Venezuela: Financial Debt and Political Stagnation

By Daisy Ni (PO ’21)

Venezuela has been drawing increasing international concern over the past few weeks as political and economic situations in the country deteriorate. In fact, the United Nations Security Council held an informal meeting in early November to discuss the situation in the country and its threat to regional stability. Additionally, the European Union approved an arms embargo against Venezuela in early November. As an accompaniment, the EU also established the legal framework for sanctions (such as travel bans and the freezing of assets) against government officials responsible for serious human rights violations and the repression of civil society and democratic opposition in Venezuela. Designed to be gradual and flexible, the sanctions do not name specific officials. These European sanctions mark an significant increase of international pressure on the struggling nation.

The sanctions were aimed against President Maduro to strengthen the rule of law and democracy. During his administration, Maduro had used the judiciary and other structures of governance to tighten his hold on power, often at dubiously legal means. For example, though political opponents have won majority in the National Assembly, Maduro stacked the Supreme Court with loyalists to transfer all powers under the legislative body to the judicial branch instead. Specifically, the embargo and sanctions were created in response to the regional elections in the past month which were plagued by accusations of voter fraud and electoral trickery.

The embargo and sanctions, however, come at a tumultuous time in Venezuelan history as the country grapples with its destabilizing financial situation. Standard and Poor Global Ratings declared the nation in selective default, though Maduro has vowed commitment to Venezuela’s debt. Venezuela’s total debt is estimated to be at least $150 billion; however, the central bank only possesses $9.6 billion in reserves. Oil production, the government’s main source of revenue, has dropped to below two million barrels per day to its lowest point in 28 years. Maduro, recognizing the precarious circumstances, has announced plans to restructure and refinance the debt. Though the government called the for a meeting with bondholders, participants reported that the administration offered no substantial details on how to handle the crisis.

The Venezuelan government blames much of the country’s financial troubles on obstacles from the United States. Obama labeled Venezuela as a threat to national security in 2015, placing sanctions on Venezuelan officials. President Trump has continued these individual sanctions, freezing the officials’ U.S. assets and barring them from doing business with Americans. The White House has also banned U.S. citizens and banks from buying new bonds from the Venezuelan government or its state-run oil company, and has limited trading of existing bonds with the public sector as well. These sanctions make debt refinancing and restructuring efforts impossible, as they render Venezuela unable to issue new bonds. For example, Vice President Tareck El Aissami, the leader of the Venezuelan restructuring effort, is sanctioned himself as an alleged drug trafficker. Thus, U.S. investment groups—the biggest holders of Venezuelan debt—cannot enter negotiations with him. International bondholders as well fear inadvertently running afoul of U.S. sanctions. This paradox raises questions regarding how serious Maduro is regarding the restructuring effort, with accusations of the government setting up negotiation for failure from the start.

Maduro’s continual support of El Aissami demonstrates that though detrimental, U.S. sanctions have little to no effect on Maduro’s actual policymaking. Individually targeted sanctions don’t impede the Venezuelan government from functioning, nor do they actively affect the sources of income. Currently, PDVSA, the state-run oil company, has been actively cultivating relations with potential new buyers. Namely, both Russia and China have historically relied on Venezuela’s oil wealth to buoy their economy and finance their governments; Russia’s oil company, specifically, already own portions of multiple Venezuelan oil projects, and had in fact just tied up an agreement to renegotiate $3.2 billion of Venezuela’s debt, allowing Venezuela to make minimal repayments on its Russian obligations over the next six years. Additionally, U.S. sanctions fail to account for the ongoing humanitarian crisis in Venezuela. Maduro, in strategizing how to use its limited cash resources, has consistently chosen to repay foreign debt instead of using revenues for food and medicine imports, mainly seeing as default would stem the influx of foreign currency. The result is a widespread poverty and social unrest.

Sanctions on the oil industry may be the only projected way of forcing Maduro to shift his policies; however, they would simultaneously exacerbate the struggles that the Venezuelan population is undergoing. In considering the possibility of more sanctions, Trump would need international pressure on Venezuela as well, especially in handling the possibility of a refugee crisis in the Latin American region. However, the Latin American community has stood in unanimous condemnation of Trump’s military threats against Venezuela even in their own opposition of Maduro’s regime, demanding the U.S. stay out of regional affairs.

Venezuela spirals deeper into crisis day by day without a comprehensive and substantive response from the government—the EU embargo and sanctions stand only as the latest attempts in promoting policy changes, but elicit no responses other than a harsh censure of western hegemony. The following weeks will prove crucial to the nation’s political, economic, and social health, and the international community stands at attention.

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