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Know How Venezuela Can Restore Back Its Economy

A U.S.-aligned government in Caracas would likely seek to restructure its debts to creditors like China and Russia, two countries that continue to support the Maduro government. China has loaned Venezuela $20 billion in exchange for future oil shipments.

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Venezuela
A man holds a sign that reads in Spanish "They attack for oil" during a march of in support of the state-run oil company PDVSA, in Caracas, Venezuela, Jan. 31, 2019. VOA

Oil-rich Venezuela’s near economic collapse may make it easier for U.S.-backed opposition leaders to reverse socialist policies instituted by late President Hugo Chavez, if they are able to oust his successor, Nicolas Maduro, according to analysts.

“I do think at the very beginning, because the Venezuelan people have suffered so much there, they’re going to be willing to give a lot of political capital to the new leadership to do all of these changes,” said Dany Bahar, an Israeli and Venezuelan economist with the Brookings Institution in Washington.

People line up to receive bags with food subsidized by the Nicolas Maduro's government near the international bridge of Tienditas on the outskirts of Urena, Venezuela, Feb. 11, 2019.
People line up to receive bags with food subsidized by the Nicolas Maduro’s government near the international bridge of Tienditas on the outskirts of Urena, Venezuela, Feb. 11, 2019. VOA

Economic collapse

In the last five years, Venezuela’s economy has shrunk by nearly half. Nationalization of much of the private sector, including the oil industry, has driven away foreign investment. Hyperinflation, aggravated by the increasing fiscal deficit, is now close to 180 percent, with prices of goods tripling every month. More than 3 million people have fled the country to escape increasing poverty.

The government-subsidized assistance programs for the poor have been plagued by chronic food and medicine shortages, due in part to corruption and declining oil revenues that account for more than 95 percent of Venezuela’s export earnings.

Maduro has claimed the humanitarian crisis in his country is a “fabrication,” and blamed U.S. sanctions and capitalist sabotage for the economic shortfall.

The United States, as well as most of Latin America and Europe, has recognized Juan Guaido, president of Venezuela’s National Assembly, as the country’s interim leader, and support opposition claims that Maduro’s reelection last year was illegitimate after he banned most opposition parties from running.

FILE - Opposition National Assembly President Juan Guaido talks with reporters upon his arrival to the Venezuelan Central University for a conference on economic plans for reviving the country in Caracas, Venezuela, Jan. 31, 2019.
Opposition National Assembly President Juan Guaido talks with reporters upon his arrival to the Venezuelan Central University for a conference on economic plans for reviving the country in Caracas, Venezuela, Jan. 31, 2019. VOA

Market reforms

With the “Chavista” socialist model discredited, new Venezuelan leadership aligned with the United States would be expected to embrace strong market reforms that would entail an infusion of international aid and credit, privatizing state-controlled industries and cutting government subsidies.

“Market mechanisms have been completely destroyed. The government centralizes everything, decides who gets what, rations all sorts of goods, food, medication, everything. So, you have to get rid of that and just allow the market to reappear, which doesn’t really take very long if the situation on the ground is stable,” said Monica de Bolle, a senior fellow at the Peterson Institute for International Economics in Washington.

Fighting inflation will likely be the top priority for any new government. Recommended fiscal controls would include introducing a new currency tied to international exchange rates, as was done by Brazil and Argentina in the past. Venezuela’s bolivar has lost most of its value, as the Maduro government reacted to inflation by printing more money while its oil revenues plummeted and its deficit grew.

“The moment you move from very high inflation to low inflation, the first thing that you see is a dramatic reduction in poverty rates. This is what happened in Argentina. This is what happened in Brazil, you know, at the time when they were fighting their own inflationary problems,” said de Bolle.

Privatizing oil industry

The International Monetary Fund would likely require Venezuela to lift price controls and privatize state-owned companies, including the oil and gas company Petróleos de Venezuela, S.A. (PDVSA), in exchange for billions of dollars in aid and loans. The reforms and influx of capital would help ease food and medicine shortages.

Venezuela has the world’s largest oil reserves, but production has fallen from three 3 million barrels per day (bpd) in 1997 to just over 1 million bpd in 2019. Maduro contributed to the decline by putting generals in charge of the company rather than industry professionals, and replacing qualified staff with thousands of political supporters.

“If we’re generous with the interpretation, they have also been doing social programs and things like that. If we’re not generous, it has become a vehicle of corruption for the regime. So, there’s going to need to be a deep restructuring of the oil company,” said Bahar.

A U.S.-aligned government in Caracas would likely seek to restructure its debts to creditors like China and Russia, two countries that continue to support the Maduro government. China has loaned Venezuela $20 billion in exchange for future oil shipments.

Also Read: Drugs Taken To Neutralize Stomach Acids Can Lead To Kidney Diseases

Ending Venezuela’s free oil shipments of an estimated 50,000 barrels per day to Cuba, another key Maduro ally, could redirect billions of dollars to support limited social programs at home.

If Maduro is removed from office, Washington is expected to ease oil sanctions imposed this year that are estimated to cut Venezuela’s oil exports by two-thirds. Oil sales to the U.S. had provided nearly 90 percent of Venezuela’s hard currency before the sanctions were enacted. (VOA)

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U.S. and Russia To Come Up With An Agreement On How To Resolve Venezuela Crisis

Moscow strongly warned the United States “against any temptation to resort to military power” in Venezuela. Russian state news agency TASS quoted Deputy Foreign Minister Sergei Ryabkov as saying. “We assume that Washington treats our priorities seriously, our approach and warnings.”

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Special Representative for Venezuela Elliott Abrams speaks at the State Department in Washington, March 15, 2019. VOA

U.S. Special envoy for Venezuela, Elliott Abrams says Russia and the United States have failed to come to an agreement on how to resolve the crisis in Venezuela following talks in Rome. He did not rule out a future meeting between both sides and said the talks helped both sides gain a better understanding of each other’s views.

The United States Special envoy for Venezuela, Elliot Abrams, described the Rome talks with Russian officials on the crisis in Venezuela as “useful, substantial and serious.” He said the conversations allowed the United States to understand that “Russia sees the crisis in Venezuela as very serious, unlike President Maduro,” mainly, Abrams said, in regard to the economic and humanitarian aspects.

Following a meeting with Russian Deputy Foreign Minister Sergei Ryabkov, Abrams said, “We did not come to a meeting of the minds, but the talks were positive in the sense that I think both sides emerged with a better understanding of the other’s views.” The two sides remain at odds over the legitimacy of Venezuelan President Nicolas Maduro.

The United States has recognized self-declared President Juan Guaido as Venezuela’s legitimate leader, while Russia continues to recognize Mr. Maduro. Italy also has not given Mr. Guaido recognition.

FILE - Venezuelan opposition leader Juan Guaido, who many nations have recognized as the country's rightful interim ruler, takes part in a rally against President Nicolas Maduro's government in Valencia, Venezuela, March 16, 2019.
Venezuelan opposition leader Juan Guaido, who many nations have recognized as the country’s rightful interim ruler, takes part in a rally against President Nicolas Maduro’s government in Valencia, Venezuela, March 16, 2019. VOA

Abrams met with the Pietro Benassi, the diplomatic adviser of Italian Prime Minister Giuseppe Conte. Abrams said the United States is not applying pressure on the Italian government to recognize Guaido as Venezuela’s legitimate president.

The meetings in the Italian capital took place as the United States imposed fresh sanctions on Venezuela, this time targeting the state-run gold mining company Minerven and its president.

President Donald Trump and visiting Brazilian President Jair Bolsonaro speak during a news conference in the Rose Garden of the White House, March 19, 2019.

But at the White House, President Donald Trump on Tuesday reiterated that “all options are open” on the future of Venezuela.

“We are not looking for anything other than taking care of a lot of people that are starving and dying in the streets. What’s happening there is a disgrace,” he said.

Abrams stressed that negotiations are not underway because “We do not negotiate the future of Venezuela with Russia or others because the future of Venezuela will be chosen by the Venezuelans.”

Also Read: Know The Venezuelans Ways to Cope with Inflation and Hunger

Moscow strongly warned the United States “against any temptation to resort to military power” in Venezuela. Russian state news agency TASS quoted Deputy Foreign Minister Sergei Ryabkov as saying. “We assume that Washington treats our priorities seriously, our approach and warnings.”

Abrams did not exclude a future meeting with Russia on the Venezuela crisis but said no date had been set. The White House said President Trump will also discuss the Venezuela crisis with Caribbean leaders on Friday. (VOA)