Mounting Exit Costs Complicate Change in Venezuela

As Venezuela’s economic crisis deepens, a shuffle in President Nicolas Maduro’s cabinet and a damning investigation into military involvement in illicit food trafficking clearly illustrate a key barrier to any kind of transition in Venezuela: the high exit costs faced by Maduro’s allies.

On January 4, President Maduro made headlines by announcing a change in his cabinet. Former Interior Minister Tareck El Aissami was selected to replace Aristóbulo Istúriz as his vice president, and Maduro also named a new economy czar and oil minister. Much of the coverage of the shuffle has focused on El Aissami and the potential for him to replace Maduro until the 2019 elections in the event that the opposition is successful in holding a recall vote.

However, El Aissami’s appointment is significant for other reasons as well. As the Wall Street Journal reports, the new vice president has been linked to an investigation into drug trafficking by U.S. authorities, making him the latest in a growing list of individuals in Maduro’s inner circle who have either been accused of crimes or sanctioned for these accusations by the United States. 

Also on the list are:

  • Current Interior Minister Néstor Reverol, who was named to the post the day after he was indicted on drug-smuggling charges by the Department of Justice.
  • Bolivarian National Intelligence Service (SEBIN) Director Gustavo González López, appointed immediately after being targeted for U.S. sanctions for human rights violations in response to protests in 2015.
  • National Guard Commander Gen. Antonio Benavides Torres, promoted to the job in mid-2016, is also on the list.

This trend is no coincidence. As David Smilde has pointed out, there is a troubling but undeniable logic to Maduro’s decision to cultivate a loyal core of officials (particularly security officials) who are on some sort of US blacklist. These individuals would face high exit costs in a potential transition of power, as their odds of facing U.S. justice would be greatly increased. As a result, they are more likely to remain loyal to Maduro, come what may.

Maduro’s increasing reliance on such individuals has coincided with his government’s deepening dependence on the armed forces, which has taken on responsibilities far exceeding a traditional military mandate. Indeed, since putting Defense Minister Gen. Vladimir Padrino Lopez at the head of the “Great Sovereign Supply Mission” in July 2016, the Venezuelan Armed Forces (FANB) have wielded unprecedented economic control. They are charged with regulating food and medicine distribution and overseeing all major ports across the country.

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Photograph: Flickr - Diariocritico de Venezuela. Creative Commons License.

Predictably, this control has led to enormous abuses. In late December the Associate Press’ Hannah Dreier and Joshua Goodman published a disturbing investigative piece detailing the extent of military involvement in food trafficking and import bribe schemes in the country. As the AP piece details, military officials have developed an elaborate system of kickbacks and bribes along the entire food supply chain from port to point of sale.

The result is food that arrives to consumers above market prices when it arrives at all. In some cases, individuals quoted in the report allege, shipments that have not been accompanied with the “right” payments simply go to waste, and officials must discretely dispose of entire shipping containers full of rotting food. Dreier and Goodman also found evidence of the FANB overseeing illegal markets, where food is sold at rates far above price caps.

By allowing the military to oversee food distribution in Venezuela, Maduro has made the armed forces a direct stakeholder in permanence of the regime. In effect, military officials have enough “skin in the game” to side with the government instead of the people if there is social upheaval. And if, as the AP reports, U.S. prosecutors have “opened investigations against senior Venezuelan officials” for laundering money obtained through food contracts, then the prospect of facing U.S. justice might also deepen these officials’ incentive to stand by Maduro.

In 2017, these stakeholders’ perceptions of the risks of power sharing or a transition will in large part determine whether there is progress in returning Venezuela to the path of electoral democracy and alleviating the struggles of everyday Venezuelans.

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