Opinion: Damned by the curse of oil

POSTED: 02/27/14 12:52 PM

“………. sale a marchar mañana sin miedo de nada y con la esperanza de encontrar un futuro mejor” (“……gone marching without fear of nothing and hoping to find a better future,”) . This was the last Facebook-post of Bassil Da Costa, a young student in Venezuela, killed on Tuesday, 11 February, at 6.50 pm, during demonstrations. Jacob Gelt Dekker reflected earlier this month on the disastrous developments in Venezuela in this column published on Curacao Chronicle.

“Strict censorship by the Maduro-regime, and blocking of social sites on the internet makes accurate information scant. Supposedly, clashes between demonstrators concentrated on Plaza El Cardenalito in Barquisimeto with the National Guard, left 21 students injured and some dead.

Five university students were admitted to Central hospital Antonio Maria Pineda : Albert Herrera, 23, wounded in the left thigh , Gabriel Ochoa,21, with gunshot wounds at the clavicle , Johnny Hernandez Briceño, 26, wounded in the right thigh. Carlos Gonzalez (19) had a point-blank gunshot wound in his right arm and Adrian Perez Montilla, 20, got a gunshot wound in his right thigh. Ten more youths were admitted to Clinic Valentina Canabal with gunshot wounds, but details were withheld by the officials from the media. Supposedly, a 16 year-old was found in the street with gunshot wounds and 6 students were admitted to the Polyclinic at Barquisimeto with pellet wounds.. Also admitted were two ladies with gunshot wounds. At least one more person was found shot dead in the street. Official confirmations by Gov. Henri Falcon and Barquisimeto Mayor, Alfredo Ramos, were expected, but have not been forthcoming. Twitter users reported National Guard troops in Chacaíto, Chacao, Altamira, Palaza Venezuela, and at the entrance to several ministries and public buildings. On Thursday morning, in Caracas, the military presence was beefed up after the; events on Wednesday, which left at least 3 more dead and 30 arrested.

“I am very proud of Venezuelan students. Students without weapons were attacked by the “colectivos“, groups of communist activists armed and fully supported by the government and used as unofficial strike forces,” said Santiago Gonzalez Serrano of Caracas, a graduate of Bolivar University, translating the sentiment of the hundreds of thousands, who demonstrated in 16 cities since last Sunday.

The world is watching in awe and astonishment, and wondering how Venezuela, a country with world’s largest oil reserves, can experience such a dramatic economic meltdown.

Apparently Venezuela is hit by the “curse of oil.” Venezuela’s government’s reliance on oil only has turned out to be lethal. The Chavez government neglected local productivity, and killed most economic production activity by massive nationalization of farms and manufacturing facilities. Exports of Venezuelan products, except for oil, dropped today to only 4% of hard currency earning industry.

Maduro’s reliance on oil was further hampered by a fall in oil production from 5,6 million barrels per day at its peak, to as little at 2,2 million, today. Poor refining capability mostly due to lack of maintenance of refinery facilities, nearly free supplies of gasoline to locals and the PETROCARIBE agreements of 2005 dramatically reduced government’s cash flows.

Petrocaribe is an oil alliance of selected Caribbean states, like Cuba, Bolivia and Ecuador, with Venezuela and takes up about 30% of Venezuela’s already ailing oil production. The Petrocaribe nations can purchase oil on conditions of preferential payment. The payment system allows purchase of oil at market value of 5%-50% up front with a payment grace period of one to two years; the remainder can be paid through a 17-25 year financing agreement with 1% interest, if oil prices are above US$40 per barrel. The consequent cash flow short fall caused Venezuela’s government budget deficits, of, officially 15%, but unofficially rather estimated at 25%, which is further exaggerated by elaborate ever growing social welfare program obligations. The Venezuelan government response was simply printing more Bolivar Fuerte, the local currency. The printing presses caused hyper inflation beyond control. Desperately, Chavez-Maduro politicians repatriated Venezuela’s gold reserves back to Caracas but to no avail.

The Bolivar Fuerte was and remained in free fall in exchange markets. The country’s productivity was not restored and nothing else was undertaken to restore confidence in the currency. Venezuela’s inflation of 56.3% over 2013, and more than 3%, in January 2014, eroded the value of the Bolivar Fuerte further. Today, the government desperately tries to hold on to an official exchange rate of 6.23 BF to 1 US Dollar, whereas border exchange markets at Cucuta, Colombia, demand at least 86,92 BF for a single US dollar, making imports into Venezuela out of reach to most people, resulting in massive contraband smuggle, and barter.

Gasoline in Venezuela for locals costs only a few cents per gallon, motivating smugglers to drive hundreds of oil tankers across the Colombian border for cash and barter products. The contraband smuggle was so massive that the Colombian Minister of finance complained that the Treasury experienced a drop of at least 30% of gas taxes revenues, in January only. Once, Curacao welcomed 10-15 charter flights, every Friday, with Venezuelans on weekend shopping sprees and drinking Etiqueta Negra ( Black Lable), all day long. Everywhere you shopkeepers heard, “Esta barato, dame dos”( “it is cheap, give me two”). Today, the lack of dollars, made foreign travel for Venezuelans impossible and the hotels and guest houses ,that once catered to the gullible neighbors remain empty. Massive cash flows from the Pdvsa refinery on the island are now diverted to Caracas, threatening payrolls and operations of the plant. Shipping and air travel companies on Curacao are unable to collect the dollars owed to them and will be force to rethink their commercial activities. Some were already forced out of business.

The Government of Curacao can stand by and watch the imminent collapse of a substantial part of its own, Venezuela related, economy, or take action and forge new alliances with healthy and prosperous South American economies.”


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