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Mangoes Fly in Venezuela, But Economic Improvements Remain Unlikely for 2015

 

By Gary Bearden

What does a mango thrown at the head of Venezuelan President Nicolas Maduro tell us about Venezuela’s economic future? Not much. The mango, thrown on Wednesday, April 22, was just an ordinary mango. But the president’s curious response to the situation sheds light on what the country should expect in 2015 as it limps through an economic crisis and into legislative elections at the end of the year.

While Maduro and his United Socialist Party of Venezuela (PSUV) are already known for their populist programs and appeal, the president still made headlines by rewarding Marleny Olivio, 52, with a free apartment after she struck him in the head with the fruit. Far from exercising fiscal restraint, given the country’s economic uncertainty, Maduro’s response to the situation bodes poorly for a return to pragmatic spending policies and a potential recovery in 2015.

National Assembly elections do not yet have a date for 2015, but historically low popularity ratings for both Maduro and the PSUV ensure that Caracas will try to bolster public support by ramping up public spending and increasing their harassment of the private sector. To distract Venezuelans from the deepening crisis over the recent holiday season, for instance, Maduro launched “Operation Merry Christmas.” Armed with nearly 30,000 state inspectors, Caracas forced stores nationwide to cut prices on toys and electronics by up to 80 percent. Lucky Venezuelans were even able to purchase computers for as little as $75 before vendors sold out. Considered a success for holiday morale, the program simultaneously exacerbated shortages the country was already facing. Private companies remain trapped between suffering losses under the government’s pricing restrictions and currency controls, and exiting the market and risking the nationalization of their assets in the country.

While the short term benefits to consumers are obvious, unconstrained state spending, combined with the Maduro regime’s hostility toward the private sector, are exacerbating the everyday struggles of Venezuelan citizens and worsening the country’s economic outlook. Producers and stores are unwilling to keep goods in stock if they know the government will force them to sell at below market pricing. As a result, consumers in the South American country could soon face inflation rates between 150 and 200 percent, in addition to hours long queues for access to the most basic goods such as flour and cooking oil. The government even introduced fingerprint scanners in March as a means of rationing purchases throughout the country. Moreover, what began as rumors of toilet paper shortages in Venezuela, have since turned into a sad truth as some hotels even ask guests to bring their own supply when planning a stay.

Perhaps under conditions of high oil prices and revenues, the government’s populist spending might be sustainable. Under current economic conditions, however, Caracas cannot maintain this course and expect a positive outcome. Venezuela’s foreign reserves have fallen 15 percent in the first four months of 2015 to less than $21 billion, jeopardizing the government’s ability to meet its foreign debt obligations and continue financing vital imports such as food. Indeed, estimates indicate that Caracas will need to pay an additional $8.4 billion on foreign debt by the end of 2015 while balancing outstanding payments to the private sector that have reached as high as $10 billion in late April. Oil revenue makes up virtually all of Venezuela’s export income and has risen slightly in April, but remains at about half of what it was a year ago. Without a significant and swift increase, Caracas is on borrowed time.

Yet for two main reasons, the Maduro administration likely sees no alternative than to keep costly populist programs largely in place through 2015. First, many subsidy programs have become too popular for the government to reform. The state subsidy on gasoline, for instance, costs the government upwards of $15 billion each year. Outside of highlighting the issue as wasteful spending, Maduro has done little to address the program that gives Venezuelans access to gasoline at less than 10 cents per gallon. The last time the government tried to address the program resulted in the 1989 crisis known as “Caracazo.” Dozens of Venezuelans died and thousands more were injured in violent protests. Given today’s high social tension, taking steps to curtail the program could yield a similar result. Even popular ex-President Hugo Chavez, who remains a popular figure today, was unable to reform the expensive subsidy program during his time in office.

Second, the Maduro government likely feels that it needs to use every populist tool at its disposal to maintain voter support in the run up to 2015’s National Assembly elections as Maduro’s popularity has plunged to about 25 percent. A two-thirds opposition majority would allow them to unseat the president through a referendum, but this is unlikely given residual support for the PSUV. On the other hand, a simple majority in the 165-member legislative body is a real possibility that could frustrate Maduro’s agenda and even force him to reconcile with opposition policies in the longer term. The administration has hinted at its concerns by “updating” the population statistics that are linked to seat allocation in the Assembly, demonstrating a heavy bias toward districts that traditionally vote for the PSUV and against those that are pro-opposition.

It should not be forgotten that Chavistas under the current and previous administration, have proven their willingness to use force against anti-government demonstrations in the past, despite President Maduro’s generous treatment for Ms. Olivio and her mango. Venezuelans recall the government’s response to mass opposition protests in 2014 when a brutal crackdown resulted in over 40 citizen deaths. Moreover, having reacquired decree powers from the National Assembly in March, Maduro retains the ability to delay or cancel elections if he deems them a threat to national security. This possibility is hopefully a remote one as international observers are sure to be on hand after last year’s violent outburst. Should the country take yet another step away from democracy during the upcoming elections, Venezuela may find more regional powers aligning with Washington in support of sanctioning the Maduro administration.

In the meantime, Venezuelans and investors should not expect an economic solution to come from President Maduro for the remainder of 2015. Instead, President Maduro is more likely to be found preparing new apartments to trade for an outpouring of fruit from distressed citizens. As opposition blog Dolar Today quipped following the incident, “If for a mango they give you apartments, then you know what to do: throw him a pineapple!”

This article was originally published with the Foreign Policy AssociationView the original article here.

Gary Bearden is a foreign policy professional and current Political Risk Fellow with Young Professionals in Foreign Policy. He has professional and living experience in Eastern Europe, North Africa and Latin America, holds three Bachelors degrees from Ohio State University and a Master of Science in Foreign Service from Georgetown University.

Photo Credit: Wee Keat Chin/Flickr

The opinions expressed in this article are the author's own and do not reflect the views of their employer or Young Professionals in Foreign Policy.


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  • commented 2015-05-27 19:26:59 -0400
    Why do you think Maduro gave her the apartment? Was it a “reward” for throwing the mango, or a consolation for whatever she was protesting against?