José Cárdenas

Aug
25
2011
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Chávez Over an Economic Barrel

DSC 0754 150x150 Chávez Over an Economic Barrel

José R. Cárdenas served in several foreign policy positions during the George W. Bush administration (2004-2009), including on the National Security Council staff. He is a consultant with Vision Americas in Washington, DC.

Each time Hugo Chávez travels to Cuba for chemotherapy, he leaves behind an economy in worse shape than he is. As the Financial Times put it recently, “Venezuela’s economy suffers from all kinds of unique problems, which the government does seem to want to resolve” – only every time it tries, it winds up making things worse.

That’s because reality has a way of punishing populist economic policies.

Yet, despite the widespread damage to the Venezuelan economy caused by nationalizations, strict currency and price controls, and lack of property rights and judicial guarantees, Chávez continues to forge ahead, believing that Venezuela’s oil patrimony means he’s exempt from the laws of economics or accepted standards of governing.

Consider his latest scheme:  transferring billions of dollars in Venezuelan cash reserves from U.S. and European banks to “friendlier” countries such as Russia and China, and repatriating billions more in gold from abroad.

Regime officials say it is to protect Venezuela from “disturbances” in the international markets, but experts say there is no economic justification for such a risky move; that it is political.  Meaning that one can be sure Chávez is acting in his own interest and not that of the Venezuelan people.

Whatever his motivations, the immediate results are that investor confidence in Venezuela will likely erode further and the cost of borrowing (which Chávez is currently doing at a record pace) will increase.  (Due to Chávez’s anti-free market policies, Venezuela already has the highest borrowing costs among major emerging-market economies, according to Bloomberg.)

Indeed, Wall Street was quick to react: Standard & Poor’s cut Venezuela’s credit rating one level to B+, four steps into junk status, citing growing “uncertainty” over Chávez’s “changing and arbitrary laws, price and exchange controls, and other distorting and unpredictable economic measures [that] have undermined private-sector investment and hurt productivity, weakening Venezuela’s domestic economy.”

All of this does not bode well for the Venezuelan people as the country heads into an election year.  Despite his precarious health situation, Chávez insists he will run for re-election, which means he will need even more cash for lavish social projects and mitigating the myriad domestic crises – shortages of electricity, food, and housing – he has created.  Something has to give.

To date, Chávez’s gambit has been that oil revenues would continue to outpace the exorbitant spending that fuels his popularity; but that gambit appears to be running its course.  PDVSA’s Golden Goose is on the verge of collapse from exhaustion. Declining oil production and dropping prices means less cash, more borrowing on unfavorable terms, and more mortgaging of Venezuela’s future.

The Venezuelan opposition has plenty of opportunities to hold Chávez to account after 12 years in power: horrendous crime statistics, rampant inflation, and the aforementioned scarcities.  But they should add his reckless decision-making in international economic matters.  Not only is he saddling the next government with prohibitive debt and a crippled oil company, but do Venezuelans really want China and Russia, hardly known for their transparency and legal guarantees, to be the custodians of their hard currency wealth?

The United States cannot be an idle bystander in this process.  What happens in Venezuela directly impacts U.S. interests.  While the country is a nearby source of oil (some 10% of our imports), under Chávez it has played an exceedingly unhelpful regional role in terms of its counter-narcotics and counter-terrorism polices.  Besides massive purchases of Russian arms that have alarmed his neighbors, Chávez has also provided a platform for Iran to establish a presence in Latin America, as it attempts to secure strategic resources in the face of United Nations sanctions.

The Obama administration should be concerned less about Chávez’s reaction to what we say and more about standing solidly behind principles of a free, fair, and peaceful democratic process.  Hugo Chávez is fully capable of attempting to bring down the temple around him if he sees his political fortunes rapidly going south. The goal of the U.S. policy should be to help Venezuelans prevent that from happening, rather than just arriving in time to help them pick up the pieces.

 
Jul
14
2011
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After Chávez, the Deluge

DSC 0754 150x150 After Chávez, the Deluge

José R. Cárdenas served in several foreign policy positions during the George W. Bush administration (2004-2009), including on the National Security Council staff.  He is a consultant with Vision Americas in Washington, DC.

Hugo Chávez has finally divulged he is being treated for cancer, but — in typical secretive fashion — offered no significant details as to the prescribed treatment, or just what impact his medical condition will have on his ability to govern Venezuela. He has hinted at potentially needing chemotherapy, a treatment which will necessarily debilitate his ability to govern, and perhaps campaign for Venezuela’s 2012 presidential election.

Due to Chávez’s authoritarian nature, this translates into a power vacuum that has to be filled — who does so will determine Venezuela’s foreseeable future. The situation is compounded by the fact that Chávez has left his would-be successor a veritable time-bomb of growing domestic woes.

The fact that the Venezuelan strongman has presided over a faction-ridden regime is hardly surprising, given that his government is bereft of institutions and power is wielded arbitrarily. Those competing for power within Chavismo are not Boy Scouts but hardliners that can be counted on to act more like Mafia dons at war than accountable public officials managing a democratic succession.  (Remember, there are billions of dollars up for grabs here.)

The faction best positioned to govern in Chávez’s stead appears to be made up of those trusted by the Castro regime, which itself has an interest in keeping its economic lifeline alive and well. They include Vice President Elías Jaua and Foreign Minister Nicolás Maduro, both colorless but loyal apparatchiks to Chávez and Castro. Also in this group is Chávez’s older brother Adán, a former Venezuelan ambassador to Cuba with close ties to the Castro regime. Adán is charisma-challenged, but has the right bloodlines.

Backing this faction will be a rogues’ gallery of international stakeholders that have profited immensely from Chávez’s largesse over the years. They will advocate for maintaining the status quo — with or without Chávez — through the 2012 elections.  These include Russia, China, Iran, and, of course, Cuba, not to mention the ALBA countries that benefit from Venezuela’s petrodollars.

Another faction revolves around former Chavista officials who, for one reason or other, were removed from office by Chávez and would certainly be interested in regaining a measure of power with all its perks and privileges. They include National Assemblyman Diosdado Cabello (former Vice President), José Vicente Rangel (former Vice President), and Jesse Chacón (former Minister of the Presidency). These individuals, however, are not trusted by the Cubans because of their independent thinking. How the status quo faction deals with these individuals will define a post-Chávez Venezuela.  Will they once again be allowed a cut of the action, or will they continue to be marginalized?  If it’s the latter, hold on to your seats.

While the Cabello faction maintains strong ties to the military, the wild cards in this situation could be Minister of Defense General Henry Rangel Silva and Chief of Military Intelligence Hugo Carvajal. Both are Chavistas to the core but need to maintain low political profiles due to having been sanctioned by the United States for facilitating narcotics trafficking through Venezuela. That said, make no mistake about it, they both wield enough behind-the-scenes power to make or break Chávez’s successor.

What’s important to remember amidst all this cut-throat palace intrigue playing out over the next weeks and months in Venezuela is the increasing ungovernability of the country. In short, Chávez has left a mess. From the region’s highest inflation rate and electricity rationing to rising street crime and unsustainable spending programs, the current state of affairs in Venezuela is more than any consolidated government could handle, let alone one trying to piece itself together in the wake of such a polarizing leader as Hugo Chávez.

It is hard to tell what direction the Chavista rollercoaster will take next, but whatever it is, only one thing is certain – it is going to be a bumpy ride.

 
Jun
20
2011
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Chávez’s New Sports Law is an Air Ball

José R. Cárdenas DSC 0754 150x150 Chávez’s New Sports Law is an Air Ballserved in several foreign policy positions during the George W. Bush administration (2004-2009), including on the National Security Council staff.  He is a consultant with Vision Americas in Washington, DC.


How ironic that just as the U.S. State Department announced a basketball “sports diplomacy” visit to Venezuela, that country’s National Assembly is debating yet another grandiose Hugo Chávez project to virtually expropriate and nationalize Venezuela’s entire sporting sector.

Included in the U.S. delegation is NBA player Greivis Vásquez, a Venezuelan native, who will spend five days conducting clinics, visiting schools, and interacting with underprivileged youth.  Such exchanges are meant to present a “softer” side of the United States and can have value, provided that governments like that of Mr. Chávez don’t try to hijack them for their own narrow political purposes.

On the other hand, there is nothing redeeming about the Venezuelan government‘s latest harebrained scheme to exert government control over an increasingly large part of Venezuelan society.  If the Venezuelan government has its way, Venezuelan athletes chasing their sports dreams will soon encounter a vastly different environment – one most assuredly not for the better.

Mr. Chávez wants to designate the entire sporting sector – including sporting leagues and purveyors of goods and services – as “public services,” meaning that they must be made available to all sectors of Venezuelan society.  If a particular entity is deemed by a government bureaucrat not to be fulfilling that mission, it runs the risk of confiscation by the state. We have seen this movie before. This is usually the first step the government takes before it expropriates an entire sector of the Venezuelan economy. Declaring anything a “public service” it’s a sure sign that the government will exercise its power over that sector.

The new Ley Orgánica del Deporte (“Organic Sports Law”) is yet another Chávez promise that, while cloaked in noble rhetoric, will accomplish none of its goals and lead to declining sports opportunities, more inefficiency, and more corruption.

For example, the Venezuelan private sector has traditionally been able to claim tax deductions for their support of sporting activities – everything from buying uniforms for professional teams to building local facilities for underserved communities.  Under Mr. Chávez’s law, Venezuelan businesses will now be levied a new tax that would go directly to a National Fund for Sports Development, which will have sole authority to decide where and how the funding is spent.

It constitutes one more circumscription of the rights of individuals and the private sector to make choices and exercise freedoms. Moreover, with the government hovering over every sports enterprise and examining their decisions under threat of confiscation it will simply drive investment capital elsewhere.

There is even a more ominous dynamic at play here. An authoritarian system is usually defined as one in which the government exercises control of the political system, but usually allows relative freedoms in the economic and social sectors as long as no one challenges the prevailing political order. On the other hand, a government that invades the peoples’ social space is a dangerous slide into totalitarianism.

The days when millions of Venezuelans turn to baseball, basketball, soccer, or any other sports as a quiet respite from the country’s problems and political polarization could become a thing of the past. As history tells us, whatever sector of society the Venezuelan government touches is immediately politicized. Will all sports teams now be forced to wear red uniforms? Will pictures of Ché Guevara now replace the Maltín Polar logo or that of other popular Venezuelan brands common in stadiums?

The Venezuelan caudillo has always tried to hide his true colors behind an aura of democracy.  But as the government seeks to control more and more of Venezuela’s society, he fools no one. It would seem he is trying to emulate his idol, Fidel Castro, who has survived 50 years in power by maintaining a stranglehold on all facets of Cuban society. After all, when populations have to rely on the state for the delivery of all goods and services, dissent is inevitably suffocated. Cuba stands as the tragic example.

Mr. Chávez, of course, is not there yet, but think of the imagery of a frog in a frying pan. Turn up the heat too fast and it jumps off; turn up the heat slowly and it is cooked before it knows it. The Venezuelan people should oppose Chávez’s latest power grab before his dream becomes their nightmare.