May 15, 2017:
Colombia is peaceful and prosperous at the moment and the war news has definitely moved next door to Venezuela. There an unpopular government has triggered a growing popular uprising because of a collapsed economy and a government that refuses to face reality and fix the mess. Since late March, when the Venezuelan president tried to shut down the recently elected parliament at least 40 people have died in largely peaceful demonstrations. The deaths are largely the result of the government declaring protestors to be terrorists. So demonstrations, even silent one or when the crowd is composed of the elderly, there has been increasing police and military violence.
The government shocked everyone when they began prosecuting arrested demonstrators as terrorists and trying them in military courts. Given the number of Cuban advisors (political, military, economic) arriving in Venezuela over the last decade you can see some familiar patterns here. But Venezuela isn’t an island although Cuba was, like Venezuela, the wealthiest nation in its region (South America, Caribbean) before their socialist revolution got going. There were other key differences. Cuba’s ruinous dictatorship has endured, although until 1991 it was subsidized by Russian oil and cash. Pre-Castro the wealth of Cuba was its market economy and entrepreneurs. The former collapsed when then latter fled as their property seized by the new dictatorship. Venezuela doesn’t need a foreign power to subsidize a dictator because Venezuela has the largest reserves of oil in the world. The socialist government managed to cripple that industry (mainly via corruption and nepotism) but Cuban advisors note that the experience of dictators in oil rich nations has been to hire foreign experts from like-minded nations to protect the cash machine that can keep a dictatorship in business.
That approach is complicated by another factor, Venezuela is not an island and not adjacent to a powerful ally (as China was to North Korea). China has shown some interest in making some daring investments (in reviving the oil industry) but the Chinese are aware of how this works and the especially the oil curse syndrome. China is already running into problems (locals protesting, threats of corruption prosecutions) with large investments elsewhere (Africa and East Asia) and is put off by the clueless Venezuelan leadership.
The Risks Of Ignoring The Oil Curse
What’s happening in Venezuela is another example of how natural resource wealth can be a curse. The billions in oil wealth require little effort from the locals. Most of the technology, and many of the technicians, are imported. Venezuela managed to attract enough qualified Venezuelans to run their oil industry efficiently. But that was seen as a threat by the socialist government and the competent Venezuelan oil industry staff was replaced by people who were, above all, loyal to the socialist ruler. The politicians of nations without much of a democratic tradition (that is, civil society and accountability of officials), quickly realize that they can steal most of that wealth. As long as they share it out with their most loyal supporters, and members of the police and armed forces, they will rarely be held accountable. This scenario has played itself out in dozens of countries since the 19th century. Indeed, it's rare that oil wealth benefits the country it comes from. This generally happens only in developed nations; Norway being a recent example. Norway discovered oil later than most but has since pumped about as much as major producers like Nigeria, but did much more for Norwegians with the resulting revenue, than did Nigeria or most other major producers. There was very little corruption in Norway, and that made the difference. In Venezuela as the socialist government became less democratic it also became more corrupt. The difference between Norway and other nations that avoided the curse was that Norway never wavered from maintaining democratic rule. Many Venezuelans understand this but most Venezuelans are more concerned with hunger, disease and crime (often at the hands of pro-government gangsters).
What also encourages many Venezuelans is what happened in neighboring Colombia. Here you can see the curse in action with Venezuela and Colombia because both nations have oil income but Colombia now has the most robust economy in South America, seeing its economy grow after 2014 despite the continued low oil prices. Fortunately for Colombia oil only accounted for 7.8 percent of GDP when oil prices began to collapse in 2013. In Venezuela oil income was 23.8 percent of GDP in 2013 and suffered a lot more mainly because of corruption and mismanagement. In part this is because Colombia still has a diversified and free-market economy while Venezuela destroyed what it had. That is typical of many countries with a lot of oil income and it often turns out to be a curse. Like now, where the low oil prices are a minor problem for Colombia. Venezuela’s GDP is collapsing and oil now accounts for over 90 percent of Venezuelan exports. In 1999 oil only accounted for half of exports but since then a radical socialist government took over in the late 1990s and wrecked the economy in an attempt to keep the majority of voters happy and the socialist leadership rich. That effort has failed in a spectacular fashion for most Venezuelans and that worries Colombia and the rest of the nations near Venezuela.
President Maduro had hoped that the price of oil would soon rise again and provide sufficient cash to get out of the current mess. His oil advisors (both local and foreign) now point out that this is not going to happen. Moreover the low oil prices since 2013 are causing many oil producing countries long-term problems that have to be accepted. The primary cause of this long term problem has a name; hydraulic fracturing, or fracking. The persistent low oil prices are the result effective fracking technology developing, and evolving, in the United States. This created a sharp increase in oil and natural gas production in North America. But fracking is expensive compared to just drilling and as the oil price declines a growing number of oil and natural gas operations dependent on fracking had to be shut down until the price increased again. The Saudis and Russia hoped the lower oil prices would soon kill off fracking but that didn’t happen.
In the past rising oil prices always made it feasible to go after expensive to extract (like very deep or off-shore) oil and natural gas. As prices decline, these high cost operations have to be temporarily shut down, not eliminated entirely and forever. When some firms go bankrupt other firms buy up the assets and resume production when prices rise again. But it was worse than that with fracking because the lower prices simply encouraged the producers using fracking to improve their relatively new technology. That has happened before but it is happening faster and on a larger scale because most of the frackable oil and gas is in North America where the voters and their governments encourage its use.
Meanwhile most nations with conventional oil reserves are being practical and adapting. This is especially true even for those with the largest reserves. The majors include Iraq (153 billion barrels), Iran (158 billion barrels) and Saudi Arabia (266 billion). But not Venezuela, which has the largest reserves (300 billion barrels). These four nations have the largest conventional reserves and those four comprise about 60 percent of the world total. These four nations and many of the lesser producers belong to an oil cartel (OPEC) which has, since the 1970s, kept oil prices high by controlling what is made available on the world market. What is keeping the world oil price low now is fracking and the standard OPEC production controls do not work. That new technology is making much more oil and gas available and it is expected that the U.S. and Canada will soon have “proven reserves” equaling a third of the current world total conventional reserves. The fall in oil prices since 2013 (from over $100 a barrel to as low as $30) is expected to get no higher than $50 to $60 a barrel. For the moment the record high of $132 a barrel (in mid-2008) is gone and even with OPEC states agreeing to cut production many are losing enthusiasm for that. To make matters worse the Venezuelan oil is the most expensive to get out of the ground and because it is “sour” and tar-like it is more expensive to refine. No foreign investors are willing to commit the billions need to update and revive the Venezuelan oil operations, mainly because of the massive corruption and the sense that the government is not rational nor dependable. China has been tempted but so far has refused to do more than loan the government a lot of money (nearly $100 billion) that is increasingly unlikely to be repaid.
Refugee Risk
This concern is mainly about the growing numbers of Venezuelans fleeing their country, especially the fact that most of them arriving now are not looking to resume careers but to escape death from hunger, disease and a growing number of other problems. Unemployment is one of those problems but rather far down on the list. Until 2016 the growing number of Venezuelan fleeing to Colombia were generally welcomed because until then most of those getting out had skills (from mechanics to engineers and medical specialists). But now most of the Venezuelans crossing into Colombia are broke and have fewer skills Colombia needs. The exodus began in 2002 when the new socialist government of Venezuela fired thousands of professionals from the state owned oil company because they could not pass the loyalty test).
Since late 2016 the flow of Venezuelan refugees became a problem because the number of people coming to stay had increased and included many who could not find jobs. Venezuelans with sick parents or children came seeking medical care that was now largely unavailable back home. This included common medicines for chronic conditions or common injuries (infections, burns and so on). Colombia began enforcing the law regarding who could receive services (schools, medical, courts). But Colombians with overseas experience in such situations pointed out that cutting the refugees off from any services made the situation worse. Colombians know this because thousands have worked overseas for American military contractors providing security and non-combat services. There they saw up close how a large number of refugees could turn into endless problems unless dealt with. Closing the border is not an option because it is too long and mostly in rural areas.
In the last few years Venezuelan rulers accelerated their efforts to nationalize or shut down privately owned businesses and that drove up the unemployment rate. Those who had the means (financial and otherwise) began leaving in greater numbers. Then many of the less skilled or unskilled began leaving as well. A growing percentage of veteran supporters of socialism are also headed for another country, and few are choosing Cuba. Opinion polls show that by late 2016 nearly 60 percent of adults wanted to leave, which is a sharp rise from 49 percent in 2015. It would appear that about two million have left already but that is accelerating as the Venezuelan economy disintegrates and food becomes increasingly difficult to get, even if you can pay black market rates. At the current rate of emigration over three million will be gone by the end of 2017, which is more than ten percent of the population.
Along Colombia’s eastern border it has become obvious that the situation across the border is getting worse. Violent anti-government demonstrations since late March have left more and more of the demonstrators dead but the security forces have been unable to quickly shut them down as they have in the past. Public protests like this have not been seen since 2014 when the government was forced to accept free (and scheduled) elections for the legislature. The government lost the 2015 vote and found itself with a hostile legislature. By 2017 the government tried to use the pro-Maduro Supreme Court to declare the legislature illegitimate but many senior government officials balked at that, realizing that the result would be a police state and a very unpopular and bankrupt one at that.
The government has run out of sufficient cash to import basic food items and will not admit what the real problems are. The main cause, according to the government, is the United States and neighbors like Colombia. Solutions are impossible if the government will not recognize they are the problem. The government does not want to admit that it cannot afford to buy sufficient imported food or that its corrupt officials are stealing a lot of what is imported. President Maduro apparently is willing to create a dictatorship but too many of his key officials point out that will get Venezuela declared an outlaw state and increase the financial problems.
The Military Option
Another problem in Venezuela is the loyalty of the military. For example a disturbing (to the government) number of soldiers and police who see any economic advantage they may have at the moment something that will not last are openly reconsidering their loyalties. This is often because they are being ordered to attack peaceful civilians. Many soldiers are openly siding with the opposition and showing up, in uniform, among the demonstrators. A growing number of retired offers, especially those dismissed to make way for less competent but more loyal (to the socialist government) men are getting by on pensions that are increasingly worthless. Many of those who can afford to have fled the country but others have spoken out. These are being arrested and held indefinitely, or until they die from “natural causes” or while “trying to escape.” This encourages more officers to get out and are often ready to speak out once away from the emerging police state in Venezuela. Many former officers doubt there are enough uncorrupted officers left in senior positions to overthrow the current government. That sort of thing often backfires but at this point people are dying in greater numbers from hunger, disease, criminal violence and the risk of a military doesn’t seem so threatening as it used to.
Servants Of The People
Many Venezuelans also notice that they are suffering a lot more than the worst GDP declines would indicate. There is still a lot of wealth in the country and people are realizing where much of it is disappearing to. It is no secret that a lot of it is lost to corruption. Government officials take bribes, steal when they can and have taken the lead in plundering government reserves of foreign currency. The biggest offenders in exploiting the official (far below the black market) exchange rate between dollars and the local currency are government officials. The black market rate for a dollar is now over 4,400 bolivars, way up from 800 at the end of 2015 and 400 earlier in 2015. In 2013 it was under 30 bolivars. Before the 1999 socialist revolution inflation was much lower and you could buy a dollar for six bolivars. The average inflation in neighboring countries is still at 1999 levels while it has soared in Venezuela. At this point the official exchange rate is 10.2 bolivars per dollar but that is only available to government officials and well-connected businessmen. The Venezuelan government seems paralyzed. One reason the government no longer releases economic data they collect is because it would show the skyrocketing poverty rates. Lowering the poverty rate was the main justification of the leftist government to take control of the economy. But private surveys in Venezuela see the current poverty rate at a record high of 73 percent and growing. The rate was 48 percent in 2014 and 27 percent in 2013. It was about 50 percent when the leftists took power in 1998 on promises that they would drive the rate down. They did, until they ran out of money. Current cash reserves are about $10 billion and most of that will be gone this year to pay off old debt ($3 billion this month and $3.5 billion in October). If those debt payments are not made Venezuela is in default and unable to get new loans.
And then there is the murder rate. Although the government stopped releasing inflation and murder rates in 2016 there are other ways to collect data. Thus it’s no surprise that the Venezuelan capital (Caracas) has become the murder capital of the world with 130 murders per year per 100,000 population. On a list of ten cities in the world with the worst rates four are in Venezuela (ranging from 72 to 84). All ten cities are in Latin America, with number two being Acapulco Mexico with 113 per 100,000, mostly because of drug gangs. In Venezuela the reasons are mainly economic and political.
Meanwhile In Colombia
Part of the FARC demobilization process is investigating, briefly in most cases, the background of each FARC member who turned up at a demobilization camp to surrender weapons and gain access to transition services (training, job search, health care). Military intelligence is also looking for useful information about the hundreds of FARC members who refused to surrender as well as the drug gangs and other criminals that FARC worked with over the decades. The security forces are also seeking regular informants and potential candidates for jobs in the police or military. Many of the interviewers are veterans of the similar process used for 30,000 anti-leftist militia members who agreed to disband in 2006. That experience has not been forgotten and the government is trying to use that experience to reduce the toxic side effects to the demobilization process. This includes the expectation that some demobilized FARC members will join other criminal gangs because those gangs engage in some of the same outlaw behavior (theft, extortion and smuggling) that many FARC members are familiar with. That’s been the well-studied pattern in past amnesties for anti-leftist militias. Already some of the drug cartels are openly recruiting demobilized FARC men, offering high monthly pay (compared to what most FARC veterans can make right away) and the usual bonuses and benefits of the thug life. The first order of business for these recycled gangsters is intimidating (threatening, kidnapping murdering) the rural folk and their leaders who seek to get their property back. While the country is now more at peace than it has been in over half a century the government has to cripple the drug gangs otherwise the violence will return.
There is another worrying aspect of the FARC demobilization; many of the leaders still believe in the superiority of a socialist dictatorship, led by them of course. Some amnestied FARC leaders express admiration for what their fellow socialists in Venezuela attempted to do. The current Venezuelan leader, Maduro, is criticized mainly for not being successful. Like many fans of radical socialism who have not lived under it made similar remarks after the communist dictatorships of Eastern Europe (including the Soviet Union) collapsed between 1989 and 1991. The vast majority of Colombians and Venezuelans are not eager to try the “Venezuelan experiment” again. But it is known that this attitude is common enough to remain a potential threat. Meanwhile the more immediate problem is how many amnestied FARC members will go gangster. To that end the intel effort seeks locations of FARC weapons that were not surrendered. Some of these weapons were held back because they have value on the black market, but others were put aside for use by the owners once the mobilization process was completed (and benefits collected). Some of the withheld weapons are stored in Venezuela, where FARC could often obtain sanctuary and formed business relationships with corrupt members of the current government there.
The leftist revolution FARC has supported since the 1960s had, by the 1990s, degenerated into a constant hustle for money. At that point the revolution became more about money for the FARC members, not “the people” they theoretically fought for. The FARC peace deal is supposed to deal with the many rural victims of FARC. These people are not all that concerned about the cash the leftist rebels made from drug operations. That was largely foreign money. But in many parts of the countryside FARC members were unwilling to give up billions of dollars in property stolen over decades of virtually ruling vast rural areas. A lot of the stolen property was subsequently sold by FARC. The original owners want their assets back, as well as cash for damage done to structures and improvements. The FARC leaders (of all levels) who got rich on these deals don’t want to become poor again. The final peace deal provides more restitution to victims of these FARC confiscations but only if the government can ensure transfer of property back to the original owners. FARC leaders, especially those planning on forming political parties, have an interest in preventing FARC members from getting amnesty and then joining other criminal organizations. That will cost you votes. So there was a lot of arguing, shouting and even some shooting among FARC factions in late 2016 and early 2017 and that violence continues.
May 12, 2017: The first twelve FARC members completed the disarmament and demobilization process. There are still 6,800 FARC members at 26 demobilization camps. At the demobilization camps FARC members surrender their weapons (by May 31st) and are registered for benefits like government jobs, training and other education programs plus medical care and debriefing. The camps are monitored by UN teams with over 500 trained staff. Another part of the peace agreement is legal proceedings for FARC members known to have committed major crimes. The amnesty process is based on the one used in other nations and involves cooperation from the accused (who did what to whom when and where) to qualify. The demobilization process is to be completed by the end of 2017 although the bad memories will linger for generations. Demobilized FARC members will get some cash assistance and FARC leaders will be able to engage in political activity (via forming parties, running for election and voting).
May 10, 2017: In Venezuela the government fired the Health Minister, doctor (gynecologist obstetrician) Antonieta Caporale because she released medical statistics that confirmed what most Venezuelans already knew from personal experience. The data released indicated that in 2016 malaria cases were up 76 percent over 2015, pregnancy related deaths 66 percent and infant deaths 30 percent. Caporale accepted the job in January but like many other fans of the socialist revolution lost faith in the current government (which releasing embarrassing statistics in early 2016) and like a growing number of senior officials acted on that.
May 9, 2017: In the northwest Colombia (Choco province) widespread public hostility compelled a local ELN group to release eight local civilians who had been taken recently and held for ransom. Kidnapping is one of the things ELN refuses to stop in order to keep the current peace talks going. This indicates how broke ELN is because with FARC largely out of action the security forces can turn their full attention on ELN, which only has about a fifth as many members as FARC.
May 6, 2017: ELN and the government agreed to resume peace talks on May 16th in neighboring Ecuador. Military intelligence believes ELN is losing members, or at least unable to recruit new members. That puts their armed strength at about 1,500. The ELN now believes that they won’t have an agreement until after 2018 elections, which they believe will result in a more sympathetic government. ELN accuses the government of persecuting the leftist rebels, especially with their refusal to crack down on anti-ELN militias. Some of these local armed groups are not really legal but they operate in areas where the ELN threat is high and the presence of security forces is light. That is changing as the FRAC demobilization continues and there are more security forces available for other duty. Most of the other duty is against drug cartels and major criminal gangs.
May 3, 2017: In central Colombia (Guaviare province) a renegade local FARC group kidnapped a UN employee who was working with local farmers to help them switch from coca (used to make cocaine) to legal crops.
May 1, 2017: In Venezuela president Maduro signed a decree for convening a “citizen’s assembly” to change the constitution. Even many Maduro supporters see this as illegal and a ploy to establish a dictatorship. Maduro first tried (on March 30th) to have the Supreme Court (filled with his recently appointed supporters) declare the parliament illegal but that resulted in public opposition by senior members of his government and Maduro switched to an effort to change the constitution. This triggered widespread anti-Maduro demonstrations which continue. Public protests like this have not been seen since 2014 when the government was forced to accept free (and scheduled) elections for the legislature. The government lost the 2015 vote and found itself with a hostile legislature. By 2017 Maduro is out of legal means to stay in power has demonstrated that he will do anything to stay in power. Many senior government officials oppose that, realizing the result would be a police state and a very unpopular and bankrupt one at that. The current demonstrations have left at least 40 dead by mid-May.
April 24, 2017: In the northwest (Choco province) a local ELN group released a Colombian couple who were driving through the area. ELN thought the man belonged to the military but they later realized they had misinterpreted the fact that he was a veteran and a civilian now. The kidnapped couple became a nationwide issue and, as ELN is increasingly forced to do, the captives were released because the security forces were known to be massing in the area to take the captives back and the kidnappers down.
April 19, 2017: In the northwest (Choco province) a local ELN group admitted that a Russian poacher they had been holding for ransom since last November had escaped. ELN had been negotiating with the Russian embassy for the release of the poacher (who was caught in the jungle seeking a rare frog to smuggle out of the country and sell on the black market). The Russian hostage apparently overwhelmed one of his guards, obtained a weapon and wounded several FARC members as he escaped. Nothing has been heard about the poacher (Voskanya Arcen Levoni) who apparently did not want to be turned over to the Russian embassy.