How External Actors Have Worsened Venezuela’s Long Crisis

How External Actors Have Worsened Venezuela’s Long Crisis

The domestic roots of Venezuela’s political crises precede Chavez, and foreign interventions exacerbate them.

In January 2019, the United States, France, and Britain recognized the head of Venezuela’s National Assembly, Juan Guaidó, as President of Venezuela. Russia and China continue to recognize the embattled incumbent Nicolas Maduro as president. Both sides are digging in. Russia sent long range nuclear-capable bombers to Venezuela in December 2018, while U.S. Secretary of State Mike Pompeo and National Security Advisor John Bolton have consistently refused to preclude military options, even though a majority of Venezuelans oppose foreign military intervention to restore democracy.

This is hardly the first time that major powers have gotten involved in Venezuelan politics. Over the course of the last three decades, foreign intervention has resulted in a polarized society, making it more difficult to pursue genuine reforms.

Venezuela’s political confrontation, now more dire and violent than ever, has its roots in massive mismanagement of its oil wealth. As a founding member of OPEC, Venezuela witnessed a major economic boom after the 1973 oil embargo. The consequent rise in oil prices made the national economy reliant on oil and gas exports and, despite only directly employing a fraction of the population (about 37,000 out of 13.36 million people in 1975), the oil and gas industries accounted for 35.99 percent of GDP by 1979. Moreover, the Venezuelan government of President Carlos Andrés Pérez nationalized the petroleum and iron ore industries and began ambitious social welfare projects via loans from foreign lending institutions based on projected oil revenues. From 1974 to 1978, Venezuela went from a current account surplus of $7.8 billion to a deficit of $5.8 billion. As oil prices crashed in 1982, the Venezuelan economy entered a period of economic decline.

The first politically destabilizing foreign intervention was an IMF and World Bank loan in 1989, during the second term of President Pérez. Ironically, Pérez campaigned as a populist promising a return to the heady days of the 1970s, but the austerity measures he introduced at the IMF’s behest included the removal of price controls over essential commodities like petroleum, and led to massive rioting that was suppressed by the military. This violence and repression, known as the Caracazo, simultaneously destroyed the popular legitimacy of the political system and radicalized the junior officers of the Armed Forces, who had been ordered to fire upon unarmed protestors. Consequently, two widely popular coup attempts were made in 1992 by junior and mid-level officers loyal to the Revolutionary Bolivarian Movement-200 (MBR) led by Hugo Chavez. Perez’s 1993 impeachment for misappropriating 17 million dollars meant for national security further underscored the established political elites’ corruption.

Despite widespread discontent and political polarization, Perez’s successor, Rafael Caldera, continued the IMF policies of privatization and devaluing the currency, which especially affected the lower and middle classes. Along with rampant unemployment, nearly half of the labor force entered the informal sector, while annual inflation reached 103 percent by 1996. In 1999, real wages were 70 percent below those of 1979, and 69 percent of the population lived below the poverty line.

Because of his popularity with the lower classes, Hugo Chavez was elected president in 1998. From the very beginning, members of the middle and upper classes feared that Chavez had made impossible promises to “people very low in culture,” and that democracy, freedom, and free enterprise were threatened. His campaign rhetoric did little to assuage their fears.

Chavez promised to eliminate corruption, called for a new constitution, and opposed the neo-liberal reforms imposed by the IMF. The new constitution created a unicameral legislature, delivered the president unprecedented powers, and guaranteed universal health care, education, pensions, and employment. However, the macroeconomic situation did not improve due to historically low oil prices exacerbated by the Asian financial crisis.

Another political crisis occurred in 2002, as executives of the state-owned petroleum company PDVSA went on strike due to wage and pension-related grievances. Senior military officers had become wary of Chavez’s increasing control over them and the civil society organizations loyal to Chavez called Bolivarian Circles, which were being used to implement welfare programs. After a violent confrontation between protestors and loyalists, these officers launched an unsuccessful coup, which was backed by business leaders. Once again, foreign intervention made the crisis more dire. Despite prior knowledge of coup preparations, the United States had not informed Chavez of the plot, raising suspicions of U.S. complicity. In stark contrast, technical assistance from Iran and China favored Chavez by helping to sustain the productivity of PDVSA and allowing Chavez to replace trained workers with loyalists.

After the coup attempt, the key domestic policy motivations for Chavez became increasing social welfare for the poor and working classes, mollifying the middle classes with a high standard of living, and reducing Venezuela’s dependence on the United States. Rapidly increasing oil prices from 2003 until 2014 allowed Chavez, and subsequently his hand-picked successor Nicolás Maduro, to accomplish these contradictory goals by leveraging petroleum in Venezuelan foreign policy.

While oil sales to the United States were already in decline beginning in the late 1980s, Chavez began rapidly increasing oil exports to China in the early 2000s. More importantly, China invested heavily in the Orinoco Belt energy projects, and Chinese loans to Venezuela totaled a staggering $62 billion, of which $55 billion were for the energy sector. Besides the energy sector, Chinese companies invested in “sugar refineries, cell phone assembly, electricity generation, cattle ranches, egg farms, transportation systems, and housing projects.” Even as oil prices crashed soon after Chavez died in 2013, China issued a $4 billion cash-for-oil deal in 2014 and another $5 billion loan in 2015 to Nicolás Maduro. Consequently, Venezuela still owes China $20 billion, entrenching China’s stake in sustaining the Chavez-Maduro regime.

The Chavez regime’s heightened ties with Russia began with military-technological cooperation in 2005. The relationship initially centered on Venezuelan purchases of Russian weapons systems; besides small arms, these included the Mil Mi-17 helicopter, Su-30MK2 fighter jets, T-72B Tanks, S-125 Pechora-2M surface-to-air missiles, and the S-300 anti-ballistic missile systems. A significant portion of these sales—amounting to $6 billion—have been based on Russian loans. Moreover, Russia began investing in PDVSA-related projects at a time when other foreign companies had exited the energy sector. Rosneft, a Russian state-owned petroleum company, has invested $9 billion in Venezuela since 2010. Its investments were misspent, and $700 million remains unaccounted for. As of March 2019, Venezuela still owes $2.3 billion to Rosneft, and the relationship with Russia has become critical for PDVSA’s survival. In June 2019, Venezuela handed control of two natural gas deposits in northeastern Venezuela to Rosneft, which will be permitted to export up to 100 percent of the extracted gas. Russia’s continued military cooperation and economic backing have consequently become key to the crumbling Chavista regime’s survival.

A longue durée analysis shows that the latest political crisis in Venezuela has roots in problems that precede Chavez, and which have continued after his death. Foreign governments—first the United States via the IMF and the World Bank, then China and Russia through investments and loans centered on the energy sector—have supported opposing political groups and exacerbated existing problems. Thus, future political arrangements in Venezuela, be they achieved through the mediation efforts of Mexico and Uruguay or via Norway and the EU, should address the country’s underlying economic issues and be cognizant about how foreign interventions have affected them.

Zachery Abunemeh is a recent Mississippi State University graduate with a Bachelor of Arts in Political Science and a minor in Philosophy. His research interests include U.S. domestic politics and state failures in democratization and governmental stabilization.

Vasabjit Banerjee is an Assistant Professor of political science at Mississippi State University. He is the author of “Undoing the Revolution: Comparing Elite Subversion of Peasant Rebellions” (Temple University Press, Spring 2019).