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Venezuela

Ramírez demotion headlines Venezuela’s cabinet reshuffle

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Since 2004, Rafael Ramírez has served as the president of Petróleos de Venezuela, S.A. (PdVSA), the country’s state-owned oil company, and since 2002, Ramírez has served as Venezuela’s energy/oil minister. Venezuela Flag Icon

That all changed on Tuesday, when president Nicolás Maduro announced a reshuffle of his government, the most significant since his controversial and narrow election in April 2013.

Ramírez, after Maduro and after Diosdado Cabello, the president of the Asamblea Nacional (National Assembly), was the most powerful of the chavistas remaining in government in the aftermath of Hugo Chávez’s death almost exactly 18 months ago. Since that time, Ramírez became, in addition to PdVSA head and oil minister, vice president in charge of economic affairs.

A longtime old hand within chavismo, he was among the most pragmatic and moderate of the chavistas. Ramírez may have run Venezuela’s oil industry into the ground, and he may have been as corrupt as anyone in Venezuela’s government. But he didn’t radiate the kind of socialist, true-believer aura of other leading chavistas, such as former planning minister Jorge Giordani and former foreign minister Elías Jaua.

In the Maduro era, Ramírez endorsed reforms, such as reducing the gasoline subsidy that keeps the price of fueling Venezuelan cars lower than anywhere else in the world and otherwise liberalizing the economy, including with respect to the massively overvalued bolívar. 

Asdrúbal Chávez, the cousin of the late former president, will become the next oil minister, while PdVSA engineer and executive Eulegio Del Pino, a close Ramírez ally, will be the oil company’s next president.

Though he was simultaneously named foreign minister, it’s hard to see how Ramírez hasn’t suffered a demotion for a country where 97% of foreign earnings derive from oil. As PdVSA head, in particular, Ramírez controlled the most enviable element of Venezuelan economic policymaking — he controlled the profits.  So while the move to foreign minister would be a promotion for many ambitious politicians, in Venezuela, it’s a way of sidelining Ramírez.  Continue reading Ramírez demotion headlines Venezuela’s cabinet reshuffle →

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‘Pragmatic’ Merentes winning control over Venezuela economic policy, but to what end?

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When Venezuelan president Nicolás Maduro appointed Nelson Merentes as his new finance minister shortly after Maduro’s controversial election in April, no one knew whether Merentes would actually be the official in charge of economic policy.Venezuela Flag Icon

That’s because the former finance minister Jorge Giordani, the longtime policymaker in the era of former president Hugo Chávez, remained planning secretary — and in a huge public-sector country like Venezuela, there’s little left untouched by central planning.  Giordani, more than anyone else, was responsible for the statist economic policies of the Chávez era, including currency and price controls.

But this week, there was no mistaking that Merentes is now ascendant — Edmée Betancourt, who had served as president of Venezuela’s central bank (BCV) for just over three months, stepped down in favor of Eudomar Tovar, an economist who was most recently the head of Venezuela’s currency exchange (CADIVI).  Betancourt, a former commerce minister, was seen as closer to Giordani and the more ideological, statist wing of chavismo, while Tovar and Merentes are associated with a more pragmatic, moderate view of economic policy.  Rumors swirled last week that Giordani might soon leave the planning ministry, abandoning a recent push to raise taxes, to take up an ambassadorship soon.

Leave aside for a moment that in an era of central bank independence, neither Giordani nor Merentes would be dominating the BCV’s monetary policy in a country with sounder financial institutions.  If Merentes and Maduro really want to shake up Venezuela’s economy for the better, they should start by reintroducing a line between the ruling Partido Socialista Unido de Venezuela (PSUV, United Socialist Party of Venezuela) and the institutions of the Venezuelan state — starting with the BCV, but also with the national oil company, Petróleos de Venezuela, S.A. (PDVSA).

Merentes’s rise should provide at least some cautious optimism — if Giordani would have doubled-down on statist Chávez-era policies, at least Merentes seems to realize that Venezuela’s basketcase economy has some problems.  The central bank’s reserves are dwindling, Venezuelan GDP growth has slowed to nearly nothing, and inflation has reached its highest level since before Chávez came to power in 1999 on the road to a potential hyperinflationary collapse.

But it remains far from clear that Merentes is willing to embark upon a program of true economic reform or whether Maduro has both the political capital and the political will to enable him to do so.  Moves to devalue the bolívar both officially and unofficially earlier this year was a start in bringing the Venezuelan currency’s stated value in line with its real market value, but the currency has decline further in value throughout they year: despite an official value of 6.3 bolívares to the dollar, its real value has dropped from around 20 at the time of the April 14 election to more than 30 or 35 today.  Maduro took steps to tweak the currency exchange system through the introduction of SICAD auctions earlier this spring — because the vast majority of U.S. currency comes to Venezuela through the government’s sale of oil products, the government must develop a mechanism to sell those dollars to importers who need hard currency.  But neither Maduro nor Merentes have been in a rush to hold regular dollar auctions (only around $600 million has been auctioned off so far in 2013) or to deliver the actual dollars from the government to the private sector.  But the fuss over SICAD and currency exchange is really just a stop-gap measure — if the ‘pragmatists’ can’t even get this right, it leaves little faith in their ability to overcome more fundamental problems with Venezuela’s economy.

Maduro and Merentes still hope that they can borrow their way out of Venezuela’s current malaise, and the government had the brass to float the possibility two months ago that Merentes would go on a roadshow to New York and London to gauge appetite for Venezuelan bonds.  That roadshow plan quickly fell apart when it became clear that there’s little appetite for risky Venezuelan debt among global investors — yields on Venezuela’s benchmark bond have been in the double digits since Maduro’s election. Continue reading ‘Pragmatic’ Merentes winning control over Venezuela economic policy, but to what end? →

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It’s Diosdado Cabello’s world, the rest of Venezuela is just living in it

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Venezuela, just over a month after its still-contested presidential election, has made global headlines in the past couple of weeks for its chronic shortages of everything from toilet paper to church wine, with rationing soon to begin in the large western state of Zulia.  Venezuela Flag Icon

That means that the country’s economic collapse is proceeding more or less as depressingly predicted — with oil prices stagnating, and with the state-owned Venezuelan oil industry’s production reducing, it means that the country has fewer and fewer dollars to fuel its increasing dependency on imported goods, a shortage that’s been exacerbated by the government’s somewhat inefficient system of auctioning off the dollars to importers and the fact that the Venezuelan bolívar is fixed at an artificially high rate.

That’s one of the reasons that Nicolás Maduro, even with the full force of a government that has excelled at blurring the line between the Venezuelan state and chavismo, only barely won election follow Hugo Chávez’s death and why his challenger Henrique Capriles is still waging a campaign in the court system, however quixotic, to expose voting fraud in April’s election that could well reveal that Capriles won the election instead.

Maduro’s loss weakened his already tenuous position within the ranks of chavismo, and the key power brokers under Chávez have largely retained their roles under Maduro, including Rafael Ramírez, the energy minister and the president of the state-run oil company, Petróleos de Venezuela, S.A. (PDVSA), and Jorge Giordani, the former finance minister who remains the planning minister under Maduro.  Forget the fact that new policymakers could potentially reverse course on Venezuela’s economy or that Giordani, Ramírez and Maduro appear to be doubling down on the same policies that have led to Venezuela’s precarious situation — it shows that Maduro lacks the power to replace his rivals with ministers who owe their loyalty to Maduro.

But as the economy melts down, it isn’t surprising to see chavismo itself breaking down.  The first major breach came a couple of weeks ago, when a purported recording of a conversation emerged between Mario Silva, who hosts the popular, massively pro-chavista ‘La Hojilla’ television program, and Aramis Palacios, a Cuban lieutenant colonel in G2, the Cuban intelligence agency.  Silva is as much of a true believer in chavismo as anyone in the top circle of Venezuela’s ruling elite, so if Silva has such wide doubts about Maduro (at one point he says, ‘we are in a sea of shit’), imagine what the rest of the government thinks.

It’s also, of course, somewhat of an international scandal as well — though Cuban intelligence long worked hand-in-hand with Chávez and the Venezuelan government, what exactly was a pro-Chávez talk show host doing talking to a Cuban spook?  The link between the two countries became an issue during the campaign, with Capriles attacking the generous oil subsidies to Cuba that Chávez initiated a decade ago, and Maduro is widely believed to have been Havana’s top choice to succeed Chávez.

But the recording was most tantalizing with respect to Diosdado Cabello (pictured above) and his role in Venezuela’s future — no one has more power in post-Chávez than Cabello, including even Maduro. Continue reading It’s Diosdado Cabello’s world, the rest of Venezuela is just living in it →

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A primer on PDVSA — and the interaction of oil and politics in Venezuela

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CARACAS, Venezuela — You’d think in Caracas that the governing party were the PDVSA, not the PSUV.Venezuela Flag Icon

But the state-owned oil company, Petróleos de Venezuela, S.A., functions as much as any other organ in Venezuela in service of the government, formerly headed by Hugo Chávez and now, Nicolás Maduro.

Indeed, a stroll through Caracas finds the PDVSA brand saturates the city — much more than the nominal governing party, the Partido Socialista Unido de Venezuela (United Socialist Party of Venezuela). Here’s a PDVSA-branded hopscotch:

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PDVSA (pronounce it ‘pay-duh-vay-suh’) was founded in 1976 when then-president Carlos Andrés Pérez nationalized the oil industry at the height of an oil boom the likes of which Venezuela had never seen. Venezuela’s oil industry began in 1914 when the first oil well was drilled in Mene Grande, in western Zulia.  It began exporting petroleum by 1918, and that soon eclipsed an economy once based largely on cacao and coffee — though cacao production was dwindling in the early 20th century, Venezuela exported more coffee than any country in the world other than neighboring Brazil.

Venezuela was the world’s leading oil exporter by the end of the 1920s — Caracas was known as ‘the gas station south of Florida.’ We think of the Organization of Petroleum-Exporting Countries (OPEC) as a largely Middle Eastern cartel today, but it was founded in large part in 1960 on the initiative of Venezuelan energy minister Juan Pablo Pérez Alfonso, who helped create it after reaching out to his ministerial counterparts in Saudi Arabia.

Through the next 40 years, Venezuela’s fortunes rose and fell with global oil price, but PDVSA remained relatively at arm’s length from the government — it paid income taxes and royalties to the government, as well as dividends (because it’s entirely state-owned).

This continued even after Chávez was elected — until 2002, that is, when Chávez attempted to take control of PDVSA, leading to a rebellion/coup attempt and a general strike among PDVSA employees later that year. Chávez, as it turns out, simply fired most of the offenders, and over the past 11 years, PDVSA has become essentially an arm of the government, which itself increasingly became an organ of chavismo.

So PDVSA employees today wear red, the color of chavismo, and over the past decade, PDVSA has been a direct contributor of funds to social programs, bypassing the formal channels of government — and also incurring its own liabilities (indeed, the IMF’s estimate of Venezuela’s public debt of around 51% includes PDVSA debts as well).

Whatever the benefits to deploying that capital for social welfare programs (and I’m not arguing for or against), it means there’s simply less capital to maintain production or develop new avenues for refining oil.

Rafael Ramírez, a loyal chavista, was appointed minister of energy and petroleum in 2002 and PDVSA’s president in 2004. If Maduro wins the election, it’s expected that Ramírez will stay in place — and so will continuity in oil policy under the Maduro administration. If Maduro replaces Ramírez, however, it could be an indication that he wants to shake up some of his predecessor’s policies.

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Oil proceeds represent around 95% of Venezuela’s exports, around 20% of its GDP and over 50% of the government budget. So what happens in the oil industry matters for what happens with Venezuela’s government and its economy. Continue reading A primer on PDVSA — and the interaction of oil and politics in Venezuela →