Lazy Saturday Reads

from the brush of Peruvian artist Hugo Lecaros

How’s your Saturday going?

I have a few odds and end reads  on Brazil and Venezuela that I’d like to suggest today.  I’m trying to take a breather from US politics so let’s look to two Southern neighbors with economic and political crises.  I’m going to start out with a few articles on Venezuela.  The country is having serious issues on the economic and political front.  It’s never good when one of our trading partners experiences such disruption.

Venezuela is experiencing hyperinflation which is something that is rare these days in places that we generally view as having functioning and non-politically manipulated central banks.  Usually, hyperinflation occurs in countries when the central government tries to solve its problems by printing money or devaluing its currency internationally and the central bank obliges. Venezuela’s debt is also out of control given the range and value of the countries assets.  Usually, these kinds of things will start transmitting instability to the region and to the country’s trading partners because prices of goods and services, interest rates, and exchange rates will fluctuate.

 There is civil unrest also as the country is experiencing food shortages and riots.  None of this is good and we’re really not hearing much about this in the traditional US media outlets.  Most of this analysis comes from the British Press and analysts focused on the region.

The rumour was there would be chicken.

Word had spread that a delivery of poultry meat was due at the Central Madeirense supermarket, and long before dawn a queue of shoppers was snaking around the block.

Kattya Alonzo was one of them. The 48-year-old mother of three was already planning to make the traditional chicken and rice dish arroz con pollo – if she could also find some rice.

“I haven’t been able to buy chicken in more than a month, so I was there early at about 4am,” she said.

At about 6.30, two trucks finally drew up outside the store, but before the drivers could start to unload, national guardsmen told them to drive on.

Perhaps it was not surprising that the mood outside the supermarket quickly turned ugly: frustration turned to despair, anger to violence. Before long, the incident on Tuesday had escalated.

Mobs tried to loot several bakeries and delis and another food delivery truck.

The unrest soon spread throughout this city of 200,000 just outside the capital, Caracas. Protesters shouted “We want food” as they blocked intersections with burning tyres and clashed with security forces.

Police and the national guard quickly controlled the outburst, with some 14 people reportedly arrested, and at least one person was injured, according to witnesses.

The protests were not related to marches in Caracas and other major cities, which were called this week by opposition leaders seeking to cut short the term of President Nicolás Maduro who they say has driven the country into the ground through mismanagement.

But spontaneous outburst such as the one in Guarenas may present a more serious challenge to Maduro’s rule than any efforts by his political rivals.

Things are not going well in Venezuela since global oil prices are down.  There are black markets everywhere since the food shortages began. Vendors get rich selling basics like diapers and milk.  The government has been trying to control prices but what this has done is lead to folks turning to side channels in black markets where the price is set by desperation and greed.  These black market shoppers are called “bachaqueros”  which is a play on the name of the bachaco leaf-cutting ant that carries several times its weight.  This place is no longer the socialist dream of the late Hugo Chavez who ruled the country for 14 years.  It is an example of socialism gone very wrong.

Epic Mural in Chile by Mexican artist Jorge González Camarena, assisted by Chilean painters, Eugenio Brito and Albino Echeverría.

It wasn’t always this way. Diego Moya-Ocampos, senior political risk analyst at IHS, says the current crisis is the result of years of “economic mismanagement” by the ruling socialist party.

Led by Hugo Chávez, the country’s firebrand former president, the country embarked on a wave of expropriation and redistribution with the charismatic leader offering  cut-price fridges, appliances and even new homes to poor Venezuelans.

Chávez wanted to create a socialist paradise, an ideology that has been reinforced by his successor Maduro following his death in 2013.

But the oil price collapse a year later served as a wake-up call for a country that chose profligacy over prudence in the hope that a rainy day would never come.

Oil accounts for 98pc of total exports and 59pc of fiscal revenues, but Moya-Ocampos says the price slide isn’t the country’s only problem.

“Even under Chavez and $100 a barrel oil, debt was rapidly rising and there were already food shortages,” he says, “This is ultimately to do with an interventionist model that is not sustainable and has reached a tipping point.”

Maduro’s declaration of a fresh three month state of emergency has sparked fears that the government will try to seize control of more private companies.

Many Venezuelans have already left the country, including Francisco Flores. “Venezuela has taken good working companies, given them to the poor but not equipped them with the skills to run them so they go bankrupt,” he says.

“That’s just a recipe for destroying a country.”

The NHS therapist, who now lives in London, says the regime is based on a principle of keeping everyone “equal but poor”.

Brazilian artist Adelio Sarro is known for portraits

I’ve always been interested in South American countries and their various economic crises.  The Mexican Peso Crisis is still taught in basic International Economics/Finance courses as a cautionary tale that’s frequently forgotten.   It’s also called The Tequila Crisis and happened while Bill Clinton was President in 1994. A country in crisis transmits economic and political instability to its neighbors through trade.  Here’s a an example of that from the current Venezuela crisis.  Coca Cola is one of those ubiquitous US products that basically is every where in the world.  Its recipe may be slightly different depending on the sugar dependency of a country’s consumers, but the trademark and product packaging are quite recognizable.  Venezuela’s access to Coke is gone.

And so we will have to chalk this up as another of those great successes of Bolivarian socialism. Yes, as I’ve been saying for some time now, this is not because of some misplaced zeal in making the lives of the poor better: it’s simply because messing with markets is not the way to achieve anything at all. Well, not unless your actual goal is to have a country run out of everything.

The news itself:

CARACAS, Venezuela— Coca-Cola KO -0.83% is halting production in Venezuela of its namesake beverage due to a sugar shortage brought on by the country’s economic crisis.

Production of sugar-sweetened beverages will be suspended in the coming days after local suppliers reported they had run out of the raw material, the Atlanta company said in an emailed statement Friday.

This isn’t even about the currency and import problems that have affected beer production:

The move comes as Venezuela’s economy is teetering on the edge of collapse with widespread food shortages and inflation forecast to surpass 700 percent. Last month, Empresas Polar, Venezuela’s largest food and beverage company, stopped production of beer because of a lack of imported barley.

I think teetering on the edge is using the wrong tense there. I think teetered would be better, making sure that we use the past tense. In any realistic sense that consumer economy has gone …

All countries have modified market economies.  Some markets function perfectly well with very little interference.  Some markets would not exist without government provision or if they did, would be prohibitively expensive.  There are three

Mexican Street artist Spaik and work in Michoacan

primary agents in an domestic economy. That would be the government, the sellers, and the buyers.  Whenever any one of those agents gets into any market and has more unchecked power than the rest, you’re going to have issues. Market excesses can result from power and profit seeking private enterprise or from Government overreach.   You can find many examples of each throughout the modern history of many South American Countries.

Brazil is another country that is experiencing both economic and political troubles.   Its President was removed and is now fighting impeachment proceedings.

Brazil’s economy sank into the deepest recession in recent history last year amid low prices for key exports, soaring inflation and depressed confidence levels. Moreover, as the economy plummeted so did President Dilma Rousseff’s political career. A wide-spread corruption scandal and the economy’s abysmal performance caused approval levels to fall to all-time lows and resulted in the commencement of impeachment proceedings last year. On 12 May, the Senate voted to continue with these proceedings, forcing Rousseff to step down for a maximum of 180 days while a trial is conducted. Vice President Michel Temer took over as interim president and his first task will be to find a way to halt the sinking ship. However, a number of daunting challenges lie in Temer’s path and recent economic data remain poor: retail sales returned to contraction in March and the manufacturing PMI fell to the lowest level in over seven years in April.

A change in leadership will not be a magic bullet for Brazil’s economy and the recession is expected to continue throughout this year. FocusEconomics panelists see the economy contracting 3.7% in 2016, which is down 0.2 percentage points from last month’s forecast. For 2017, the panel sees the economy recovering slightly and growing 0.7%.

It’s never good when your president is impeached and on trial.  Rouseff was interviewed several days ago.   Dilma Rousseff argues that the Old Brazilian oligarchy behind ‘coup’ (FULL INTERVIEW).  This is her explanation of the events.

DR: I think it’s an impeachment process, to remove me from the office. Our Constitution provides for an impeachment, but only if the President commits a crime against the Constitution and human rights. We believe that it’s a coup, because no such crime has been committed. They put me on trial for additional loans [from state banks]. Every president before me has done it, and it has never been a crime. It won’t become a crime now. There is no basis for considering it a crime. A crime has to be legally defined. So we believe this impeachment is a coup, because it’s clearly stated in the Constitution that only a crime of malversation can serve as basis for impeachment. The actions currently under scrutiny do not, strictly speaking, fall under that category. Besides, Brazil is a presidential republic. You can’t remove a president or a prime minister who hasn’t committed a crime. We’re not a parliamentary republic, where a president can dissolve the congress, which, in turn, can call for a vote of no confidence out of purely political reasons. So it’s impossible to impeach a president in Brazil based solely on political reasons or political distrust. We believe that what’s happening now in Brazil is an attempt to replace an innocent president involved in no corruption-related legal proceedings in order for the politicians that lost the 2014 election to control the state bypassing the new election. That’s what’s happening. This is an attempt to replace the entire political program that includes both the social and economic development aspects and is aimed at tackling the crisis that Brazil has been going through in recent years with a program clearly neoliberal in nature. This program provides for minimizing our social programs in accordance with the minimal state doctrine. This doctrine is at odds with all the Brazilian legal norms regarding healthcare, construction and ensuring that our people have their own houses, availability of high-quality education and minimum wages guaranteed to the poorest part of the Brazilian population. They want to do away with these rights and at the same time they conduct an anti-national policy, for example, when it comes to Brazil’s oil resources. Significant subsalt oil reserves, lying 7,000 m below the surface, were discovered recently. The ministers were saying that exploring these reserves was impossible, but now we’re extracting a million barrels daily from subsalt oil reserves. Undoubtedly, they were saying that thinking to change the legislation in order to guarantee access to these reserves to international companies. Moreover, in terms of foreign policy, starting from Lula da Silva and throughout my presidency, we have been seeking to strengthen ties with Latin American, African, BRICS countries and other developing nations, in addition to the developed world – the US and Europe. I think that BRICS is one of the most important multilateral groups created in the last decade. But the interim government holds different views on BRICS and the importance we place on Latin America. They are even discussing the possibility of closing embassies in some African countries. We have very special relations with Africa. Brazil is the country with the highest percentage of population of African descent in the world, second only to African countries. We have a lot of people of African descent, so over the last few years we’ve been putting particular emphasis on our relations with the African countries, and not only Portuguese-speaking ones. This shows a wider approach to the world, as opposed to the traditional one, supported by those who have usurped the power now and are taking steps that are at odds with the program approved by the Brazilian people, by 54 mln votes, on the day I was elected.

Early 20th century Brazilian artist Francisco da Silva

Brazil’s crisis is being transmitted to its neighbors.   Again, this is always likely between close trading partners. The crisis country will not likely have their trading partners interests so much as their own, however.

Yet as Brazil is consumed by the worst political and economic crisis in decades, the country has turned inward. This has contributed to a regional power vacuum and a sense of paralysis when it comes to devising regional approaches to South America’s most pressing challenges. For example, Venezuelan President Nicolás Maduro’s increasingly blatant disregard for even basic democratic standards has seen a less meaningful regional reaction because of Brazil’s problems. Given Brazil’s dominant role in South America – representing roughly half its GDP, population and territory – its travails are inevitably bad news for the continent.

The current crisis is only part of the story. Even prior to reelection in 2014, when the government refused to acknowledge that Brazil’s economy was in trouble, Dilma Rousseff failed to articulate a coherent foreign policy doctrine. Brazil’s international strategy since 2011 was shaped, above all, by the president’s astonishing indifference to all things international and officials’ incapacity to convince Rousseff that foreign policy could be used to promote the government’s domestic goals.

Her predecessors knew better: Fernando Henrique Cardoso (1995-2002) helped establish a series of regional mechanisms to preserve democratic governance, thus reducing the number of external political crises that could hurt the Brazilian economy. Luiz Inácio Lula da Silva (2003-10) promoted regional integration further to facilitate the entry of Brazilian companies into neighboring markets. Lula not only had a trusted foreign minister and a special adviser for international affairs, but also a highly active minister of defense who embraced foreign policy to promote Brazil’s interests, for example by using the newly established South American Council of Defense to enhance trust between the continent’s armed forces.

Paradoxically, just as the bitter political battle to unseat Rousseff is reaching its climax, the president has at last begun to accept the importance of foreign affairs. She and Vice President Michel Temer (poised to become president if she is removed from office) have engaged in an international war of narratives about the legitimacy of impeachment proceedings. Rousseff traveled to New York, where she denounced Temer as a “coup-monger” on the sidelines of a UN meeting. Temer reacted swiftly, giving interviews to major international newspapers, and sending allies abroad to make his case.

Rousseff also broadened her fight to regional bodies and leaders. In somewhat vague terms, she announced she would ask Mercosur to invoke its democracy clause, arguing that a democratic rupture was underway in Brazil. From New York, Brazil’s foreign minister and special foreign policy adviser traveled directly to Quito to make Rousseff’s case at Unasur. Maduro and Bolivia’s President Evo Morales are among those who agree Rousseff is facing a “coup.” For the government in Caracas, which recently assumed the temporary presidency of Unasur and will soon assume the presidency of Mercosur, it is an opportunity to try to draw attention away from the catastrophic situation at home.

It is easy to forget that we do have neighbors and some of them may have issues that will suddenly impact our economy in our own election year with so much focus on ISIS and the middle east.  This is one of the reasons I trust Hillary Clinton.  I can guarantee that if you ask her about either of these countries, their leaders, and their issues she will have insightful analysis and probably know the players personally.  Many of the biggest issues in these countries have roots in populist leaders of one extreme or another.   My guess is that the other two choices standing for President at this point will be clueless as to the situations, causes, and ramifications. You can tell that not only by their words and polices but also by the absence of discussion on these two important neighbors in crisis.

What’s on your reading and blogging list today?  This is an open thread!!!  Please share!