It is a pleasure for me to be here today to speak about Latin America, and an honour to be in such good company. The United Kingdom is expanding its outreach and activity in the region, and one good example is our evolving relationship with the Latin American Development Bank whose Secretary General, Victor Rico, here this morning.
The United Kingdom wants to be a close partner in the next stage of Latin America’s development. We have been impressed by economic success in countries like Chile, Mexico, Colombia and Peru, and in smaller economies like the Dominican Republic and Paraguay. Economic policies based on free trade and greater economic open-ness have contributed to steady growth and the rise of a growing middle class.
I am also delighted to be sharing a platform with Jorge Faurie, and would like to register here the United Kingdom’s strong support for President Macri’s reform agenda and economic stabilisation plan, and the determination of the Argentine authorities to manage current challenges to achieve long term economic stability. Over the last 2 years our relations with Argentina have improved dramatically, we want to keep it heading in that direction.
That’s the good news – but I want to focus my remarks today on a country that offers a striking contrast, that’s Venezuela. I will do so because it is a failing state presenting the deepest man-made economic and humanitarian crisis in modern Latin American history. Its negative impact, vividly illustrated by the exodus of more than two million people who have fled to other countries, represents an unprecedented challenge for the region. I want to take the time to ask how Venezuela got here, and what can be done about it.
We cannot talk about Venezuela without understanding the central role played by oil since the early 20th Century, I speak as a former oil trader myself. Venezuela was a founding member of OPEC. A publication in 1961 by Chatham House’s predecessor, The Royal Institute for International Affairs, noted that “Venezuela over the past quarter century has been one of the most dynamic economies in the world”. The 1960s and 1970s saw it enjoying relative political stability and one of the highest per-capita GDPs in the region.
But, it was also a period that saw Venezuela become increasingly dependent on oil, in a way that stunted the potential for development in other sectors of its economy. Even the country’s then Oil Minister, Juan Pablo Perez, referred to oil as the “devil’s excrement” citing the waste, corruption and debt so often associated with it. As successive governments became addicted to oil, and the price fluctuated, the 1980s and 1990s saw Venezuela lurch back and forth between boom and bust.
This was hardly surprising as oil came to account for nearly three quarters of Venezuela’s total export revenue at the same time as economic policy was mismanaged, and governments failed to deliver structural change. Once the oil price in 1999 hit pretty much $9 a barrel, its people, of course, were ready for change. Through this turbulent economic period the traditional two party system lost credibility. Hugo Chavez, as a populist “outsider” who challenged the status quo, seemed to offer something new.
To begin with, what he offered seemed to work. His initial policies could be characterised as relatively moderate and broadly orthodox, a mixed model not unfriendly towards foreign capital. He sought to increase ordinary non-oil incomes, to reduce the size of the public sector, and invest in capital projects. He introduced incentives to encourage private investment, and he used economic growth to reduce inequality through the better distribution of oil revenues. He was, of course, helped by a sharp increase in oil prices, to over $100 a barrel by mid-2008. So in his early years, the Venezuelan economy was in reasonable shape, with rising GDP, falling unemployment, and a stable fiscal deficit. UN figures suggest poverty levels in Venezuela halved between 1999 and 2012.
Unfortunately, the relatively positive statistics masked deeper structural problems that Chavez’s increasingly radical ideology, his hubristic “socialism of the 21st century”, was in fact making it far worse. Even in the ‘good times’, spending outstripped revenue, and between 2001 and 2011, Venezuela and the state oil company PDVSA issued nearly $50bn of new debt at increasingly high interest rates. The inevitable then followed: fiscal imbalances led to devaluation which led to rising prices.
To control inflation, Chavez introduced exchange rate and price controls, over-valuing the Bolivar against the Dollar and reducing the competitiveness of non-oil exports. Greater political radicalisation, including the expropriation of foreign companies, began to scare away foreign investors and encourage the middle classes to invest elsewhere, or look for jobs outside Venezuela even while domestic consumption seemed to be booming.
By 2012, Chavez was running an economy that was volatile and unstable, with high inflation and an overvalued currency. It was ever more dependent on an oil industry whose output was falling despite an unusually long period of high global oil prices. It was inefficient and unsustainable. In short, Chavez had squandered the massive oil revenues that could have built lasting economic success.
Let’s be really clear about this: the economic meltdown was entirely self-inflicted. The rot that had begun under Chavez set in more deeply under the Maduro regime. PDVSA was destroyed by political meddling and the sacking of thousands of competent oil experts.
Mismanagement led to the halving of oil production as the price of oil fell. Hyperinflation set in as import controls and fixed exchange rates reduced the supply of goods. The government printed money to finance its deficits. The black market boomed and the rest of the economy collapsed.
Foreign exchange and price controls created huge economic imbalances, which in turn generated massive incentives for corruption, and illegal but lucrative activities within government circles. According to the Financial Times, the Venezuelan government received $1.0 trillion in windfall revenue from the oil price boom between 2003 and 2012, of which it is said $300bn was stolen or misappropriated.
Unsustainable levels of debt forced the government in November 2017 to skip interest payments on two sovereign bonds, and that led to an accumulated default which has now reached over $6bn. The bloated state sector has squeezed out what was left of the private sector. What remained of the domestic manufacturing and agricultural sectors has been destroyed or expropriated.
Although the Venezuelan government practises statistical deceit, like all authoritarian regimes keen to hide the negative impact of their policies, we know that exports have fallen by half since 2008. Debt has tripled. GDP has fallen by a third.
This economic decay has translated into deep misery for most Venezuelans. The purchasing power of anyone outside the privileged few who can manipulate price distortions and multiple exchange rates has been shattered by levels of hyperinflation not seen in Latin America since the 1980s.
The recorded social cost of this gross economic mismanagement is stark. By 2014, poverty rates were back to 1999 levels, and now, according to the UN, over four fifths of Venezuelans are on the poverty line. The poor are poorer, more exposed to disease, and more vulnerable to malnutrition than at any time since the 1990s.
From all classes of society, those who can, are leaving. Over 2.3 million Venezuelans have taken refuge abroad – 1.6 million since 2017 according to the International Organisation for Migration – with 5,000 a day crossing the bridge at just one border post, Cucuta in Colombia. This is one of the greatest migrant crises ever faced by Latin America. It is comparable in scale to what has happened in Yemen or Syria, and it is a tragic reversal of the generosity shown by Venezuela to refugees and migrants from elsewhere in Latin America during the last century.
In addition to doing damage in his own country, Maduro is also accused of allowing illegal armed groups and criminal gangs to take refuge in Venezuela. These include dissident FARC who have refused to take part in Colombia’s peace process, and also the ELN, another guerrilla group which is waging a brutal campaign of violence in vulnerable communities. He has also stoked tensions with reckless military incursions across the borders in Colombia and Guyana.
Maduro’s double crime is that his destruction of the economy has been followed by the systematic undermining of democracy. We now see increasing political repression under Maduro, as the regime seeks to ensure that its inner circle continues to enjoy exclusive access to slices of an ever-diminishing economic cake. To do so, others have to be shut out. He allows no room for genuine democracy, nor space for political challenge from a free opposition. We have seen the manipulation of election after election over the last two years, culminating in a Presidential election last May that few apart from the government itself considered free and fair.
We have also seen a systematic effort to bypass and browbeat the National Assembly. This was elected in 2015, in a vote that saw the first major electoral defeat of Chavismo. The political opposition secured a majority with 56% of the vote on a high turnout, in a clear sign that the Venezuelan public did not want to follow the regime down the ruinous path along which Maduro and his cronies wished to take them.
The opposition’s victory threatened the state-facilitated kleptocracy of the Maduro model. So he concocted an artificial Constituent Assembly, wholly lacking in democratic legitimacy, which was set up to do the regime’s bidding. And we saw a systematic effort to undermine or control what remained of Venezuela’s democratic institutions, including the judiciary, the national electoral authorities and local government. What is left is a corrupt, authoritarian regime presiding over a bankrupt economy.
We have recently been shocked by the death of opposition politician Fernando Alban, whilst detained by the Venezuelan Intelligence Service. Also by the unlawful detention of National Assembly deputy Juan Requesens.These, along with the recent brutal suppression of demonstrations in Venezuela, are symptoms of an increasingly intolerant government turning to repression to cling onto power.
It did not have to be like this. There are plenty of other middle income developing countries in the world, also dependent on oil or another single, dominant resource, which have continued to grow. Chile relies heavily on copper. Colombia depends substantially on oil, and in addition suffered devastating internal conflict for decades. Yet both have maintained growth and shown impressive results in social and economic development even through the recent economic downturn in Latin America. Looking further afield, the Gulf States have withstood the impact of lower oil prices since 2014, in no small part due to large financial reserves they built up during the good times.
In recent years, low interest rates in advanced economies have fuelled record levels of capital flows into emerging markets. Venezuela, with its ideologically-driven governments and mismanaged economy, has missed out entirely.
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A man-made catastrophe requires man-made solutions, and preferably ones which are originating in Venezuela. That would require a different attitude, and perhaps different people at the helm. Venezuela can return to sensible economic policies, with support from regional and international organisations like the Latin American Development Bank, the IMF, or the World Bank.
It can reverse the brain drain by once again attracting the wealth of talent available in the Venezuelan disapora. It can rescue PDVSA from its collapse by tapping into the expertise of an international oil and gas sector who are ready to work with a country with the world’s largest oil reserves and substantial gas deposits. The revival of the oil industry will be an essential element in any recovery, and I can imagine that British companies like Shell and BP, will want to be part of it.
It will also require political consensus, rather than polarisation; it will need transparent governance, not state-sponsored deceit; and a willingness to hear those who disagree with the government, rather than deciding to persecute them for dissent.
In November 2017, the EU unanimously agreed a sanctions regime. We have imposed targeted measures on 18 senior individuals responsible for human rights abuses, and for undermining democracy and the rule of law. We have always made it clear that these measures can be lifted as soon as the government of Venezuela puts these things right. We are continuing to work closely with EU, regional and international partners and urge the Venezuelan government to engage in serious, credible negotiations with the opposition; to respect democratic institutions; to ensure free and fair elections; and to release all political prisoners. We call for respect for freedom of the media and for journalists working in Venezuela.
In an unprecedented response, Venezuela’s regional neighbours have sought an ICC investigation into accusations of crimes against humanity. Citing over 8000 extrajudicial executions, 12,000 arbitrary arrests and the detention of 13,000 political prisoners.
Economic stabilisation and recovery will not happen overnight. It would require one of the biggest ever international bail-outs and a huge mobilisation of international resources. The UK is ready to play its part. Our commitment to Venezuela goes back a long way – to the birth of the Republic in the early 19th century, when we provided more material and diplomatic support than any other foreign power to the Great Liberator, Simon Bolivar. British companies have a long history of investing in Venezuela’s economic development, and remain committed to continuing this when conditions are right.
Of course we would prefer a Venezuelan solution, but this has become a regional crisis that will require a concerted regional and global response. The situation needs an intensification of outside pressure.
We are fully behind the Lima Group of countries in their efforts to seek a regional solution to the crisis.
We will continue to support the EU sanctions regime and indeed would consider fresh regimes in concert with our international partners. All options remain open.
This should include, I hope, a determination by Caribbean states which receive Petrocaribe supplied Venezuelan oil to resist inappropriate influence over their foreign policies. For the moment, we are committed to working with UN agencies, with the EU, and with Venezuela’s neighbours to help mitigate the humanitarian impact of the crisis overflowing the country’s borders into their neighbours.
I have painted a sombre picture today of one corner of the extraordinary region that we know as Latin America. I have done so, in part, to highlight the contrast with what is happening elsewhere.
We should celebrate, for example, the increasing resilience of Latin American democracy as seen by the successful democratic transfers of power this year in Colombia, Peru, Mexico, Chile, Paraguay, and, shortly, Brazil. We should praise the region’s growing commitment to free trade, which offers wonderful opportunities for the United Kingdom as we leave the EU. We must also recognise, despite some exceptions, Latin America’s steady adoption of policies that reflect the liberal, values-based concerns of an increasingly well-educated population – from intolerance of inequality and corruption, to support for LGBT rights and generosity towards migrants, of which Venezuelans fleeing their country are notable beneficiaries.
Since William Hague, as Foreign Secretary, launched the Canning agenda in 2010, the United Kingdom has sought to increase its investment, its attention and its focus on Latin America. This is a consistent policy, in a policy of outreach and partnership, which we shall continue to build after we have left the EU. As Minister for Europe and the Americas, that is a commitment I am happy to leave with you here today.
