Through an Executive Order released on August 5, 2019, President Trump blocked exports, transfers, withdrawals, payments, and any other movement of property and interests in property of the government of Venezuela in the United States, and of those who provide support to it through goods, funds, technology or in any other way. According to the document, this and previous orders have been imposed “in light of the continued usurpation of power by Nicolas Maduro and persons affiliated with him, as well as human rights abuses, including arbitrary or unlawful arrest and detention of Venezuelan citizens, interference with freedom of expression, including for members of the media, and ongoing attempts to undermine Interim President Juan Guaido and the Venezuelan National Assembly’s exercise of legitimate authority in Venezuela”.
A day later, the White House released in a statement that “[t]he United States denounces the Maduro dictatorship for its continued gross abuses of human rights and repression, and will not waver in its support for the brave people of Venezuela. They are fighting for freedom, their basic rights, and a return to democracy and the rule of law. The Maduro dictatorship must end for Venezuela to have a stable, democratic, and prosperous future—free from the horrors of socialism that have ravaged this once great country”.
According to both documents, the sanctions imposed to date are part of the options available to end the “dictatorship” and the “continued usurpation of power” exercised by Maduro in Venezuela, while safeguarding “humanitarian assistance” and the relief of “human suffering”.
What will be the effect of the sanctions?
There are many answers to this question. Some people demand the lifting of sanctions, while others demand their deepening. Some people believe that only the sanctions on specific individuals, directly or indirectly linked to the Government of Venezuela, can bear effect on the negotiation for power and the consolidation or fracture of old or new alliances. Some argue that the sanctions on the government and its allies could preserve resources for use after the usurpation has ceased.
Lifting the sanctions on a terrible administration would not guarantee the improvement of the living conditions of Venezuelan people, but it is not clear whether maintaining them indefinitely will not make matters worse. Arguments are made for or against the thesis that sanctions aggravate a humanitarian crisis that began long before, or that they can promote rapid political change by removing financial support to the group in power. However, little can we know about the effect of each sanction without specific information on the affected funds and their potential destination.
It is well known that during the years before Chávez’s death, the national budget deliberately underestimated income, inflation, and the exchange rate, and did not include the funds used at the discretion of the Executive branch through the state oil company PDVSA, the Fund for National Development (Fonden), and the Chinese Funds. The generalized shortages, the contraction of the domestic product, and the increasingly desperate migration that began to be registered in 2013 were gestated during the boom years when public spending financed with oil and external debt was not accounted for. Since 2015, the national budget has stopped being published.
The presidential decrees of economic emergency and a decision of the Supreme Court exempted the Executive branch from presenting the budget and the debt plan before the National Assembly, as required by the Constitution. Since November 2017, the Central Bank’s funding of the state oil company PDVSA has led to hyperinflation, whose effects continue to this day without information on the channels through which the new bolivars entered the economy.
Without having presented consolidated and verifiable budgets before and after the sanctions, Nicolás Maduro cannot explain how the alleged economic war would cause the increasingly negative economic performance of his administration. Blaming speculators, black markets, or falling oil prices is not enough when there is no accountability. Affirming that sanctions make the crisis worse, without presenting a consolidated budget and identifying the channels blocked by the measures, is not enough either.
A government that controlled the state oil company PDVSA, the Fund for National Development, and the Chinese Funds well before the sanctions cannot attribute the lack of electricity, water, and public services suffered by the population to the measures. However, stating without further details that sanctions only affect the government and its allies does not seem enough either. Amid a serious economic crisis with harsh humanitarian consequences, discussing the use of present and future public resources is essential. The management of foreign debt and the claims over State assets is as important as the destination of the humanitarian aid, not only because of its economic and social impact but also because it exemplifies the way of doing economic policy and politics in general in the country.
It is difficult to discuss the present and future effects of sanctions without detailed information on public revenues and expenditures. According to the 2014 Organic Law on the Financial Administration of the Public Sector, a project for a national budget must be presented by the Executive branch to the National Assembly before October 15 of each year.
The proposal shall be accompanied by a statement explaining the objectives of the budget and the methodology used for estimating the national income and the sources of funding and for determining the authorizations for financial expenditures and applications, as well as other information and elements deemed appropriate. It is very unlikely that Nicolás Maduro will be able to comply with these provisions in 2019, which bear his signature and details an explicit constitutional mandate.
Juan Guaidó, president of the National Assembly and interim president of Venezuela as recognized by 50 governments of the world, does not head a government that controls all public resources but has an opportunity to show accountability. If international cooperation, sanctions, and the renegotiation of international arrears allow the accumulation of resources for future use, it would be convenient to indicate the corresponding sum of each specific initiative since each restriction on the bonds of the state oil company PDVSA, the Central Bank, public banking and other instruments of the “Government of Venezuela ” bears different consequences.
Similarly, the destination of the resources already available for humanitarian aid or the payment of foreign debt should be presented within a framework consistent with the economic policy proposed in the Country Plan. Proposing domestic initiatives, with all the limitations imposed by uncertainty and the lack of information, would be highly desirable. Addressing sensitive issues, such as the proposal to increase the price of fuel, replace the funding of the state oil company by Venezuela’s Central Bank with revenue in national currency, and a tax hike in the public oil sector would send signals inside and outside the country about a new way of managing public resources.
We must insist on the fact that a change of government and subsequent lifting of sanctions will not be enough to overcome the economic and humanitarian crisis in Venezuela. Imposing sanctions to negotiate new conditions for the occupation of power without anticipating how it would be exercised falls short of building confidence and calm. Transparency in the management of public resources, including providing information on their origin and subjecting their use to discussion and control, would make a radical difference between those who believe in the importance of accountability and those who do not.
Translated by José Rafael Medina
