“Life has been difficult for years. It is true that food prices have dropped recently, but they are still very high”, says Rodrigo, a private security guard who works in Caracas, the capital of Venezuela. He did not want to give his last name.
In the midst of an economic crisis that has lasted decades, Rodrigo thinks that “people are ready for a change”. On Sunday, he will join the 21 million people eligible to vote for the country’s next president.
The general elections fall on Hugo Chávez’s birthday. Although Chávez had a troubling human rights record, the charismatic left-wing leader – who ruled Venezuela from 1999 until his death in 2013 – was celebrated as a defender of the poor.
His less popular successor, Nicolás Maduro, now faces opposition candidate Edmundo Gonzalez Urrutia, a retired diplomat. And polls show Gonzalez leading by a wide margin.
But Maduro has a knack for clinging to power. Most opposition parties boycotted his re-election in 2018, arguing that the vote was neither free nor fair. In January, Maduro banned his main rival, Maria Corina Machado, from running.
Although accusations of government interference have marred Venezuela’s elections for decades, Maduro has said he will recognize the result of Sunday’s vote.
“I’m not sure what will happen next Monday. There is talk of things getting violent. But even if Gonzalez wins,” Rodrigo acknowledged, “I’m not sure if he’ll be able to transform the country like Chávez did.”
During his term, Chávez successfully used high oil prices – the lifeblood of Venezuela’s economy – to double Venezuela’s GDP per capita. Social assistance programs were expanded and poverty and unemployment decreased.
Maduro was not so lucky. Now in his 11th year in office, he has overseen an economic collapse. Since 2014, production has contracted by 70%, more than double the hit the United States suffered during the Great Depression.
During this period, around 7.7 million Venezuelans – a quarter of the population – left the country in search of work.
In 2022, the IMF described Venezuela’s state of disorder as “the biggest economic collapse for a conflict-free country in half a century.”
Government critics see the country’s downward spiral as a result of corruption.
For his part, Maduro blames Venezuela’s plight on crippling US-led sanctions, imposed with increasing degrees of severity since 2005. He is not alone. Several commentators called the measures illegal and harsh.
Caracas is blocked from accessing international capital markets, restricting imports and debt financing – used to offset fiscal deficits and finance infrastructure projects. In 2019, Donald Trump also blocked Venezuela from exporting crude oil to the US and importing diluents needed to process its own heavy crude oil.
Curse of commodities?
Venezuela has the largest proven oil reserves on the planet. In the late 1990s, it produced 3.6 million barrels per day, generating 95% of its export revenues. But US sanctions and years of mismanagement have left production below 1 million barrels per day.
“To be clear, sanctions have restricted Venezuela’s oil and gas sector. But this goes hand in hand with administrative negligence,” said Tim Hunter, Latin America analyst at Oxford Economics.
Hunter alluded to decades of underinvestment in PDVSA – the state-owned energy company and the backbone of Venezuela’s economy. Then, in 2017, Maduro announced a controversial executive change by appointing loyal military officers to top positions at PDVSA.
“Even taking into account the low production of recent years, fossil fuels continue to represent almost half of Venezuela’s official exports. So when sales drop, due to scarce production or low prices, the economy suffers,” Hunter said.
Sales of light hydrocarbons were behind the recent bout of hyperinflation in Venezuela. Drops in oil prices, which persisted between 2014 and 2017, triggered a shortage of foreign currency and lowered the value of the peso. They also reduced tax revenues from oil, an important source of government revenue.
Eventually, as the central bank began printing more money to cover budget deficits and as imports became increasingly expensive, inflation surpassed 1 million percent in 2018.
“As Venezuela depends on imports of basic goods, its contact with hyperinflation led to a compression of imports. For years, supermarkets and pharmacies have been short of stock. This is what encouraged so many Venezuelans to leave, further harming growth,” says Hunter.
“Whoever wins on Sunday, the next government will have to try to move away from its dependence on oil to other areas of productive activity. That said, in the short term, they should try to correct the inefficiencies in the oil sector and use the profits to pay off outstanding debts.”
Mountain of obligations
Venezuela defaulted on its commercial debt in 2017. Together with bonds issued by PDVSA and state-owned company Elecar, the government owes approximately $92 billion. Then there is another $57.2 billion owed to China and in various arbitration awards, the Financial Times reported.
Altogether, Venezuela’s debt-to-GDP ratio is estimated at 148 percent. “Given the mountain of obligations, it will have to be paid off before the next government can start growth,” Luis Salas, former vice-president for the economy, told Al Jazeera.
“In theory, this will mean a restructuring of sovereign debt in which the government can negotiate with creditors to reduce the amount owed,” he added. “This should give them budgetary room to focus on other areas, such as infrastructure spending.”
In April, it was reported that financial services firm Rothschild & Co had been hired to help Caracas map out its complicated responsibilities. Salas said: “The appointment of advisors is a sign that Maduro intends to engage with creditors and reinsert Venezuela into global financial markets.”
However, he highlighted that austerity programs tend to follow debt restructuring. When entering into a new agreement, creditors want to maximize their chances of repayment. Governments, in turn, typically cut public spending to generate enough revenue to meet their new obligations.
“What many hope,” says Salas, “is that we can use oil, instead of education and health expenses, for a deal. Of course, in practice, this cannot happen with sanctions. Until they are lifted, we will not restructure the debt and will continue to fight.”
Sanctions – extremely negative impact
President Joe Biden’s administration inherited a strategy of maximum pressure on Venezuela from President Trump. But despite the pressure applied, consecutive rounds of sanctions failed to dislodge Maduro.
Meanwhile, Biden took a different approach. Under the 2023 Barbados Agreement, he eased some sanctions – notably on oil and debt – in exchange for political guarantees, namely free and fair elections and the release of detained US citizens.
The agreement allowed Venezuela to earn an additional $740 million in oil sales between last October and March. But after Maduro barred Machado from running and following the revival of a territorial dispute with Guyana, Biden reimposed US sanctions in April.
“It is clear that American restrictions have an extremely negative impact,” said Mark Weisbrot, co-director of the Center for Economic and Policy Research (CEPR). “In fact, crippling sanctions have harmed Venezuela’s economy far more than any domestic policy mistakes.”
It is true that Weisbrot believed that gains could be made “under a hostile foreign environment.” He highlighted that “there have been some gains, in terms of inflation and growth, in recent years”.
Consumer price gains estimated to have fallen to 51 percent in June, while GDP growth is estimated to have exceeded 5% in 2023.
“But,” he warned, “a widespread recovery cannot occur under sanctions. If Gonzalez wins, they could likely be eliminated quickly. If Maduro wins, even cleanly, he would not expect a change in the US position regardless of who becomes president in November.”
This story originally appeared on Aljazeera.com read the full story
