Address at the Latin American Morning by Mikko Pyhälä, Former Ambassador to Venezuela
Helsinki, 18 April, 2018
Venezuela first became a rich country when by its initiative, OPEC had been formed in 1959, and oil prices shot up in 1974. Since then, there has been a strong tendency to live off from the oil almost exclusively.
Venezuela had its second phase of wealth around 2003-2008 when international oil prices were record high. President Hugo Chávez was given the authority by the fully Chavista parliament in 2005 to transfer a large part of the oil income, over 100 billion US$ by 2012, to foreign accounts controlled by him alone. The oil and gas deposits of Venezuela were assessed as the richest on Earth, larger than those of Saudi Arabia.
In addition, Venezuela also had and still has rich deposits of gold, silver, diamonds and other metals such as coltan. When the government introduced foreign exchange control in 2003, these minerals and much of the rest of Venezuelan agricultural and industrial production progressively ceased to be exported through official channels. Minerals, also oil products, started to be sold abroad illegally.
Chávez was very generous with his friends paying off all of the Belarus oil debt to Russia, and financing most of the foreign debt of Argentina, some of Nicaragua and channeling much funding to Evo Morales in Bolivia.
In order to get political influence in the Caribbean, Venezuela established PetroCaribe, a system to deliver oil to the Caribbean states on highly concessional terms. Barbados, as well as Trinidad and Tobago, declined to join. In order to counter George W. Bush’s American trade alliance plans (FTAA/ALCA), Chávez established a political-economic alliance ALBA with Cuba in 2004, later joined by Bolivia (2006), Nicaragua (2007) and Ecuador (2009), followed by a growing number of Caribbean Islands states (Antigua and Barbuda, Dominica, St. Vincent and the Grenadines, St. Lucia, and St. Kitts and Nevis). Also Suriname joined, and Haiti was given a special status. Honduras was a member briefly in 2008-9. Argentina (with the Kirschners), Uruguay and Paraguay (with Lugo) kept good relations with ALBA. ALBA functioned as a political alliance. It never became economically important, but it allowed for the Venezuelan government to make direct acquisitions from these countries without international tenders.
Chávez also undertook a frenzy of international travel and on these trips hundreds of Memoranda of Understanding were signed with countries of the world, also with some countries of the European Union. These signed memos allowed for direct acquisition without public tender from the signatory country. This became a goldmine for corruption. Finland and the other Nordic countries, in spite of persuasion, declined to sign any such memos. No wonder that our exports started falling, and eventually Venezuela stopped payments for some technology projects, and repatriation of royalties. When the presidents of Switzerland and Finland wrote to Chávez in 2011, Venezuela paid ten percent of one company’s service fees, but never more.
Chávez’s supporters in the Venezuelan government elaborated schemes which made several billionaires practically overnight, using financial vehicles difficult to understand for the public and even for the media. So called “structured notes” holding international bonds were sold to Chávez’s fiends in national currency and the buyers were allowed to sell them for dollars. The bigger the difference between the official exchange rate and the unofficial “free” rate, the greater the profit made.
When I came to Venezuela in 2006, the official exchange rate was so overvalued that citizens and residents of Venezuela could buy almost anything for half the world market prize. This led to massive importation of items such as luxury vehicles. Chavista leaders soon had private airplanes so that they filled up the small Charallave airport near Caracas. Chavistas started buying properties in Miami, Paris, Rome, all over the world.
With the list of signatories who demanded a recall referendum against Chávez in 2004, Chavistas obtained electronic data on over four million citizens who could be subjected, an often were, to an almost total boycott of all state services and contracts, such as employment, access to public enterprises, their children’s access to public universities etc. As a parody of Chávez’s “Socialism of the XXI Century”, the new reality came to be called “Apartheid of the XXI Century”.
By 2007 Chávez was increasingly called “Anti-Midas”. Whereas the Greek mythological king turned into gold anything he touched, the touch of Chávez, in particular nationalizations, turned everything into ashes. Chávez nationalized practically all infrastructure industries like cement, iron and steel, aluminum, copper, electricity production, fertilizers, and forest products. Due to bad management and corruption, their productivity collapsed. Increasingly price controls were introduced which made nationally produced goods too expensive to compete in local markets, because goods imported by Chávez’s supporters who received dollars at favorable rates were always cheaper.
For the Chavistas, making locally produced food and industrial goods uncompetitive was a way of destroying the economic base of the local bourgeoisie, and this was brought to conclusion by president Maduro as of his assumption of power first as vice-president during Chávez’s illness in late 2012, and as president since December 2013. Very few competitive private enterprises remain, one being Polar, the biggest producer of beer. Should Maduro take over Polar, production of beer would likely collapse like all and any industries the Chavistas have nationalized, and there is an age-old saying “if beer is no longer available for the Venezuelans, a popular rebellion is inevitable”.
With the economy in a steep downhill slope, Maduro started in 2015 handing over ownership, as well as control of production and distribution to the military, thus purchasing their loyalty. Loyalty was also bought by having some two thousand generals in the armed forces, more than USA or even NATO collectively have. Now dozens of these generals are in prison, have resigned or have escaped from the country.
In April 2018, Venezuela is one of the most corrupt countries in the world, with the least open economy, and the Venezuelan people the poorest in South America. According to the Catholic University, almost 90 per cent of the people are poor, with half of the population in absolute poverty, and every fourth child malnourished. Since the arrival of Maduro to power in 2013, the purchasing power of the Venezuelans has decreased by 96 %. Millions of people have lost weight, tens of thousands have become malnourished, and people have started dying of hunger in homes for the aged and prisons. A shocking percentage of newborn babies die of malnutrition or lack of care in hospitals. Yet Venezuela denies that there is any lack of food and medicines, and refuses to accept humanitarian assistance from abroad. This explains why since Chávez’s election, some four million people have moved abroad, most of them well educated.
Malaria is affecting hundreds of thousands of persons and long-gone epidemics such as tuberculosis have returned. Medicines for chronic diseases are usually not available, such as for diabetes, painkillers. Tests for pregnancy, HIV, and blood transfusion cannot be made in hospitals which are accessible for the poor. Surgical operations can no longer be made except in a small number of private clinics, much too expensive for anybody without dollars.
Venezuela has become a pariah country with a large number of its civilian and military leaders under personal sanctions by USA, Canada, European Union, Switzerland, and Panama as the first Latin American country. When USA enacted sanctions against the Chavista ruling elite in 2017, assets worth of hundreds of millions of dollars belonging to Tarek El-Aissami, now Vice-President of Venezuela, were frozen. Andorra agreed to freezing a number of bank accounts of Chavistas, apparently kept for money laundering.
Politically Venezuela has become fairly isolated, but it still seems to enjoy support by the majority of the member countries in the UN Human Rights Commission. In the Organization of American States, Venezuela can no longer prevent condemnations by the majority of the member countries as it used to be able until recently. A recent change of Director General of the FAO finally made this organization sound alarm bells about the food crisis in Venezuela, instead of a series of prizes for “exemplary alimentation policy”. Also the current head of WHO has sounded alarm bells about the health catastrophe, and ILO has started investigating violations of labor rights.
Venezuela is indebted to China for almost 20 billion dollars. China is no longer giving new credits, but is allowing repayment moratorium. The Venezuelan government is indebted to Russia for 3 billion dollars, while the oil company PDVSA is indebted for 5 billion dollars to ROSNEFT. Russia now is giving only modest support in the form of commercial agreements. All international sources of credit are now closed to Venezuela as its bonds are increasingly in default, now about 2 billion out of the total debt of some 40 billion.
Chávez started the dismantling of Rule of Law, and Maduro has now made that complete by incapacitating the National Assembly where the opposition managed to get 2/3 qualified majority in the December 2015 elections. Maduro’s coup against that majority started the next day through illegally revamping the Supreme Court of Justice, and no laws enacted by the Assembly have entered into force, and the legitimate Supreme Court of Justice which the Assembly (very belatedly!) elected has been forced to convene in Miami, Washington DC, and now finally, at least, in Bogotá. When the Prosecutor General of Venezuela, Luisa Ortega Díaz, broke ranks with the government as it turned openly dictatorial, she had to flee the country and take shelter in Colombia. From there she has been preparing claims to the International Criminal Court in the Hague and to the legitimate Supreme Court, in Bogotá .
After massive popular demonstrations in 2014, the Maduro government agreed to a reconciliation dialogue with the good offices of the Vatican and UNASUR, but it led nowhere as the government did not keep any of its promises. With the breakdown of that process, Cardinal Pietro Parolin, Secretary of State of the Vatican, wrote a very clear letter dated 1 December, 2016, to the Venezuelan counterparts stating that no progress is possible unless the government, as it had promised, 1) agrees to a definite calendar of free and fair elections, 2) gives the political powers back to the National Assembly, 3) accepts international humanitarian assistance, and 4) liberates all political prisoners. Instead, Maduro organized in summer 2017 totally unconstitutional and fraudulent elections of a National Constituent Assembly with the aim of displacing finally the legitimate National Assembly which, however, has continued operating in the shadows without any funding and facilities.
With the Venezuelan opposition in disarray due to having participated in manipulated elections, shuffling particular instead of common interests, inhabilitation and/or imprisonment of popularly elected leaders, banning of major political parties, forced exile of many politicians and journalists, and false promises of Maduro and his representatives in a process steered by Spain’s former Prime Minister Luis Rodríguez Zapatero, the possibility of a peaceful transition back to the Rule of Law seems now to be quite unlikely.
The Venezuelan government is seen as participating in organized crime such as trafficking of drugs (at times it was 80-90 per cent of the cocaine produced in Colombia), money laundering and corruption. Individuals sanctioned have been 55 by Panama, with 52 by USA, and seven by EU and Switzerland. As many as ten other European countries have imposed sanctions on Venezuelan leaders. Many politicians as well as leaders of the military have been identified as violators of human rights as a systematic policy which should make possible an indictment in the International Criminal Court. The Court has now announced that an evaluation of launching such an indictment has started with regard to the death of over a hundred demonstrators in 2015-17. The growing number of claims may bring other cases for evaluation of the ICC. It may be a long process and could take years, but there is hardly any turning back on this road.
While the abyss in Venezuela gets deeper and deeper, there is a growing possibility of a rebellion by the lower ranks of the armed forces. That has indeed been called for by persons such as a former Commander of the Armed Forces. The Venezuelan civil society in the broadest possible manner has recently convened a Free Venezuela Broad Front with participation of the political groupings, trade unions, churches, retired military personnel, former leading Chavistas, and important business groups.
The precarious situation of Maduro is evidenced by the increasing number of dismissals and arrest of military personnel in active duty accused of preparing a rebellion against the government. Also the ranks of the Chavistas have started to break down with ever less spoils to be enjoyed. Some of the key Chavistas have settled abroad, such as Rafael Ramírez, former head of the national oil company PDVSA and Minister of Petroleum and Energy, first neutralized by sending him as Ambassador to the UN, and now dismissed also from that. He is said to have control over several billions of diverted funds.
Maduro and his military supporters have called for illegal presidential elections in May, 2018, with a turncoat “opponent” as his main counter candidate. The ruling group may still prevail relying on increased repression for a while, because they probably have no place to go for exile. Should there be an abrupt regime change, they could be imprisoned. Curiously Maduro and the other Chavistas did not seriously try to negotiate a transition where they could have saved some space for themselves. One is also led to question whether Cuba, a country which is seen as having the dominant role in Venezuela, would have worked against such a transition to take place.
The Venezuelan crisis has impacts on the entire region. When hundreds of thousands of poor people have crossed the border to Colombia, and in smaller numbers to other countries, this long-lasting flow of people is spreading contagious diseases, and has created emergencies not only in health care but also in housing, schooling, transport and control of crime requiring international assistance to the receiving countries. In these countries, xenophobic attitudes, still small, are starting to grow. The ambitious initiative UNASUR of presidents Lula and Chávez has been paralyzed with no Secretary General nor any deliberating meetings, and after the recent Hemispheric Summit in Lima, action might return to the OAS. There are also concerns that through a weakened Venezuela, foreign military or other violent elements might gain a foothold in South America. Even if the Summit last week officially failed to agree on a workable strategy to contain the dictatorship in Venezuela, the member countries of the more active Lima Group led by Canada, Chile, Paraguay, Panama, Peru and Colombia appear to have grown in number and strengthened in their cohesion.