Venezuela heralded a continent-wide political trend in Latin America, at one time described as a “second freedom”. For the last five years and especially since the death of the charismatic Hugo Chavez — president for 14 years — Venezuela seems settled into another role, of leading the continent off the cliff.

Late in July, the International Monetary Fund (IMF) forecast a 10 per cent contraction in the Venezuelan economy, and an inflation rate that could exceed 600 per cent over the year. Though this scenario calls for one, an IMF rescue mission is unlikely to happen soon.

While issuing its dire prognosis, the IMF noted that mandated consultations with Venezuela had not occurred for 127 months. There had been “no change in Venezuela’s relationship with the fund”, said a spokesman. Despite the fund’s willingness to repair a relationship on the rocks for over a decade, “the Venezuelan authorities” were yet to get in touch.

What really gives here? IMF forecasts have a habit of going disastrously wrong, but they did, at one time, have the power to sway minds. Ever since blithely waving on the Wall Street excesses that triggered the train wreck of 2008, the IMF has had a hard time finding willing clients. Of its portfolio of loans, an overwhelmingly large part today goes to higher-income countries with their membership in the European Union at stake.

Latin America went to the sickbed in 1980 and suffered an endless dose of IMF ministrations when it fell prey to the debt crisis brewed in the petrodollar recycling boom. Growth fell to abysmal lows and living standards deteriorated for all except a narrow strata at the top of highly unequal societies.

After two decades of stagnation, Chavez’s election in Venezuela in 1999 signalled change, though it took him five years to wrest back public ownership of the country’s petroleum resources. On the broader canvas, Argentina and Brazil were soon to join the rebellion against neo-liberalism.

Argentina made bold, after a 2002 economic meltdown, to default on IMF repayments. It ran a big risk since the IMF could well have choked off financial flows and pushed the country to a state of mass privation. But it plunged ahead, perhaps on the understanding that things could not possibly get worse.

Global finance was further shaken in 2002, when former labour union militant Luis Ignacio de Silva or “Lula” seemed set on his fourth attempt to become Brazil’s president.

Through the campaign, the international brokerage Goldman Sachs ran a daily update called the “Lulameter” measuring his winning chances in inverse proportion to investor anxieties. Lula made his peace by assuring the brokerages that economic leadership would be in safe hands, and the IMF stepped in with a $30 billion loan to placate agitated markets.

It was a brief expedient and Lula’s decision to fully discharge that loan in 2005 signalled Brazil’s intent to turn the page on years of IMF tutelage. Chavez in Venezuela was just about regaining public control over his country’s vast petroleum sector. With a buoyant phase ensuing in global commodity prices, Argentina, Brazil and Venezuela created a template of economic growth with social justice.

Petroleum prices crashed by two-thirds in six months following the Wall Street meltdown and commodity markets began sliding from about 2010. Latin America’s second independence was suddenly threatened and political turmoil seemed to devour the leaders who had taken these societies to new frontiers.

Among the authors of the second freedom, Venezuela had always been marked for special attention by the northern colossus. A 2002 coup attempt gained unconditional but covert CIA backing, despite its preoccupations of the time, including concocting a reason to wage war in Iraq. Chavez’s ability even from captivity, to mobilise support within the country and outside, prompted a hasty retreat.

A motley anti-Chavez crowd set up a propaganda platform called ‘Dolar Today’ in Alabama, US. It made little impact, except as a source of quotations for black market dollar rates. A month after Chavez’s death, a rival website — Lechuga Verde — which offered competing quotations, vanished from the scene after defrauding a number of anxious Venezuelans of their lifetime savings.

Dolar Today then held the field and with petroleum revenues shrinking, its black market quotes became a self-fulfilling prophecy. Prices of imported food flared up, fuelling a scarcity neurosis among the public and further boosting the black market. The vicious cycle was fully in motion.

The people of Venezuela are restive but media coverage does little justice to their quest for solutions. For one, there is a determined move away from the cities in a country which is the most urbanised on the continent. The purpose is to remedy the country’s severe import dependence for food, by renewing the cultivation of vast fallow fields. A recently passed law mandates the use of indigenous seed varieties in the quest for renewed self-sufficiency.

A conclave of Latin American states has meanwhile put together a plan for Venezuela’s economic recovery. It is not a painless blueprint and begins with the unification of the currency rate by floating the Venezuelan bolivar. It is an option that was considered but never pursued because of the likely impact on daily lives. The mitigating circumstance now is that the country has already seen the worst of the inflationary havoc. If anything, a currency float could bring it back within a realistic range and, in conjunction with a host of other measures, restore the economy to even keel. The key question here is how many of the welfare gains achieved through the Chavez years would be lost. The answer finally lies in the political domain.

(Sukumar Muralidharan is an independent writer and researcher based in Gurgaon)

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