On the surface, the problems experienced by both Russia and Venezuela appear to be similar – a drop in oil prices and an inflexible political regime that is only compounding economic woes.
Government supporters look at Venezuela's President Nicolas Maduro during his the annual state of the nation report, on a television screen outside of the National Assembly in Caracas, Venezuela, Friday, Jan. 15, 2016. Photo: AP
According to the majority of international experts, Venezuela and Russia have become two of the countries that have suffered the most from the drop in oil prices last year. It’s easy to draw analogies both in the worsening macroeconomic indicators and in numbers that attest to the drop in the standards of living of the population.
President of Venezuela Nicolas Maduro has just announced an “emergency economic state” for a period of 60 days. The country with the largest prospected oil reserve on the planet has one of the highest inflation rates in the world (officially it was 141.5 percent in 2015, but according to the data of independent economists it breached the mark of 200 percent), and could be facing a deficit of food for its population.
The price of Venezuelan oil is $24 per barrel with chances of going down to $19 in the following weeks, even though the prime cost of acquiring this heavy oil from the Orinoco belt is $35-45 per barrel.
Russia and Venezuela, chained together
Not quite as desperate, but also a pretty joyless situation is forming in Russia as well. At the past Gaidar Economic Forum in Moscow, Minister of Finance Anton Siluanov warned about the threat of repeating 1998 if the situation with the budget gets out of control. In 2016 Russian GNP will decrease by 2.5-2.7 percent, according to the numbers given by Siluanov during his speech at the forum. And just recently Russian economists were predicting that in 2016, the decline would be no more than by 0.7-0.8 percent.
The head of the Ministry of Economic Development Alexey Ulyukaev even suggested considering such a measure as privatizing two huge banks - Sberbank and VTB – once again. According to him, those are “high quality actives” that “are attractive all over the world.”
Ex-minister of finance Alexey Kudrin draws attention to the fact that during this crisis the amount of poor is growing dramatically, which hadn’t happened during the previous crisis because of fiscal and social measures taken by the government. The head of Sberbank German Gref even called Russia a “downshifter,” causing indignation among the deputies of the State Duma.
In September of this year the elections to the Duma will take place in Russia. And in Venezuela the elections to the National Assembly of the country took place in December 2015, and were convincingly won by the opposition, which received almost two-thirds of the seats in the single-chamber parliament.
This victory of the opposition was a result of deep dissatisfaction of the Venezuelans with their socioeconomic position. As the new head of the Assembly, Henry Ramos Allup has announced that the current crisis is the result of the defective economic course of the country’s authorities. But the crisis, he underlined, “will be impossible to overcome with the current government, which is continuing to bring to life a completely failed model.”
High-ranking Russian officials and economists also suggest that the model which existed here until now, oriented solely on the usage of profits from oil and gas sales, has exhausted itself, and deep structural reforms are the only possible way out of the crisis.
Russian experts on Latin America also think that among the obvious and non-obvious analogies of the Russian and Venezuelan situations, a special place is taken by the issue of the similarity of the political regimes ruling in those countries.
According to Tatiana Vorozheykina, a Levada Center specialist on the comparative research of Russia and Latin American countries, “The issue is mainly in the authoritarian political regime, which consistently liquidates the institutions of democratic participation - fair, equal and just elections, division of power and an independent court, suppresses the freedom of speech and practically all other political freedoms and rights, while leaning at the same time on social layers independent from the government.”
The core of such a regime, according to Vorozheykina, is in the drive to immortalize one’s presence in power, persecuting and destroying any independent economic, social and political activity, in which it justly sees a threat.
“At the same time the economic policy can be “leftist,” as in Venezuela, or “rightist,” as in Russia, but it doesn’t change the idea of the regime, the expert says. “A failed economic course, an absence of property right guarantees, all-invading corruption together with the drop of oil prices have led to the economic catastrophe in Venezuela,” she says. “We, it seems, are on the same track: corruption, absence of property right guarantees, continuous economic sanctions placed upon one’s population, attempts to replace the missing income from hydrocarbon exports with new duties.”
Where Venezuela outpaces Russia
It may seem a paradox, but to a certain extent Venezuela, whose crisis is much deeper than Russia’s, has more chances of getting out of the economic swamp faster. And it’s connected not only with the fact that it’s inferior to Russia in size and population.
In Venezuela, despite the train of military coups in the last century, there are still more solid democratic traditions than in Russia, and a quite active civil society. That was particularly shown in the results of the presidential elections. For example, in the elections of 2012 even such a popular leader as Hugo Chavez received 55 percent of votes, and his rival, the opposition candidate Henrique Capriles Radonski – 44.3 percent. After Chavez’s death, in the elections of 2013 Nicolas Maduro, the ruling party’s candidate, won over Capriles with only a minor advantage (50.61 percent against 49.2 percent).
There’s no doubt that if the elections were held now, Maduro would face an overwhelming defeat. So Venezuela, even with the populist course of its government, is nothing like North Korea or the Soviet Union during the period when the Communist Party played a primary role.
Today President Maduro and his government are subject to sharp criticism from the opposition National Assembly. “No one should have any doubts that now the National Assembly is an autonomous constitutional power, which will debate, conduct legislative work, and control the functioning of the government,” announced Henry Ramos Alloup, a devoted opponent of Chavez’s socialism.
So Venezuela’s legislative authority is ready to take the responsibility for solving the country’s problems and in that, perhaps, is one of the main lessons that Venezuela teaches Russia.
One can hope that the return to democratic norms that suggest the real separation of power in the government will allow Venezuela to get rid of historical shifts, during which all the issues of the country were dealt with by one single man. At the moment, the most crucial issue is the one of the early stripping of power of the unpopular successor to Chavez – Maduro. According to the country’s constitution, the impeachment procedure can be initiated after half of the presidential term is over. In the case of Maduro, it will happen in April.
“Right now the opposing party won’t take risks, but will try to maximally discredit the president who’ll have to resort to unpopular measures,” believes the first vice president of the Center of Political Technologies Alexey Makarkin. “Maduro is not trying to solve the problems within the scope of compromise and dialogue with the opposition; on the contrary, he’s looking for an answer in empowering the government’s role and the hardening of control in economics.”
In Makarkin’s opinion as well as those of other Russian political scientists, an attempt to change the government will be conducted within the scope of impeachment, or by the means of a referendum, which is practically unavoidable. At the same time, a possibility of a military coup is rather small – the army has announced its neutrality and respect towards the results of the elections to the National Assembly multiple times.
What’s next with Russian-Venezuelan business relations?
Separately stands the issue of whether the nature of economic relations between Venezuela and Russia would change with the opposition’s coming to power not only in the parliament, but in the presidential palace as well.
Russia’s largest company Rosneft has invested at least $1.8 billion in Venezuelan projects. At the end of May last year it was reported that the volume of investments could reach $14 billion, but which part of those has already been made is unknown.
Professor of St. Petersburg State University Lazar Heyfetz believes that Russian contracts are in no danger in general.
“We’re trading with Caracas, we have mutual projects also in the energy sphere, we’re cooperating in the sphere of defense, selling defensive, military machinery,” he says. “Such long-term and solid contracts don’t fall apart easily, because it’s big money, it’s an issue of employment of a large part of the country’s population, and it’s doubtful they can initiate any kind of rupture.”
Besides, in Heyfetz’s opinion, the leaders of the Venezuelan opposition are quite pro-West, but are pragmatic at the same time, and most likely won’t take any drastic steps against Russia.
Right now, the new National Assembly is starting to review the issue of partial privatization of the country’s oil industry, taking into account the obvious inability of the state company Petroleos de Venezuela to cope with the crisis (the same one has majority ownerships in five collaborative projects with Rosneft).
However, it’s not about the full privatization of all of the country’s oil fields, but only about the increase of the part of private capital in it. Although, surely, it will inevitably increase the level of competition with foreign companies for Russian oil companies working in this country.
The new composition of the National Assembly, no doubt, will try to avoid the conflicts that occurred during the rule of Chavez, who in one swipe turned the American oil companies out of the country. Venezuela, which step-by-step is replacing authoritarianism, gives Russia a reason to look at the future of this faraway foreign country with careful optimism.