused the United States of attempting to disparage their government through the arrest of the Flores nephews. Flores herself has decreed the arrest an example of “the crime of kidnapping” and demanded their release, accusing the DEA of “violating our sovereignty and committing crimes on our land.”
In addition to members of his family actively participating in the drug trade, Maduro’s tenure as president of Venezuela has seen drug activity skyrocket.“Venezuela is the most efficient route for traffickers,” a U.S. official told the Argentine news outlet Infobae shortly after the Flores nephews’ arrests.
Saturday, July 9, 2016
It’s been almost two years now since the renowned Harvard economist Ricardo Hausmann caused a stir in his native Venezuela by posing an uncomfortable question.
Why does a country that’s so starved for cash keep honoring its foreign debts? In other words, how does it justify shelling out precious hard currency to wealthy bondholders in New York when it can’t pay for basic food and medicine imports desperately needed by millions of impoverished citizens? “I find the moral choice odd,” Hausmann concluded.
He was, predictably, skewered by the administration back in Caracas -- President Nicolas Maduro labeled him a “financial hitman” and an “outlaw” on national television -- but today the question feels more urgent than ever. Prices for oil, Venezuela’s lifeblood, have fallen almost by half since Hausmann first spoke out and the country’s cash squeeze has deepened dramatically. The chaos has reached unprecedented levels -- food rationing, looting, mob lynchings, collapsing medical care -- yet through it all, bond traders have received every dime they were owed, billions and billions of dollars in all.
“There are two worlds,” said Francisco Ghersi, a managing director of Knossos Asset Management in Caracas. “The world of the bondholders and the world of what’s happening in Venezuela.”
The 21st century has produced a slew of government defaults across the globe, from Argentina to Ecuador to Ukraine. In almost every instance, the country in crisis hit the default button long before the situation got as dire as it has in Venezuela. The only similar case that economists point to is Zimbabwe back in the early 2000s. But even that comparison is flawed, says American University professor Arturo Porzecanski, because Venezuela was significantly wealthier than Zimbabwe before crisis struck and so the South American country’s collapse has been of a much greater magnitude.
What makes this pay-the-debt-at-any-cost approach all the more curious is that it comes in a country run by self-proclaimed socialists who have railed for the better part of two decades against foreign capitalist powers. There are endless theories, spawned in part by Hausmann’s public pronouncement, as to why the Maduro administration has stuck so doggedly to this policy. The main ones fall into three rough categories.
The first of them is an argument that’s been floated publicly by high-ranking government officials themselves. It states that Venezuela can wait it out till oil prices rebound. Why rock the boat, the thinking goes, if salvation is potentially just weeks away? (Prices have been rallying of late, climbing to near $50 a barrel.)
The next argument is something of a conspiracy theory born in part out of the opaque nature of the country’s finances. It posits that close associates of the administration are major holders of the country’s bonds and that the government fears it’d lose their much-needed support if the payments stopped coming in. Efforts to obtain comment from government press officials on this and other aspects of the story were unsuccessful.
The third theory, and it’s one that ties back into the first idea, states that even though Venezuela lost access to international capital markets a long time ago, a default could still deepen the government’s cash squeeze by triggering legal action from creditors that would undermine the country’s ability to export. If fewer petro-dollars flow into the country, the savings from the default could be washed away, making the situation on the ground even worse.
It’s frankly hard to imagine what a further deterioration would look like. After shrinking an estimated 7.5 percent in 2015, the economy is forecast to post an even bigger contraction this year. Food shortages are now so acute, and lines outside stores so long, that spontaneous protests are popping up everywhere. In one episode in the 500-year-old coastal city of Cumana, hundreds were arrested and a middle-aged man was shot to death, one of three fatalities at food-related demonstrations in June alone. There have been so many vigilante justice-style lynchings -- more than 70 in the first four months of this year -- that the supreme court has banned Venezuelans from sharing video recordings of the gruesome events on social media.
To Hausmann and to legal experts who have studied the country’s oil operations, the risk of angry creditors blocking exports after a default is actually small. The way that PDVSA, as the state oil company is known, structured sales contracts makes it difficult for them to be interrupted by a legal challenge, according to Francesca Odell, a partner at Cleary Gottlieb in New York. What Hausmann and others see instead from a default is the opportunity to free up a big chunk of cash that could be re-directed toward imports.
The government is due to make $1.5 billion in foreign debt payments in the second half of this year. Include PDVSA’s tab and the figure swells to $5.8 billion. It’s a staggering sum of money in a nation that has bled its hard currency reserves down to just $12 billion. And while few, if any, bondholders would embrace a default, they certainly wouldn’t be caught off-guard by it. For the better part of the past 18 months, the government’s benchmark bonds have been trading under 50 cents on the dollar, a price that in essence signals to a debtor: “We’re prepared for a restructuring, go ahead and do it if you must.”
“It’s fairly shocking that they have decided to service the debt over all else,” said Risa Grais-Targow, an analyst at Eurasia Group in Washington. “But I do think the commitment is fairly strong.”
Venezuela’s bonds due in 2027 fell 0.37 cents to 48.48 cents on the dollar as of 2:24 p.m. today in New York.
Maduro, the man handpicked by the late Hugo Chavez to succeed him, has spoken frequently about his determination to keep paying the debt. In a speech back in May, he proudly explained how the country had doled out $36 billion to creditors -- “a huge amount of money” -- over the previous 20 months. The payments were made, he went on to say, “with dignity, without accepting preconditions from anyone, maintaining the country’s independence despite the pain.” These are references to multilateral lenders like the International Monetary Fund and World Bank, institutions that are despised by the Latin American left.
As long as Maduro continues to pay, there will be investors willing to own the debt. Venezuela’s bonds are among the highest-paying investments in emerging markets, offering today an average yield of 26 percent. That’s in dollars -- in a world where many developed-nation bonds are yielding close to zero (or even less). And since Chavez swept into office 17 years ago, the country’s bonds have handed investors a total return of 517 percent.
“It is one of the most miserable, mismanaged, hopeless countries on the planet,” said Jan Dehn, head of research at Ashmore Group Plc, which manages $50 billion of emerging-market assets. “But that doesn’t mean you can’t make money.”
Hausmann, meanwhile, is more incensed than ever.
In a recent interview, he called the government’s insistence on paying the debt, coupled with a church’s claim that it rejected offers of international aid, “a crime against humanity.” There’s a history here, it should be noted, between the professor and the Chavistas. Some two decades ago, he served in the business-friendly government that Chavez tried to overthrow in a coup attempt that effectively launched his political career. Perhaps that explains some of the enmity between the two sides. Regardless, this is what Hausmann wants to ask the folks on the other side: How can they sleep at night? “It’s beyond belief.”
Friday, July 8, 2016
CARACAS, Venezuela (AP) — When Venezuela's opposition lawmakers took over the congress in January, they vowed it was the beginning of the end for President Nicolas Maduro.
But Maduro has since managed to almost completely sideline the legislature with the help of the Supreme Court, and now the ruling socialist party is talking about shutting congress down altogether.
"What has congress done these past six months? Wreak destruction. Prepare to say goodbye to history, because your time is coming," Maduro said in a televised address last week.
Dealing with a legislature filled with political opponents has been an irritation for the socialist Maduro, whose approval numbers languish in the low 20 percent range. Congress President Henry Ramos, meanwhile, enjoys 60 percent approval, making him the most popular politician in Venezuela.
Opinion polls say a majority of Venezuelans want Maduro out of office this year. The head of the Organization of American States accuses the country of acting autocratically and has moved to suspend it from the regional body. President Barack Obama joined several other world leaders last week in criticizing Maduro for stalling a voter recall referendum that could throw him out of power.
Maduro seems willing to take the risks of domestic anger and international condemnation that would be associated with closing congress, an idea that many Venezuelans have already called an attempted "self-coup."
Javier Corrales, who teaches Latin American politics at Amherst College in Massachusetts, said Maduro and other Venezuelan leaders might think they can afford the international backlash.
"Others might label them as anti-democratic," he said. "They simply respond by saying that they are at war against oligarchs who are blocking the people from governing, and that's the end of that."
Such a move would surely inflame Venezuelans already on edge after weeks of daily food riots that have led to deaths and hundreds of arrests.
The millions of Venezuelans who want the socialists out of power are growing frustrated. With the congress blocked from legislating and Maduro saying he will not allow a recall referendum to proceed this year, the opposition feels increasingly shut out of the political arena.
"This means that the main catalyst for regime change this year remains a social explosion," Risa Grais-Targow, an analyst at the Washington-based Eurasia Group, said, referring to the Maduro recall effort.
The Maduro administration controls Venezuela's courts, electoral officials, much of the national press and the police. But the congress still enjoys great public support, even though it's functionally weak.
"Congress has become not just a space for ideas to be aired, but also it has become a very popular political institution," Corrales said.
Opponents of Maduro's government took control of the legislature for the first time in 17 years in January after winning a landslide victory. They tore down the oversized portraits of late President Hugo Chavez hanging in the neoclassical capitol and distributed videos of them being carted away. For Venezuelans, that jubilant moment has come to feel like the 2003 toppling of Saddam Hussein's statue in Baghdad — a victory celebration that turned out to be premature.
Since then, the Supreme Court has issued at least 16 decisions chipping away at lawmakers' power. The court blocked the opposition's central pieces of legislation, including a bill that would have freed imprisoned opposition activists, and even more neutral-seeming bills, such as a proposal that would have given the elderly more access to food stamps.
Now, other leaders in the bloc of parties that supports Maduro say they are talking with the court about how to abolish the legislature.
"Congress is acting against the constitution, and should be dissolved; the mechanisms exist," said Didalco Bolivar, who heads a party in the socialist coalition.
As Venezuela saw a new round of supermarket looting Monday and hospitals around the country complained that patients were going hungry, congress started the week with one item on its agenda — a symbolic resolution celebrating the nation's Independence day.
On Tuesday, Maduro managed to make even that into a polarizing issue. He declined to attend the congressional independence day celebration. Instead, he held his own festivities. Lawmakers were not invited.