Presidential standoff may worsen Venezuelans’ misery

Caracas :  The US recognition of opposition leader Juan Guaido as Venezuela’s interim president is being touted by the Trump administration as the only way to restore the country’s democracy.



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But as Elizabeth Pineda was stocking up on staples Sunday at a sidewalk market near a Caracas slum, she was bracing for things to get a lot worse, not better.


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A retired secretary, Pineda survives on a monthly pension of just 18,000 bolivars, or about 6. She supplements her income working as an astrologer, and although the stars have been telling her Venezuelans are on the road to ridding themselves of socialist President Nicolas Maduro, she doesn’t expect him to go quickly or quietly.



“The government is going to strangle us even more with their bad decisions and shamelessness,” Pineda said while sharing a bowl of beef soup with two friends, none of whom can afford the 1.50 meal on their own.

Economists agree that the longer the standoff between the US-backed Guaido and Maduro drags on, the more regular Venezuelans are likely to suffer.

Maduro, who so far appears to have the backing of the decisive military, has dug in, accusing the U.S. of orchestrating a coup by encouraging Guaido to declare himself interim president and then leading a chorus of nations that immediately recognized his rule.

The high-risk and seldom-used strategy of recognizing an alternative government that doesn’t already have de facto power is tantamount to blocking Maduro’s access to Venezuela’s all-important oil revenue, with enormous legal and financial entanglements.

Directives sent Friday to the US Federal Reserve will make it very hard for Maduro to access Venezuela’s overseas assets and earnings, including those from Houston-based Citgo, a subsidiary of state-owned oil giant PDVSA and the major source of revenue for the bankrupt government.

Also at risk is 1.2 billion in gold reserves 15 per cent of Venezuela’s foreign currency reserves stored in the vaults of the Bank of England.

If the Trump administration’s confrontational approach is adopted by the European Union, some of whose members have threatened to recognize Guaido if Maduro doesn’t announce new elections in eight days, it could bring oil production to a standstill, heaping more hardships on the 29 million Venezuelans already struggling with hyperinflation, widespread food shortages and anemic economic activity.

“If Maduro stays in power, Venezuela could suffer a humanitarian catastrophe,” said Francisco Rodriguez, chief economist of New York-based Torino Capital.

Rodriguez said the outlook is similar to what happened to Libya in 2011, after the Obama administration froze the government’s assets in retaliation for Moammar Gadhafi’s crackdown on protesters during the Arab Spring.

In response, oil output in the North African country dropped more than 70 per cent.

But unlike that asset freeze and the one imposed on Iraq after Saddam Hussein’s invasion of Kuwait, which were done in concert with the international community, Maduro still has important backers, most notably China and Russia, which would serve as a likely veto of any international sanctions at the UN Security Council.

If he’s not getting paid, Maduro will surely divert the roughly 500,000 barrels per day of oil currently being sold to Gulf Coast refineries in the US to more friendly markets, like creditors Russia or China, as well as India, Malaysia and Thailand.

But processing international financial transactions is very hard without going through the U.S. or European banks. Transport costs would also jump because Venezuela’s ports aren’t well-equipped to load supertankers for transporting oil to such distant markets, said Russ Dallen, managing partner of Caracas Capital, a brokerage.

That means the country, which depends almost entirely on oil exports for hard currency, will be able to purchase even less food and other imports, exacerbating a severe recession that is already deeper than the US economic contraction during the Great Depression.



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