Alaco

04.11.2013 | Venezuela’s economy, no longer on a roll?

In May this year a sense of outrage and urgency spread throughout Venezuela. People took to the streets in their thousands, not to protest but to find a supermarket that sold toilet paper. Toilet paper was not the new symbol of revolution. It was however the latest product to join the country’s list of unobtainable goods, contributing to a growing sense of crisis.

And a dearth in supply continues.  In August the FT reported that shortages in Venezuela had reached record levels, so much so that private entrepreneurs had created an app to help citizens locate food and personal hygiene products.  In September it was widely reported in the local press that at least five Venezuelan newspapers had temporarily closed due to the severe paper shortage.  In late October, following over six months of shortages in basic goods in the country, Venezuelan daily De Frente ran with the headline: “There Is No Newsprint”. 

Situations of this type in Venezuela are nothing new.  Yet these were the first shortages of goods since the death of Hugo Chavez in May 2013 and they come at a time of political instability.

In a talk given in May 2013, Antonio Sampaio, a Research Analyst at global think-tank International Institute of Strategic Studies, posited that economic power was an integral part of Chavez’ presidency, allowing him to sustain an otherwise unsustainable ideology.  Sampaio argued that the current economic deterioration in the country was not only resulting in a loss of popularity for the socialist government, but also a loss of status for Venezuela as Latin America’s leading influential power.

While it is new President Nicolas Maduro and not Chavez who must face these consequences, the origins of the current woes were put in place on Chavez’ watch.  The wealth of Venezuela, a country with the largest known oil reserves in the world, facilitated Chavez’ exclusive and expensive anti-US rhetoric to such an extent that in 2007 Chavez nationalised the oil industry, expelled all foreign oil companies and chose instead to sell the barrels at below-market prices to friendly Latin American and Caribbean states.  Oil profits were largely used for social investment, keeping the President popular with the masses.  Yet, without investment in oil infrastructure, the inevitable consequences of such a decision have finally caught up with the country.

According to Sampaio, what we are witnessing is a growing strategic and economic alliance between Venezuela and the only other Latin American state capable of filling the power vacuum – Brazil.  While Brazil has always been viewed as an important power from outside the region, for a significant number of Latin American countries sharing the Chavismo ideology, Venezuela was the only state capable of providing economic and ideological support. 

Now, a significant transition in the continent is playing out.  Latin American states which once looked to Venezuela now turn to Brazil, a country which has no real interest in sustaining Chavismo.  Chavez’ death did not signal the death of Chavismo; ironically, though, the consequences of his reign have brought about its demise.