The writer says we may also learn from the comparison the extent to which economies riding the oil price volatility can go. Photo: Reuters
The writer says we may also learn from the comparison the extent to which economies riding the oil price volatility can go. Photo: Reuters
Erstwhile President Hugo Chavez Frias was accredited with unique gifts of statecraft including the ability to manage both internal and external inconveniences. File Photo: IOL
Erstwhile President Hugo Chavez Frias was accredited with unique gifts of statecraft including the ability to manage both internal and external inconveniences. File Photo: IOL

CAPE TOWN – It is not possible to ignore an epic crisis of such great proportion as the one unfolding in Venezuela. Its scale and depth cover a full range of the livelihoods of all the denizens of that country, wreaking havoc in its wake. Yet it remains insoluble, eluding both the Venezuelan political machinery and its friends both regionally and globally. And from the many colourful voices covering its trail, it is tempting to attribute their current dilemma to the volatility of oil prices. This is because of their long association with oil. 

Organized oil to be exact. Their esteemed son, Juan Pablo Perez Alfonzo was the moving spirit behind the formation of Opec. He was personally convinced that the oil brothers must come together in an organization to counter the oil sisters, all seven of them. The prophetic Perez Alfonzo went on to bequeath to the world the quote that will forever haunt Venezuelans and many other countries like it. In 1976 he mused that “ten years from now, twenty years from now you will see, oil will bring us ruin. It is the devil’s excrement.”

Larger than life social problems are like icebergs. There is no way of seeing all of them at once. Whatever tip is visible to the observer, only its dimensions will receive definitional focus of the conversation. From this vantage there is the legacy of the volatility of oil prices, and there also seems to be two Venezuelas. 

The theory that seeks to link hyperinflation to the movement of oil prices, compels us to make comparisons with other oil producing candidates. These are Angola and Nigeria. Each of their individual experiences are adequate to provide convenient points of measure. As such, the trio provides reliable case studies for the link hypothesis. 

Oil price volatility

We may also learn from the comparison the extent to which economies riding the oil price volatility can go. On the high side of backwardation and the resultant rising oil prices, their tendency for overspending and the massive increase of their public budgets is uncannily similar, only to return to despair from the inevitable low prices brought by a contango. 

Whilst all countries including oil producing ones retain the option to run to the World Bank and the IMF for help, the act of taking the option is always a political decision, depending on the ideological bent of the incumbent administration. Whilst Nigeria resolved to take the option, former President dos Santos of Angola refused to. 

His successor on the contrary did not prevaricate and, without wasting time, simply exercised the option in his early days of office. In the case of Venezuela however, both Chavez and Maduro would make difficult applicants.

During the time of surplus, all three countries’ social problems asked the same perennial yet awkward questions, requiring urgent and difficult answers.  But such questions coming from the masses, constituted a nuisance since they represented no specific value other than to interrupt the ebullient noises of oil billionaires, with old ones welcoming new ones. Venezuela is not Angola, neither is Nigeria an avatar of Angola nor of Venezuela. 

So, they tend to answer to different questions differently. They are aware that oil economies have got short memories. So short, they get trapped in habits that make them believe that rising oil prices will forever rise. Such deliberate forgetfulness is comfort to the tension brought by the rise and fall of the heatwave of windfall and the severe winters of low prices.

In the oil universe there are two known proponents constantly bickering at each other. They are on the one hand, the Opec Bloc, and on the other, everyone else. When the prices go up, Opec prides itself for production quota discipline. If prices fall however, they blame each other for cheating and lack of discipline. 

As for everyone else, our voices follow the crude oil prices. The higher they go, the higher will the decibels of mass discontent rise. And the reverse is true when prices drop.  When the oil revenues grow, so are spending patterns, as unsustainable as they equally satiate the political agenda of the ruling class of the hour. When they diminish, they cause sudden budget deficits. It should be apparent by now that there is a difference between budget deficits and hyperinflation. 

Erstwhile President Hugo Chavez Frias was accredited with unique gifts of statecraft including the ability to manage both internal and external inconveniences. File Photo: IOL
Erstwhile President Hugo Chavez Frias was accredited with unique gifts of statecraft including the ability to manage both internal and external inconveniences. File Photo: IOL

Budget deficits do not always result into hyperinflation

Deficits are generally manageable as opposed to hyperinflation which has percentages that run into hundreds of thousands, and in some rare exceptional cases, into millions. As a rule of thumb, budget deficits do not always result into hyperinflation. Whilst budget deficits are facets of market imperfections and administrative inefficiencies for the most part, hyperinflation on the other hand, is a political creature. 

Hyperinflation of the Venezuelan species is so egregious that running to the IMF and the World Bank would not fix it. The differences between the concepts segues into the theory that there is hyperinflation and there is uber inflation. And with all its unique hallmarks, the Venezuelan tragedy is an uber inflation on steroids. Learning from the comparison, our shared capitalist experiences tend to suggest something historically important. 

And this is that countries that have lived through the eye of an uber inflation storm, have not always been from the oil producing stable. The first was Germany. The second was Zimbabwe, two countries not known for their reliance on oil wealth. Therefore, there is no reason to believe that the humanitarian crisis unfolding in Venezuela is a consequence of the volatility of oil prices. Nor, I might add, is it unique to oil producing countries.

The development of the Venezuelan democratic project has much to speak for itself, narrating as it would, a kaleidoscope of experiences. They range from the tension of federal versus centralized power politics, to the violence of golpes, caudillismo, democratic experiments, destabilization by regional powers, and quite recently, the introduction of and resistance against socialism. It is tempting to observe that since 1830 the only social constant in the Venezuelan polity is, with few exceptions, political instability. 

Each turbulent transition from one epic to another has ingrained itself in the public psyche so much so that it has numbed the political empathy of the citizens from the ensuing social violence that has coloured each episode of passage, resulting in the beautiful northern tip of the South American continent to be dubbed ‘the most violent country on the planet!’ The country that has lent its beauty to the world and takes pole position in the number of winners in the Miss World and Miss Universe pageants, is a melting pot of many factors in constant boil. The resulting spew is a consequence of the concoction of all its socio-political ingredients. It is a sad inevitability that as they make their bed, so should they lie on it.

Political problems are always inconvenient, no matter the time frame they occur in. Being confirmed as the country with the largest crude oil reserves on the planet, the ravages of an uber inflation are simply untimely and, coupled with the forever running theme of contested presidential elections, could not have come at a worse time. 

Rubbing salt on a festering social wound

Political uncertainty, violent crime, chronic food shortages, drug transit route, lack of vital medicines, large droves of emigration and the flow of economic refugees into the regional neighbourhood are rubbing salt on a festering social wound, refusing to heal. These imperfections and discordant time and event imbalances represent the political purchase all Venezuelans must contend with. The price, paid in an ever falling Bolivar currency, is inconvenience. The greater the size and frequencies of these imbalances, the higher the inconvenience. 

And the degree of inconvenience is accentuated or mitigated by the ability or otherwise of a particular leader to manage such imbalances, and as a consequence, the inconveniences. Finding a solution for anything in that mix would be unavoidably complex. It is not inconceivable that finding a solution for one part of the social equation, would complicate the condition of the other constituent parts. And there is no telling the causal effect of the one on the rest of the body politic.

Some leaders were good at managing it, others not so much. And those who did, occupy pride of place in the annals of history of that country, especially those that reigned during the rise of the oil prices. Failure to manage either with flair or efficacy, may have resulted in a swift and violent dispatch out of office. For the record, during my stay in that beautiful country, there were two distinct Venezuelas. The one is loud. 

The other one, just louder. For those who are so inclined, they accredit the erstwhile President Hugo Chavez Frias with unique gifts of statecraft including the ability to manage both internal and external inconveniences. In such polarized atmosphere however, the other Venezuela will vehemently remonstrate against such accreditation. When President Juan Vincente Gomez died, those who revered him wept inconsolably for El Benemerito, the Meritorious One. And those thongs who were on the short shrift of his dictatorial streak, could not wait to celebrate that El Bagre, ‘the Catfish is Dead.’

‘Poor Mexico, so far from God, and so close to the United States’, General Porfirio once said of his native country. This classic lament, both prescient and emblematic of the story of all countries in the Americas, describes how the history of Latin America and the fate of its people bear the signature of the United States writ large. And not even Venezuela could escape it. Add Europe’s designs on Venezuela too. 

Disagreeing with Uncle Sam

I venture to say that there is no sophistication in disagreeing with Uncle Sam, not even doing it subtly. And so Hugo Chavez was brash, loud and direct, thereby turning an instinct of rebellion into an art form. The other half of his countrymen quickly dismissed his style, derisively branding it as showmanship. They would do so, armed as they are, with a well-rehearsed set of opposing views. No matter, Chavez always understood that every single one of his country’s leaders will have to contend with the two intractable realities, the United States and the volcanic eruptive power of the masses. He sided with the latter.

The tenure of Hugo Chavez has helped illumine the dichotomy of two Venezuelas immortalized by the Orwellian Tale of Two Cities. But even El Commandate could not claim authorship of his country’s two nations dilemma, nor his mastery over it. His socialismo o muerte project simply shone spotlight onto the plight of millions of his countrymen and countrywomen who belong to the other Venezuela whom time, history and enlightenment had completely forgot. 

Discovering that they had needs too, so much of the national budget which used to benefit a historic minority was required to serve the newfound purpose, to the obvious chagrin of the propertied classes. There is no doubt  that President Chavez was eloquent as he was skilful in branding, always exploiting the advertorial power of repetition and the colour of the apparel. 

US$50 billion later from the Chinese, the crisis persists regardless, resulting in SINOPEC, the Chinese oil giant, suing the Bolivarians. New borrowings, changing of currencies, Petro-cryptocurrency, forward selling of gold production etcetera, all these efforts jointly or separately, don’t seem to provide the intended relief. In the meantime, there is a massive debt hole sitting right in the middle of any conversation, growing in leagues by the day. It may be caused by the very altruistic reasons to attribute so much of the country’s earnings to social causes. 

The productive capability however, has long been compromised and nationalization has not yielded the equitable dividend promised by the rhetoric. The tax collecting capability has diminished commensurate to the diminution of the tax paying corporations and capital flight. And so, the black hole of debt beckons. Out of its dark void, gushers out toxic fumes of uber inflation. A sensible conversation about stability, may likely start with appreciation of the causes of debt and factors that fuel it so rapidly.  

Dichotomization

Yet for the dichotomization of the Venezuelan society, every single President before Hugo Chavez had to lend a hand. I am equally mindful that the characterization of a nation into two camps is a dangerous stereotyping exercise, and therefore must, with a measure of care, be treated as an abstraction. There are many lines that crisscross among different segments of a society which when properly examined, would refute the theory of two nations. Still, notwithstanding the many things that unite them, of the few that divide them, whether politics, education, wealth or even class, any one of such dividing factors can be used to understand the complexity of the uber inflation debate amidst the severest political crisis since the birth of the Venezuelan state.

South Africa is watching carefully. We have copied a few things from yonder there, including red berets and heavy-rhythmed sloganeering. Appearances notwithstanding, there are lessons to be learnt. Beware of debt. State debt. And the signs that we may fall into that trap are apparent and fully manifested. And there is no shortage of altruism to justify the need to follow the sweet melody of the Pied Piper of Debt. 

I am reminded that President Mbeki once summed up an unrelated occasion sagaciously, inspired by the 2005 near-apocalyptic events in New Orleans. Paraphrased, he noted that Hurricane Katrina is a natural disaster that interrupted a social catastrophe. In the case of Venezuela, it is possible to remark with a liberty of phrase that an economic crisis has rudely interrupted a political disaster in casual evolution. 

A sizable crisis has come to town and cannot be suffered to go to waste. No matter the number of things that perturb Venezuela and the perception of their divisions, real or imagined, no single one of them have escaped the enveloping overreach of the crisis. Whatever solutions are professed to resolve it, they would ineluctably solve the many diverse socio-economic problems that have plagued them for years. 

The uber inflation cuts across the two Venezuelas with reckless abandon, and in a surrealistic twist has turned the country into One Big United Venezuela, ready for a political solution.

Ambassador Bheki Gila is a Barrister-at-Law.

The views expressed here are not necessarily those of Independent Media.

Follow Business Report on Instagram here

– BUSINESS REPORT