Archive for the ‘Venezuela’ Category


Excellent article on the fallacy of the middle class in #Venezuela and how the current situation is eerily similar to 1989, with a huge discrepancy between the expectations of the people and the current economic reality.

Cadivi dies, and so does the middle class

(Since Cadivi is gasping its final breaths surrounded by controversy and not a minute too soon, this guest post by Iesa professor Pedro Luis Rodríguez could not be better timed. Rodríguez takes on Javier Corrales’ assertion that we’re mostly middle class, and concludes that it was all a mirage. Take a read and let us know how you view this debate)

Venezuela’s Middle Ground: now you see it, now you don’t

In a recent article in Foreign Policy, Javier Corrales argues that Venezuela today is a country of “mostly middle-class people”. Following the World Bank’s income thresholds for determining class membership, Corrales classifies each income decile in Venezuela into their respective class.

I’ve replicated his table following the guidelines in the appendix to his article (see Table 1). It is evident, as Corrales highlights, that by this measure in 2012 the majority of Venezuelans belonged to the middle class. Moreover, the distribution differs markedly from 1990 as a result of a large portion of the poor crossing the middle class threshold during the recent windfall (especially post 2005).

Corrales

Corrales correctly points out that once we agree that Venezuela is a middle class country, then deriding the recent wave of protests as “too middle class” is absurd and, in the case of the government, a political blunder. What else would one expect in a middle class country but middle class demands, including demands for better governance outcomes and representation?

The other half of the story

Yet Corrales’ table shows only half the story. In a country highly dependent on oil revenues, defining social progress solely in terms of income is problematic as we run the risk of confusing a temporary increase in consumption, financed with oil revenues, with a permanent increase in welfare. The only way the latter can be achieved is through sustained increases in productivity.

There is little doubt that the oil bonanza of the past decade and the government’s (re)distributive policies increased the income of the poor in Venezuela, swelling the middle class, at least as defined by the World Bank’s income thresholds. But to the extent that these outcomes are not the reflection of increased productivity but rather of increased consumption financed by high oil revenues, they are highly dependent on the incremental (not just continued) flow of this revenue. Once this flow becomes strained, as has been occurring since 2013, the model not only becomes unviable, but its apparent achievements can quickly be wiped out.

To get a sense of what this would entail, I reconstructed Corrales’ table using the World Bank data on GNI in local currency, converting it at the black-market exchange rate and applying the same PPP and inflation adjustment as in table 1 (see Table 2). While at the official exchange rate, Venezuelans’ incomes are indeed those of a middle-income country, at the black-market exchange rate this no longer holds. In this picture the majority of Venezuelans are poor.

Which picture is right? This depends on the capacity of the government to maintain its distributive policies including an overvalued exchange rate, which in turn depends on sustaining a steady supply of dollars. While Table 1 is likely a more accurate representation of income distribution in Venezuela between 2004 and 2012, I would argue reality is rapidly converging towards the second picture (Table 2), as the supply of dollars shrinks and becomes erratic.

Rodriguez

Some will correctly point out that the black-market exchange rate is not a proper measure of the market exchange rate one would see if it were allowed to float. In reality, it would be somewhere in between the official rate and the black market one (estimating this is not straightforward).

This deserves two comments: first, at this moment, as the government prevaricates in its economic policy, it is forcing the picture to look much more like Table 2 than need be, as goods are priced at the black-market rate for lack of access to dollars, or are simply non-existent. Second, Table 1 is but an illusion that is unraveling, with the trend nowadays clearly in the direction of the second picture. Whether we ever reach it or not is inconsequential for the argument that follows.

Yes, many Venezuelans, and most particularly the poor, managed to climb up the income ladder as a result of the government’s distribution of the oil bonanza. In particular, as has also been common in previous governments, through the use of an overvalued exchange rate. Yet, as dollars have become scarce for reasons that are beyond the scope of this article, the precariousness of these outcomes becomes manifest.

The income ladder has not only been withdrawn, but those that had climbed up are being pulled back down. I would posit that this, rather than middle class demands, explains the growing discontent, part of which (although far from its entirety) has expressed itself on the streets in recent weeks. Whether the “new” middle class identifies itself with traditional middle class demands of better governance and representation remains to be seen. The speed and means through which this change in incomes occurred – distribution of rents rather than productivity – arguably suggest the contrary.

That is not to say however, that the focus of the opposition’s discourse should lie on unsatisfied basic needs rather than demands for accountability, representation and political and economic freedoms. The challenge lies in explaining how the scarcity of the latter explains the abundance of the former.

Is this really so different from 1989?

Unfortunately the data on income distribution is not readily available, yet we can still look at mean income (in constant 2005 international $) measured at the official and black market exchange rates (see Figure 1). The widening gap between these two measures is evident since 2004. Yet we see exactly the same pattern in the period preceding 1989. As in 1989, what we are observing today is the confrontation of inflated expectations, formed over a period of bonanza and grand promises, with an increasingly grim reality.

In 1989 the consequences of this confrontation were traumatic. This time around, the gap between expectations and reality is I arguably much larger, and hence the potential for an explosive outcome much greater. A lot depends on how the government confronts its economic demons, although it might already be too late. If this narrative is correct, we have only seen the tip of the iceberg when it comes to discontent taking over the streets. Are the paramilitary groups known as colectivos enough to contain this?

Rodriguez 2

Mirages in the desert

To be clear, the proposed narrative is not inconsistent with Corrales’. It could very well be that the swelling of the middle class observed over the past oil boom led to the emergence of middle class demands for governance and representation. It should be possible to see this in surveys such as Latinobarómetro.  The narrative above however does claim that the main source of discontent brewing today is the result of the confrontation of inflated expectations with a dismal reality. This discontent is not so different from that which led to social unrest in 1989.  Venezuelans are once again at that point when the mirages created by the bonanza disappear, leaving them in the same desolation they found themselves in over twenty years ago.

The question that remains is whether the opposition is able to offer a way out of this vicious cycle. To do so, it must explain why we are where we are, and provide a credible vision of how we are going pull ourselves up by our bootstraps rather than hold on to vain hopes of a new bonanza. We all want the first picture to be true (Table 1). Indeed we want all blocks to be colored red or grey.  Yet the only way for this to be sustainable is via a continued increase in productivity. Our oil income can be an instrument in this endeavor but it can never substitute for our effort. Whether we’ve understood this remains to be seen, otherwise we will keep grasping at mirages in the desert.

04/26/2014

Pedro Luis Rodríguez

Assistant Professor – IESA/UCAB

@prodriguezsosa


Jailed Venezuelan leader writes in the NY Times

Venezuela’s Failing State

Los Teques, Venezuela — As I compose these words from the Ramo Verde military prison outside Caracas, I am struck by how much Venezuelans have suffered.
For 15 years, the definition of “intolerable” in this country has declined by degrees until, to our dismay, we found ourselves with one of the highest murder rates in the Western Hemisphere, a 57 percent inflation rate and a scarcity of basic goods unprecedented outside of wartime.
Our crippled economy is matched by an equally oppressive political climate. Since student protests began on Feb. 4, more than 1,500 protesters have been detained, more than 30 have been killed, and more than 50 people have reported that they were tortured while in police custody. What started as a peaceful march against crime on a university campus has exposed the depth of this government’s criminalization of dissent.
I have been in prison for more than a month. On Feb. 12, I urged Venezuelans to exercise their legal rights to protest and free speech — but to do so peacefully and without violence. Three people were shot and killed that day. An analysis of video by the news organization Últimas Noticias determined that shots were fired from the direction of plainclothes military troops.
In the aftermath of that protest, President Nicolás Maduro personally ordered my arrest on charges of murder, arson and terrorism. Amnesty International said the charges seemed like a “politically motivated attempt to silence dissent.” To this day, no evidence of any kind has been presented.
Soon, more opposition mayors, elected by an overwhelming majority in December’s elections, will join me behind bars. Last week the government arrested the mayor of San Cristóbal, where the student protests began, as well as the mayor of San Diego, who has been accused of disobeying an order to remove protesters’ barricades. But we will not stay silent. Some believe that speaking out only antagonizes the ruling party — inviting Mr. Maduro to move more quickly to strip away rights — and provides a convenient distraction from the economic and social ruin that is taking place. In my view, this path is akin to a victim of abuse remaining silent for fear of inviting more punishment.
More important, millions of Venezuelans do not have the luxury of playing the “long game,” of waiting for change that never comes.
We must continue to speak, act and protest. We must never allow our nerves to become deadened to the steady abuse of rights that is taking place. And we must pursue an agenda for change.
The opposition leadership has outlined a series of actions that are necessary in order to move forward.
Victims of repression, abuse and torture, as well as family members of those who have died, deserve justice. Those who are responsible must resign. The pro-government paramilitary groups, or “colectivos,” that have tried to silence the protests through violence and intimidation must be disarmed.
All political prisoners and dissenters who were forced into exile by the government, as well as students who were jailed for protesting, must be allowed to return or be released. This should be followed by restoring impartiality to important institutions that form the backbone of civil society, including the electoral commission and the judicial system.
Continue reading the main story
In order to get our economy on the right footing, we need an investigation into fraud committed through our commission for currency exchange — at least $15 billion was funneled into phantom businesses and kickbacks last year, a move that has directly contributed to the inflationary spiral and severe shortages our country is experiencing.
Finally, we need real engagement from the international community, particularly in Latin America. The outspoken response from human rights organizations is in sharp contrast to the shameful silence from many of Venezuela’s neighbors in Latin America. The Organization of American States, which represents nations in the Western Hemisphere, has abstained from any real leadership on the current crisis of human rights and the looming specter of a failed state, even though it was formed precisely to address issues like these.
To be silent is to be complicit in the downward spiral of Venezuela’s political system, economy and society, not to mention in the continued misery of millions. Many current leaders in Latin America suffered similar abuses in their time and they should not be silent accomplices to the abuses of today.
For Venezuelans, a change in leadership can be accomplished entirely within a constitutional and legal framework. We must advocate for human rights; freedom of expression; the right to property, housing, health and education; equality within the judicial system, and, of course, the right of protest. These are not radical goals. They are the basic building blocks of society.
Leopoldo López is the former mayor of the Chacao district of Caracas and the leader of the Popular Will opposition party.

Venezuela’s Failing State – NYTimes.com


The party is definitely over for “socialism of the 21st century”:

Andres Oppenheimer: Venezuela losing clout in region

Beleaguered Venezuelan President Nicolás Maduro may be able — or not — to remain in power for the remainder of his term, but Venezuela’s influence elsewhere in Latin America seems to be diminishing as rapidly as the country’ s dwindling foreign reserves.Last weekend, the Venezuelan government lost a new potential ally in the region when leftist candidate Xiomara Castro — the wife of Venezuelan-backed deposed Honduran president Manuel Zelaya — came in a distant second in Honduras’ presidential elections.
According to official results, the right-of-center president-elect, Juan Orlando Hernández, won by more than five percentage points. Castro disputed the results, but international observers ratified Hernández’s victory, and even Nicaragua’s President Daniel Ortega — one of Venezuela’s closest allies — congratulated Hernández for his victory.
Weeks earlier, in Argentina’s Oct. 27 legislative elections, President Cristina Fernández de Kirchner — a populist who was very close to late Venezuelan strongman Hugo Chávez and is friendly with Maduro — failed to win a congressional super majority that would have allowed her to change the constitution and run for a third term in 2015.
Fernández returned from a month-long medical leave in late November with a videotaped message in which she appeared with a little dog named Simón, after Venezuelan independence hero Simón Bolivar, which she said was a present she had just received from Chávez’s brother Adán.
But aside from that symbolic gesture, Fernández’s financially-strapped populist government seems to have little hope of getting help from Venezuela as it did between 2005 and 2008.
On the contrary, after her electoral defeat, Fernández seems to be making a sharp turn to the right.
Last week, the Fernández government struck a deal to indemnify Spain’s oil giant Repsol, which it had expropriated in 2012 and threatened not to pay a cent. Argentina, which had triumphantly hailed the expropriation as a “recovery” of its national sovereignty, will now pay more than $5 billion for the takeover.
In another political u-turn, Fernández is now speeding up negotiations with the Washington-based International Monetary Fund to repair Argentina’s damaged ties with international creditors. In recent years, Fernández, much like Chávez, had regularly lashed out against the IMF.
While Fernández clings to her 1970s leftist rhetoric, the end of the boom in commodity prices that allowed her government to buy millions of votes with cash subsidies in recent years is forcing her to seek domestic and foreign investments. The most common phrase you hear in Buenos Aires’ political circles is, “ Se acabó la fiesta” (The party is over).
In Central America and the Caribbean, Petrocaribe — the Venezuelan institution that provides subsidized oil to friendly countries — has raised from 50 percent to 60 percent the cash payments it demands from member countries and is also raising interest rates on their long-term oil debts.
In early November, Guatemala announced its withdrawal from Petrocaribe, saying that the new payment conditions were no longer attractive.
“Over the past six months, the United States has surpassed Petrocaribe as the main supplier of fuels to Central American and Caribbean countries,” Jorge Piñon, an oil expert with the University of Texas at Austin, told me last week. “Things have changed very fast.”
Earlier this year, Venezuela lost another potential ally when right-of-center Paraguayan President Horacio Cartes won that country’s presidential election.
Even some of Latin America’s best-known Chavista ideologues, such as German-born Mexican leftist Heinz Dieterich, who is credited with having coined Chávez’s term of “Socialism of the XXI Century,” are distancing themselves from Maduro. Dieterich made headlines last month when he described Maduro as a “fraud.”
My opinion: You don’t have to be an enlightened political scientist to forecast a continued decline of Venezuela’s political and economic influence in Latin America.
As hard as Chávez tried and now Maduro tries to disguise it with ideological slogans, their “Socialism of the XXI Century” was nothing but an authoritarian populist vote-buying scheme that worked when Venezuela’s oil prices were at all-time highs.
But oil prices have fallen, and Maduro has run out of money to keep giving away to win votes. Venezuela’s foreign reserves have plummeted from an all-time high of $42 billion in 2008 to $20 billion today.
The Venezuelan economy is in ruins, with inflation surpassing 50 percent a year — one of the world’s highest rates — and growing food shortages. The Venezuelan fiesta is over, and you can feel the ripple-effects with various degrees of intensity in much of Latin America.

BUENOS AIRES: Andres Oppenheimer: Venezuela losing clout in region – Andres Oppenheimer – MiamiHerald.com


When even the Russian state media is laughing at you, something is definitely wrong.

The money quote:

The Ministry “will be responsible for implementing and coordinating the famous missions created by our Perpetual Commandant,” Maduro said in his announcement Thursday, referring to Chavez in a North Korean-style life-after-death title. “

Forget Python’s ‘Silly Walks’ – Venezuela has a Happiness Ministry — RT News

Miguel Octavio over at the Devil’s Excrement has a great post on it as well. He comes to the conclusion that most rational people come to:

The danger however, is that the Vice-Ministry may one day join the opposition when it realizes that nothing will make the people happier than the departure of Chavismo from Government.


“They want war and economic destabilization…the gringos, the empire,” …

In every dictatorship there are always foreign influences conspiring to destabilize the State, the Party, and the People, as Stalin, Hitler, Mao and others always lamented…

In Venezuela, Leader Finds Conspiracies Behind Every Door

BY EZEQUIEL MINAYA AND SARA SCHAEFER MUÑOZ

CARACAS, Venezuela—The government here is engaged in a battle of narratives.
Most economists, for instance, say Venezuela is plagued by shortages of basic goods like cooking oil and toilet paper due to the leftist government’s tight currency and price controls.
President Nicolás Maduro counters that the shortages aren’t due to the laws of economics, but rather a plot by the country’s political opposition, greedy shopkeepers and the U.S. government. In his view, Washington, together with Venezuela’s opposition, plant stories in the media about Venezuela’s shaky economy, causing panic shopping and shortages.
“They want war and economic destabilization…the gringos, the empire,” …

Read the full story online on wsj.com , subscription required:  In Venezuela, Leader Finds Conspiracies Behind Every Door – WSJ.com

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we see a number of regime leaders left with little but the dusty legacy of their predecessors to establish their own legitimacy. This is not to say that the desire for strong leadership and control has perished.

Egypt and Flaws in the Modern Personality Cult

One German poet’s clash with the sad reality of Venezuela. She thought she was going to a socialist paradise, instead she got a third rate version of a dictatorship.

The symbolism is reminiscent of that of North Korea, East Germany, the Soviet Union. Those in power are presented from a perspective which makes them look overpowering. You have to look up to them. I’m glad when I no longer have to see. The propaganda is boring, one-sided, it sucks. 

Read the article through Google Translate here: Google Translate
The original in German can be found here: http://www.myslam.net/de/post/5651





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