Venezuela's Catastrophic Cash Crunch

Although Venezuela's protests continue, their intensity has diminished. As Venezuelans shift the attention back to the nation's limp economy, many are asking themselves why the country is in such bad shape.

Venezuelans suffer high scarcity, rampant inflation (in March of this year alone, prices jumped 4.1 percent), and the IMF is forecasting the economy will shrink by 0.5 percent this year. The economic forecast is so gloomy that even the chavista president of the Central Bank had a difficult time sounding upbeat a few days ago.

But at first brush, this dreary outlook seems strange. After all, the price of oil is near historic levels, and in Venezuela crises usually blow up when the price of oil dips. Even if Venezuela basically produces just one thing, its sole export is treasured by markets and consumers the world over.

The answer is simple: Venezuelans are now paying for years of mismanagement that not even a high oil price can hide.

Before breaking down the numbers, it is worth noting that a sizeable portion of Venezuelan oil sales are not paid in cash. Thanks to a generous subsidy program known as Petrocaribe, Venezuela heavily subsidizes oil imports from several countries in the Caribbean, including (notably) Cuba, Jamaica, Nicaragua, the Dominican Republic, as well as many of the smaller islands in the basin. (In the photo above, state officials visit the late Hugo Chávez's tomb before the opening of a Petrocaribe Summit in May 2013.)

Another significant caveat is that many of Venezuela's oil sales to China also generate little in the way of funds. These shipments are part of a cash-for-oil deal signed by the late Hugo Chávez and extended by his hand-picked successor, Nicolás Maduro. The deal means that the money used to pay for these shipments has already been disbursed -- and it has for the most part been spent in the form of Chinese-made appliances handed out to voters at bargain-basement prices in order to ensure Chávez's victory at the polls in 2012.

Venezuela's government is famously guarded about its economic numbers. Not even the country's budget deficit is known for a fact, although most people consider it to be extremely high. In the absence of real numbers, a number of private actors have offered up estimates.

One of these is BBO, a local consulting firm. Citing internal government documents, BBO concludes that Venezuela produces roughly 2.8 million barrels of oil per month. When one subtracts the amount earmarked for the internal market (which generates practically no cash, since gasoline and other refined products are heavily subsidized), as well as shipments to Petrocaribe and China, the remaining amount -- the only part that actually generates revenues at market prices -- is a relatively paltry 1.3 million barrels per day. This amounts to income of some $130 million (assuming a generous price of $100 per barrel), which translates into around $910 million per week. Assuming a cost of production of $10 per barrel, this leaves the country with an optimistic estimate of roughly $800 million in weekly oil export earnings.

That would seem like a generous amount of money for a poor country, but it's not enough when one compares it to Venezuela's outlays. Venezuela has to pay a high interest rate for the loans it has taken out to cover its massive budget deficit; the rate Venezuelan loans pay is, in fact, among the highest in the world, as is the budget deficit. And since Chávez crippled local industry, Venezuelans have to import pretty much everything they consume.

According to Bloomberg, debt service for Venezuela this year will reach $13.3 billion, or roughly $255 million per week. This amounts to 32 percent of export earnings. Imports in 2012, the last year for which shortages were not considered severe, amounted to $60 billion. This is roughly $1.1 billion per week, 40 percent more than what the country earns in exports. When one factors in that Venezuela also has to use dollars to pay for capital transactions, firms wishing to repatriate profits, and so forth, it becomes clear that the government cannot afford the path it has chosen.

This is what risk agencies are looking at when they grade Venezuela's ability to service its obligations. The country faces a scarcity of goods because the government cannot make ends meet. The reported backlog in approving foreign currency for multinationals is yet another symptom of a model that has run its course. The question that remains is what would happen to Venezuela if the price of oil were to dip below, say, $80 per barrel.

The inherent problems in Venezuela's finances point to an economic model that has run its course. Venezuelans instinctively know this, and that is one of the main reasons why they remain in the streets, against most odds, hoping for a change.

Juan Nagel is the Venezuela blogger for Transitions, editor of Caracas Chronicles, and author of Blogging the Revolution. Read the rest of his posts here.



Is Tunisia Taking Down the Welcome Sign for Israelis?

This article has been corrected. 

One day in March, tourists aboard a cruise ship attempted to disembark at the Mediterranean port city of Tunis, a few miles from the ancient ruins of Carthage. 14 of those passengers were refused entry to the country by local officials. It soon became apparent that they were being barred because of their Israeli passports. Noting that said that such an incident had never occurred before, the cruise line promptly announced that it was canceling all future stops in Tunisia.

For a country whose tourism sector directly or indirectly employs about 20 percent of the population, this news couldn't have come at a worse moment. In the three years since Tunisia's version of the Arab Spring, when pro-democracy protestors toppled a dictatorship by calling for dignity, freedom, and employment, Tunisians have overcome fierce ideological battles, political assassinations, and the proliferation of armed extremists to pass a new constitution and transfer power to a nonpartisan government earlier this year. Despite these successes, the economy has continued to languish. Tourism has taken an especially big hit: The total number of hotel night bookings dropped from 35 million in 2010 to 20 million the following year.* Within the last two years the numbers have climbed back to 30 million, but have plateaued there.

Now, the government is warning that a political fight over just who is welcome on Tunisia's shores will tarnish the country's brand. Earlier this week, Tunisian Prime Minister Mehdi Jomaa -- who is tasked with kick-starting the stagnant economy while cutting back on public subsidies -- linked the success of the tourism season to an upcoming event in May at Ghriba, Africa's oldest synagogue, located in the southern Tunisian town of Djerba: "We met with all the tourism professionals. They say if the tourism season is to succeed, the Ghriba event must be successful," Jomaa told participants in a recent economic conference.

Of the tens of thousands of Jews who used to live in Tunisia prior to the 1967 war, less than two thousand remain today. Most of them live in Djerba. Every May, thousands of Jews used to make a pilgrimage to Ghriba for the festival of Lag Ba'Omer, which marks the death of an ancient rabbi, but the numbers have dwindled since an al Qaeda attack killed 19 of the travelers in 2002. In 2011, when the Tunisian uprising occurred, the event was cancelled altogether due to security concerns. Last year, only 500 people came, but the Tourism Ministry expects that to jump to 1,000 this year -- assuming, that is, that the government clarifies its visa policy on Israelis. (The photo above shows Jewish pilgrims lighting candles in Ghriba in 2013.)

It remains unclear whether the cruise ship incident represents a shift in official policy. Tunisia's new tourism minister, Amal Karboul, said that the Israeli tourists on the ship had not applied for visas in advance, as they, like tourists from other countries such as Egypt or Brazil, are required to do. She later backtracked on this claim after her ministry investigated the details of the incident. Adding to the confusion is the poor quality of the laws regulating visa issuance, especially the vague wording that gives border police and higher authorities considerable latitude in interpreting the stipulations. To clarify the rules, Ridha Sfar, Tunisia's national security chief and deputy interior minister, drafted a memo stating clearly that all Israeli passport holders seeking to visit Tunisia must have their documents registered in advance with the Interior Ministry's Borders and Foreigners Administration.

But about 80 members of Tunisia's national assembly weren't willing to leave it at that. They drafted a letter calling on Karboul and Sfar to appear before the assembly to respond to allegations that their moves to clarify the rules on visits by Israeli citizens amount to a "normalization" of ties with Israel. Tunisia opened a "diplomatic interest section," a sort of de facto embassy, in Israel in 1996, but shut it down four years later as a gesture of support for the Palestinian intifada. Since then, the Tunisian government has maintained a public stance of hostility to Israel, which it refuses to recognize. It's worth remembering that Tunisia hosted the Palestinian Liberation Organization for a time in the 1980s. (According to one historian, however, the government in Tunis granted the PLO this privilege only reluctantly, under considerable pressure from the United States.) Away from the public eye, Tunisia and Israel had continued to talk until the Tunisian uprising.

Israeli Foreign Ministry spokesperson Yigal Palmor says that, prior to the fall of former dictator Zine el-Abidine Ben Ali, Israel had "good working relations" with Tunisian diplomats stationed in Ramallah, who used to handle Israeli visa requests.

"Since regime change, [Tunisian] diplomatic representatives have severed all ties with Israeli authorities," he says, although he's unwilling to offer an explanation for the sudden shift in policy.

The answer may have to do with the birth of democratic institutions in Tunisia. Fierce public opposition to Israeli policies, primarily its occupation of the West Bank, is starting to put pressure on the government. In Ben Ali's day, Tunisia's policy toward Israel was decided in backrooms by top government officials and secretly implemented by civil servants in the Foreign Ministry, Tourism Ministry, and Interior Ministry.

By contrast, during the early deliberations on Tunisia's new, post-uprising constitution, both civil society groups and members of the democratically elected parliament found themselves under considerable pressure to add a clause declaring that "all forms of normalization with Zionism and the Zionist entity shall be deemed a crime punishable by law." While the wording was vague, the term "normalization" seemed to imply official recognition of Israel, the opening of official diplomatic ties, and formal permission for unimpeded travel in Tunisia by Israeli citizens. In the end, the governing coalition, led by the Islamist Ennahda Party, decided against including that language, likely fearing that its already fragile political alliance and Tunisia's weak economy would not be able to withstand the international pressure likely to result. In January, 95 assembly members did agree to add a clause condemning all forms of "colonialism and racism, first among them Zionism," though this did not make it into the final version of the constitution.

"We're not against Jewish citizens, be they Tunisian or Moroccan or Algerian, who want to come to Tunisia for Ghriba," says Faiçal Jedlaoui, an assembly member unaligned with any political party. Jedlaoui is leading the group of 80 assembly members calling for ministers to appear before the legislative body to answer charges that they have implemented a de facto policy of normalization with Israel. "We are against normalization with Zionists and Israelis, all citizens who carry Israeli nationality or an Israeli passport."

"The term 'normalization' is something of a demonic icon," says Palmor of the Israeli Foreign Ministry. "Debate on normalization has become a meta-debate on supernatural things, irrational. As soon as you use this term in debate, no one can be in favor of normalization." Palmor adds that he sees no reason why Israel and Tunisia "can't have some kind of working relationship."

Many members of the assembly, though, are keeping their distance from the whole affair. One member, who requested anonymity because of the sensitive nature of the issue, suggested that her colleagues are using the issue as a political tool. As in many other countries, Israel and its policies are deeply unpopular in Tunisia. Given that elections are expected to take place by the end of this year or early next year, some politicians may try to win votes by taking a tough stand against Israel.

In a sign of the jumpiness over this affair, even Jedlaoui himself refused to provide me with a copy of his letter calling for a hearing, saying that the document is "not secret, but it has the names [of the signatories].... I don't want the names of the deputies posted on Facebook." The assembly's communications director, Karima Souid, later posted a photo of the letter on her twitter account anyway.

For its part, the tourism ministry told me that they're at the national assembly's service, and are happy to comply with the request that Minister Karboul answer questions before a full session of the assembly. "The minister didn't want to enter any polemic with any party. We're just trying to serve a sector important for the economy," says Zoubeir Jebabli, spokesperson for the ministry. "We leave the politics to the politicians."

Fadil Aliriza is a former editor of foreign news at Hurriyet Daily News in Istanbul, now working as a freelance journalist based in Tunis. Follow him on Twitter @FadilAliriza.

*Correction: The number of hotel bookings dropped by 15 million between 2010 and 2011. The article originally misstated this time frame. (Return to reading.)