Saturday, September 14, 2013

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.


  1. Anonymous7:40 AM

    In a dictatorship there is only one solution. Riots and protests in the street. Otherwise the regime will always have a trick up their sleeve.

    While the country is in turmoil, Venezuelans turn a blind eye waiting for something to happen.

  2. Anonymous1:26 PM

    There was a previous thread, from two sources, that indicated that Chavismo could continue indefinitely. Your post and Miguel's post complimented each other by drawing the same conclusion albeit from different backgrounds.
    This post hints at the possibility that the future may not be that predictable. I appreciate the complexity of the present situation does not allow a clear view of how things will unfold but there does appear to be a rapidly approaching point, or series of events, that may be significant in determining the future.
    Have I misinterpreted ?

    1. I have more or less written in the last couple of months that chavismo can be gone tomorrow or last for years. There are elements tugging at both sides of the equation and right now we cannot see clearly what will be the end result. The only thing that we can be certain is that for chavismo to remain in office will require a more repressive system.

  3. Anonymous3:42 PM

    thank you again, daniel, for your very important opinions and , of course your blog,, i look forward to reading each week ..
    although i do not envy yourself and your countrymen that are in THAT situation... but yes, even here in canada, elections can be won or loss on the supply of 'carrots' to the electorate.. here, even the electorate are getting wiser to this misuse of the 'carrot',,
    i took some time but it has happened [ in canada] recently.. so maybe, it can happen in VE.. but so much damage [ business, economics etc.] has occurred there.
    there will come a time when your country will need fellows like yourself to run a much better system for VE.. hopefully sooner than later

  4. Anonymous4:19 PM

    As the previous commentator, I find myself a little confused. The previous post hinted that Chavism still had the tools needed to remain in power for several years to come. Now on this present post you say Chavism is trapped. That they need to cut down at least one of the "items of the budget". Please explain.

    1. This post is more about Maduro keeping hold of his troops than keeping hold over the country. Certainly getting the hold on the country depends on getting hood of enough of chavismo but here what I am writing about is how difficult it is for Maduro to keep everyone happy inside chavismo.

  5. Anonymous4:52 PM

    Enjoyed this Post. Thanks!

  6. What Daniel is saying, quite correctly, is that a time is approaching where in order to remain in power, Chavism has to force the populace into a lower standard of living. It is, of course, possible for Chavism to do this while remaining in power, provided it has the right tools. And, planning ahead, one can see how Chavism is acquiring those tools: in the last few months ALL audio and audiovisual media outlets are being brought under the control of the government. This is not an exaggeration. I mean absolutely ALL. Before Chavez's death, the majority already were in government hands, but lately absolutely ALL remaining ones have, either been bought by regime agents or been simply forced to close down by ad-hoc regulation. And to cap things off, the regime has just announced that "cadenas" will become a permanent DAILY feature of programming, because it the state controlled media are not doing a good enough job at presenting THE TRUTH to the people. You can research the history of Venezuelan media and "cadenas" here in this blog. The latest developments are also discussed here:

  7. Anonymous6:06 PM

    So forcing a lower than already low standard of living on the people is that which allows the previously referred to budget "categories" to remain in place, more or less ?

    If that is the case can that "about to be lowered" standard of living be described in a tangible form bearing in mind the demonstrability of budgets ?

    I am not disagreeing with the article, quite the opposite. The issue I have is that I do remember a time when a Chavista expected and did purchase ten chickens at a time, or two pigs and so on, but now they may be only allowed to buy a couple of chicken legs if they are available. I hear now that some butcher shops only allow five people in at a time and the door is locked. The problem is that whilst a non Chavista may say " I told you so" what interests me is that at what point the pacification of the pissed off Chavista becomes a budget subject at the expense of............or is there a suggestion that pacification will apply to all regardless of political view ?

    1. Fixing a deadline is difficult. For example the corrupt military could be agreed into not buying weapons for a while so that the regime can import more rice. This is a day to day budget process we are talking about, a secretive budget that takes place outside the normal budget of the National Assembly voted by the national assembly.

  8. Anonymous2:36 PM

    Or maybe it's about reaching a point of equilibrium ?
    "You can continue with your corrupt revolution as long as I keep my land, house, business, standard of living, freebies, expectations.........
    That may be considered a win win situation but I'm not sure if that reflects the culture of Venezuela.

    And I noticed a parallel rate near to 45, an increase of nearly 5 alone in the last week. Something's about to give.

    1. Anonymous1:47 AM

      "And I noticed a parallel rate near to 45, an increase of nearly 5 alone in the last week. Something's about to give."

      Someone or other has been saying that since the parallel rate was at BsF. 12, and look where we STILL are.

      Anon 242

  9. The main components: corruption: thousands of corrupted officials in power and thousands of people getting bribed with gifts, favors and money. Including the military.

    Repression? Sure. Mainly as intimidation. There's no real law, if you protest too loudly, they'll arrest you.

    These people will stay in power forever. Why? $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$. Just like Chavez and all the people around him for 14 years who got filthy rich. The entire government is corrupt, so they all want a big piece of the pie, that's all.

  10. Anonymous9:34 PM

    As long as the corrupt are on the money train the corrupt will continue to run the country into the ground.

  11. charly2:25 PM

    Maduro's main problem these days is that he cannot even ride a bike. He needs training wheels and not only for the bike.

  12. Daniel- well thought out and written! thank you! However, I am trying to get some facts, which I believe, will shed light on the current government's reality-I have some questions, that perhaps you can, please find the time to answer:
    1. Iran and Venezuela opened an automobile factory in 2007 that was supposed to produce 25,000 vehicles per year. I do not see any new on this.. and..IF people are buying these cars, how is the quality of the cars? What is the REAL annual production? It is difficult to find news on this.
    2. What is the status of the "tower of David"? it was supposed to be that the government was going to clean up the squatters living there in that office tower??
    thank you!

  13. Masburro que Chavez.. This corrupted system is only supported by bribes, fake jobs, HUGE paybacks to key people.

  14. Interesting to see how many links come up at aporrea if you google: aporrea colas.
    and many others...

    also google: aporrea "escases" and aporrea escasez. The hits with the spelling "escases" seemed especially true to life.

    People standing in line are complaining mightily.

    True believers are coming up with desperate explanations: The people who complain too much are probably covert operators. Scarcity is being manufactured by Polar using flavourings to raise the price of staples (e.g. garlic flavoured rice). Government grocery shops (e.g. MAKRO) open at 9AM and not before sunrise (as they morally? ought to), to force people to stand in line under the punishing sun.

    It just goes on and on...The discontent is probably huge...

  15. "Un amigo comentaba que en Tucupita, por ejemplo, la gente, los pobre, los chavistas, comienzan a hacer colas desde las 8 de la noche del día anterior, para comprar un arroz, una mantequilla o un pollo de Mercal."
    A friend was saying that in e.g. Tucupita, the people, the poor, the chavistas, stand in line beginning at 8 o'clock the previous evening before Mercal (the government grocery store), to be able to buy one (item of) rice, butter or one chicken.


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