Crisis in Venezuela: The Fall of the Left in Latin America

Venezuela is in crisis. Falling oil prices have severely stunted the state-run economy, where petroleum products account for roughly 96 percent of total export goods. Government revenue has taken a deep plunge as the world price continues to fall, and printing money in attempts to offset decreased income has resulted in high inflation – projected to hit 480 percent in 2016 and top 1,640 percent in 2017. There are also chronic shortages of basic goods and food; store shelves remain empty, and people line up for hours with the hope of receiving necessities such as rice, medicine, and toilet paper. To make matters worse, desperation has turned violent in recent months, with incidences of protests, riots, and looting reaching into the thousands.

Venezuela’s economic crisis has been exacerbated by low oil prices, however the roots of the current situation stem from Chavismo policy implanted under the populist leader Hugo Chavez, who held power in Venezuela from 1999 until his death in 2013. As with most socialist revolutions, Chavez’s aim was to redistribute wealth and land, and improve poor Venezuelans’ quality of life. The cornerstone of Chavez’s economic policy was petroleum-funded state spending on social services and human development projects. Chavez also implanted price controls to keep the cost of basic goods affordable for everyone. In theory, these practices seem as though they would transform Venezuelan society for the better. However, while they did some good for Venezuela’s poor, in practice the long-run economic consequences of these policies proved severe.

Price controls decreased profit incentives for the increasingly shrinking sector of private businesses, discouraging them from stocking the forcibly under-priced basic goods. While a boom in the oil market meant that the government could prop up a supply of these goods in state-run stores with artificially low prices, as discussed previously, the country’s dependency on revenue from petroleum exports and high rates of government spending was unsustainable in the long run. The drop in oil prices meant government spending was forcibly slashed, and the artificially high supply of goods at artificially low prices have vanished. The official private sector is weak due to nationalization that occurred under Chavismo, and goods on the black market are being sold for hundreds of times more than their official prices. For example, a recent report found that milk, which is capped at 70 bolivares, is being sold on the black market for upwards of 7,000 bolivares. The same is true for other staple goods such a flour, sold at 3,000 bolivares instead of its capped price of 190 bolivares, and pasta, sold at 3,000 bolivares instead of its usual 15. As inflation spirals out of control, the problem is likely to get worse.

Nicolás Maduro, Chavez’s successor, has had little success in finding a solution while maintaining leftist economic and social policy in Venezuela. Maduro’s approval rating, currently hovering just above 20 percent, has plummeted along with the country’s economic stability. In December, the opposition won control of the national assembly for the first time in 17 years, demonstrating Venezuela’s discontent with the status quo of socialism. More recently, the national electoral council has announced that they have collected enough signatures to begin the process of holding a recall referendum, and polls show that over 60 percent of the public would vote to remove Maduro from office.

Maduro has accused the opposition of organizing a coup d’état against his regime, while the opposition maintains that they are solely seeking a recall referendum to replace him. In attempts to quell the opposition, authorities have carried out numerous arrests under direction from Maduro. Other repressive techniques employed by the regime amid recent protests include deployment of military in Caracas and creating a no-fly zone above the capital. As public unrest and economic insecurity grows, Maduro will face increased challenges remaining in power. Although the military is still on his side, the opposition is gaining strength in numbers.

The case of Venezuela, though extreme, is not unique in South America. Recently, the region has experienced a falling political left and a rise of the political right. It seems that the so-called pink-tide of socialist Latin American governments is subsiding. Although this phenomenon may be observed across the continent, the most relevant cases to be discussed in this article, in addition to Venezuela, are those of Argentina and Brazil. By analyzing the political and economic situation of Argentina and Brazil, which are further along in developing center-right policies, one can consider possibilities for Venezuela’s future, and learn from the policy mistakes of other administrations.

Brazil’s senate recently impeached president Dilma Rouseff, ending thirteen years of leadership by the socialist Worker’s Party. After the 61 to 20 impeachment vote, a center-right politician from the PMDB party, Michael Temer, has replaced her. Dilma was the Worker’s Party successor to Luiz Inacio Lula da Silva, who was President from 2003 to 2011. Under da Silva’s leadership, Brazil thrived.

Although also involved in a corruption scandal, da Silva was fortunate enough to enjoy high approval ratings that stemmed from a booming economy. He focused on improving the microeconomic situation of Brazilians, and thus created the Bolsa Famila conditional cash transfer program. Consequently, 36 million Brazilians were lifted out of extreme poverty and the middle class expanded rapidly during da Silva’s two terms in office. Brazilians also witnessed real wage increases, expansion of credit, and increased employment during this period. For da Silva, socialist policy worked.

However, Rouseff’s policies were far less successful. She was unable to sustain the healthy economy seen under da Silva, which caused social unrest and tension between the government and its people. Rouseff’s involvement with a corruption scandal involving her party and contract bribes with the nationalized oil company Petrobras, along with violation of state budget laws, led to her final demise. Rouseff was impeached on the latter charges, although she has pledged to appeal the impeachment, which she has called a parliamentary coup – despite parliament carrying out the impeachment proceedings in accordance with Brazil’s constitutional framework. With Rouseff’s impeachment, it appears that socialism has come to an end in Brazil.

Temer, Brazil’s new President, has vowed to restore the state’s political and legal credibility. Additionally, he is planning to enact austerity measures to improve Brazil’s credit rating – which was downgraded to junk status under Rouseff – and reduce the deficit. Temer also plans to overhaul the state pension system and transition national infrastructure projects to the private sector by auctioning them off to foreign investors. However, he will need Congressional support to pass these tough measures that have made him deeply unpopular with the public. With Temer’s term just beginning, it remains to be seen how successful Brazil’s swing to the center-right will be.

In late 2015, Mauricio Macri, a center-right politician from the Republican Proposal party, was elected president of Argentina, ending 12 years of leftist leadership by the husband and wife team Nestor Kirchner and Cristina Fernandez de Kirchner. Macri is both fiscally and socially conservative; he is anti-abortion and opposes marijuana decriminalization. In fitting with his party’s center-right platform, Macri is also a proponent of free-market economic policy, and has cut energy and transport subsidies in order to reduce government spending. However, he has promised to continue and improve upon welfare programs started in the Kirchner era.

The largest challenge facing Macri is reining in fiscal policy enough to lower the deficit and reduce inflation without letting social programs and infrastructure suffer, and while also continuing to grow the economy. Inflation in Argentina continues to rise; when Macri was elected it stood at about 25 percent, and it topped 40 percent last April. The Central Bank has raised interest rates to 38 percent, hoping to increase savings and decrease spending that contributes to inflation. Macri has also announced that the government is unlikely to meet its year-end goal of 4 percent deficit reduction, which stood at 5.4 percent of GDP when Macri took office.

However, the Central Bank expects recession recovery to begin soon, predicting that GDP will rise 3 percent next year. Macri’s is also seeking to attract investors and new business to the country to help bolster the economy. Recently, Argentina held a conference in Buenos Aires for global investors and received over $32 billion in corporate pledges, signaling that the reforms are being taken seriously by multinational industries.

Despite an 18 percent drop in approval ratings this past summer – down to a moderate 46 percent approval rating – Macri has remained committed to his economic reforms. While Argentinians are feeling the squeeze of austerity measures, they are necessary to get the economy back on track, decrease inflation, and balance the budget. However, with legislative elections set for October 2017, Macri will need to demonstrate to the people that these measures work in order to avoid the government swinging too far back to the left and halting economic reform.

As demonstrated by these cases, the fall of the Left and subsequent rise of the Right is not a singular occurrence but rather a marked phenomenon in recent Latin American politics. The region has experienced a number of political and economic ideologies since its independence from Spain and Portugal was won in the 1800s. In the last half-century alone, the region has shifted from inward looking import substitution industrialization, to socialist and communist regimes, and later responded with neoliberal economic policy. It is only expected that countries and regions undergo economic and political reform as ideology changes and people look to restore balance after moving too far in one direction. The economic policies necessary to get the economy back on track will be painful in the short term, as seen in Argentina and Brazil. If these policies are not met with political stability and social welfare programs, the people may push out these new governments just as swiftly as they ushered them in. As nascent center-right regimes take hold in Venezuela, Brazil, and Argentina, only time will tell how large, and successful, the shift will be. For now, the pink tide of Latin America is receding.


About Gretchen Cloutier

Gretchen is a senior with a double major in International Relations and Economics and a minor in Spanish Language and Area Studies. She is a Staff Writer for The Americas column, and spent a semester abroad in Costa Rica. Outside of the World Mind, you can find her playing ultimate frisbee or sipping coffee at the Dav on American University's campus.