The Venezuelan disease and the humanitarian crisis – 01/06/2023 – André Roncaglia

The meeting with all the presidents of South America (except Peru, who sent a representative), on May 30, marked the resumption of Unasur’s work and Venezuela’s diplomatic rehabilitation in the region. Approximation is the path chosen by Lula to solve the humanitarian crisis in the country. The strategy is right. Let’s see.

Venezuela’s socioeconomic collapse results from the complex interplay of a particular economic structure, internal political tensions and geopolitical reactions.

The close relationship between state action and oil revenues has marked the country’s economic, political and social trajectory for a century, when vast oil reserves were discovered. The country specialized in supplying oil to the US and generated an enclave economy, in which the dynamic sector was “islanded” and did not stimulate the expansion of the internal market or the productive diversification of the economy.

In his “Essays on Venezuela” (1957), Celso Furtado already described the model as “underdevelopment with an abundance of foreign exchange”. The “Venezuelan disease” preceded by a few decades, therefore, the discovery of natural gas in Holland (in the 1960s) which consolidated, in the literature, the expression “Dutch disease”.

In the case of Venezuela, this “curse of natural resources” produced an export basket dominated by oil, so that the international cycles of the price of the commodity determine the space of economic policy in the country. Converting this “winning ticket” into development has become the axis of the political dispute that marks internal political tensions.

The election of Hugo Chávez, in 1998, inaugurates the “socialism of the 21st century”. Oil income was directed towards the nationalization of various sectors of the economy and towards a broad social policy program (subsidies for food and energy). The fall in poverty and inequality sustained the government’s political base, but productive diversification was not consolidated and, therefore, did not generate quality jobs for the population. The structural external fragility remained.

As of 2016, the drop in the price of a barrel of oil below US$ 30 and the advance of a wide variety of sanctions (still in force) by the USA and Europe turned off the dollar faucet to the country, aggravating the conflict domestic policy. In August 2017, the Trump administration issued Executive Order 13808, barring state-owned Petroleos de Venezuela SA (PDVSA) from accessing U.S. financial markets. In 2020, secondary sanctions punished companies that transported Venezuelan oil. Indeed, when oil prices recovered, Venezuela no longer had production.

The impact of the measures was swift and disastrous, especially on oil production in Venezuela — from 2.4 million barrels per day (bpd), before the crisis, to 400,000 in 2020 (according to a CEPR study). The 72% drop in GDP per capita accompanied the dismantling of social assistance, the increase in the frequency of blackouts, lack of access to vaccines, poverty rates (which reached 93%), disease and malnutrition.

A study by Mark Weisbrot and Jeffrey Sachs concluded that economic sanctions contributed substantially to the deaths of around 40,000 Venezuelans in 2018 alone. Despite not being a country at war, more than 7.2 million Venezuelans emigrated from their land, number comparable to that of Syrian refugees.

In short: the strategy of isolating the country and imposing sanctions on it failed. This is the context that informs Lula’s speeches to Maduro.

The humanitarian crisis in Venezuela demands a regional solution and an end to the sanctions that stifle its economy. The sequence of Lula’s trips abroad indicates a seam to lead the geopolitical stabilization of the region. Without this, the integration effort will not close the open veins of Latin America.

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