With an economic crisis deepening and a potential government meltdown looming in Venezuela, it might be tempting for U.S. officials to gloat with an “I told you so.”
But smugness is an inadequate response to the implosion of a country where 30 million people are suffering the fallout of decades of socialist policies and enmity with their “imperialist” nemesis to the north, says Roger Noriega, a former U.S. diplomat covering Latin America and current visiting fellow at the American Enterprise Institute, a conservative think tank.
Instead, it’s an opportunity to show the promise of capitalism in a way that can resonate with citizens who are finally fed up with the inequities of a system that has left behind the very people it was supposed to serve, Mr. Noriega said.
“Just because people are poor doesn’t mean they are OK with being oppressed too,” said Mr. Noriega, who served as assistant secretary of state for the Western Hemisphere under George W. Bush.
With oil prices hovering around $40 a barrel, Venezuela is now feeling a new level of pain. Where it used to lavish the working class with energy and food subsidies funded by petrodollars, it’s now facing ballooning sovereign debt and inflation nearing 200 percent. Shortages of food staples and electricity are becoming routine, and violent crime is on the rise.
A “dismantling of democratic institutions” by President Nicolas Maduro means that while many members of the opposition-controlled legislature (elected by huge margins in December) want him out, allies in the National Electoral Council have ruled that their push for a referendum on Mr. Maduro’s rule is unconstitutional thus far.
But a tipping point could be near that will have far-reaching implications for the future of a region looking to find its preferred growth path, he said.
“The political situation and the economic situation internally have deteriorated so significantly, it would be a miracle if Maduro were to last until the fall when he could make decisions about servicing this debt,” Mr. Noriega told Global Atlanta in an interview prior to his dialogue with former U.S. ambassador to Venezuela Charles Shapiro hosted by the World Affairs Council of Atlanta.
The reversal of fortunes for the United Socialist Party of Venezuela (PSUV) is a striking shift given the popularity of Hugo Chavez, whose “Bolivarian Revolution” sent him cozying up to American nemeses like Iran and Cuba. His death in 2013 paved the way for the election of Mr. Maduro, who inherited the challenge of maintaining the appeal of “Chavismo” philosophy without its charismatic face. And when oil prices plummeted, a state-run oil sector that had replaced technocrats with cronies couldn’t keep up with production targets to offset the lower prices, Mr. Noriega said.
“The 70 percent decline in oil prices since June 2014 has only exposed all of these weaknesses,” Mr. Noriega said.
But this discontent is where the opportunity lies, according to Mr. Noriega. South America is turning a corner toward what he calls its “free-market moment” as a consensus for capitalism emerges across the continent.
The new government in Argentina, for instance, is swinging back toward global integration after a period of self-imposed isolation where it faced its own bouts with rampant inflation and black-market exchange rates.
Chile and Peru are members of the 12-nation, U.S.-led Trans-Pacific Partnership trade agreement, and they’re joined by Mexico and Colombia in the Pacific Alliance, which focuses on increasing trade and enhancing competitiveness. Internal trade in Latin America makes up only about 19 percent of the region’s economy, as opposed to 60 percent in North America and 50 percent in Europe.
The key is to package this transition less like U.S.-led capitalism and focus it more how it achieves the same inclusive goals of the movements traditionally labeled “leftist” in a region that has vacillated between two competing economic models, Mr. Noriega said.
The case has to be made that “grassroots capitalism” (a term he uses to describe how free enterprise reduces inequality and advances social justice) is the only way to truly fight poverty.
Venezuela has a long road ahead. The military has said it would quash regime loyalists using violence to stamp out public dissent. This has defused the threat of mass upheaval for now, but Mr. Noriega said it’s not entirely out of the question to see a full collapse that leads to starvations, fighting between rival factions and even a refugee crisis.
“This could be really messy, and it still very well may be,” he said.
The U.S. should be supportive partner with its allies in the region in working to avoid this outcome, and the Organization of American States should step up to play a lead role, he said.
On the ground in Venezuela, the challenge for the next leader will be to institute market-oriented reforms and provide a modicum of stability that would encourage outside investment.
“You’re going to have to have somebody who understands the workings of a market economy, and is going to be able to adopt the kinds of political and economic reforms that make it possible for people to do business,” Mr. Noriega said.
But that process could be painstakingly slow in a country where the economic power has long been concentrated at the top.
Read more from Mr. Noriega in writings for the American Enterprise Institute: The Free-Market Moment: Making Grassroots Capitalism Succeed Where Populism Has Failed
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