lunes, 24 de septiembre de 2018

Latin America Gets Its Own Migrant Crisis

Tomado de

Latin America Gets Its Own Migrant Crisis
“Venezuela is no longer a pressure cooker. It’s a time bomb waiting to explode.”
SEP 23, 2018

A Colombian volunteer and a Venezuelan migrant at the Rumichaca International Bridge in Tulcan, Ecuador, on August 18LUISA GONZALEZ / REUTERS

Four months ago, 22-year-old Lusiana Garcia, a mother of two pregnant with her third child, escaped an abusive relationship and an incompetent dictatorship. She boarded a bus in Valencia, Venezuela’s third-largest city, to travel 18 hours to Cucuta, a town about 480 miles away and across the border in Colombia. “I only had money for one ticket,” she told me on the phone through an interpreter. “So I had to carry my children the whole way.”
Garcia and 2.3-million Venezuelans like her have left their country thanks largely to the gross mismanagement of what was once Latin America’s richest nation. The inept dictatorship of Nicolas Maduro has unleashed a crisis that could rival the European migrant crisis of 2015. Like that crisis, this one may well alter the political dynamics of Latin America and usher the kind of toxicity the region has so far largely avoided.
Several Latin-American countries have begun preparing for the increased flow. Last month, Brazil sent troops to the border to maintain order after Brazilian residents attacked Venezuelan migrants, and Peru declared health emergencies in two provinces where health officials had warned of migrants spreading measles and malaria. Maduro has blamed outside forces for waging an “economic war” on his country, and insisted the estimated numbers of those leaving aren’t atypical.

“We are all stakeholders in the Venezuelan crisis and few countries more so than Colombia,” Francisco Santos, the Colombian ambassador to the United States, said last week at the Center for Strategic and International Studies (CSIS), a Washington think tank. “If we do not collectively address possible ways in which we stop the downward spiral in our neighboring country, there will be no other agenda to discuss with the White House or with anybody else.”
Santos, whose country of 48 million people is now home to 1 million Venezuelans, likened the situation to the European migrant crisis. “Germany received 1 million refugees from Syria in three years,” he said. “We received that in one year. … Imagine what this flow is going to do to Latin America, … [which] hasn't had those types of problems.”
The roots of the Venezuelan crisis lie in the economic policies of Hugo Chavez, Maduro’s predecessor and political mentor. In the 2000s, Chavez instituted generous social-welfare programs, nationalized many industries, and offered free, or highly discounted, oil to countries like Cuba in exchange for doctors and political support. This was possible because the price of oil—the lifeblood of Venezuela’s economy—was near record highs, filling the country’s coffers with billions in export revenues.
Following Chavez’s death in 2013, Maduro followed many of his mentor’s policies. But the sharp drop in global oil prices, along with the dramatic decline in Venezuela’s oil production, ensured that its economy, which is also highly reliant on imports, ran out of export revenue to pay for foreign goods. U.S.-led economic sanctions imposed on the country in response to the precipitous democratic decline under Maduro exacerbated the crisis.
Maduro’s economic policies essentially created a situation in which Venezuelans can’t buy goods, even if they have the money to do so. Chronic shortages force many people drive over the border to Colombia to buy supplies. Those who can leave, do. Under Chavez, “we had access to medicine—even if it was Cuban medicine,” Garcia said. But under Maduro, “I couldn’t give my children food, medical attention, anything at all. I was having trouble with my husband, and that’s when I decided that with everything happening, I had to get away.” Her mother already lived in Cucuta. Every time they talked, she said, her “mom used to say that food was easy to sell here.” So she left. “I saw an opportunity to generate an income for my family.”
Today, Garcia sells juice and cake in Cucuta, earning about $50 a week. “It’s not enough,” she said, “because I still have to pay for utilities, rent, and food.” But it’s more than what she was earning in Venezuela selling chips. “It’s been wonderful,” she said of Cucuta where she now lives with her mother, her mother’s partner, her 24-year-old sister, and 17-year-old brother. “I cannot really complain. I feel like I’ve received more support here than at home.”
Not everyone fleeing Venezuela has been as fortunate as Garcia. Trish Bury, the deputy director of programs in Colombia for the International Rescue Committee, which began working in Cucuta in April, told me that her group is seeing unaccompanied minors from Venezuela at a rate four time that of other emergencies around the world. Domestic violence is common, she said, as is overcrowding, and many Venezuelans are on the streets, begging. But Bury also worried about what she couldn’t see: “The exploitation, abuse, trafficking,” as well as illegal work, and child labor. “Thousands of people are pouring across the Simon Bolivar bridge [that leads to Cucuta from Venezuela] every day,” Bury said. “You’ll see people ... not carrying anything because they're coming over just to get food from soup kitchens, or they’re picking up supplies to take back to Venezuela. But then you’ll also see a lot of people who look middle class who are just taking what they can—a lot of people carrying suitcases.”
If the European migrant crisis is any indication, Venezuela’s neighbors are unlikely to remain welcoming for long. European nations like Germany and Sweden, which opened their arms to migrants in the early days of the crisis, quickly soured on the new arrivals, with dramatic political consequences. There’s also the fact that Latin-American nations are far poorer than those in the European Union—something that’s sure to become a destabilizing political issue for a place like Colombia, Santos, the Colombian ambassador, said.
Citing sympathetic coverage in Colombia of the migrant crisis, Bury said that while Colombia is more accepting of newcomers than other places, “the situation [with Venezuelans] is a bit newer. … But when we’re talking about almost 2 million people coming into the country, there will be a limit for sure.”
Matthew Reynolds, the top official for the United States and the Caribbean at the UN High Commissioner for Refugees, said the Venezuela crisis is one of the largest his agency has seen. “This is on the scale of Syria,” he said at the CSIS event. He said 330,000 Venezuelans had so far filed asylum claims in other countries; 137,000 of those came in the first six months of this year. Latin America’s generous refugee policies have allowed nearly 600,000 Venezuelans to move and stay in another country, he said. UNHCR has raised a little more than half its goal of $146 million to provide for Venezuelans both outside and inside the country, he said. “Given the continued increase of outflow and needs, far more resources will be needed in 2019,” he said. At the same event, Marta Costanzo Youth, who oversees the Office of Europe, Central Asia and the Americas at the U.S. State Department’s Bureau of Population, Refugees, and Migration, said: “This is not something that one country, that the United States alone, is going to be able to provide support for, although we are the leader in providing funding for this. We've continued to look at other options for increasing our funding in this area.”
The Trump administration’s pressure campaign on the Maduro regime began last fall when it moved to restrict the regime’s access to the U.S. financial system, in effect barring the Venezuelan government’s ability to issue bonds to raise funds. Washington also imposed sanctions last year on Maduro and his senior officials, freezing funds they may have in U.S. banks. Although those measures have restricted Venezuela’s access to the U.S. financial system, they did not touch Venezuela’s oil industry, as many critics of the regime in Washington had urged. Venezuela remains the fourth-largest source of U.S. oil imports and one of the top sources of U.S. oil exports.
Still, such steps served as confirmation to Caracas that Washington wants to oust Maduro, as it tried and failed to do with Chavez. A recent report in The New York Times that the Trump administration held secret meetings last year with Venezuelan military officers to discuss plans to overthrow Maduro are likely to bolster those suspicions. U.S. officials decided not to help the plotters, the Times reported. But Costanzo Youth, the State Department official, emphasized that any political solution in Venezuela cannot include Maduro. “It is too late and too naive to think that a solution will happen without regime change,” she said.
Indeed, though some U.S. and European sanctions are now in place against the Maduro regime, the Venezuelan leader has successfully turned to China and Russia— permanent, veto-wielding members of the UN Security Council—for financial and diplomatic support. As long as Maduro and his allies remain in charge of Venezuela, people will continue to leave. “Venezuela is no longer a pressure cooker,” Santos said. “It’s a time bomb waiting to explode.”
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KRISHNADEV CALAMUR is a staff writer at The Atlantic, where he covers global news. He is a former editor and reporter at NPR and the author of Murder in Mumbai.

viernes, 21 de septiembre de 2018

EL METRO QUE CONOCIMOS, EL METRO QUE VEMOS EN CARACAS 2018: una perspectiva de cuatro fases.

EL METRO QUE CONOCIMOS, EL METRO QUE VEMOS EN CARACAS 2018: una perspectiva de cuatro fases.


Para Gabriela y Johan

A un personaje y periodista muy particular de la política venezolana, José Vicente Rangel, le preguntó en la administración de Luis Herrera Campin el entrevistador y astrologo -especie de show man- argentino llamado Horangel[1]: “¿Una cosa que le reconozca al gobierno?”, y aquel le dijo: “el metro”. Fue en el año 1983, cuando comenzó a funcionar aquella estructura novedosa, moderna, limpia, sistemática y de un matiz agudo de Normalización. La fiscalización, la permanente observación, el cuidado en la pulcritud de los procedimientos, hicieron de tal empresa y estructura un espacio importante y diferente. Una frase de un familiar reunía, en sentido bastante general, el conjunto de impresiones que podía transmitir en un ciudadano aquella estructura: “esto es el desarrollo”. De nuestra parte, debemos decir que más que análisis técnicos detallados -cosa que no está en nosotros poder realizar- las siguientes son solo observaciones de un citadino empedernido, preocupado por la economía y los problemas del transporte.[2]

El metro en su fase 1 había sido el resultado, no de un gobierno o presidente en particular. Todos los gobiernos desde su concepción y actividades de construcción hicieron su parte, indudablemente. Fueron más bien, grupos de trabajos específicos los que concibieron, gestaron e impulsaron la construcción y puesta en ejecución del mismo. El caso específico de su Presidente por varios años y otros ingenieros, economistas y profesionales de distintas áreas que fueron los que desde finales de los años sesenta trabajaron arduamente para impulsar el proyecto, según se volvió conocido por gente dedicada a lo útil en aquellos tiempos. Del ingeniero y cabeza de ese grupo, ya mencionado, se oyeron siempre cosas muy buenas (dedicación, puntualidad, honestidad, entre otras).

De esa manera, en los años ochenta, en la discusión o tratamiento de la temática de las empresas públicas en Venezuela, algunos hablaban de islas de excelencia entre las que figuraban las petroleras, el metro y otras. Se establecieron o se planteó establecer según los casos,  acuerdos tácitos sobre la necesidad de no alterar tales funcionamientos. Más aun, en el plano nacional, desde organismos como la COPRE, se hablaba y se trataba de impulsar un Acuerdo de profesionalización de la gerencia pública.

El servicio y el orden, incluida la seguridad y la limpieza, puede decirse que en sus dos primeros lustros eran aceptables o bastante buenos, según raseros que quieran aplicarse. Sus trabajadores, si bien no los mejor remunerados del área pública, se encontraban en una institución con mística y respeto de los procedimientos. Las tarifas al público, desde un comienzo se observó no podían llevarse a todo el significado del servicio o de los mejoramientos que la empresa producía, como una especie de economía externa a familias, residencias y empresas cercanas a la vía, y que se resumía en la pregunta difundida: “¿está cerca del metro?”; que, como se sabe, es harto importante en cualquier ciudad del mundo. En cualquier caso, las tarifas existentes si no exclusivistas, daban relativos ingresos y restricciones a la masificación.

Y es esta masificación, la que va a estar presente en su fase 2. Esta fase, abarcada grosso modo, por una década adicional, fue paralela a los inicios de la masificación de la pobreza en Venezuela. Los años noventa permitieron observar políticas y problemas repetitivos, que transcienden el interés de esta nota. Pero con ellos, se fueron vislumbrando los retrasos en los aumentos de las tarifas, rezagos en las programadas líneas que debían construirse y el inicio del deterioro de lo que había sido el metro de la primera década.

La mayoría de los metros del mundo, dicen los entendidos de estos asuntos, son masificados. Claro, masificación con pobreza y populismo es distinta a masificación con más altos niveles de vida y con normas que se cumplan y recursos que se le suministren a las empresas o instituciones, que se encuentran en las ejecutorias de los servicios del caso. A pesar de todo ello, puede señalarse que el metro de la fase 2, continuó desarrollando la idea hoy operativa en varios lugares, de un troncal central con líneas  alimentadores (tipo microbús) que abarquen grandes espacios de las ciudades y que esto pase a representar una solución al problema del transporte público, independientemente que sea ejecutada por empresas privadas o públicas. Pero debe acotarse que, en los casos donde se ha avanzado en esta línea en la región, las tarifas no pueden ser de nivel populista o de afectación hacia la estructura empresarial.

La fase 3 del metro, la hacemos coincidir con el tiempo de la administración bolivariana, donde la situación de la empresa y su servicio, se convirtió en algo suficientemente difundido y conocido. Deterioro de torniquetes, escaleras mecánicas, mal estado de trenes y servicios de aire, imposibilidad de control de la seguridad o de la expansión de las actividades informales y la mendicidad, hasta llegar al metro libre y que no cobraba tarifas. Este último, es el estado ideal de los populismos extremos, del desorden social y económico y donde la masificación puede correr a sus anchas. Habiendo visto las fases previas, no puede afirmarse que esto sea solo responsabilidad de la administración ya señalada. Deberían precisarse elementos de contexto nacional económico y político y también social y humano, para una población acostumbrada a las derivaciones y usufructos del  rentismo por distintas administraciones.

Corregir una situación como la ubicada para las fases que hemos destacado, no es solamente un problema fiscal y de financiamiento de una empresa, es más bien un problema cultural, aplicando la idea de cultura manejada dentro del pensamiento neoinstitucional en economía. Más aún, que dadas las complicaciones del contexto económico nacional donde se ha derivado en un escenario hiperinflacionario, las deficiencias en los métodos alternativos de transporte permiten prever y observar reiteraciones de colapso social y público, ante paralizaciones o deficiencias que pueda presentar el medio de transporte público que comentamos, pues el mismo ha pasado a representar un elemento imprescindible en la vida y dinámica de la ciudad y la nación. Dado ello, es donde debe resaltarse lo que llamaremos la fase 4 y que abarca la actualidad y futuro inmediato, en base a las acciones que sobre la empresa acomete la actual administración de la nación.[3]

El primer elemento que surge al querer resaltar las medidas de la administración bolivariana sobre el metro, es que ha pasado a un plano donde trata de establecer que el transporte del caso no sea gratis. Esto debe reconocerse como un comienzo importante. El segundo elemento, altamente relacionado con el señalado, es haber movilizado, hasta ahora, fuerzas del orden público y también milicianos para que puedan o deban realizarse  las compras de los pasajes del caso, independientemente si el sistema de venta es el más expedito o adecuado para el proceso, pero este segundo elemento debe considerarse también un avance. En tercer caso, se observa una difusión de ideas sobre la compra misma de los boletos o pasajes y las necesidades de acoplarse con lo mismo, lo cual para una población acostumbrada a metro gratis, debe considerarse también adecuado. A pesar de esta relativa costumbre debe destacarse el cometido que presenta la población para acoplarse a la medida del caso: esto es, la gente de manera necesitada, disciplinada y obediente busca pagar su transporte; ubíquese como caro o barato.

Saltando esos tres elementos que atañen al cobro del pasaje, se debe transitar a los de la seguridad y el orden así como a los de la limpieza. Si todo no se puede pedir de una vez, deben ser elementos a ser atendidos con las premuras del caso. Y saltando estos últimos señalados, se debería pasar a otro conjunto de elementos llamémoslos técnicos/primarios fundamentales: torniquetes, escaleras, aire, rieles, cuidado de las vías, reparaciones, entre otros. Una antigua funcionaria del metro dice claramente: “si no arreglan los torniquetes no hay tarifa que valga”.

Obviamente que en el plano de proyección de la empresa deben considerarse sus proyectos de inversión, sus planes, gastos y necesidades tecnológicas a futuro y, de la misma manera, el perfil y el desempeño en base a criterios que permitan regularizar su estructura en la relación ingresos y gastos y en ello, son fundamentales las ataduras o flexibilidades, que puedan observarse  en su dependencia con la administración central.

La administración bolivariana ha iniciado un proceso de cambios para una empresa hoy fundamental en la disponibilidad del servicio del transporte público. En la teoría de la organización se aprecia que, algunas empresas  llegado un momento de deterioro ya no tienen solución y hay que eliminarlas; ese no es ni puede ser el caso del metro. También en el tratamiento de estos asuntos se estima que, la obtención de soluciones a los procesos de deterioros de varios años o periodos, no pueden ser rápidas, pero tratándose del metro de caracas no habrá premura que sea excesiva. Por otra parte, también puede apreciarse que procesos de reformas no exitosos, pueden causar daños adicionales inestimables a situaciones de deterioro que se hayan tenido en una determinada empresa o institución.

Tales elementos o mezcla de ellos deben permitirle a uno como ciudadano desear el mejor éxito posible a estas campañas de atención que ha iniciado la administración bolivariana sobre el metro de caracas. Uno observa que el proceso puede tener fallas, pero hay una acción iniciada con elementos como los señalados y otros más. Veremos en que se convierten y ojala sean mejoramientos estables. No es fácil, pero tampoco imposible.


[1] Su programa en la televisión venezolana se llamaba Horangel y los doce del signo.
[2] Queremos decir, de un usuario del metro y, correspondientemente,  observador directo del fenómeno, situación o empresa del caso.
[3] Lo cual no pretendemos que sea más que una continuación del sentido epistemológico que tratamos de señalar más arriba al ubicarnos como un citadino usuario y observador del Metro.

Crude Realities: Understanding Venezuela’s Economic Collapse

Crude Realities: Understanding Venezuela’s Economic Collapse

September 20, 2018

An import collapse, caused by the massive decline in oil production, is the main cause of Venezuela’s economic implosion.  The fall in oil production began when oil prices plummeted in early 2016 but intensified when the industry lost access to credit markets in 2017.
Over the past five years, Venezuela has experienced the most pronounced decline in living standards seen by any country in recorded Latin American history.  Between 2013 and 2018, real per capita income has shrunk by almost 40 percent – a decline that parallels those seen in Iraq and Syria during those countries’ recent armed conflicts. The nation has suffered staggering increases in malnutrition and around two million persons have left the country.
To say that the policies of Chávez and Maduro are to blame for this collapse is both true and trivial.  Chavismo has been in power for almost twenty years now, so it is obvious that pretty much anything that is happening in Venezuela now – expect perhaps for last month’s earthquake – is the direct or indirect consequence of what it has done while running the country.  But this tells us nothing about the mechanisms through which the country has become poorer and the reasons why we have seen this dramatic worsening emerge only in recent years.
In this piece, I present a framework for thinking about the economy’s performance that assigns a central role to the collapse in the country’s oil sector.  I argue that Venezuela’s economy has imploded because it can’t import, and it can’t import because its export revenue has collapsed.  While at the onset of the crisis the export decline could be blamed on oil prices, more recently it has been driven by the fall in oil production.
I also present some hypotheses about the key drivers of the contraction in oil output. I note that there are two inflexion points in the oil production series: early 2016, when oil prices fell below $30, and late 2017, when the oil sector lost access to international finance.  I argue that during 2017 lending to Venezuela became progressively “toxic”, in the sense that financial intermediaries dealing with the country had to be ready to pay high reputational and regulatory costs. The resulting loss of access to credit appears to have helped precipitated the collapse in oil output, driving the resulting economic contraction.
Import collapse and the cash crunch
Let’s begin by focusing on the most obvious proximate cause of Venezuela’s economic collapse: the huge reduction in imports that took place in recent years.  Between 2012 and 2017, imports of goods and services fell by a staggering 80.9%.  In a highly import-dependent economy like Venezuela’s an import collapse is bound to cause a growth collapse.
Venezuela’s high import dependence is to a great extent a result of its high comparative advantage in oil as well as the failure of attempts to diversify its economy. The country’s non-oil sector is essentially devoted to the production and sale of goods with a very high import content, through which the economy spends the resources earned through its oil exports. When there are less dollars, the whole economy shrinks in tandem.
The data strongly bears out this relationship. The raw correlation between economic growth and import growth in Venezuela is 0.83; the elasticity of GDP growth to import growth is 0.23 percent.  In other words, a 4 percentage point drop in imports leads to a 1 percentage point drop in GDP.  This relationship explains pretty well the collapse in GDP over the past five years: between 2012 and 2017, GDP shrunk by one-third, while imports shrank by four fifths.[1]
This much is straightforward: Venezuelan living standards have collapsed because the economy can pay for many less imports than it did in the past.  But why is it that the country can no longer pay for imports?  Here we don’t have to look very far.  Imports collapsed because exports collapsed.  Back in 2012, Venezuela was selling almost $100bn to the rest of the world.  Last year it sold $32bn.
Just like a person or a family, an economy that suffers a large decline in what it sells to other economies will be able to buy much less from them.  Put simply, Venezuela suffered a two-thirds decline in its annual paycheck.  Any country that suffers such a massive decline in its income is bound to experience a collapse in living standards.
Here an important caveat is in order.  When an economy’s exports fall, that economy’s imports won’t necessarily decline immediately if the economy can borrow or dip into its savings in order to cushion the blow.  That is why countries subject to high terms of trade volatility are well advised to save during boom times.  And that is precisely what Venezuela didn’t do.
On this, the blame falls squarely to the government of Hugo Chávez, who led the economy during the largest external boom in its history and basically spent all of it. As a result of Chávez’s willingness to pour money into everything – from paying off nationalizations to buying the support of Caribbean countries with cheap oil –  Venezuela ended up in a much more vulnerable position than just about any other oil exporting country when the shock hit.   At the end of 2013, despite a prolonged period of buoyant oil markets that had taken the price of a Venezuelan barrel above $100, Venezuela’s international reserve were only $22bn, enough to pay for just 5 months of imports.  By contrast, Saudi Arabia at the time had accumulated $725bn in reserves covering 5 years of imports.
However, borrowing or using your assets will only take you so far when your income falls permanently.  Even if Venezuela had saved much more during the boom, it would have inevitably had to adjust its spending levels in response if export revenues failed to recover.  A rainy-day fund could have helped it smooth out the adjustment over time, but an adjustment would have been inevitable sooner or later.
Venezuela’s disappearing export revenues
So what, then, is the explanation for the export collapse? Chart 1 above shows that exports track oil prices relatively well up until the first half of 2016.  This means that the country was exporting a relatively constant number of barrels and that the decline in sales was caused by the fall in prices.  However, from the second half of 2016 onwards, oil prices began to recover, but oil exports didn’t.  The reason is that Venezuelan oil production had begun to fall, so that the country was selling less and less oil to the rest of the world.  Chart 2 shows this phenomenon more directly, tracing how Venezuelan oil production plummeted by almost half between 2016 and 2018.

To understand the magnitude of this effect, consider how much Venezuela would be earning in oil export revenue today if production had not declined.  Were the country selling as many barrels to the rest of the world today as in 2015, it would have exported $51bn in oil this year. By contrast, Venezuela will sell only $23bn of oil internationally in 2018 (and, if the slide in production continues, $16bn in 2019).  We can safely say that if the country was receiving $28bn more in yearly export revenue than it does today, it would have experienced a much smaller decline in living standards than it saw.
The implosion of the oil sector
The bottom line is that if you want to understand Venezuela’s economic implosion, you have to understand what happened to its oil exports.  There were of course a lot of misguided policies carried out by Chávez and Maduro in the past 20 years, but many of them – like, say, expropriations of large agricultural holdings – are largely irrelevant to oil production. Our analysis suggests that what we really have to focus on is what led to the decline of the oil sector.[2]
What seems most striking about the fall in Venezuela’s oil production is that it is a very discontinuous process.  Oil production fell in the first few years of the Chávez administration but had largely stabilized after 2008.  The decline that began in early 2016 comes after an 8-year period of stability in which in fact production had risen moderately.  Chavismo during its first 16 years in power managed not to kill its golden cow, only to slaughter it in the last three years.[3]
The turning point came in early 2016.  Between January of 2016 and August of 2017, the country lost 389tbd of production, or a monthly average of 19tbd.  Then, in late 2017, the country’s oil sector goes into free-fall.   Between August of 2017 and August of 2018, the country loses 701 tbd, for an average monthly decline of 58tbd, more than triple the absolute rate of decline of the prior 20 months.   The data thus clearly shows two breaking points in the trend: the beginning of the initial decline, around January of 2016, and the acceleration of the decline, after August of 2017.
Usual and unusual suspects
Now, any analysis of causes using a country’s single time-series is speculative at best.  Modern quantitative methods can’t offer decisive answers to questions about causality in non-experimental data even with very large data sets.  Therefore, what one can say about the causes of the evolution of a single economy’s time trend is very limited.  That said, it is still worthwhile to think through different hypotheses and ask whether they would lead to the patterns observed in the data.
The fact that the first stage of the decline starts in January 2016 points to the plunge in oil prices that happened at that moment.  While oil prices had fallen steadily since mid-2014, they reached their lowest levels in years at the start of 2016.  Venezuela’s oil basket hit a 13-year low of $21.6/bl towards the end of January, mirroring the collapse in global oil prices.
A production decline is what one would normally expect in any industry that sees a price plunge of this magnitude, particularly if it has a high marginal cost of production, as is the case for some of Venezuela’s eastern oil fields.  In fact, private sector estimates show that up to 2016 the decline in production in the country’s traditional fields was being offset by production in the Orinoco Oil Basin joint ventures.  In 2016, production in these heavier crude fields began to decline, pushing the trend in the overall series downwards.
For the purposes of comparison, Chart 2 plots the evolution of Colombian oil production during the same period.  Venezuela’s neighbor also produces high-cost oil; after the bottom fell out from under oil prices, some of those barrels were no longer profitable to produce.  As the figure shows, the decline in Colombia’s oil production during this period of time was quite similar in magnitude to that of Venezuela.  This suggests that the initial stage of the production decline was in line with what can be explained based on the fall in profitability caused by the price collapse in a high-cost producer.[4]
What cannot be explained easily by the price decline is the collapse in production that takes place after August 2017, as prices were clearly on the upswing then.   It is possible that this collapse can be explained as the cumulative effect of past underinvestment, which appears to have become worse as a result of the post-2016 cash crunch.  In fact, official PDVSA data show that investment plunged by more than 50% between 2014 and 2016 (although this partly results from the accounting effects of currency depreciation, which lowered domestic costs of production).
However, the magnitude of the post-August drop in production caught many observes by surprise.  Writing in April of 2017 IPD Latin America – perhaps the most prominent oil consultancy covering Venezuela – predicted in its “worst case” scenario a decline of 13% in production in 2017 and an annual average rate of decline of 6% in the subsequent three years.  By contrast, production fell by 19% in 2017 and by 25% in the first eight months of 2018. Active rigs, often used as a leading indicator of production, had fallen in 2016 but stabilized in the first half of 2017, leading observers to expect that a stabilization of oil output would follow.
Sanctions and the toxification of Venezuelan debt
It is striking that the second change in trend in Venezuela’s production numbers occurs at the time at which the United States decided to impose financial sanctions on Venezuela.  Executive Order 13.808, issued on August 25 of 2017, barred U.S. persons from providing new financing to the Venezuelan government or PDVSA.  Although the order carved out allowances for commercial credit of less than 90 days, it stopped the country from issuing new debt or selling previously issued debt currently in its possession.
The Executive Order is part of a broader process of what one could term the “toxification” of financial dealings with Venezuela.  During 2017, it became increasingly clear that institutions who decided to enter into financial arrangements with Venezuela would have to be willing to pay high reputational and regulatory costs.  This was partly the result of a strategic decision by the Venezuelan opposition, in itself a response to the growing authoritarianism of the Maduro government.
The toxification of Venezuelan financing was much more of a discontinuous than a gradual process.  As late as October 2016, Credit Suisse had structured a bond exchange without raising many eyebrows.  At the time, the opposition-controlled National Assembly passed a resolution which criticized the economics of the arrangement but did not question its legality.
Six months later, the President of the National Assembly was writing letters to international banks warning them that if they lent money to Venezuela they would be not only violating Venezuelan law but favoring a government that was recognized as dictatorial by the international community.[5]  When Goldman Sachs Asset Management purchased $2.8bn of bonds in May from the Venezuelan government through an intermediary, angry Venezuelans gathered to protest outside its New York office and the opposition vowed not to pay the bonds if it reached power. By the time that sanctions were approved in August, Venezuela had all but lost access to international financial markets as a result of the combination of continued poor policies and the toxification of its finance.
Our aim is not to assign responsibility to the opposition or the government for this political standoff.  A reasonable case can be made that Venezuela’s opposition was completely within its prerogative to request that debt issuances be authorized by the National Assembly as well as to question the morality of lending to the Maduro government.  Our point is that the spilling over of this political crisis into the arena of finance had consequences for the country’s economy and for the living standards of Venezuelans.
Sanctions had the effect of definitively closing the door on any possibility of a Venezuelan debt restructuring.  Since the sanctions impeded the nation from accessing new financing, they also impeded it from issuing new bonds in exchange of old ones, the modality they would have needed to use to restructure bond debt.  In fact, Maduro announced in November 2017 that he was creating a commission to restructure Venezuela’s debt, but that commission to this date has produced no results, largely because there seems to be no legal way in which U.S. investors can negotiate with it.[6]
Perhaps even more important than Trump’s Executive Order was a letter of guidance issued by the Financial Crimes Enforcement Network (FinCen) on September 20, 2017, warning financial institutions that “all Venezuelan government agencies and bodies, including SOEs [state-owned enterprises] appear vulnerable to public corruption and money laundering” and recommending that several transactions originating from Venezuela be flagged as potentially criminal.
Many financial institutions proceeded to close Venezuelan accounts, reasoning that the compliance risk of inadvertently participating in money laundering was not worth the benefit.  Venezuelan payments to creditors got stuck in the payment chain, with financial institutions refusing to process wires coming from Venezuelan public sector institutions.  Even CITGO, a Venezuelan-owned firm incorporated in Delaware, had trouble getting banks to issue it letters of credit.
These restrictions impacted Venezuela’s oil industry in several ways.  First and most evidently, loss of access to credit stops you from obtaining financial resources that could have been devoted to investment or maintenance.  As is often the case with event-study analysis, it is difficult here to build the counterfactual, as one can argue that Venezuela’s unsustainable policies would have led it to lose market access in 2017 even if its finance hadn’t become toxic.  However, countries that lose market access typically have the possibility of regaining it after entering a debt restructuring process, a door that was closed to Venezuela after the Executive Order.[7]
There are also more direct links between finance and real activity that can lead a firm that gets closed off from financial ties to experience a decline in its productive capacity.  For example, one of the most effective mechanisms that PDVSA had found to raise production in recent years was the signing of financing agreements in which foreign partners would lend to finance investment in a joint venture (JV) agreement as long as they could pay the loan from the JV’s production.  The Executive Order effectively put an end to these loans.
Likewise, before sanctions were imposed, PDVSA had begun to refinance a significant part of its arrears with service providers through the issuance of New York law promissory notes.  The Executive Order also put an end to these arrangements.  What was unusual about PDVSA in 2017 was not that it had a large level of arrears – many oil producers had accumulated arrears after the price plunge.  What was unusual is that it was unable to refinance them.
One reason why the loss of access to finance may have had a stronger effect on the Venezuelan economy than in other countries where similar sanctions have been imposed is that Venezuela is a highly indebted economy.  For example, at the moment at which U.N. sanctions were imposed in 2006 on Iran, the country’s debt was only 9% of GDP – in contrast to Venezuela’s 110% ratio. Because of its high level of leverage, Venezuela’s oil sector was much more sensitive to changes in its access to financing than that of other, less levered oil exporters.
As we warned previously, these observations should not be taken as decisive proof that sanctions caused the output collapse.  There are many other factors at play in the Venezuelan economy which can also be put forward as explanations. Maduro’s decision to appoint a general with no previous industry experience and the broad-ranging corruption investigation that led to the jailing of 95 industry executives, including two former PDVSA presidents, appear to have caused a paralysis in many of the sector’s professional cadres.  The loss of the industry’s specialized human capital, part of the brain drain that accompanies large scale migration exoduses, also contributed to the deterioration of its operational capacity.
The data, however, strongly suggests the need for much more in-depth research on the reasons for Venezuela’s oil output collapse and for the discontinuous behavior in the series.  The fact that the acceleration of the decline coincides with the onset of the country’s toxification to international investors suggests that we need to closely explore this channel as a potential driver of Venezuela’s output collapse.
Closer and more systematic analysis of the data can help us check the consistency of alternative competing hypotheses about the decline.  For example, consider the effect of asset seizures by creditors in the decline of production.  The only creditor that to date was able to directly impact PDVSA’s operational capacity was ConocoPhillips, when it received court orders in May of 2018 allowing it to seize products and assets in the Caribbean.    While these seizures may have contributed to the production decline at the time, the fact that they took place almost ten months after the acceleration of the drop in oil production suggests that they are not a primary causal factor.  (The standoff was resolved last month, yet there is no evidence that production has recovered since).
None of the foregoing is intended to exculpate the Maduro administration for its atrocious mismanagement of the economy during the past six years.  In my view, it is a settled case that Venezuelans are much worse off today than they would have been under saner economic policies. The government’s decisions not to correct the huge real exchange rate and other relative price misalignments, to maintain expensive fuel subsidies while monetizing a double-digit budget deficit, and to persecute the private sector for responding to relative price signals all contributed to making Venezuelans’ lives miserable under Maduro.
But claiming that Maduro’s economic policies have caused a deterioration of living standards in Venezuela is not at odds with accepting the possibility that economic sanctions may have made things even worse. Most phenomena in social sciences have multiple causes. There is no logical reason why Maduro’s incompetence and misguided sanctions cannot both have contributed to the collapse in Venezuelans’ living standards.
Advocates of sanctions on Venezuela claim that these target the Maduro regime but do not affect the Venezuelan people.  If the sanctions regime can be linked to the deterioration of the country’s export capacity and to its consequent import and growth collapse, then this claim is clearly wrong.  While the evidence presented in this piece should not be taken as decisive proof of such a link, it is suggestive enough to indicate the need for extreme caution in the design of international policy initiatives that may further worsen the lot of Venezuelans.

The author is Chief Economist at Torino Economics, an economics consultancy firm in New York.  I am grateful to María Eugenia Boza, Dorothy Kronick, Francisco Monaldi, Victor Sierra, David Smilde and William Neuman for their comments and suggestions, though I am totally responsible for any shortcomings of this piece.

[1] Elasticities are commonly estimated using natural logarithms to ensure that the estimate is invariant to the scale of the variables.  A one-third reduction is equivalent to a 41 log-point reduction, while an 80 percent reduction is equal to a 166 log-point reduction.  The ratio between these two declines, 25 percent, is very close to our elasticity estimate obtained using data from 1998 to 2015 (the last year in which the Central Bank published data). Logarithmic variations tend to be close approximations of percentage changes for small changes but can differ significantly, as is the case here, for large changes.
[2] See Monaldi, Francisco “La implosión de la industria petrolera venezolana” for a comprehensive discussion of the woes faced by Venezuela’s oil production.  Monaldi discusses a number of coincident factors, including sanctions, lower prices, underinvestment and accumulation of arrears.  Our piece attempts to move forward in the discussion of potential causes by looking at how the timing of these factors relates to changes in the time series of oil production.
[3] There are a number of different data series for Venezuelan oil production, and they differ with respect to the timing of the start of the decline.  In Chart 2, we use OPEC’s data from independent secondary sources, which presents a stable trend until 2016.  This is the series that OPEC uses, for example, to set production quotas. Data reported by the government to OPEC, as well as data from IPD Latin America, time the start of the decline earlier.  Nevertheless, both of them show an acceleration of the decline at the start of 2016.  They are thus consistent with our thesis that factors leading to a decline of oil output made themselves felt at the start of 2016.
[4] The series published by the Venezuelan government times the decline earlier, beginning in mid-2014.  This would coincide with the start of the price decline rather than the low point of the price series.
[5] See, for example, the April 18, 2017 letter by National Assembly President Julio Borges to the CEO of Deutsche Bank.
[6] Although there is no legal impediment for institutions in other countries to participate in such a restructuring, non-U.S. creditor groups have shied away from any action that would impose restrictions on their capacity  to do business in the U.S. and that would leave them with bonds that would not be tradable in U.S. markets.
[7] An argument can be made that Venezuela would not have been able to restructure even absent sanctions.  In that argument, sanctions were not binding because they did not cause the closure of international financial markets.  Given that the stated aim of the sanctions was precisely to restrict access to credit, this argument would also imply that sanctions were redundant and irrelevant.  It is unclear what would be the rationale for maintaining sanctions in this line of reasoning, which is premised on the claim that they did not have their intended effect. In any case, the example of refinancing of commercial debts via issuance of promissory notes cited below shows that Venezuela was in fact restructuring some of its existing debts prior to the adoption of sanctions.