Wednesday, October 24, 2012

Now what? The 2013 crisis

Having seen the main political consequences of the October 7 result, we may indulge in a little bit of forecasting.

There is a crisis coming and it is unavoidable. The only way the crisis impact could be softened is if chavismo accepted to recognize the existence of the opposition and a return to a more democratic state, by relinquishing at lease a couple of the 5 powers that it currently hold in a tight fisted hand. Once the opposition understands that its basic civil , and human, rights will be respected, only then the regime will become a government again and co-opt the opposition into taking the hard measures that cannot be avoided any longer. But Chavez been the scorpion to the swimming toad, such concessions simply will not occur as he is alive. No NEP for the Narcissistic-Leninist regime.

Thus an economical and political crisis is in the works, with a scenario like the one described below.

The bases for the crisis are two fold: first an economic implosion and second an internal crisis of chavismo due to the reactions to that crisis. Note that in the scenario below I am not contemplating the "Chavez death watch factor" because a crisis is coming and his eventual death will only aggravate, or soften, the crisis. Nor I am discussing constitutional changes are those will just be additional tools for repression.

Price of oil is not going to rise much more than what it is now, unless there is a major conflict in the Middle East, something that seems to recede somewhat for the time being as Iran is into its own crisis and needs cash.

Venezuelan production is not going up the way it should and even if the Orinoco Belt contractors start producing more, it may not be enough to compensate the losses of PDVSA fields themselves. Indication that the Venezuela oil industry is not doing well are the increasing gasoline imports we are doing.

Never mind that the US is cracking up more and more natural gas and its dependency on oil is going to decrease. In spite of 14 years of anti US revolution, among the many lies of Chavez Venezuela has still as its main trading partner the grand olde US of A. In the near future US purchases are going to start dropping faster than what they are doing now.

Thus oil is not going to be enough of an economic cushion for Chavez because its benefits are not going to increase enough to compensate his faster growing needs.

There are two things that Chavez cannot postpone much longer, a 40% devaluation and a steep increase in gasoline prices. With some political luck he may push that to the second semester of 2013, but he cannot avoid it.

The real problem Venezuela has this time around is that the systematic downgrading of the private sector will make any oncoming economic crisis much longer and painful. The private sector today has no reserves, and if it has some they are in foreign currency and will not return to Venezuela under the current situation. The reserves they may have in bolivares will be consumed in wages very fast until bankruptcy arrives and all are in the streets.

In addition to catastrophic economic policies which have turned Venezuela into an importer of almost everything it needs, constantly pushed labor laws and regulations have a triple negative effect: labor costs are now very high, employee management is more and more difficult and yet the workers are not benefiting from anything. Thus a consumption driven recovery is not an option since the Venezuelan productive tissue is basically stuck while inflation will eat up fast disposable income. A major devaluation this time will mean bankruptcies all around since the current legal system will forbid any adaption for survival by most business. The public sector will have all the guilt for the crisis and all the burden to solve it.

The only way out is a national deal where the opposition is included to allow for the necessary measures and the political time for implementation and results. We know that this is not going to happen and thus the regime will enter into its outright repressive mode as people will turn on each other and against the regime. Except that the repression will break up what we can loosely call the Chavez coalition.

At this point the Chavez coalition, has little to do with the voters clientele and more with the corruption clientele and its ideology as this one may indeed exist. On one side there is the bolibourgeoisie that got filthy rich out of state contracts and assorted corruption schemes. The military ruling strata can be loosely annexed to that group. On the other side, and equally corrupt, there is a civilian group of left wing ideology more or less strongly committed depending of their wishes to retain office and keep cashing at the cashier. The military is not really an in between group: they hold the real power since Chavez has transformed Venezuela into a military regime for all practical purposes. Consider that the military is a political party of sorts except that it holds the weapons. It is the group Chavez likes best though without trusting it more than the other. Just look at the governor candidates: out of 23 I count at least 10 military or military associated (for example in Falcon it is the wife of a military that held the spot before she was "elected").

The problem with that coalition is that the chips are going to fall down and the military is going to be asked to repress the people in exchange of 14 years of getting rich. Will they do it for the bolibourgeois? Will they do it for the civilian left (and Cuba)? Will they do it for Chavez now that they know his star is fading, slowly but surely, like a red giant star? Will they do it for themselves and do the coup they had no need to do until now?

The opposition in all of this is standing on the side. It can do nothing except offer an alternative vision of things that some inside the regime may decide to call in, at some point, before it is too late. As long as Chavez, and he is truly the main culprit here, can only see the opposition as enemies that need to be destroyed, we keep rolling toward the final crisis, the longer we wait for that crisis the worse it will be.


  1. Excellent. Totally agree. The only question is when?. Will the honeymoon be shorter than CAP's in 1989?

    1. It is going to be a little different because they are smart enough to remember el Caracazo and try to avoid a repeat performance. It will be more like a series of sequential protests going towards some sort of paroxysm triggered maybe on purpose if they can pretend to pin down the thing on the opposition.

  2. Very good article Daniel.

    I know a high ranking military chavista. All of his family, mother brothers and sisters, in-laws and cousins are anti-chavista and there are plenty of them. Is he going to come after them with his troops? Perhaps you have your answer right there. There seem to be plenty of those cases out there too.

    I take exception with the following comment: "Indication that the Venezuela oil industry is not doing well are the increasing gasoline imports we are doing.". That is only an indication that Venezuela does not have sufficient refining capacity. Not surprising, the main refineries, Amuay, El Palito, El Cardon are old and have taken the bad habit of blowing up right, left and center once in a while. There is however another factor at play here not generally well appreciated besides PDVSA "thumb in the a*s" management style. Globally, the oil sector loose right now about 4MBd each year due to aging or closure of wells. This has to be replaced by putting online new sources before even increasing global oil production by a single barrel. I am wondering how much of that can be attributed to Venezuela, after all local wells age as well. In addition, new oil comes from the Faja hence more expensive to extract and process than the oil it will replace. This is likely a tightly kept secret in Chuao.

    As for the price of oil staying around where it is right now, I concur with you. No room for a prolonged crash because of competition from the BRICS to guzzle up. If it goes to $150/barrel as in 2088, then we get 2008 all over again. I for one believe that the price of oil was the main driver of that recession, not the subprime crisis in El Paso, Cleveland, or othe backwater. After all Obama had to bail out the big three. They sell cars and cars guzzle. When oil hit $150/barrel, lots of people started walking and the big three went under.

    1. Since a devaluation would increase the cost of imports, that is, of everything, a 40% devaluation would be quite a shock. Why do you think it is inevitable in the coming year?

    2. Because chavez has run out of cash. CADIVI is 6 months late in its payments.

  3. I can't imagine a straightforward devaluation and gas price increase from this administration. It's going to be some half ass attempt to means test or ration gas, not increase the price. I don't know how, but I believe they'll do some kind of manipulation of the currency (one kind for rich people, one kind for poor people?).

    1. A double currency exchange rate will not help much because the bulk of currency goes to the "poor" that the regime needs to feed.

    2. No way they do an across the board devaluation without some SITME rate and some other trickery involving multiple rates. A straightforward devaluation, why that would be neoliberal!

  4. Anonymous1:46 AM

    It's a well known political rule that when elected you make those hard choices. i.e. devaluation.

    During the final year or two in a term, is when you need to make the economic policies you've be touting work.

    I don't expect Hugo to survive that long due to his cancer. I don't see a happy ending here.

    and a note for the above commenter Charly, The big 3 auto makers in the USA didn't go under, only GM and Chrysler had their pension funds left intact by the USA and Canada gov'ts bailing them out. Ford didn't take the bait.
    If the companies had refused bailouts, they would have gone through orderly bankruptcies, new investors would have picked up the pieces of these companies, and the profitable parts reassembled to produce autos again as Mitt Romney had suggested.
    Mr. Romney is expected to win the coming election, and making the USA self reliant for its petroleum is one of his main campaign policies. It's going to be quite a ride!


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