Photo Jonathan Blair

Tuesday, August 11, 2015

Venezuela’s unlikely rescuers? The country is about to explode. An Obama-Castro team might be best placed to diffuse the crisis

Given the scale of its problems and the "quality" of its government, Venezuela could have collapsed into a civil war years ago. It did not. The restraint shown by the opposition and especially the fact that most weapons were on the Chavista side kept the lid on the pot.

The crisis is deeper than ever, with deadly department stores' looting now joining crippling shortages of basic necessities, increasing unemployment, the world's highest inflation rate, stratospheric levels of corruption, disintegrating public services, crumbing infrastructure and terrifying levels of criminal violence.

At the same time, the government's quasi-monopoly of violence is breaking down. President Nicolás Maduro's control over the military and party militias has always been partial with National Assembly President Diosdado Cabello, in particular, keeping a much-purged and corrupt military for himself. There are rumbles, however, both on the party militia side and within the military. Without surprise, the regimes' much used but long unruly street gangs' loyalty is less assured than ever. When it comes, in other words, the violence will start from within Chavista ranks.

Parliamentary elections are approaching and the chances of a government victory in a clean process are dismal. Maduro is a dull-witted bully. He has never been popular and, for obvious reasons, he is now less than ever. While the opposition brings back his asinine declarations about Chavez' reincarnation into a little talking bird, Maduro's putting his wife at the head of the government party's list further reveals the depth of his ineptitude. Arguably, he doesn't have much choice, Chavez and then himself having made sure no one would emerge from the party's ranks to challenge their authority, but Cilia Flores —The Mrs— has to be the worst option.

To make things worse, the government can't use populist spending to secure the masses that have traditionally supported it. The forced sale of electronics at government-set prices, which the government has used before, was a one-shot wonder but it has understandably discouraged retailers from importing any more. With oil production declining, and international prices remaining low, the "system" is now simply running out of fuel. Once the Chavista crust has taken its share of what's left, almost nothing remains to buy votes. In other words, the electoral fraud will need to be even more blunt than the last time and nobody will be on site to defend the government: even the Carter Center, which shamefully joined UNASUL and the OAS in 2015 to give a legitimacy it did not deserve to the elections that kept Maduro in power, is packing and leaving the country—officially because of the cost of operating at the surreal official exchange rate. In spite of its help the last time, the government has pre-emptively dismissed the OAS—although it is now led by a progressive Uruguayan diplomat—as an agent of U.S. imperialism and no other regional organization could offer at once a modicum of global legitimacy and guaranteed backing. Given that the Chavista system depends entirely on the money it extracts from the state-owned oil company PDVSA's coffers, it can't abandon its lifeline and, unavoidably, "authorities" will do whatever it takes to ensure that the opposition loses the election.

Believe it or not, however, the problem is much deeper than that. The shrinking pie and apparently limitless appetite of the Chavista leadership are turning the sharks against one another. Maduro's abysmal incompetence and his unpopularity make him an appealing target for a military coup that Cabello and his friends could present as the beginning of a way out. Maduro's family network and retinue, however, are unlikely to leave the scene quietly. Division at the top would reverberate all though the party's shaky apparatus and its already mutinous informal tentacles. And all those people have guns.

Who could do something? Who could convene the parties, including the opposition, to some kind of national dialogue that would defuse the current crisis or help find a way out after violence explodes? Who could offer a comfy exile to Maduro and Cabellos, taking them out of the game? Well, at this point and unfortunately, the picture is bleak.

As mentioned, and even though it covered the regime's fraud in the last election, the OAS has already been dismissed. UN intervention would be met by all South American countries as an affront to national sovereignty and to the region's much asserted ability to deal with its own problems on its own—pure grandstanding in this case, but still enough to keep it out. The regime's allies in UNASUL—Bolivia, Ecuador and, for now at least, Argentina—ensure in turn that the organization won't be trusted by the opposition.

The real bulwark could have been the region's big players, Colombia, Argentina and especially Brazil. Given the two countries' love-hate relationship, any Colombian attempt to interfere would quickly be seized by the regime as an opportunity to drum up nationalist sentiments, which would obviously serve no useful purpose whatsoever. Decades of silliness have disqualified Argentina as a serious international or regional actor. Brazil could have been the exception and while in power, Lula had used his immense regional legitimacy to effectively control Chavez and keep tensions down. Lula is gone, however, and with his successor and party eye-deep in corruption scandals, the government has turned completely inward. Brazil's refusal to push earlier for reform and reconciliation, as well as the prominence within the foreign Ministry of a PT-pushed nationalist and "sovereigntist" phalanx, moreover, have no doubt burned its long-respected diplomats in the eyes of Venezuela's opposition.

Who is left? Oddly enough, what would perhaps work best would be some kind of joint U.S.-Cuba initiative. Obama is now undoubtedly the global figure that enjoys the most legitimacy and he is very popular in Latin America. The opposition would trust him. The Castro brothers may be on their way out, but the strong presence of their intelligence and military services in the Venezuelan state apparatus and their deep links with all sides in the Chavista establishment gives them more leverage on that unruly crew than anyone else.

The idea may look odd, but think about it: one more feather on Obama’s cap, and a decent exit from the international scene for the Castros.

[First published as] 

Friday, August 7, 2015

Brazil: The Crash of the Chicken

Cynics have long described Brazil's development path as "the flight of the chicken:" brief spurts of growth, sometimes spectacular, followed by more or less brutal declines. After a tad more than a decade of expansion, the country is now going through one of those periodic crashes. And this one is ugly, perhaps because this time the chicken was flying really high, seemingly dreaming that, with all this talk of BRICS and emerging power, it was a chicken no more.

Analysts are predicting between two and four years of recession while inflation has reached its highest level in more than 10 years. Tax revenues are down (minus US$37bn projected for 2015), June's "primary" deficit—excluding interest payments—is larger than the worst predictions of analysts while the overall deficit of the public sector borders 7 percent of the GDP. The Real is down 40 percent since June 2014 and the index of São Paulo's stock exchange—the largest in Latin America—has dropped 20 percent in dollar terms since January 1. Exports were down in 2014, especially for manufactured goods (minus 14 percent) and the country saw its first trade deficit in years. The current account shortfall, at US$93bn, reached 4.3 percent of GDP last year, the largest since 2001 and interest-rates stand at a world's "best" 14 percent. The country has lost more than 300,000 jobs in the first three months of 2015, to the point where the absolute size of the formal labour market has shrunk for the first time in years.

Help won't be coming from the government, which is instead ushering in brutal budget cuts that affect all programs, including health and education, while public investment, already insufficient, has dropped 37 percent in the first five months of 2015 (ECLAC). Understandably, given high interest rates and the general uncertainty, the private sector is wary of jumping in and foreign direct investment flows for the year are now lower than the current account deficit. No wonder Brazil's credit rating could soon fall back to junk status.

To make things worse, President Dilma Rousseff's popularity, at between 7 and 10 percent, is among the lowest ever recorded by a chief executive since the end of the military regime. Congress is as dysfunctional as ever, with the Presidents of both the Senate and the Chamber of deputies under investigation for corruption. And yet, to get the support that she needs to govern, Rousseff's team is about to "give" the Congress' most influential members control over the hiring of hundreds of employees in various state dependencies.

Petrobras, the country's largest company—still de facto under government control—and Brazil's world-class engineering firms are at the centre of a corruption scandal involving the governing Workers Party (PT) and its allies, and reaching back to the golden age of Luiz Inácio Lula da Silva's two presidential mandates. The sums involved boggle the mind: Odebrecht, the country's dominant engineering firm and one of the world's largest, is accused of having transferred R$1bn (US$350m) to secret bank accounts in foreign countries, many of them held by government and party officials. The Workers' Party former treasurer, João Vaccari Neto, is accused of having received R$500m (US$150m) for the party. Renato Duque, an upper-middle level Petrobras official named by the PT and responsible for getting the party a share of over-billed contracts, had 20 million Euros in Switzerland and Monaco bank accounts. In a country where barely half the population lives on more than two minimum salaries (R$1600 per month or less than US$500 at the current exchange rate), this level of corruption, for a government controlled by one of the most admired "progressive" parties in recent history, is quickly destroying the long held assumption that the PT was different from its largely discredited competitors.

Any light at the end of the tunnel?

Well, maybe yes, but mostly no. The flip side of the corruption scandal is that Brazil's justice system is strong and doing its job, which is cause for optimism. The problem is, judges and police officers can't run finance ministries, design infrastructure programs, reform education or implement social policy. A sizable part of the massive resources generated over the last decade of growth were captured by the state and invested in infrastructure, education and security.

After the World Cup's orgy of white elephants (a whole slew of high-tech stadiums with few ripple effects and no hope of profitability), brutally over-budget energy projects and through the ever-expanding corruption scandals, it is becoming clear that such spending was highly inefficient and that the machinery designed to implement state programs remains creaky and, above all, leaky. Now that resources are drying up and the need for efficiency increases, the lack of a serious re-engineering of the state represents a massive obstacle for any attempt to relaunch the country on a sustainable growth path.

Given its immense resources and capabilities, Brazil is not inescapably doomed to "chicken-dom." In recent years, however, the country has been flying high on strong prices for the primary goods that remain its bread and butter, while leaving hard choices—on pensions, education, trade liberalization, taxation, public sector reform—for another day. That day is still not on the horizon. With a political class keener on pilfering public funds than on tackling the county's structural challenges, Brazil should be stuck on the farmyard—or pretty close to it—for a while still.

I am currently a visiting researcher at the Núcleo de Estudios de Política Comparada e Relações Internacionais – NEPI, Federal University of Pernambuco, Brazil.