Written by Nisha Honnaya
Last semester I took Professor Patricio Navia’s “Global Latin American Cultures” class. As many of his students might attest, Navia’s engaging lectures left me with a lasting impression of Latin America’s growing presence in global affairs. Venezuela, in particular, intrigued me. Earlier this year, Juan Guiado declared himself interim president of Venezuela, using Nicolas Maduro’s illegitimacy as his defense. Plagued by years of humanitarian, political, and economic crises, Venezuela’s tumultuous transition of power is likely to have ripple effects for years to come. To learn more, I interviewed Professor Navia and Venezuelan senior Ignacio Carillo-Batalla, who studies computer science, in hopes of gleaning academic perspectives from two corners of NYU.
How would you characterize the state of the Venezuelan crisis?
PN: Since most Latin American countries embraced market-friendly policies after the third wave of democratization in the late 1980s, we have grown used to having democracy as the only game in town and market-friendly policies as the dominant model of economic development. However, since the rise of Hugo Chávez in 1999, Venezuela has gone back to the old policies of state-centered economic development. In a sense, looking at what happens in Venezuela today is like going back in time and experiencing the kind of hyperinflation episodes that characterized much of the region in the 1970s and 1980s.
IC: The humanitarian crisis is a result of the complete obliteration of the rule of law, which has allowed for a small number of people in the political elite to be benefited by the state to the detriment of everyone else. Having had oil revenues of over $1 trillion in the last 20 years, there is no reason apart from corruption for which Venezuela should be immersed in a catastrophic humanitarian crisis…I have felt forced to leave the country, either before and after [high school] graduation, and how my family’s business went from having 60 employees to 6 overnight as its main activity was banned by Chavez.
In what ways do you believe the upheaval surrounding the presidential election, relates to and might impact Venezuelan business and trade?
PN: Like many other Latin American countries, Venezuela is a commodities exporter, and has principally exported oil, particularly since the late 1960s and early 1970s. Venezuela became a very strong supplier of oil to the United States. Before Chavez assumed power in 1999 and nationalized oil through the PVDSA (Petroleos de Venezuela), Venezuelan oil was exported by multinational corporations. Under Chavez and his successor and former Foreign Affairs Minister Nicolas Maduro, oil production declined by about 50%, with prices skyrocketing to about $150 dollars per barrel. This led to Chavez’s stream of social programs which subsidized the poor, but simultaneously increased Venezuela’s dependence upon oil due to Venezuelan currency appreciation against the dollar. In 2014, when oil prices declines, the government’s failure to adjust its social spending further increased Venezuela’s debt crisis.
In looking at the recent election, we see that Maduro easily won due to low voter turnout yet Juan Guiado, leader of the opposition-controlled Congress, declared himself as interim president due to the fraudulent nature of the elections. Venezuelan oil is correlated to the political ramifications of this recent development as the president remains in charge of the country’s bank accounts. Maduro is not exporting oil to countries (such as the United States and most European nations) that recognize Guiado, in fear that payments will be withheld. Currently, Venezuela is using Russian subsidiaries as an intermediary in selling oil to the rest of the world. Yet, a Russia and U.S. conflict could thereby very easily impact Venezuela and U.S. relations further.
What lessons can we, as business students, learn from macroeconomic events like this one?
PN: The biggest lesson one can draw from Venezuela is that you cannot separate business and politics. Political events affect the business world and vice versa. Paying attention to fluctuations in oil prices will not give you a clear picture behind the constitutional underpinnings of Venezuelan policy, just as Venezuelan politics alone will do little reveal more about the Venezuelan oil market. Business and the world of macroeconomics are inseparable and the Venezuelan crisis proves this very point.