A force fed agreement in Mexico

The Venezuelan opposition delegates met the chavista's ones in Mexico, in a supposed restart of negotiations interrupted months ago. A curious thing was that they went all the way to Mexico city to sign a document already negotiated behind closed doors in Caracas. So Mexico was an expensive show, they could have stayed in Caracas.....

This agreement started a storm in Venezuela even though people do not have access to all the information, even though it was already announced as a restart of negotiation, something far, very far from being a done thing.  The Venezuelan public is at the same time so polarized and so divided (schizo?) that little else could be expected. Chavistas wondered how come the opposition delegation was not in jail, the Venezuelan opposition reaction was worse. For them if the delegation does not include who they support and does not address their favorite cause then it is worthless, traitorous even.  That the good folks in tweeter let their ire run free is one thing but it is frightening when a leader of the opposition like Maria Corina Machado partakes in that lynching mood. 

Qué puede salir de una Mesa de “Negociación” que en la práctica ha sido una mesa de extorsión?
Una buena tajada para cada uno de los representados, incluyendo la ONU.
Quién representa allí a los venezolanos? Nadie.
Qué obtiene la gente? Nada.

— María Corina Machado (@MariaCorinaYA) November 27, 2022

There she says that those in Mexico are going to split the monies negotiated, and that even the UN will get its take. I'll stop .....

In front of such histeria it is important to go back to the plain facts. First, the content of the agreement. 3 billion dollars of frozen assets (mostly in the US?) will be given PROGRESSIVELY to the UN that will use them to try to alleviate the suffering of the Venezuelan people. The US oil giant Chevron will be allowed to operate in Venezuela on very limited objectives, namely to restart some of its production capacity and sell its oil only in the US without giving much to Venezuela. The oil to be produced by Chevron will be considered as repaying the debt Venezuela has toward them. That will last up to 6 months if the Venezuelan regime keeps its promises AND continues to negotiate AND advances toward free and fair elections in 2024.

That is all. No need to go berserk.

To understand better it is necessary to recap some of the current political and geopolitical situation. The Ukraine war has changed everything. In addition of trying to help the Chevron lobby, Biden is trying to find new sources of oil. Venezuela, on paper, could multiply by 4 its current production and place at least 2 million barrels on the market. That also explains why France's Macron sat in Paris the two sides and obtained from them to go back to Mexico to sign on what they had already agreed upon. 

The Maduro regime is in trouble. Its Russian ally and now its Iranian and Chinese ones are teetering and certainly in no mood to have Venezuela demand further attention. Cuba is flat broke and in much trouble of its own. And Maduro desperately needs money to grease his repression machinery. Nevermind that the "bodegonomics" miracle of partial dollarization of the country has reached its limits (1). Finally it downed in them that it may well be the last chance to negotiate before something collapses nastily. 

The Venezuelan opposition is cool. It has played the sanction card rather well (note: sanctions are taken by the US and Europe, NOT by the Venezuelan opposition whose role is advisory at most). Thus the promise of alleviating some of the sanctions in agreement with the US is a nice carrot for the regime. It is testimony of the obtuseness and corruption of the regime that they held so late before agreeing on something, a something rather insignificant if you ask me.

Yet, even though the agreement is small and should not be hard to abide by all the parts, there are many dark clouds on it.  First, the fast restart of oil production is a mirage. In the current situation of the country Chevron cannot hope to increase by much more than 30% its output for 2023. Significant increases will have to wait for the war in Ukraine may well be long over by the time Venezuela replaces part of Russian oil.

Second, organizing the humanitarian help will take time. This help was certainly pressed on by the US to try to stem the flow of immigration that apparently is now reaching 7 million Venezuelans! But the UN needs to decide on what to do, then set it up, and then get the providers, and more important establish adequate controls to protect that help from being stolen by the regime as was the case in previous attempts.

Do not expect any visible improvement in Venezuela until 2024 if all goes well. In fact already the divisions of chavismo are playing as Diosdado Cabello who has nothing to gain from any settlement, stated that it was going to be the regime that decides how the help will be shared. Within the regime many are scared at the idea of Cabello deciding on such things. 

At any rate the opposition is ready to bail out of this agreement as soon as the regime makes a move to undercut it. After all this time around it is the regime which has more to lose. 

________________________________________________________

1) More than two years ago the regime with a damning hyperinflation decided to allow limited use of US dollars for import of goods that should be resold in Venezuela in dollars. This resulted in some economic improvement, made visible by the apparition of bodegones, stores specialized in selling outside of any price control and in US dollars. But the amount of dollars available for imports has not increased since the rest of the economic policies of the regime remain and these aim at controlling any free enterprise still in existence. Consequently for the past few months we start observing a stagnation of sorts that could only be avoided by increased production. Which I do not see happening in the near future.

Why Venezuela cannot be fixed

 I was planning this second post long ago, following my crude description of why Venezuela remains messed up in spite of all the regime propaganda. But on occasion procrastination pays and I can start with recent items telling us what type of wondercrap Venezuela is.

First the new economic zones (ZEE). This is the latest at attracting foreign investors offering them all sorts of fiscal favors, and other favors that better remain nameless for the time being, but surely one would be by exempting those investors with having to follow labor laws. The delirium goes as far as including in these zones the Tortuga Island that will be transformed in an international tourists pole with airport and all.  I happen to know La Tortuga. It is small, barren, waterless, no natural harbour worthy mentioning, etc, etc. Yes, it is beautifully wild with scuba diving offerings. But if you imagine Tortuga with ten resorts and golf courses, well, there go the corals. Nothing will remain, the island is too fragile for even a single resort. The idea behind that cockamamie plan is for laundering money away from scrutiny, creating at best a secluded retreat so that regime higher ups can go partying among themselves.

The other item was to give Iran gazillions acres of land so they can produce food to bring home. That the country side is devastated, that the Venezuelan agricultural worker has lost long ago its punch and skill, that we lack food enough that giving land to Iran, that is just crazy. Again, there is something else at play there. There is ALWAYS something else at play when chavismo announces big undoable plans. A secret base for Iran comes to mind.

And of course, we are now in November and no one is speaking about this anymore. 

From this items you get already the gist of this blog entry: there are no conditions in Venezuela today to discuss any rebuilding plan.  Assuming of course that within the regime here are people able to draw a realistic reconstruction plan. This is a short list of the main obstacles you will face to develop almost anything productive in Venezuela.

1. The general infrastructure is obsolete and in severe disrepair. Be it roads or electrical distribution, it does not work and the regime seems unable to fix it except in some points of utmost necessity for them, not for the populace. To build and run something is a major effort requiring that you bring in your own electricity generating system, for example.
2. The sanitary situation is simply nasty for foreigners. From run down and resource poor hospitals to the increasing scarcity of decent tap water, life is difficult. Very difficult.
3. The legal system is a joke. If you invest you never know when some government agency will knock at your door trying to see what they can extort from you. Or you can yourself get a single protector to whom you'll pay a regular stipend. The law is not your friend, it is your foe.
4. Which brings us to the security of the people working for you. As bad as ever. Your top management will need armored cars and perhaps even body guards.
5. So you say lets work with locals, they are used to it. What locals? 6 millions and counting have fled the country, including a cohort of skilled professionals.  You are going to have trouble hiring competent mid management.  As for lower ranks in your business hires, do not be too optimist. 20 years of chavismo have created a despondent worker, that thinks only about rights and that the bosses are tyrants. Then again enough are starving and desperate that you may manage to have them do all sorts of nasty jobs. Note: I am not saying that Venezuelan workers are bad, just saying that building a decent team is not going to be easy.
6. And of course considerations such as the environment, protection from messy neighbors and the like you can dream on.

I'll stop there, enough said for to make my point: Venezuela cannot be fixed as long as chavismo remains in office. There is no means, no skill, no will for that. The country is drifting from an improvisation to another with the sole objective to control population and allow the caste of "revolutionaries" to live the high life in Caracas since too many of them would be arrested were they to leave the country.  Oh yes, there are a thing or two you can do with that caste, a.k.a. boliburgueses, but you better be sure that you will have a very high return on your investment and no moral compass least you get taken for a ride and pockets emptied.

Venezuela se arreglo. Not.

 "Venezuela se arreglo", Venezuela is fixed up.

This is what the regime would like us to believe, but not they alone. There are also a few people that are tired to be opposition. There are also a few more in the US that are desperate to recover their lost funds. And some in the Biden administration that would love to have Venezuela supply what we do not want anymore from Russia.

Pipe dreams all.  Nothing will improve significantly as long as those in place remain at Miraflores palace. I am not going to repeat my tired tirade on what we have there are not politicians but a narco mafia set. With criminals there is no negotiation possible unless you show at the same time determination to exert force AND offer a safe haven to some of the gang if they surrender power.

So, why is there an erroneous perception that Venezuela is improving? 

The first impression comes from the country dollarized economy. This process is unfortunately on shaky grounds. First, the financial players remaining in Venezuela are in no position to secure a durable dollarization since there is no way to guarantee that $$ banknotes are legit, there are no coins, and too many transactions are opaque and mere money laundering. But the problem goes deeper: not only the regime has allowed dollarization without any agreement with the US, but the legal sort of framework upon which it is built can be pulled off easily, with the risk that all dollars in banking accounts could be blocked from one day to the next. In such a situation people are not going to invest long term. Period.

A second misleading perception is that Caracas, and a few rare spots outside of Caracas, have now bodegones, that is stores that import whatever they want with few if any custom taxes. Their preferred currency is of course the green back. Bodegones are just a gigantic laundering operation where illicit funds are used to buy cash stuff to resell in Venezuela creating thus a legal receipt. All this is made possible with the desperate situation of people that have some income or savings in dollars. In particular those who have relatives that fled the country and are now able to send a little bit of currency to their relatives left behind. Beyond the regime cynicism of washing its loot out of people it ruined, the casual observer will be mislead that shortages are over in Venezuela. They are over only for those who can dispose of at least 400 $ a month. And a rising amount at that.

A third misleading perception is that some services have improved and that restaurants in Eastern Caracas are full. The essential services, water, electricity, telephone, internet, garbage have not improved. But for those with dollars it is easier now to hire plumbers, electricians, private internet or even dig a well if they are on some sedimentary land with water under. As for the restaurants, keep in mind that international sanctions have induced a lot of those who became rich on looting the state to now be forced to stay in Venezuela. Of course, they are not going to suffer and will pay what it takes to enjoy their riches.

A fourth mirage is that suddenly we see positive GDP growth rates, relatively big even. But look, when you are in the gutter, managing to sit in that gutter looks good even if you are still soaked in garbage. As long as you do not have the strength to start climbing out, well, your head may be drying but you are still in the gutter. The Venezuelan economy is so downtrodden that to reach pre Chavez level will require many years of double digit growth rate.

I could go on but you get the picture. If you do not get it, in particular if you are a journo or a tankie visiting for a few days, I suggest you leave the comforts of Eastern Caracas and go spend a week end in a town less than 25,000 people and see the reality of Venezuelans descended to poverty level everywhere.

All that recovery is potemkinesque and too many people that should know better are falling for it, or are using it to get personal benefit. But recovery is NOT happening because the key element is missing: there is no significant production growth. Why not? Because nobody trusts the regime, a true scorpion on the back of the toad crossing the river: everybody knows that sooner or later the regime will strike back and like the scorpion it will sting the toad even if it means that killing the toad will drown the scorpion. Any legal tolerance can be easily reversed as there is no more institutions or justice left. 

So, who is going to invest in Venezuela? Nobody serious, not even in the oil industry since it is run down and it would take a few years until it can produce enough to replace some of the Russian deficit. People that "invest" in Venezuela are either those that gamble on short term high yield ventures, or those who need to bring their money back to Venezuela before some tribunal seizes it. But these last ones are not investing in productive ventures, not yet. They are much more into laundering facilities such as bodegones of building brand new office buildings that remain empty but that they resell among themselves to get clean billing. These people are not used to work hard the way a normal entrepreneur works so investing in manufacturing or agricultural objectives is not what they want.

It is thus crystal clear, I hope, that there is no real recovery in Venezuela. As long as production of real goods does not start, it will not happen.