Still Searching for El Dorado in Venezuela

Recent events in Venezuela have put the spotlight once again on a part of the world that is hardly ever given any attention, save when it is about commodity exports to the rest of the world, most importantly, to China. Then again, hasn’t it been this way since the 15th century, when King Ferdinand and Queen Isabella of Spain sent Christopher Columbus on several voyages to this part of the world in search of riches, especially gold?

This search brought him to the “Pearl Islands” of Cubagua and Margarita just off the coast of Venezuela on his third voyage to the region. That was in 1498 and the process of colonization by Spain which lasted several centuries, began in 1511. In 1632, gold mines began to be opened in Yaracuy and that led to the introduction of slavery and full colonisation.

A view of Caracas at sunset from a lookout at Bello Monte; Photo by Paolo Costa Beldi, License: GFDL/CC BY SA 3.0. Image courtesy Wikimedia Commons

Almost a century later, in 1598, the search for El Dorado brought Sir Walter Raleigh, the great British commander who was engaged in Britain’s war with Spain in 1595, to this region and he discovered Guyana in the north-eastern coast of Latin America. It is the Spanish and Portuguese land and riches that the British were interested in. And it was not the first time that wars being fought in Europe would have an effect on the people and fortunes of Latin America. Centuries later, as Venezuela began to fight for its independence under the revolutionary leadership of Simon Bolivar, Spain was fighting for its own independence from France during the Napoleonic period. In fact, like France, Venezuela too had several false starts and many attempts at creating a republic before it acquired complete independence in 1830.

Map of Columbus’ voyages (1492-1503); Project Gutenberg etext 18571, Wikimedia Commons

After the European era, the American takeover began, with James Monroe and his famous Monroe Doctrine of 1823 which was designed to keep Europe out of the region. Like many other countries in Latin America, Venezuela too has experienced the influence of American power and control. All too often, America installed tinpot dictators in the region who served the US’s interests and is as much to blame for the region’s poor economic performance and governance as the countries’ own leaders.

Christopher Columbus; image Wikimedia Commons

I write all this because the recent power tussle in Venezuela and the involvement of the world’s greatest powers (America, China and Russia) in the country’s internal matters is reminiscent of the era of colonization and government by proxy that several countries in the region, including Venezuela have suffered for centuries. In fact, recent statements by top American officials suggest that America still considers it its right to interfere in Venezuela since it falls in its backyard. “It’s in our hemisphere”, is how John Bolton, the hawkish US National Security Advisor is said to have put it.

This is not to say that I believe that Nicolas Maduro should continue as President of Venezuela. It is time for him to go. But I believe that it should be for the people of that country to decide who they want as President, as a sovereign democratic republic.

I also believe that the problem the country has been facing for many decades including since the time of Hugo Chavez, is primarily an economic one, much as the US would love to make it a political and ideological issue. I would go so far as to say the world’s greatest powers are interested in what goes on in Venezuela only because of its economic riches; it has the world’s largest proven oil reserves (greater than Saudi Arabia).

5th July 1811 Act of Independence, painting by Martin Tovar y Tovar, National Art Gallery, Caracas, Venezuela. Image Wikimedia Commons

El Dorado continues to attract foreign powers even today. In fact, two of the great powers – China and Russia – have huge financial interests in Venezuela’s oil industry. Venezuela is deep in debt to these two countries to the tune of US$ 20 billion and US$ 2.3 billion respectively, under relaxed terms of payment. Oil for loans programmes that Venezuela has undertaken with these countries has meant that the country’s oil industry itself is in a kind of mortgage to these powers.

Simon Bolivar, by Ricardo Acevedo Bernal (1867-1930)

Meanwhile, Venezuela is the third largest source of oil imports for the US accounting for 9% of its oil imports. US oil imports from Venezuela have fallen from their high levels of 60 million barrels per month in 1997-98 to around 20 million barrels per month today, with the greatest reduction seen since 2007, which perhaps corresponds with America’s shale gas revolution. According to the USTR office website, US had a goods trade deficit of US$ 8.2 billion in 2017 with Venezuela, with imports three times larger than exports; a good part of the imports would have been mineral oils.


America, which is averse to anything even remotely socialist, has meddled in Venezuela from before the time of Hugo Chavez and even tried, unsuccessfully, to prevent him from coming to power. It is another matter that Hugo Chavez and his populist policies were the undoing of the country. The problem was not with Chavez’s socialist or economic redistribution agenda, but with its implementation. His government treated the state oil giant, PDVSA, as a cash cow to fund his populist social welfare programmes and hand-outs to the poor. The people loved him for the largesse, but soon chavismo would have serious and deleterious effects on the economy. The oil company, the country’s biggest earner would be emasculated with no investments in new exploration or in new technologies. Maduro, a great admirer of Chavez and his successor, continued with chavista policies and vowed to follow his legacy. Under Maduro, the army controls large parts of the economy, including the state oil giant, PDVSA.

Hugo Chavez, photo by Walter Vargas CC SA 2.0 Generic; image courtesy Wikimedia Commons

How did one of the regions richest countries turn into its most failed state? Venezuela is a lesson in how countries can fail, due to the lack of proper institutions. In their book, Why Nations Fail, economists, Daron Acemoglu and James A Robinson, point to the lack of proper institutions or the existence of extractive institutions as the main reason for failed economies. In the chapter titled “Why Nations Fail Today”, they say:

While the democracy emerging in Latin America is in principle diametrically opposed to elite rule, and in rhetoric and action it tries to redistribute rights and opportunities away from at least a segment of the elite, its roots are firmly based in extractive regimes in two senses. First, inequities persisting for centuries under extractive regimes make voters in newly emerging democracies vote in favour of politicians with extreme policies…. So many Venezuelans today support the policies that Chavez is adopting even if these come with corruption and waste in the same way that many Argentinians supported Peron’s policies in the 1940s and 1970s… Second, it is again the underlying extractive institutions that make politics so attractive to, and so biased in favour of, strongmen such as Peron and Chavez, rather than an effective party system producing socially desirable alternatives.

I would add that economies that are too dependent on extractive industries like natural resources and their exports are particularly prone to rent-seeking, high level corruption and poor governance. The fall in international oil prices since 2015, for example, was a massive setback to Venezuela’s economy, with oil being its mainstay. The currency was fast losing value and inflation (estimated to be 1.7 million percent now) sent it on an even faster slide down.

Toma de Posesión de Presidente de Venezuela, Nicolas Maduro.
Nicolas Maduro in 2019 ; image courtesy Wikimedia Commons, CC 0 1.0 Universal Public Domain

Inflation is what has hurt ordinary Venezuelans the most, making it impossible for them to buy food or medicines within the country. At least a year or two ago, they had started trekking to nearby Colombia or Brazil to buy daily essentials. Soon, the shopping trek grew into a mass exodus. This is what makes today’s crisis a humanitarian one of significant proportions.

The international community, including multilateral institutions like UN agencies, the IMF and World Bank, ought to have intervened then. Of course, Nicolas Maduro, like his predecessor, would have scoffed at the idea of accepting international assistance from the West (and organisations that represent the Washington Consensus), so deep is distrust of the West in the Venezuelan government. But this is exactly why other Latin American countries should have intervened. Instead, in order to apply pressure for change to democratic principles, organisations like the MERCOSUR suspended Venezuela in 2016. Soon it became the pariah of the continent, driven even closer to countries like Cuba, Russia and China.

This is where American politics come into play. Right now, Americans are planning to reach out to Venezuela through the member countries of the OAS. However, if you consider that several Latin American countries came together to set up UNASUR, spearheaded by Hugo Chavez in order to counter the OAS, long seen as an arm of American influence, you can’t help but wonder how times have changed. With the exception of Mexico, more centre-right and even far-right governments are in power in Latin America today.

It is in this context that leading intellectuals such as Noam Chomsky and others have urged the US not to interfere in Venezuela. I think there is an opportunity for the international community to initiate discussion on the way forward for the beleaguered people of Venezuela. However, it must be undertaken under UN supervision and must be led by South American nations. Venezuela can introduce structural reforms to its economy and join the club of countries such as Chile, Mexico and Brazil that have experienced good economic growth in the recent past. Unfortunately, many Latin American economies are still tied to natural resources and commodity exports, making them vulnerable to the boom and bust cycles of global economic growth.

Hopefully, Venezuelans will see the light at the end of the tunnel soon; image of barrios in Caracas, courtesy

Venezuela needs to diversify its economy away from oil and into other manufacturing and services industries. Most importantly, the government needs to free up large parts of its economy, most importantly industry, from the army which controls business right now, including PDVSA. The Economist reports that Ricardo Hausmann of Harvard University started work three years ago, on a blue-print for the rehabilitation of Venezuela’s economy after Maduro. It envisages removing two main constraints first: price controls and the threat of expropriation as well as the paucity of dollars in Venezuela, so that products essential to manufacturing and production can be imported and business can start moving once again.

Venezuela has an external debt mountain of around US$ 100-150 billion and its foreign exchange reserves have dwindled from US$ 21.7 billion in 2009 to US$ 3.03 billion in 2017, according to the World Bank. It would require debt relief and it cannot go on with its oil for loans programme for long. This is where the international community and multilateral organisations can help. First, to help put Venezuela on the road to free and fair, democratic elections. And then on the road to economic recovery. Military intervention must be eschewed, even if such comments were made loosely by President Trump, as reported in this article from The Atlantic.

It is time Venezuelans, just as other Latin Americans, are allowed to discover the rights and responsibilities of deciding and governing their own future for themselves.

I will be sharing a link to a piece by Gabriel Garcia Marquez, based on a speech he made in Venezuela in 1970, in the April reading selection at The Whistle Library on Peripatetic Perch, exclusively for subscribers to The Whistle Newsletter.

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