First, let's dispel some myths that are all too common in the English language media about Venezuela:
1) Nicholas Maduro stole the October elections.
The Venezuelan electoral system has been called the best in the world by Jimmy Carter. It's pretty much fraud-proof. Here's a writer at Forbes describing it:
Venezuela employs one of the most technologically advanced verifiable voting systems in the world, designed to protect voters from fraud and tampering and ensure the accuracy of the vote count. Accuracy and integrity are guaranteed from the minute voters walk into the polls to the point where a final tally is revealed.
The system Venezuela uses has some of the most advanced and voter-friendly security features in modern elections. Voters use a touch-sensitive electronic pad to make and confirm their choices. After confirmation, the electronic vote is encrypted and randomly stored in the machine’s memories. Voters audit their own vote by reviewing a printed receipt that they then place into a physical ballot box.
At the end of Election Day, each voting machine computes and prints an official tally, called a precinct count. It transmits an electronic copy of the precinct count to the servers in the National Electoral Council’s central facility, where overall totals are computed.
By mutual agreement between the contenders, 52.98% of the ballot boxes are chosen at random, opened, and their tallies compared with the corresponding precinct counts. This audit step ensures that no vote manipulation has occurred at the polling place. The extent of this audit, the widest in automatic elections, leaves little room for questioning.
An additional audit demanded by Henrique Capriles, that covered a full 100% of the ballots, turned up no signs of fraud. Furthermore, opposition auditors signed off on every step of the process, at each polling station.
Maduro's victory was close by Venezuelan standards, but in the United States, where you don't even need to win the popular vote to win the election, it was fairly average.
2) Maduro has lost popularity
Also untrue. While his popularity did suffer a hit immediately after the elections, it's climbed steadily since then. Today, it's even higher, thanks to his aggressive steps to control speculation in the economy (more on that in a second). Some polls put it as high as 55%.
3) The Venezuelan economy is in free fall
Again, false. Here's CEPR analyzing the macroeconomic fundamentals of Venezuela:
For more than a decade people opposed to the government of Venezuela – which today includes almost all major Western media outlets – have argued that the Venezuelan economy would implode. Like communists in the 1930s rooting for the final crisis of capitalism, they generally saw Venezuela’s economic collapse as just around the corner. How frustrating it has been for them to witness only two recessions: one directly caused by the opposition’s oil strike (December 2002-May 2003) and one brought on by the world recession (2009 and the first half of 2010). Despite these recessions, the whole decade’s economic performance – the government got control of the national oil company in 2003 – turned out quite well, with average annual growth of real income per person of 2.7 percent, poverty reduced by more than half, and large gains for the majority in employment, access to health care, pensions, and education.
Now Venezuela is facing economic problems that are warming the cockles of the haters’ hearts. We see the bad news every day (Western reporting on Venezuela is almost exclusively bad news, as if by decree): consumer prices up 49 percent over the last year; a black market where the dollar fetches seven times the official rate; shortages of consumer goods from milk to toilet paper; the economy slowing, Central Bank reserves falling. Will those who cried wolf for so long finally see their dreams come true?
Not likely. In the opposition and international media’s analysis, Venezuela is caught in an inflation-devaluation spiral, where rising prices domestically undermine confidence in the economy and currency, causing capital flight and driving up the black market price of the dollar. This adds to inflation, as does – in their theory – money creation by the government. And the government’s price controls, nationalizations, and other interventions have caused more distortions and structural problems that will hasten the economy’s demise. Hyperinflation, rising foreign debt, and a balance of payments crisis will mark the end of this economic experiment, they hope and pray each day.
But how can a government with more than $90 billion in oil revenue end up with a balance of payments crisis? Well, the answer is, it can’t, and won’t. In 2012 Venezuela had $93.6 billion in oil revenues, and total imports in the economy – which were at record high levels – were $59.3 billion. The current account was in surplus to the tune of $11 billion, or 2.9 percent of GDP. Interest payments on the public foreign debt, which is the most important measure of public indebtedness, were just $3.7 billion. This government is not going to run out of dollars. The Bank of America’s analysis of Venezuela last month recognized this, and decided as a result that Venezuelan government bonds were a good buy.
The central bank currently holds $21.7 billion in reserves, and opposition economists estimate that there is another $15bn held by other government agencies, for a total of $36.7 billion. Normally, reserves that can cover three months of imports are considered sufficient; Venezuela has enough to cover at least 8 months and possibly more. And it has the capacity to borrow more internationally.
So what's causing the sudden surge in inflation? Prices and shortages tend to increase around election times in Venezuela, which should let you know that the main cause is political. And the current crisis is
no exception:
Specifically, the Venezuelan business elite has responded to the uncertainty surrounding the new government by taking money out of the country (capital flight) and deliberately creating chaos.
Currently the government earns Venezuela's dollars through oil exports and then distributes them to importers at a controlled rate in a system not very different from that applied during the "economic miracle" in South Korea which moved that country "from third world to first" (Korean capital controls were actually much more stringent than Venezuela's). This system of foreign exchange rationing should ensure that foreign currency is used to satisfy the needs of ordinary citizens and develop the country's productive capacity. The difficultly for Venezuela is that business-people are using the dollars that are allocated to them for the purchase of vital imports to engage in speculative activities on the black market, and to swell their foreign bank accounts. And of course, this means that essential goods are not imported.
At the beginning of the year, the government responded to misuse of the foreign exchange which it provides by partially reducing the levels of dollars it makes available, but this has had the effect of exacerbating shortages and driving up the black market value of the dollar. Prices have also shot up in the last months because Venezuelan businesses have made use of their oligopolistic control over distribution networks to massively increase prices,as part of a campaign to reduce the government's popularity in the run-up to the municipal elections in December.
Some businesses were marking goods up as much as 10 times import costs (private businesses receive US dollars from the government in a system called CADAVI; they don't pay the black market rate.) Maduro responded by sending the army to occupy offending stores and force them to sell their goods at a reasonable profit margin. While this was portrayed as looting in the private media there and here, it was extremely popular domestically.
Counterpunch had a good rundown of the situation
With Chavez dead, it's likely the opposition will try and start trouble in the streets tomorrow, no matter the outcome of the elections. Despite media reports, all the violence after the October elections was directed against Chavez supporters and the poor majority in general. Political activists were murdered. Government health clinics were set on fire.
All of this instability is aided and abetted by our government. Unlike every other world leader, Obama has still not recognized Maduro's government. And it's hard not to speculate, though we have no proof currently, that just like in Chile in 1973 TPTB in this country have decided to "make the economy scream."