Maduro's main problem, is not necessarily Cabello

The guessing game these days, featured today even on Zeta front page, is whether "president" Maduro will finish off his real rival, Diosdado Cabello. I am of the school of those that think that Maduro has somewhat comforted his hold inside chavismo but that this is mostly circumstantial, in view of the December vote. The reckoning starts the day after.  But the main problem in Maduro complex situation is probably a very simple one: "it's the economy, stupid!"; except that it has a very, very different meaning in Venezuela than what Clinton implied 20 years ago.


One of the reasons of Chavez success, and certainly the one that allowed him to survive the 2002-2003 crisis to come back swinging in 2004 is that he inherited a deficient country but one that was producing enough for basic subsistence. In fact in the last two terms of the pre Chavez era, in spite of all the economic problems then, the trend had been to produce more food in the quieter years. This allowed Chavez to dispose of a significant income for a lot of his plans since he did not need to buy as much food and sundries the regime is now forced to import.

But in 2003 Chavez in all earnest started his "social programs" that consisted basically in paying off people, not teaching them to fish. And in 2004 he started his expropriation policies. The consequences were perfectly predictable.

First, people that got used to receive freebies wanted ever more freebies to continue to vote for the regime. But the policies of expropriation of land and of industrial extortion through currency control exchange and corruption and power abuse stopped the growth of the productive economy. True, banks, commerce, telecommunications maintained the charade of a growing economy but agriculture and manufacture either dwindled or were unable to match the growth in population along it growth in demand. Classic.

Already in 2006 the first signs were appearing and the first wave of product scarcity helped a lot Chavez loss of the 2007 referendum. Since then, with more or less intensity inflation started to grow while food scarcity had a trend toward increase. Until now where the index of food scarcity is around 20% and inflation above 40% annual. 20% food scarcity index means, by the way, that you will not get more than 80% of the times in your grocery list in a single stop, or, more dramatically that you need to go to 5 different stores to find, say. milk.

And thus the chavista "budget" became unsustainable.

Now, in chavismo terms budget has a different meaning than in a normal country. Basically there are 5 parts in a chavista budget.  One part indeed is destined to pay bureaucrats and keep them blackmailed or happy so that they keep voting for chavismo.  Another part is for public works, not to build new stuff, but to spend only on collapsing bridges and the like. Never on maintenance, of course, just repairs when it cannot be helped. The third portion is seasonal, depending on the proximity of elections, and consist of social programs that shall be financed only for the duration of a given election. It is the direct "vote buying" part, that goes from direct handouts to massive food importations for distribution nearly for free. The other two parts are the more sensitive.

The first of the sensitive part is the one that is used, or rather, was used to promote the international reputation of Chavez. This included solidarity assistance programs like cheap oil for Caribbean friends to outright useless weapons purchase. Without forgetting the outright lifeline support for the agonizing Cuban tyranny. And it is that 4th portion of budget that primed the creation of the 5th and last part of the budget, the one destined to corruption.

You need to understand that the management of the national funds for strictly electoral purposes and promotion of the beloved El Supremo implied increasing "technical" illegal actions that had to be paid. Those who did the illegal deeds, from electoral fraud to illegal foreign donations, had to be paid off and to cash in. Quickly enough the pump was primed until today some speculate that as much as a third of the national budget is basically lost to corruption, or its indirect expression, utter mismanagement. The drama of Maduro today is that Chavez left items 4th (Cuban subsidy) and 5th (utter corruption) as the two main budget points and there is not enough money.

For all his inefficiency. incompetence and outright criminality, Chavez had enough production left that he could more or less manage the 5 elements of a "chavista budget". But since around 2010 production had become insufficient and the regime had to spend more and more money on importing El Pueblo's welfare. Borrowing allowed the regime to maintain the 5 points equilibrium but with a decrepit oil production since 2012 this is not possible anymore and Maduro needs to cut off one of the five items.

Logic would dictate that cutting off the corrupt system of the regime should be enough to reestablish equilibrium. But corruption has become the basis of the power for the regime, the only way you have to pay people that will steal elections for you, that will repress civilians that would dare to protest, to pay the judges to emit the political sentences you need, to satisfy the army by letting that one purchase the weapons, etc. cutting corruption is now impossible because too many have stolen too much and can blackmail too many if ever threatened.

True, item 4 of the budget, foreign aid can and is cut down. The problem there is that the bulk is for Cuba and not only that portion cannot be cut down whatsoever, but it is also linked now intimately with the corruption part of the budget.

Touching to part 1 or 3 of the budget is a sure loss in elections and part 2 is now so minor that there is little that can be cut there, not that it would be possible since it is also linked increasingly with corruption.

In other words, the bad economy since 2008 has overtime deprived Maduro of the means to perform the difficult balancing act between corruption and providing the subsistence of El Pueblo. One has to yield.

The economic problem per se is that not enough taxes come in to supplement the dwindling oil revenue. Sales tax and income tax are linked to how performing the economy is and these days inflation certainly helps a lot in a numerical increase of the tax receipts but is a bitch about conserving the purchasing power of these tax receipts.

Of course Maduro could do things. He could cut down of the ridiculous subsidies on gas and electricity. He could let private business breathe a little bit easier by relaxing the punishing legal context. He could stop expropriations. He could decentralize public works so that that budget is used more efficiently and prime the production pump. He could start a progressive devaluation that the public could accept in exchange of a steady supply of at least a couple of dozen of food items. He could cut outright weapon purchases. He could reactivate the state purchase system through open bidding.

But doing ANY of the measures above would imply that chavismo stops being chavismo and that is simply unacceptable for one of the affected groups inside chavismo. Maduro is trapped because the degrading economy deprives him of political muscle. And so would be Cabello for that matter.