Latin America’s Final Rentier State

It seems as the price of oil drops so too does the life expectancy of the Venezuelan government. President Nicolas Maduro announced on February 13th that an air force general and several others had been arrested on suspicion of plotting a coup. This news follows the arrest of opposition leader Marina Corina Muchado in early December 2014 for allegedly attempting to kill President Maduro, who claims to have survived five assassination attempts since his election in late 2013. Mr. Maduro blamed the coup attempt on the United States. U.S. State Department representatives called the allegations “ludicrous” and said that they only support peaceful and democratic transitions between governments.

A little more than a week later on February 21st Mr. Maduro charged the Mayor of Caracas with involvement in a US-backed coup and placed him in a military prison pending trial.

Mr. Maduro’s constant blame of the United States for coup attempts and discontent have been met with scepticism by the opposition parties. In the wake of the February 13th arrests an opposition spokesman responded to the news by telling the associated press that “The government makes up these stories about coups to avoid talking about how the country is breaking down,” and while some of the coup attempts may well have been fake or exaggerated, the economic and social issues problems prevalent in Venezuela are not.


Image courtesy of agencia brazil, © 2010, some rights reserved.
Image courtesy of agencia brazil, © 2010, some rights reserved.

President Maduro, former vice-president and chosen successor to the late President Hugo Chavez, inherited a country with a host of economic, social, and political problems. His predecessor’s almost 15 year rule saw significant socialist reforms and a continued focus on oil to the exclusion of nearly all other industries, perpetuating Latin America’s only rentier state. Chavez’s time in office also saw severe political strife, a coup attempt in 2002 nearly toppled his government, and ideologically-opposed Venezuelans were in a state of almost constant protest over corruption and the extension of presidential term limits. While Mr. Chavez’s leadership managed to keep the domestic situation more or less stable, his death followed by the recent drop in oil prices have led to massive instability and internal strife.

Venezuela’s economic problems are not a new issue, the oil shocks in the 1980’s had similar effects on the then-booming Venezuelan economy. Despite large reserves of iron and bauxite as well as the potential to increase the production of agricultural goods such as coffee, a staggering 88% of the country’s exports are crude or refined petroleum. Even in neighbouring Colombia, another oil rich Latin American nation, petroleum exports only account for about half of the country’s exports. Former President Chavez used the country’s oil revenue to fund the socialist reforms after he took power in 1998. For example, the revenues fund the subsidisation of many basic foodstuffs, public transit, and healthcare.

Venezuela’s focus on oil after its discovery in the 1920’s caused rapid growth and urbanisation as workers entered cities looking for stable jobs in the petroleum sector. While the growth lead to periods of prosperity, the dependency on petroleum to the exclusion of other sectors led to many workers and immigrants arriving in cities only to be faced with job scarcity and poor living conditions. Poverty and unemployment has led to extremely high crime rates, one of the many problems opposition leaders regularly protest against.  The urbanisation also negatively impacted the country’s economic diversity as workers and immigrants did not go into the agricultural sector or other industries.

Using oil money to fund public programs is not unique to Venezuela; countries such as Saudi Arabia and the United Arab Emirates (UAE) whose main exports are petroleum and petroleum derivatives also collect and distribute the profits to the public. The issue that sets Venezuela apart is while the UAE and Saudi Arabia can afford to produce export oil at an extremely low price, Venezuela’s production costs are significantly higher as heavy crude oil is more expensive to collect and refine. While states that are able to produce oil cheaply are more than happy to sell at this lowered price, Venezuela’s production costs are too high to compete when the price is so low.

The drop in oil prices has presented the government with a host of economic issues. Yearly inflation has surpassed 60%, making it the highest inflation rate in Latin America. The government has raised the prices of public transit to try and raise money and the value of the Venezuelan currency depreciated the same day as the alleged February 13th coup attempt.

President Maduro himself has followed in the footsteps of Mr. Chavez and blamed the opposition as well as the United States for the drop in oil prices and scarcity of goods. The Venezuelan government has repeatedly accused the US of supporting opposition leaders and waging an economic war on them and Russia.

The lack of oil revenue has placed Venezuela in a precarious position. Unrest over the increased price of food and healthcare has reignited protests by the opposition over government corruption and poor quality of living. Last year these protests culminated in several thousand arrests and approximately 43 deaths. The capital city Caracas has seen major protests since late January over long lines for few goods at high prices.

The opposition parties to the Venezuelan government show little sign of backing down with their constant calls for Mr. Maduro to resign. Judging from Mr. Maduro’s use of force last year and the recent arrests of political enemies, he will not go quietly. If the drop in oil prices continues to put stress on the Venezuelan economy the conflict may again lead to violence and protest in the streets until either Mr. Maduro or his opposition relents.

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