Venezuela: un debate estratégico is a space designed by Revista Florencia to rigorously discuss the main problems of the Venezuelan crisis. Its objectives are, on the one hand, to construct the state of the situation in the most pressing areas of national life, and on the other, to incite a prospective debate capable of proposing comprehensive solutions.
On this occasion, we interviewed Pedro Delgado Gonzalez, an economist from Universidad Central de Venezuela and an expert in the analysis of rentier economies, about the current and future of the oil industry in Venezuela.
It can be said that the oil industry has always been the central axis of Hugo Chávez’s political project. How would you evaluate the different stages of this process throughout these 20 years?
It seems to me, and without intending to fall into schematic divisions, that there are three stages:
The first is the beginning of his government framed in a context of low oil prices and where the income received by the State was quite low due to the conditions of the contracts negotiated during the ‘oil opening’. It must be remembered that during the opening, there was an increase in production levels in Venezuela, but there were also the lowest levels of fiscal participation in history.
At that time, the global crisis generated a monetary expansion by the United States Federal Reserve which, together with the economic expansion of China, causes an increase in the price of commodities, which enables the Chávez government to dispute a greater magnitude income with the oil transnationals, which will manifest itself in the coup d’etat and the oil strike in 2003.
By triumphing in this conflict, Chávez regains state control of the oil rent and allows Venezuela once again to take a solid position in OPEC. Its second stage begins here:
A stage characterized by the expansion of oil revenues. It is the boom and bust stage of Chavismo. But it is here that the greatest contradiction of rentier capitalism, personified in Chávez and his government, is revealed:
The increase in oil income did not translate into development, on the contrary, it served to finance inefficient small capitals (international markets) that, unable to export and enter the world market, can only obtain foreign currency through the state subsidy with CADIVI.
The exchange rate overvaluation allows the private sector to appropriate the oil rent. But this appropriation is given by financially bankrupt companies, with sidereal technological delays that do not translate into economic development. There are also the private briefcase companies created by corrupt officials linked to the ruling party, who appropriated the rent to transform it into deposits and fixed assets abroad. During this stage, it became evident that the amount of the rent was insufficient to sustain these companies and the State had to resort to external indebtedness to sustain the overvaluation of the currency and capital outflows. In this way, the foreign debt that is in default today increased and we cannot pay.
The third and last stage of these 20 years that I identify is the time of crisis that manifests itself mainly from 2013, with the Maduro government:
It is the time when it became clear that everything done in the boom years was unsustainable. With the fall in income, the possibility of financing companies through the exchange rate overvaluation ends, the fall in economic activity begins, the contraction of the GDP, the increase in unemployment, the informality of the same, and the emigration of the hand of qualified work. The electricity crisis and the contraction of imports that today are almost entirely in the hands of the State and the military, which in the midst of the crisis represent the only sector that makes a profit and grows rich in the midst of misery.
At this stage of crisis, “rentier” takes the political form of militarism.
In El Plan de la Patria 2013-2019 it was assured that Venezuela would reach a production of six million barrels per day this year. Instead, according to OPEC secondary sources, in March Venezuelan oil production was at 732,000 barrels per day. What happened?
This number is truly alarming, this means a real tragedy for a country that exports only oil and its industry is dying in the face of the impossibility of investing a penny in raising production.
How did this happen? Well, during the period of the “boom” the exchange rate overvaluation was used to maintain the local industry. In other words, to compensate for the competitive lag that it has with respect to the rest of the world. Through the exchange rate overvaluation, as the Venezuelan economist Asdrúbal Baptista put it at the time, the State privatizes oil revenues. For example:
If the exchange rate at parity is 100 Bs / $, with 100 Bs the importing sector would obtain a dollar, but if the State decides to overvalue the currency by setting the exchange rate below parity, suppose 10 Bs / $, Now the importing sector will be able to obtain 10 dollars. The one who buys the cheaper dollars benefits because he gets a larger amount of foreign currency.
The surplus $ 9 comes from PDVSA and is a transfer of wealth from the foreign exchange generating sector to the receiving sector. That is, it operates a transfer of wealth from the public to the private sector.
But there came a point when it was liquidating not only its extraordinary profit but also its normal profit and its capital in general. The situation reached such extreme levels that when PDVSA sold the dollars at 10 Bs, what it received was not enough to sustain its operating costs, so that it was the Central Bank of Venezuela, through the monetary issue, that came to the aid of PDVSA. To the point that today the company does not have the resources to raise production, nor invest in exploration and drilling wells. Therefore, we will continue to see the drop in oil production, which today is at the lowest levels in Venezuelan history.
It must be remembered that Venezuela has an important part of its production committed in trade agreements and loans payable in oil. With these levels of production, how is the so-called “cash flow” of the oil industry and what repercussions does it have for the country?
According to unofficial calculations, nearly 400 thousand barrels per day are sent to comply with Petrocaribe’s energy agreements and pay the corresponding portion to the Chinese Fund. Although it is not known for sure if all these agreements are being fulfilled, since the information in Venezuela is not available and PDVSA has not published figures numbers 2014.
What is certain is that these agreements do not generate “liquid money” immediately, since such oil is payable in the future in the case of Petrocaribe, or sent to pay debt, in the case of the Chinese Fund.
This seriously jeopardizes the “cash flow” and leaves the country without the possibility of importing the goods necessary for the normal functioning of the economy. If we add to this the part of the production that is used for internal consumption destined to produce gasoline that is later distributed free of charge, then we have the perfect recipe for the chaos we are experiencing.
To this drop in production, there is a sharp drop in international oil prices. In this scenario, the government until recently insisted that “the end of rentiers” had arrived. How is this discourse framed within the Arco Minero del Orinoco project?
What is really happening is that in the face of the collapse of the oil sector and the bankruptcy of PDVSA, the Government has realized that it no longer has sufficient resources to continue maintaining the status quo. For this reason, it seeks a refuge in the mineral extraction industry to maintain itself in power.
That is why the Arco Minero appears. It is an attempt to continue extracting income from the Venezuelan underground to maintain a corrupt elite in power. To maintain a collapsed economy.
There are not a few rumors that ensure that the Venezuelan State has lost control over these territories at the hands of armed gangs. If true, in practice it means you can even capture rent as the land-owning state. So why is this project so insistent?
It is true that in Bolivar (state) armed gangs that control sectors and territories operate. This dates back to years ago when there was a legal fight between the Government and foreign companies. The lack of investments and abandonment turned these sectors into desolate and fertile territories for the operation of these criminal gangs linked to the exploitation of minerals.
However, this mining is low-scale mining, which occurs in artisanal exploitation areas. Although this shows the inefficiency of the State to control the national territory and the link that exists between politicians and gangsters, it is marginal mining. And if these practices exist it is because the Arco Minero has not yet arrived.
In other words, the Arco Minero seeks to promote large-scale mining together with Russian, Chinese, Canadian transnational companies, etc. When a foreign company takes over these territories, there will be a need for the state to combat these gangs to hand the territory over to foreigners.
With respect to income, with artisanal mining the State does not receive any remuneration for that activity, but with the Arco Minero the State receives an income as owner of the land. What is not known is how much it receives, under what conditions these contracts are given, since everything is managed at the discretion of the National Executive.
Why is the Government insisting on this project? Simple, because PDVSA is bankrupt. Every day it generates less income, the financial markets are totally closed and therefore, in order to try to obtain foreign exchange and stay in power, the Government needs to look for another source of income in the extractive industry.
In another aspect, it seems that, at least in public light, the Compañía Anónima Militar de Industrias Mineras, Petrolíferas y Gas (CAMIMPEG) has not finished formally occupying the space designated to PDVSA within the national industry. Instead, the government placed a military man who has nothing to do with the industry at the helm of PDVSA. What implications does this have?
For me this has two implications:
The first is that the government, in the absence of popular support and the loss of support from business sectors that benefited from income in the boom period, increasingly relies on the military to sustain itself. And the Armed Forces that before were only a mediator in the appropriation of income through the access route to cheap dollars, today is the sector that centralizes purchases abroad and controls the few currencies that enter the country. Given this, the government is forced to hand over the business more and more to the military, hence the creation of CAMIMPEG and the militarization of PDVSA. But this situation makes its recovery unfeasible, which guarantees that the looting by the military establishment continues and that the Venezuelan status quo is maintained.
The second implication is that given the impossibility of recovering the industry from its ruin, Chavismo advances on the privatization of the oil sector and for this, it needs a military man who administers bankruptcy, who represses workers and lays the groundwork for privatization.
On the other hand, for years, various experts in the field assured that rentier capitalism was inevitably heading for its collapse. Have we reached the final collapse of the model?
It is difficult to speak of final collapse because everything indicates that the accumulation of capital around oil income will continue with or without Chavismo. Whether Chavismo or the opposition both seek to continue with the same.
But in my opinion, this particular way of accumulating wealth is also exhausted. And I say that it is exhausted because there is a technological backwardness of the local industry, a productive lag with respect to the rest of the world so great that they render local capital inefficient, with low competitiveness and productivity. As a consequence, local capital cannot export and they are forced to operate only for the internal market. When the domestic market contracts then locally operating capital cannot close its appreciation cycle.
This means that there are a lot of companies that are literally bankrupt and the appropriation of rent works as their only source of subsistence. But this appropriation does not translate into development of the country’s productive forces, since the appropriate rent ends up abroad (capital flight) without increasing productive investment and job creation, so the obsolete and backward productive structure remains .
When the income contracts, this capital shows all its inefficiency, the companies cannot reproduce as capital and end up in bankruptcy, increasing unemployment, disinvestment, and economic contraction. For their part, the workers see their income reduced to starvation wages, their consumption is made impossible and they have no other alternative but to emigrate or starve to death in Venezuela.
This is what we see today in the economic crisis.
We have seen that the foreign policy of Trump’s administration has consisted of a tightening of economic sanctions against Venezuela and other states. Moving away from the Manichean analyzes that this issue has produced, how do these sanctions affect the Venezuelan oil industry and, in general, the country’s economic dynamics?
The sanctions imposed by the United States limit the transactions between PDVSA and any US firm or company, with the exception of some companies such as Chevron, Halliburton, Baker Hughes, Schlumberger, among others that have special licenses. This means that with these sanctions, PDVSA will not be able to export oil to the United States, nor will it be able to import thinners or gasoline.
This has several consequences:
The first is a considerable drop in income, since the part of oil exported to the United States was the only one that generated immediately available money. Now with the sanctions, this source of income is lost, forcing new buyers to be found.
The second consequence is that, when looking for new buyers such as India, China, or Turkey, operational costs go up, since transport costs are higher. Another aspect to highlight is that, given the need to sell immediately, Venezuela has to sell that oil at a discount, which further reduces income.
The third consequence is that by not being able to import, the production of gasoline decreases, because it is produced with a high content of components imported from the United States. They can be purchased elsewhere, but costs increase. Therefore, in the short term, it is most likely that the supply of fuel in the domestic market will also decrease.
The fourth consequence is that you cannot buy light oil to mix with the heavy oil that is produced in Venezuela, making it difficult to export the little crude that is still produced in the country.
Finally, although the sanctions do serious damage to the economy, it must be made clear that the crisis in Venezuela is not due to the sanctions, the decapitalization of PDVSA and the collapse of production occurred long before the sanctions. And with or without sanctions, the outlook for Venezuela is bleak.
Finally, in a prospective exercise, what decisions would have to be taken immediately to start recovering the oil industry in the short, medium, and long term?
There are several economic policy measures that any economist could recommend. I can mention some of them:
It would be necessary to restructure the debt, eliminate exchange control, obtain resources through international financing, invest in the industry abandoning high investment, and low profitability projects such as the Faja Petrolifera del Orinoco, professionalize the industry again, and so on.
But I believe that the problem is not that of this or that economic policy, since recovering the industry to maintain the private appropriation of income by inefficient companies is aggravating the problem.
I think that the most necessary thing is to understand that there is a social relationship that determines us all, and given the low competitiveness and technological backwardness of industrial capital, there is no other option but to export oil. This determines the Venezuelan State, the external as a rentier and the internal as a mediator in the appropriation of the rent.
As long as the companies with low competitiveness are dedicated to appropriating the cheaper currencies, the large oil revenues will be squandered without producing economic development and the land will be fertilized for acute crises like the one we are currently experiencing.
It is necessary to explain that Chavismo and the opposition are part of the same phenomenon, both of them express the figure of “rentier hunting”. For this, it is necessary to produce an awareness that explains this to the country and that advances in the overcoming of rentism, starting from the income itself.
This is what is really needed and this does not occur in the field of the application of this or that economic policy. Rather, it occurs in the field of political action that recognizes itself as alienated from capital.