Tag: Venezuela

VENEZUELANS DESERVE THE WORLD BUT GET MADURO

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By Kristopher Klein
Staff Writer

The collapse of OPEC may have been averted, but look out for political turmoil across its struggling member states.

Venezuelan President Nicolas Maduro recently toured OPEC member states as well as Russia to urge a cut in output. His tenacity has waned, however, as Saudi Arabia remains staunchly in favor of maintaining production. With the cut in production off the table, Maduro has shifted focus to political repression and shying away from economic reforms.

A few weeks have gone by since I published an article on how the sudden decline in oil prices was making oil export-dependent governments nervous about their annual budgets. When governments of oil-dependent nations write their budgets for the year, they typically base these off of a predicted price for their oil exports. The decline in prices has shredded the budget of Venezuela specifically, which assumed a $60 per barrel price for the year.

It was expected that the national governments of OPEC member states might react to budgetary woes by demanding that OPEC cut output or threaten to leave the cartel. However, that was not to be and the politicians of Venezuela would now rather resort to temporary fixes and political distractions than real economic reform.

Political Turmoil

Last week I watched with both dismay and amazement at the sheer audacity of Venezuelan President Nicolas Maduro as he had a chief opposition politician, the mayor of Venezuela’s capital city Caracas, hauled away to prison under allegations of supporting an American plot to take over the government.

Venezuela’s socialist elite has accepted that they will most likely fail to convince OPEC to act in order to change the price of oil, and has instead opted to short-change the people of Venezuela. The regime’s strategy is to make do with what OPEC hands them and maintain power by limiting the political alternatives of Venezuelans in an attempt to distract them from the reality of Venezuela’s damaged economy.

The tactic of drumming up foreign policy woes to take attention away from a flailing domestic economy is alive and well in politics. Maduro suppresses social unrest by portraying himself as a fearless protector of the Bolivarian legacy against the evil North American machine, like his predecessor Hugo Chavez. By accusing an opposition politician of plotting to help Americans overthrow the regime, Maduro gets rid of a prominent political opponent and keeps the Venezuelan people checking over their shoulders for the gringo conspiracy.

Prospect of Needed Economic Reforms Fading

The real problem this political turmoil presents is the death of any possibility of real economic reform. The introduction of economic reforms requires the government to feel secure enough in its political and financial position to implement reforms. Also, some social willingness to sacrifice for the reforms in the short term is necessary. Furthermore, reforms take time so a country needs an opposition willing to sit on its hands for at least a short while rather than charging incompetency if reforms do not immediately produce noticeably positive results. Venezuela seems to meet none of these requirements.

Late last year Maduro removed Rafael Ramirez from office, president of Venezuela’s state-owned petroleum company PDVSA and vice president for the economy. Before his removal Ramirez advocated for unifying Venezuela’s multiple exchange rates into one.

In Venezuela, importers of essentials like food and medicine can buy U.S. dollars from the government at a rate of 6.3 bolivares fuertes (Bf.) per dollar. Importers of other goods can buy dollars at a rate of 11 Bf. per dollar. Private exchanges used to sell dollars for around 50 Bf. per dollar, but have now been replaced by a free-floating exchange rate that trades at around 175 Bf. per dollar. There is also a substantial black market for dollars that sells at around 79 Bf. per dollar.

Ramirez wanted to unify these multiple exchange rates into one exchange rate that would be free-floating and make some goods more expensive for Venezuelans to buy in the short term. This of course would have cost Maduro some political support with the Venezuelan people, so naturally Ramirez had to be removed from his politically powerful positions involving oil and the economy.

Maduro’s government seems to be quite anxious about its current situation, something that does not bode well for the prospect of endorsing bold economic reforms. Venezuela’s Parliamentary elections in December 2015 make the likelihood of the government producing reforms even less likely. In the meantime they will try to implement some moderate reforms like introducing one free-floating currency but leaving the others as is. As Venezuela runs out of foreign currency reserve, they will also have to seek money to keep the entire system running until after elections.

Cap-in-Hand to the Richest Strongman of Them All

Nicolas Maduro recently made a trip to Beijing to secure investment from who has become the world’s most magnanimous dictator, Xi Jinping. The investments made by China, in effect, prevent reform from occurring in Venezuela.

The Maduro government stands in the way of reforms that many economists see as necessary for Venezuela to unlock sustained economic growth. Perhaps it would be the universe’s way of demanding reforms if the Venezuelan government were to run out of cash. They would be forced to accept conditions of economic reform placed on loans from the IMF or World Bank or risk being replaced at the polls by a government willing to reform.

However this near-inevitability has been avoided by China’s political involvements in the region. In January, China agreed to invest $20 billion in Venezuela to help counteract the effects of the collapse in oil prices. The $20 billion in investment is a lifeline for the Maduro regime and possibly all it needed to avoid having to make politically painful reforms. By providing the Venezuelan government with investments without first stipulating conditions of reform, China has essentially nixed an opportunity to push the Venezuelan government toward economic reform. This is not, however, the first time China has prevented reform in Venezuela.

Since 2007, China has extended credit to the Venezuelan regime to the tune of $50 billion. The tactic of offering loans and investment to a Latin American regime struggling with Western countries over loan conditions seems to work for China politically. Loans and investments will help China cement its relationship with a nation strategically placed in the Western hemisphere. However, in the end, China’s strategy loses money that it could have made if those investments were enhanced by a better market climate, one that would also bring the Venezuelan people faster economic growth.

It is unlikely that the current regime will seriously tackle economic reform or begin to improve the tense political situation in the country. More moderate politics could help underpin global confidence in Venezuela’s legal system, a must for sustained economic growth in a country with a relatively small economic market. For now all the rest of the world, and the people of Venezuela, can do is to hope for a change of heart from the Maduro regime after this year’s parliamentary elections in December.

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OIL PRICE WAR STIRS FEUD WITHIN OPEC

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By Kristopher Klein
Staff Writer

What happens to a cartel when there is substantial competition from outside? The answer depends on patience.

The Organization of Petroleum Exporting Countries (OPEC) has been the most influential component of setting oil prices since their founding in 1960. As an organization OPEC has helped raise the price of oil above $100 per barrel for the past near-decade. Large importers of oil, such as the United States, have put up with rising prices, unable to stop OPEC from colluding in their own interest. However with the recent rise in competition from North American shale oil producers, that era has come to a swift and decisive end.

Any college-level economics course will review the concept of collusion among cartel members and the decision each cartel member makes about whether to remain in the cartel or to go out on their own.

The difference between these strategies is a matter of weighing short-term profit versus long-term profit. If the cartel remains intact, producers will be able to collude to raise prices to artificially high levels and thereby make more profits. However, if a producer leaves the cartel they can lower their price and temporarily receive a larger share of the market (i.e. more customers) and thereby make a lot of profit in the immediate future.

But the betrayal of the second strategy has consequences. If the integrity of the cartel is undermined, greater competition between all members will force producers to charge a fairer price and lose the profits they could have made through continuing to collude to raise prices.

Thus, it is a matter of patience and how soon a cartel member needs to receive their profits that determines strategy. A member who is very eager to receive short-term profits is a greater risk of leaving than a member who can afford to wait for higher profits in the long-term.

Competition from outside this cartel lowers prices and raises the risk of a cartel member, in a pinch from lower profits, making a quick dash for more revenue (either per unit or overall) by either cutting production in order to raise the price or increasing production to gain market share.

The United States has been increasing its production of shale oil since a jump in production in late 2014. Greater supply of oil, combined with slower growth in the economies of Europe and East Asia, has created a global supply glut and falling prices.

In late December the United States decided to lift its ban on the export of oil. But the United States imports more oil than it exports, so what effect could that really have? As it turns out, the United States is one of the only countries capable of refining the crudest oil into a product for the global market, so a lot. John Auers, executive vice president at Dallas-based Turner Mason & Co was quoted as saying that, “U.S. refineries built out their capacity to run heavy barrels. Refineries in the rest of world aren’t built to run heavy barrels.” That means lifting the ban on exporting oil has allowed the United States to begin refining very crude oil from around the world before then exporting refined gasoline back around the world at a price that can compete with the OPEC cartel.

The result of competition from the United States has led to a collapse in the price of oil from above the $100 per barrel level that OPEC loves so much, to around $45 per barrel today. Some OPEC members are seriously hurting. If the pain does not end soon, political turmoil could arise from within OPEC.

OPEC member Venezuela calculated its 2015 budget on the idea that oil prices would remain at about $60 per barrel and that any excess revenue would be used to help run social programs. With the price of oil now just above $45 per barrel, Venezuela looks to run a deficit this year, which will force them to limit funding to social programs.

On January 10, Venezuelan President Nicolas Maduro and Iranian President Hassan Rouhani vowed to cooperate to stabilize falling oil prices. Five days later, Maduro and Russian President Vladimir Putin, whose country is not a member of OPEC, held a “detailed discussion” about the global oil market, without releasing any details.

Saudi Arabia has repeatedly rejected calls from OPEC members for the cartel to cut production in order to defend the price of oil. Saudi Arabia has saved much of the revenue it earned from higher oil prices and now has a reserve large enough to wait a while before cutting production, a move they hope will lead to a cut in production from North American shale oil producers.

However, not every member of OPEC has the reserves that Saudi Arabia and its neighbors on the Arabian Peninsula have built up over time. Without a rise in the price of oil very soon those countries, such as Venezuela and Algeria, will come under significant pressure to find a means of changing their fortunes.

Could this fall in the price of oil and Saudi Arabia’s refusal to cut production endanger the cohesiveness of OPEC as a price-influencing entity, or perhaps even mean a collapse of the cartel altogether? It very well may. In fact, OPEC seems already to be losing its control of prices that at one time were to the penny. According to Kuwaiti Oil Minister Ali Saleh al-Omair, “OPEC would have to accept any market price for oil, whether it were $100, $80 or $60 per barrel.”

North American competition has, at least for a time, defanged OPEC and clipped the wings of global oil prices. If the American market can sustain production and OPEC is forced to proceed as a price-taker rather than price-maker, OPEC members will begin to wonder why they participate in the cartel at all.

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WINTER OF DISCONTENT PART II: HOW WESTERN MEDIA IS FAILING THE AMERICAN PEOPLE

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Protestors in Taipei
A Taiwanese protestor holds a sign featuring a “V for Vendetta” quote, which reads “The country belongs to the people. People should not be afraid of their government. Governments should be afraid of their people.”

By Kirstie Yu
Staff Writer

In the first part of this series, I reviewed the current situations in Ukraine, Venezuela, and Thailand. In this second installment, I will provide a brief update on the status of each of these countries as well as present information about a new protest movement in Taiwan that emerged in mid-March. Additionally, I will discuss why the U.S. should be focusing more on these countries due to both economic interests and human rights violations, and attempt to explain why I believe the U.S. and Western media focuses so heavily on the Ukraine crisis when it really should provide more coverage of other equally important movements. Although there is definitely some coverage of other conflicts, Ukraine is always on the front page of the news.

Since the publication of Part I in early March, the protests have continued in Ukraine, Venezuela, and Thailand. In Ukraine, Russian troops took over the Crimean peninsula in southern Ukraine at the end of March, and 97 percent of voters in Crimea supported secession from Ukraine to Russia in a referendum held March 16. As Ukraine awaits presidential elections scheduled for May 25, it has just launched its own anti-terror operation against armed pro-Russian forces in eastern Ukraine on April 13. In Venezuela, violence abounds as the death toll has risen to 41 and about 650 people have been injured since early February. Since the beginning of March, additional groups of people, including doctors, medical students and mothers, have joined the student protests against the Venezuelan government’s handling of commodity scarcity issues and the economic crisis. Students also set up tents outside of United Nations offices in Caracas on March 26 to complain that not enough international attention has been paid to the Venezuelan crisis. In Thailand, a Constitutional Court decision on March 21 that nullified the February general election bolstered a second wave of protests against Prime Minister Yingluck Shinawatra’s government in Bangkok. Most recently, protestors started targeting government buildings on the outskirts of Bangkok.

One additional protest that is personally important to me as a Taiwanese American is the Sunflower Movement in Taiwan that lasted from March 18 until April 10. Tensions over the Cross-Strait Services Trade Agreement (CSSTA) that was signed between China and Taiwan reached a boiling point when the ratification of the CSSTA was pushed through Congress and passed in 30 seconds without a line-by-line review of the clauses. President Ma Ying-Jeou and his pro-China Kuomingtang (Chinese Nationalist Party) faced heavy backlash from students and supporters of the pro-Taiwanese-independence Democratic Progressive Party. The predominantly student protestors stormed the Legislative Yuan (parliament) and refused to leave for 24 days until Legislative Speaker Wang Jin-Pyng conceded and made promises to create an oversight mechanism to make the CSSTA review process more transparent and democratic. Within the three weeks that the students stormed the Legislative Yuan, protestors took to the streets to demonstrate their displeasure against not only the CSSTA, but also the Ma administration in general, with about 350,000 people participating in a rally outside the Presidential Office in Taipei.

Individually, the Venezuelan, Thai, and Taiwanese protests each have an impact on U.S. economic interests. First, Venezuela, which is perhaps most directly linked to the U.S. economy, is one of the top five suppliers of foreign oil to the U.S. according to the U.S. Department of State. Additionally, the U.S. is Venezuela’s most important trading partner for both imports and exports; 500 U.S. companies are represented in Venezuela. However, relations between the two countries are only becoming more strained as President Nicolás Maduro keeps blaming the U.S. government, specifically Secretary of State John Kerry, for inciting protests and a “Ukraine-style coup”. This is problematic for the U.S. because even if it wants to improve relations with Venezuela, enduring accusations from President Maduro prevent the U.S. from taking even the slightest actions that would make the U.S. appear to be imposing its will on Venezuela. With the International Monetary Fund recently releasing its World Economic Outlook that states that Venezuela’s economy is expected to shrink 0.5 percent, the U.S. is virtually powerless and must sit idly by as the Venezuelan economy declines while its government fails to answer the demands of the people.

Next, the U.S. is Thailand’s third-largest bilateral trading partner and has more than $13 billion in direct foreign investment for Thailand. The Department of State also notes that the U.S. supports many other aspects of the Thai government, such as law enforcement, science and technology, wildlife trafficking, public health, and education. Similar to the situation in Venezuela, the protests in Thailand have caused the Bank of Thailand to cut its economic growth projection from 3.7 percent to 3 percent. A country that relies on tourism for 7.3 percent of its gross domestic product, Thailand has steered tourists away from its country due to its inability to control the protestors. Furthermore, both Western and Asian corporations may begin to think twice about basing their operations in Thailand due to its ongoing risky conditions. Although the U.S., as in the case of Venezuela, has little direct leverage in this situation, it can take advantage of the fact that it is one of the key investors in Thailand and use this as leverage to ensure that human rights are being protected during the protests. Cutting off aid to Thailand could be devastating for the Thai economy. Moreover, the Center for Strategic and International Studies (CSIS) notes that “it is critical that U.S. officials not ignore Thailand while it goes through this crisis” and should “engage the business community, the military, and other sectors of the society.” The protestors’ desire for anti-democracy is an unprecedented theme that has gone unnoticed. The lack of coverage of these protests has reinforced that this region does not seem to be a priority to the U.S. despite CSIS recommendations.

Lastly, although the Taiwan protests have stronger and more direct implications for the Taiwanese economy than for the U.S. economy, the protests ultimately affect China, which in turn affects the U.S. economy. According to the U.S. Department of State, Taiwan is the United States’ 11th largest trading partner, and the United States is Taiwan’s largest foreign investor. Whether the treaty in question is ultimately ratified or not by congress will either expand economic ties with China or keep the economic situation the same in Taiwan. The most important issue here is the fact that since Taiwan is still technically owned by China, China has the final say in controlling the extent of foreign trade Taiwan is allowed to engage in. If the CSSTA is sent back to China for renegotiations and China wants to force the CSSTA to be ratified by Taiwan, it could threaten Taiwan by not allowing it to sign free trade agreements with other countries. President Ma believes that if the CSSTA is not passed, “it will have a grave impact on [Taiwan’s] international image,” which would result in a long-term threat to foreign trade.

Collectively, the three conflicts in Venezuela, Thailand, and Taiwan highlight various human rights and due process issues. The peaceful protests in all three countries are often met with police force. In Venezuela, police have retaliated with buckshot, tear gas, and water cannons, while in Taiwan, police officers have used batons and physical force to try to drag and remove the protestors. Protestors have demanded an end to police brutality, yet it seems that these demands for a respect of human rights, especially the rights to life, physical integrity, and free speech, are not being met by the governments of these three countries. In addition, the belief that the Thai general election in February was rigged and the corresponding refusal to vote by many citizens threaten the future integrity of free and fair elections in Thailand. The undemocratic passing of the CSSTA without an article-by-article review coupled with a lack of transparency and responsiveness to the people’s concerns threatens democracy itself in Taiwan.

The economic interests the U.S. has in Venezuela, Thailand, and Taiwan, as well as the growing human rights concerns in those countries, should make the conflicts within these countries a priority to the U.S., yet the U.S. and Western media only focuses on the conflict in Ukraine and Russia. One possible explanation for this is that the U.S. is stuck in a Cold War mentality, where it still sees Russia as its biggest enemy and will always support the side that is against Russia. Even though the media believes it may be more interesting for readers to have alarming front cover news about Ukraine day after day, it is unfair to other countries that have just as important conflicts. Another explanation is that the media might think that since Americans in general do not care about the news, it is easier to focus on one news story at a time rather than change headlines every day. Less coverage may also seem to indicate to readers that the U.S. will not intervene in these conflicts so the American public will not be as upset with the U.S. government, which has a historic reputation for sticking its nose in other countries’ business. A final possible explanation could just be that the media does not like reporting on conflicts until something drastic actually happens, such as violence and bloodshed or a President being ousted or impeached. For example, President Viktor Yanukovych has been ousted in Ukraine, but President Maduro of Venezuela and Prime Minister Yingluck Shinawatra of Thailand are still in power despite mass demonstrations. However, just because a ruler has not been ousted does not mean that the situation is more stable by any means, and the media should still monitor these conflicts and update the public.

Why does the Western media insist on focusing on one conflict for headlines day after day when they could just as easily view these conflicts as a collective problem of democracy and middle class revolt throughout the world? There is growing global unrest, better coordinated with the advent of social media. The unparalleled situation the world finds itself in should garner more recognition from both the international community and from Western media, especially considering the economic and human rights ramifications these conflicts have. Society today relies heavily on media to give us real-time updates on events happening halfway across the globe. By favoring certain news stories over others because they are more convenient to cover, media outlets fail in their duty to provide fair coverage of world news. This failure ultimately causes the public to be grossly uninformed about important current affairs that affect U.S. interests.

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