Citizen Action Monitor

How US policy was used to treat Venezuela as an extension of the US economy for the benefit of US investors

To prevent Venezuela from using oil revenues to benefit its people, the US held Venezuela hostage in ways that concentrated its oil wealth in the hands of a pro-US oligarchy.

No 2433 Posted by fw, February 12, 2019

Michael Hudson

“From the outset, U.S. oil companies have feared that Venezuela might someday use its oil revenues to benefit its overall population instead of letting the U.S. oil industry and its local comprador aristocracy siphon off its wealth. So the oil industry – backed by U.S. diplomacy – held Venezuela hostage in two ways. First of all, oil refineries were not built in Venezuela, but in Trinidad and in the southern U.S. Gulf Coast states. This enabled U.S. oil companies – or the U.S. Government – to leave Venezuela without a means of ‘going it alone’ and pursuing an independent policy with its oil, as it needed to have this oil refined. … Second, Venezuela’s central bankers were persuaded to pledge their oil reserves and all assets of the state oil sector (including Citgo) as collateral for its foreign debt. This meant that if Venezuela defaulted (or was forced into default by U.S. banks refusing to make timely payment on its foreign debt), bondholders and U.S. oil majors would be in a legal position to take possession of Venezuelan oil assets.”Michael Hudson

Michael Hudson is a former Wall Street financial analyst, a distinguished research professor of economics at the University of Missouri, Kansas City.

The Saker

“There is a great deal of controversy about the true shape of the Venezuelan economy and whether Hugo Chavez’ and Nicholas Maduro’s reform and policies were crucial for the people of Venezuela or whether they were completely misguided and precipitated the current crises. Anybody and everybody seems to have very strong held views about this. But I don’t simply because I lack the expertise to have any such opinions. So I decided to ask one of the most respected independent economists out there, Michael Hudson, for whom I have immense respect and whose analyses … seem to be the most credible and honest ones you can find. … I am deeply grateful to Michael for his replies which, I hope, will contribute to a honest and objective understanding of what really is taking place in Venezuela.”The Saker

The ‘Saker’, his mother’s family name, is the pen name of Andrei Raevsky, an ex-military analyst, born in Europe to a family of Russian refugees. He lives now in the US where he writes and manages his website, where visitors will find Saker falcons adorning his site.

Below is my repost of The Saker’s interview of Hudson. He asks Professor Hudson a set of seven questions framed to obtain an honest and objective understanding of the current crisis with the Venezuelan economy.  Specifically, he wants to know who is responsible for the crisis – Chavez’ and Maduro’s pursuit of policies aimed at achieving economic independence for Venezuela or US subversion of those policies and its imposition of punishing sanctions.

I have abridged my repost by focusing solely on The Saker’s first three questions; the remaining four are listed at the end of the post to enable readers to decide if they want to read the rest of the piece on The Saker’s website by clicking on the following linked title.

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Saker Interview with Michael Hudson on Venezuela by The Saker and Michael Hudson, The Saker.is, February 7, 2019

Introduction: There is a great deal of controversy about the true shape of the Venezuelan economy and whether Hugo Chavez’ and Nicholas Maduro’s reform and policies were crucial for the people of Venezuela or whether they were completely misguided and precipitated the current crises. Anybody and everybody seems to have very strong held views about this. But I don’t simply because I lack the expertise to have any such opinions. So I decided to ask one of the most respected independent economists out there, Michael Hudson, for whom I have immense respect and whose analyses … seem to be the most credible and honest ones you can find. I am deeply grateful to Michael for his replies which, I hope, will contribute to a honest and objective understanding of what really is taking place in Venezuela. — The Saker

[The Questions]

The Saker: Could you summarize the state of Venezuela’s economy when Chavez came to power?

Why, despite its oil wealth, did Venezuela run up its foreign debt?

Michael Hudson: Venezuela was an oil monoculture. Its export revenue was spent largely on importing food and other necessities that it could have produced at home. Its trade was largely with the United States. So despite its oil wealth, it ran up foreign debt.

To prevent Venezuela from using oil revenues to benefit its people, the US held Venezuela hostage in 2 ways

From the outset, U.S. oil companies have feared that Venezuela might someday use its oil revenues to benefit its overall population instead of letting the U.S. oil industry and its local comprador aristocracy siphon off its wealth. So the oil industry – backed by U.S. diplomacy – held Venezuela hostage in two ways.

First, without its own oil refineries, Venezuela was unable to pursue an independent oil policy

First of all, oil refineries were not built in Venezuela, but in Trinidad and in the southern U.S. Gulf Coast states. This enabled U.S. oil companies – or the U.S. Government – to leave Venezuela without a means of “going it alone” and pursuing an independent policy with its oil, as it needed to have this oil refined. It doesn’t help to have oil reserves if you are unable to get this oil refined so as to be usable.

Second, Venezuela’s oil reserves served as collateral for its foreign debt, giving US banks leverage if it defaulted on its debt payments

Second, Venezuela’s central bankers were persuaded to pledge their oil reserves and all assets of the state oil sector (including Citgo) as collateral for its foreign debt. This meant that if Venezuela defaulted (or was forced into default by U.S. banks refusing to make timely payment on its foreign debt), bondholders and U.S. oil majors would be in a legal position to take possession of Venezuelan oil assets.

So, Venezuela’s oil wealth was concentrated in the hands of a pro-US oligarchy

These pro-U.S. policies made Venezuela a typically polarized Latin American oligarchy. Despite being nominally rich in oil revenue, its wealth was concentrated in the hands of a pro-U.S. oligarchy that let its domestic development be steered by the World Bank and IMF.

Moreover, Venezuela’s rural and urban impoverished were excluded from sharing in the country’s oil wealth

The indigenous population, especially its rural racial minority as well as the urban underclass, was excluded from sharing in the country’s oil wealth. The oligarchy’s arrogant refusal to share the wealth, or even to make Venezuela self-sufficient in essentials, made the election of Hugo Chavez a natural outcome.

The Saker: Could you outline the various reforms and changes introduced by Hugo Chavez? What did he do right, and what did he do wrong?

Chavez sought to use its oil revenue on programs to serve the common good

Michael Hudson: Chavez sought to restore a mixed economy to Venezuela, using its government revenue – mainly from oil, of course – to develop infrastructure and domestic spending on health care, education, employment to raise living standards and productivity for his electoral constituency.

What he was unable to do was to stem Venezuela’s oligarchs from taking the money and fleeing

What he was unable to do was to clean up the embezzlement and built-in rake-off of income from the oil sector. And he was unable to stem the capital flight of the oligarchy, taking its wealth and moving it abroad – while running away themselves.

Essentially, Chavez didn’t have enough time to change Venezuela’s economy from America’s dirty tricks

This was not “wrong”. It merely takes a long time to change an economy’s disruption – while the U.S. is using sanctions and “dirty tricks” to stop that process.

The Saker: What are, in your opinion, are the causes of the current economic crisis in Venezuela – is it primarily due to mistakes by Chavez and Maduro or is the main cause US sabotage, subversion and sanctions?

US policy has always been to treat Venezuela as an extension of the US economy, running a trade surplus in oil to spend in the United States or transfer its savings to U.S. banks.

Michael Hudson: There is no way that Chavez and Maduro could have pursued a pro-Venezuelan policy aimed at achieving economic independence without inciting fury, subversion and sanctions from the United States. American foreign policy remains as focused on oil as it was when it invaded Iraq under Dick Cheney’s regime. U.S. policy is to treat Venezuela as an extension of the U.S. economy, running a trade surplus in oil to spend in the United States or transfer its savings to U.S. banks.

The US made it impossible for Venezuela to pay its foreign debt, giving it reason to foreclose on its oil resources and seize its foreign assets

By imposing sanctions that prevent Venezuela from gaining access to its U.S. bank deposits and the assets of its state-owned Citco, the United States is making it impossible for Venezuela to pay its foreign debt. This is forcing it into default, which U.S. diplomats hope to use as an excuse to foreclose on Venezuela’s oil resources and seize its foreign assets much as Paul Singer hedge fund sought to do with Argentina’s foreign assets.

The US used Venezuela to teach others not to act in ways that prevent their economic surplus from being siphoned off by US investors

Just as U.S. policy under Kissinger was to make Chile’s “economy scream,” so the U.S. is following the same path against Venezuela. It is using that country as a “demonstration effect” to warn other countries not to act in their self-interest in any way that prevents their economic surplus from being siphoned off by U.S. investors.

[Remaining 4 questions]

What in your opinion should Maduro do next (assuming he stays in power and the USA does not overthrow him) to rescue the Venezuelan economy?

What about the plan to introduce a oil-based crypto currency? Will that be an effective alternative to the dying Venezuelan Bolivar?

How much assistance do China, Russia and Iran provide and how much can they do to help? Do you think that these three countries together can help counter-act US sabotage, subversion and sanctions?

Venezuela kept a lot of its gold in the UK and money in the USA. How could Chavez and Maduro trust these countries or did they not have another choice? Are there viable alternatives to New York and London or are they still the “only game in town” for the world’s central banks? What can other Latin American countries such as Bolivia, Nicaragua, Cuba and, maybe, Uruguay and Mexico do to help Venezuela?

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