Photo: Americas Quarterly retrieved

In 1962, Alec Nove explained socialists’ ideological necessities: anything excluded by their ideological principles is not an alternative. “This is because,” wrote Nove, “were they to act otherwise, they would cease to be what they in fact are.” The beliefs of controlling decision-makers are key.

Chavismo often makes ideologically constrained decisions. In 2016, Mark Weisbrot and Francisco Rodríguez were members of a team of economists sponsored by the Union of South American Nations (UNASUR) that attempted to save chavismo from itself. Weisbrot acknowledged that major reforms were needed for debt restructuring, but those were ultimately rejected: the “left” inside the government and the ruling party considered it ideologically necessary to do so. A grand debt restructuring was, and is now, precluded by ideology.

Weisbrot acknowledged that major reforms were needed for debt restructuring, but those were ultimately rejected. 

On September 7th, 2017, Weisbrot reiterated the 2016 proposals as a “possible” route for needed government reform. He asserted that the 2017 lending sanctions denied the access to commercial credit markets his reforms—if adopted—would provide. At the same time, Nicolás Maduro announced a renewed commitment to the “Plan of Socialism” that was the antithesis of the Weisbrot/UNASUR recommendations, proposing, among other things, a mass mobilization of corporatist organizations to enforce price controls, a rapid shift from investment in oil to investment in minerals, and a collectivization of agriculture in a new Agro-Food Consortium of the South (Agrosur), modeled after PDVSA.

Weisbrot’s point was that the reforms were necessary to allow the regime a turn to the Chinese. By November, China was giving active diplomatic and media support to Emmerson Mnangagwa in his intra-party coup against Robert Mugabe, who was once urged by Deng Xiaoping to “not to repeat Mao’s mistakes by destroying Zimbabwe’s economy in the name of ideology.” Ruling chavismo’s ideological economics were not creditworthy to China, or commercial lenders.

Two years later, Weisbrot is in the news for penning, with Harvard economist Jeffrey Sachs, Economic Sanctions as Collective Punishment, where in addition to invoking an ideologically precluded grand debt restructuring, they conclude that sanctions affected the humanitarian crisis by directly reducing oil production.

Relying heavily upon Francisco Rodríguez’s Crude Realities: Understanding Venezuela’s Economic Collapse, Weisbrot & Sachs draw a line of causation that begins with lending sanctions restricting PDVSA’s financing for maintenance, operations and new investment to maintain oil production, which caused a “quite immediate” decline in oil production and exports, accelerating a decline in imports and the humanitarian crisis in 2017-2018.

The decision to let PDVSA starve

Crude Realities strongly suggests that maintenance, operations, and infrastructure investment were funded overwhelmingly by cash flow prior to the lending sanctions. It notes that underinvestment in PDVSA became “worse as a result of the post-2016 cash crunch,” and “plunged by more than 50% between 2014 and 2016.” Had such investment depended on lending, it would not be most sensitive to income, but to creditworthiness. According to the story, creditworthiness had yet to be impacted before 2017.

Reduced expenditures on operations and investment are no explanation at all for the supposed sanctions-induced drop in production in 2017. Such expenditures increased to $8.507 billion in 2017, from $6.058 billion in 2016.

Moreover, on September 10, 2018, Maduro directly deprived PDVSA of the ability to reinvest export income in oil production by ordering all revenue to be turned over to the Central Bank of Venezuela.

It was ruling chavismo, not sanctions, that starved PDVSA of investment in 2018.

Weisbrot and Sachs assert that the 2017 acceleration of the collapse in oil production resulted in real immediate losses of export income, not just hypothetical ones. Yet there simply was no immediate loss of export income.

January 2016 was the nadir of oil prices, an inflection point of decline dating back to 2014. Declining production from 2016 through the summer of 2017, then, was not a product of low oil prices, which were in fact rising, or of a short-period profit maximization strategy of adjusting production levels in response to price changes, which in fact has never been followed.

Despite collapsing production, export income remained constant for at least ten, if not more than 13 months, due to rising oil prices. Contradicting Weisbrot and Sachs, Rodríguez ’s Chart 1 from Crude Realities clearly shows relatively constant dollar export income from mid-2017 through mid-2018.

From the sanctions in August 2017 to at least October 2018, potential revenue remained above or comparable to potential revenue for the year before sanctions.

In fact, the preliminary 2017 PDVSA financial report shows an increase in total revenue in 2017, to $50.86 billion (despite the collapsing production, and all “revenue” not being received in cash) from $48 billion in 2016.

How potential revenue was allocated between cash-generating exports and other uses (like in-kind loan payments or subsidized fuel sales), and how the cash from dollar exports was spent (or not) to invest in oil production, or alleviate the pre-existing and accelerating humanitarian crisis, represent choices the regime made. Not the effect of the 2017 lending sanctions.

The decision to shock PDVSA with soldier boots

Rather than sanctions, ruling chavismo’s ideological necessities drove the collapse in oil production.

In August 2017, the Maduro regime started a purge of scores of the insufficiently loyal from PDVSA; it intensified until the late November firing and arrest of two top executives, one of whom died in state custody. On November 26th, 2017, Maduro appointed Major General Manuel Quevedo to oversee the militarization of PDVSA.

Many early purge victims were allied with Rafael Ramírez who, before his fall from grace, served as president of PDVSA and Minister of Energy from 2004 to 2014. Ramírez claims that he began privately raising alarms about the precipitous decline of PDVSA oil production in early 2017, that he was ignored, and that he went public with his opinions in the spirit of intra-chavista policy debates. For this, Maduro dismissed him as Venezuela’s U.N. envoy in late November 2017, ordered his arrest for corruption in January 2018, and forced him into exile, where he could not effectively run for President.

Rafael Ramírez’s ideological imperative is a return to 2012, to the Golden Moment As The Eternal Now, to the era when PDVSA was run as a super-ministry, subsidizing the chavista corporatist organizations with money from oil exports and loans. Ramírez blames Maduro for the destruction of PDVSA, ignoring his own role, and Chávez’s, in its destruction. He has long called for chavismo to restrain or replace Maduro, even calling for an intra-chavista military coup in his own favor on April 7th, 2019.

It was ruling chavismo, not sanctions, that starved PDVSA of investment in 2018.

In contrast, Maduro and the ruling chavismo are proposing more grandiose, Cuban-style socialist transformations that move away from dependence on PDVSA, such as the Great Mission of Sovereign and Secure Supply, and 2017’s “Plan of Socialism.” Regarding PDVSA, Maduro’s ideological imperative is to have a “Socialist PDVSA” and to defeat the rentier oil model favored by Ramírez.

The militarization and purges of PDVSA had immediate effects on oil production. On December 15th, 2017, Reuters reported that the militarization and purges left the company all but paralyzed, and the OPEC Secondary Sources report showed the largest month-over-month drop in production (-8.45%) since the 2003 oil strike. With continuing devastating effect, the militarization deepened and the purges are ongoing a year-and-a-half later, expanding to include, for instance, treason charges for equipment operators who do their job with ill-maintained machinery.

The claim that the 2017 lending sanctions caused the collapse of oil production purely misrepresents supposed correlation as causation. The sharp acceleration of the decline appears in the November 15th and December 15th reports, corresponding to the militarization of PDVSA and the November intensification of the purges within it.

It’s true that the average rate of decline in production more than tripled in the fall of 2017 from around -1% per month to -3.39%, but this has nothing to do with sanctions and it’s directly traceable to ruling chavistas’ ideological necessities. Were Weisbrot and Sachs concerned enough to follow actual factors influencing oil production, they would know that chavista ideological necessities affect not only creditworthiness but the production of oil itself.

Collective Punishment is ridiculous.  It’s almost not worth noting that the CodeVida and Provea report Weisbrot and Sachs cite blames medical shortages on the regime’s 2016 decision to stop importing listed treatments and its  “ideologically necessary’’ denial of a humanitarian crisis, not sanctions. Or that the ENCOVI survey project views a regime change to democracy led by Juan Guaidó as a way out of the deepening humanitarian crisis, not as a part of the problem as Weisbrot and Sachs view it.

In 2016, Weisbrot asked if Venezuela’s “downward spiral” was “irreversible until the PSUV leaves power.”  

The answer is “yes” because it’ll never “cease to be what it actually is.” Chavismo’s ideological necessities are the collective punishment.

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