Has Venezuela's Crisis Reached A Tipping Point?

Tyler Durden's picture

Authored by William Burke-White and Dorothy Kronick via Knowledge@Wharton,

Venezuela’s ongoing economic and humanitarian crisis has assumed graver proportions over the past five weeks and pressure is mounting for a regime change, even as doubts persist over the likelihood of the next presidential elections, originally set for October 2018. Fresh protests broke out after President Nicolas Maduro earlier this month signed an order aimed at forming a new constituent assembly of some 500 members and rewriting the country’s constitution to reshape his powers and those of legislators.

Many Venezuelans clearly saw Maduro’s ruling as a way to snatch powers from the opposition-led National Assembly and consolidate it in a constituent assembly over which he might have a better hold. “[Maduro] tried to do this as a way to unite the country, but it was seen as an attempt to retain power and sparked the latest round of protests,” said William Burke-White, director of the Perry World House and professor at the University of Pennsylvania Law School.

Venezuela’s crisis has probably hit a tipping point and Maduro’s days in power are numbered, said Burke-White. “The path forward is Maduro will be pushed out of power, or there will be a repressive, horrible crackdown where the death tolls keep mounting,” he noted. “It may be better to be moving in that direction [towards Maduro’s ouster] than be in an ongoing political quagmire that we have been in for the last few years.”

According to Dorothy Kronick, a political science professor at the University of Pennsylvania, “The best way forward for Venezuela would be elections and having a new government in power.” She noted that 2017 is the fourth consecutive year of negative GDP growth for Venezuela; last year, its economy contracted by more than 17%. “There are devastating shortages of food and medicine, and inflation is above 300%. And there is tremendous suffering.”

Burke-White and Kronick discussed the scenarios likely to emerge in Venezuela in the foreseeable future on the Knowledge@Wharton show on Wharton Business Radio on SiriusXM channel 111. (Listen to the podcast at the top of this page.)

Move to Consolidate Power

The recent crisis had its first flash point on March 29, when the country’s Supreme Court passed a ruling to assume the functions of the National Assembly, but strong protests forced it to subsequently backtrack. Meanwhile, protestors continued calling for elections and a regime change. Maduro, who was elected in 2013 after the death of Hugo Chavez, signed the executive order to form a new constituent assembly and rewrite the constitution on May 1. “We must modify this state, especially the rotten National Assembly that’s currently there,” he had said.

Opposition leaders are pressing for a removal of the Supreme Court justices who issued the March 29 ruling, general elections in 2017, the creation of a humanitarian channel for medicine imports and the release of all political prisoners, according to a BBC report.

Burke-White did not expect elections to happen anytime soon. He noted that Maduro had indicated that fresh elections would be held as part of the new constitution. “His [United] Socialist Party [of Venezuela] would lose those elections if they were held today,” he said. “Much of this is a move to push those elections out indefinitely.”

Maduro’s plan for the new constituent assembly is to have about half of its 500 members elected directly from among all sections of Venezuelan society, including workers, youth, women, peasants and indigenous people, according to a CNN report. The other half would be made up of delegates chosen from among businesses and workers’ collectives. Kronick noted that the provisions in the rewritten constitution would “undoubtedly … favor the government.” She also predicted that the Maduro government would try to ensure that the convention “is full of delegates that are its supporters.”

Even so, with Maduro’s low approval ratings, Maduro is taking a big risk, according to Kronick. “His approval ratings are so low that even with electoral rules that are extremely favorable to the government, the opposition could potentially gain control of this constitutional convention,” she said. “That could be very dangerous to the government and lead to regime change.”

With growing protests, Maduro had his back against the wall, according to Burke-White. “He didn’t have many cards left,” he said. “This was a tactic that was legal within the constitutional structure — that the president can call for a new constitution — which you wouldn’t undertake if you weren’t in this moment of desperation.”

An Economy Embattled

Along with those political uncertainties, Venezuela’s economy is also in a sorry state. Oil accounts for 96% of the country’s exports, according to World Bank data, and low oil prices have taken a huge toll. Venezuela has the world’s largest proven supply of oil reserves, but much of that oil has high extraction costs, noted Burke-White. “When oil prices fall, those are the first to cease production because it is economically unviable to do so.” What makes that situation worse is the country has lost both technical talent (fired by the Chavez and Maduro governments) and investors, after foreign investments in the sector were nationalized. “They have lost a great deal of oil extraction capacity, which has both increased the cost of production and decreased the ability to keep production up,” he said. “The oil industry is no longer able to provide the economic support that Maduro needs to consolidate, or buy off, power.” Added Kronick: “Chavez had a windfall when oil prices rose, and raked in hundreds of millions of dollars, but they were not well invested and were squandered.”

In addition to low oil prices, the Maduro government’s decisions “to maintain some destructive and expensive exchange control measures, and price controls” are responsible for the food and medicine shortages, Kronick said. “Economists have been urging Maduro to introduce “common sense” reforms for years such as lifting price controls, she added, noting that “price controls create shortages.”

Pressures Closing in on Maduro

Meanwhile, Maduro could face other threats as he tries to cling to power. For one, it is critical for him to ensure the military’s support. However, as the economic misery widens, it also affects the families of members of the military, Burke-White noted. “It is much harder to maintain a military-based regime when you have to point your guns at your own people,” he said. “Maduro realizes that that’s the support base he can’t let slip, and if it does slip, it could well be the end of his regime.” Kronick noted that a popular chant during protests translates from Spanish to English as: “Soldier, listen. Join the protest, join the fight.”

Expectations run high that the Trump administration could impose sanctions on the Maduro government. Sanctions might not work well on an economy that is “already devastated,” and “very much isolated and closed from the rest of the world,” Burke-White said. However, if sanctions are targeted at specific individuals or supporters of the Maduro regime, they might work, he added. “Many of those people have bank accounts and condominiums in Miami, and getting them to feel some of the pain a little bit more might work.” However, targeted sanctions against Maduro’s supporters “could raise exit costs for members of the regime” said Kronick. “If they were to leave power, they won’t be able to go to Miami and enjoy their post-government life, and that could actually make regime change more unlikely.”

The U.S. does not seem to have sufficient “diplomatic capacity” to engage with Venezuela, given the understaffed State Department, said Burke-White. But he did note Thomas A. Shannon, Jr., undersecretary for political affairs, is well versed with the region’s problems. In February, Donald Trump and Mike Pence met with Lilian Tintori, the wife of jailed Venezuelan opposition leader Leopoldo López. “The Trump administration is much more willing to be much more openly critical of Venezuela than the Obama administration was,” he added.

U.S. involvement in working with the Venezuelan opposition or trying to influence a regime change could backfire and strengthen Maduro’s hand, Kronick said. “Certain actions [the U.S.] might take against the government help [Maduro] to be able to more credibly say, ‘This is the imperialist U.S. that is responsible for the problems of the country.’”

Pressure could build up on Maduro also within the region. Venezuela has been an important trading and energy partner in the northern part of South America, and it has provided aid to many countries in the region in the form of oil or cash. But its current status has left it unable to drive economic growth in the region. It has socialist-leaning countries as neighbors, including Cuba, “but those countries are leaning in different directions at the moment,” said Burke-White. He expected Cuba to be more susceptible to U.S. pressure “not to be as supportive a trading, economic or even health care partner for Venezuela” as it has been in the past. Kronick said pressure could come on Maduro from regional forums such as the Organization of American States.

Indeed, some of that has begun. Burke-White noted that the Argentine foreign minister has openly criticized Maduro’s call for a new constitution. “That is unusual given that Latin American and South American states have traditionally been hesitant to criticize one another,” he said. “We’re starting to see the edges of that tacit alliance begin to crack.”

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SMG's picture

Hang that Maduro Son of a Bitch!

38BWD22's picture

 

 

I am visiting Peru now.  My in-laws (and cab drivers) have told me that Venezuelans are showing up here.  Many work as waiters in restaurants (they have a "good presence", I presume that means well-dressed & groomed) they tell me.

It used to be that Peruvians went to Venezuela...

"The ten thousand things rise and fall without cease"

-- Lao Tze

Saddam Miser's picture

Don't worry - what you're seeing in Venezuela can never happen here. It's true. We have a constitution. It protects us from this sort of thing. /s

auricle's picture

Debt/fiat has failed. Solution? Oil for gold or other 'physical' commodities. Is the priveleged Venezuealan slumlord governent up to the task? 

Mr 9x19's picture

venezuela cannot go for oil nor gold for 2 simple reason.

1 ) those who tried to sell oil, gold backed fashion, ( ie: kadafi ) are plain dead and their countries are anihilated.
 venezuela is in such actual shape because they refuse be looted by american oil compagnies.

2 ) EROEI of venezuelian oil is 3:1, so it will never be extracted, refined and sold. ( for those who do not get eroei, it is what you use for what you create, energy speaking, that means, for 3 barils of oil produced, 1 used to make em.

 

venezuela is terminated just like sub african countries but they only start to guess what is happening.
in 5 years venezuela is like sirya, a ruined battlefield.

 

on vehicles leasing article  i wrote to you to get a bicycle, i have been downvoted, those who did it have not a fucking clue of what is coming in the next 10 years, worldwide.

Déjà view's picture

Also gone 'Bust'...

Plastic surgery-obsessed Venezuela hit by shortage of breast implants

http://www.ctvnews.ca/lifestyle/plastic-surgery-obsessed-venezuela-hit-b...

shovelhead's picture

Eating flamingos and using Amazon packing bags for tits.

Sad.

land_of_the_few's picture

Even the bicycle will not be needed, they will simply tip you off it, ignore the cycle and turn you into Long Pig.

Having said that, ignore bicycles with suspension forks, mechanics are pretty meaty so will be eaten first.

radio man's picture

Only if was deploy Bernie on scene show them how socialism is done right.

FinsterF's picture

We have a central bank too!

Freddie's picture

Can I throw my shit at Pres. Jared Soros and Hillary?

Benjamin123's picture

"Good presence" (Buena presencia) is a venezuelan euphemism. It means "looking good" which means being either white or whitish-looking mestizo. Though really it means looking good in general, being fit, dressing the part, speaking well, etc. They put that in lots of job ads because they cant just write "niggers need not apply".

Peruvians and bolivians are used as running jokes in the Latin American world as being the ugliest peoples down there.

Richard Chesler's picture

That pretty much defines the bolivarian revolution,  confiscate producing assets from whites and give it to lazy ignorant mulatos to run. Who coulda known it'd end up in tears?

 

Scanderbeg's picture

This can't be muh socialism cuz it's not working so It's actually state capitalism OK?  

Democracy Now I mean "Communism now" and muh favorite equal opportunity shekel distributor Noam Chomsky told me so.

Turns out Danny Glover and Sean Penn were really fascists and Maduro was actually a racissss Drumpf supporter all along and colluding with muh Russia to institute a right wing, capitalist regime.

Take that orange hitler lovers!

REEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEE

 

VWAndy's picture

 Tripping point maybe. Tipping? No.

  The stall and barter. Then some real justice might be had.

Lumberjack's picture

Not sure about Venezuela's tipping point but Wells Fargo appears to have reached theirs....

Wells Fargo bogus accounts balloon to 3.5 million: lawyers

http://mobile.reuters.com/article/amp/idUSKBN1882UV

VWAndy's picture

 Team fiat dont play the rules.

A Nanny Moose's picture

The Golden Rule: He what makes the gold, makes the rulez

VWAndy's picture

 Thats one of those wierd things too many people dont really get. People will do some really stupid shit for some fiats. Look at all the biggest piles of stupid. Somebody paid for it in fiats.

barysenter's picture

Estimated? The lawyers suing are as despicable as the lawyers who orchestrated the first RICO crimes. They deserve each other. With laser beams mounted on their heads.

Stan Smith's picture

Maduro will lose his job as dictator in chief of Venezuela, and try to run for the DNC chairman next.

shovelhead's picture

He'd have to up his derangement level for the job.

They have high standards to maintain.

Stormtrooper's picture

Probably not but at least he can go back to driving a bus.

buttmint's picture

...send in cankles as peace moderator!

Freddie's picture

Gov of California.

The US Govt is just as corrupt.

bruno_the's picture

Obsessed with Venezuela? Every other day. Gas masks. WTF. Working for some specific NGO or for the company?

look - squirrel

taggaroonie's picture

It seems fashionable not to mention socialism when writing about Venezuela these days.

holdbuysell's picture

My understanding is that Russia owns the debt on the oil industry and the US is running military drills in the area. Does that summarize the scenario from the 'follow the money' principle?

shovelhead's picture

Watch it Russia...

That's OUR Venezuela oil...Why?

Well, because we said so, that's why.

Arnold's picture

You don't want it.
It is heavy and thick and needs to be blended to be shipped.
Not as bad as tar sand oil but that's the idea.

Let them default to the Chinks, a back yard experiment , so to speak.

http://www.zerohedge.com/news/2017-03-02/venezuela-down-its-last-10b-deb...

http://www.reuters.com/article/us-venezuela-oil-insight-idUSKBN15O2BC

espirit's picture

 

Years ago, thinking it was after Hurricane Andrew or subsequent storms, there was a huge demand for asphalt roofing shingles which created a shortage. At the time it was said most shingles were produced from oil which contained an above average content of sulfur that was uneconomical for fuel distillates.

 

Also purported was this hi-sulfur oil was produced in Venezuela, and that there was either an embargo on it at the time, or Chavez would not export to the US.

 

After that dust had settled, the US had and influx of hi-sulfur distillated fuel (gas), which screwed up many automotive fuel level sensors (mine included). Not sure if this relates, but added my 2 cents.

   

Arnold's picture

The removal and storage of sulfur at refineries was a huge issue for ten minutes.

http://en.citizendium.org/wiki/Claus_process
https://en.wikipedia.org/wiki/Claus_process

One of the things that happens during the upgrading process is that sulphur is extracted. There's no way to get the sulphur to market (there is no railroad, and trucking is too expensive), so Syncrude has accumulated enormous stockpiles of the stuff; here's a picture of a portion of one of the dozen or so piles that I saw:

http://worthwhile.typepad.com/worthwhile_canadian_initi/2012/09/my-trip-...

bruno_the's picture

Look no further

In 2005, Burke-White became an Assistant Professor at Penn Law. Since 2009 he has been on leave to serve as a member of the Secretary’s Policy Planning Staff at the U.S. Department of State.

shovelhead's picture

Many Venezuelans clearly saw Maduro’s ruling as a way to snatch powers from the opposition-led National Assembly and consolidate it in a constituent assembly over which he might have a better hold. “[Maduro] tried to do this as a way to unite the country, but it was seen as an attempt to retain power and sparked the latest round of protests,” said William Burke-White, director of the Perry World House and professor at the University of Pennsylvania Law School.

Yes, that sounds entirely believeable.

Nothing worse than a poor misunderstood bus driver who is selflessly just trying to do the right thing.

Socialists stick together, Best friends forever.

Uncle Sugar's picture

I'm long forward to Maduro getting the Sadam treatment

Saddam Miser's picture

It's the sort of treatment you grow to love ^.^

roddy6667's picture

Typical American/Israeli/Neocon solution.

Beans's picture

Mostly Israeli/Neocon tbh but yeah.. a little American too..

silverer's picture

Speaking of "tipping point", they should put Maduro's pals on this ride:

https://www.youtube.com/watch?v=UwPJMQwo2xw

.

GestaltNine's picture

well once they get a right wing dictator in there they can get things back in order, shove the meztizos back into the barns and rural areas, import a bunch of white Europeans to run the oil business, cut all the welfare/socialist crap, and turn the bull loose 

 

TheReplacement's picture

I think you confuse your right for your left, or is it left-left?

 

KimAsa's picture

I thought they were at the tipping point last week. Or was it the week before?