Colombia: Who Can You Trust These Days

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October 13, 2017: Luisa Ortega, the former Attorney General (Chief Prosecutor) of Venezuela released a video showing a Brazilian businessman admitting (to Brazilian police) that in 2013 his firm (Odebrecht) agreed to pay current Venezuelan president Maduro $35 million in return for assurances that Odebrecht would get major construction contracts it was seeking in Venezuela. The 2013 presidential elections were crucial for Maduro because his patron, president Hugo Chavez had died earlier in the year and the special election in 2013 was Maduro’s best chance to obtain long-term power. But he needed all the cash he could get because he was already unpopular.

Odebrecht is a major ($30 billion a year in sales, 180,000 employees) multi-national corporation based in Brazil that has been accused of bribery in several countries and, so far, has paid $3.5 billion in settlements in the United States, Brazil and Switzerland. Currently Odebrecht is facing losses of up to $5 billion in Venezuela because the government there is broke and cannot afford to pay. Odebrecht is accused of using bribery and other illegal practices for decades and has seen senior executives in Brazil arrested in the last few years and some have admitted criminal activity. Several South American nations have been acting on this evidence and suing Odebrecht and prosecuting local officials who accepted bribes from Odebrecht.

Odebrecht saw Maduro as one of the most corrupt senior officials in Venezuela and someone they could do business with. This became crucial in March 2013 when Venezuelan president Hugo Chavez died of the cancer after two years of treatment (usually in Cuba). His designated successor was vice president Nicolás Maduro, a lifelong socialist and former union official who was an early supporter of Chavez. Maduro had to stand for election as president on April 14th and appeared determined to exploit the Chavez “legend” and do whatever else it took to garner enough votes to become leader. Maduro was as clueless as Chavez about how an economy works and seems prepared to continue the Chavez policies that have killed economic growth.

Elected populist dictators like Chavez and Maduro are common in South America, despite the fact that these guys always make the economic conditions worse. Voters often prefer another populist to someone who knows what to do to fix the economy and this means many South American countries never reach their economic potential. Over the last few decades a growing number of locals realized that there was a fundamental problem and know what the solutions worked, but they still tend to get out-voted by populist politicians who know how to lie convincingly. It’s more than just blaming foreigners and other mysterious forces for the poverty and lack of economic opportunity, there’s also a lot of showmanship and pandering to popular myths and fantasies. It’s a disease, like Chavez’s cancer, with staying power. Neighboring Colombia applied the cure (economic freedom, responsible government) and has prospered. This has not gone unnoticed in Venezuela and Maduro was hoping reality didn’t catch up with him before he can burnish his reputation and provide for his retirement (at the time he was not very corrupt, but his lawyer wife was and is).

Just before the announcement of the death of Chavez the Venezuelan government revealed that it had just expelled two U.S. Air Force officers (working at the U.S. embassy under diplomatic immunity) accusing them of spying. The real reason for the expulsions appears to have been an attempt to make it more difficult for the U.S. to stay in touch with opposition groups in Venezuela. A popular conspiracy theory among leftists in Venezuela is that the CIA caused Chavez to get cancer. Meanwhile in Brazil there were also major changes, including major prosecutions of corrupt businesses and government officials they worked with. This effort did not hit Odebrecht until 2014 and since then over 160 people have been arrested in Brazil, 93 convicted and many Odebrecht officials willing to testify in return for leniency.

Meanwhile by June 2013 there were growing accusations in Venezuela over the April presidential election, which was unmonitored and supervised by officials loyal to Maduro and his recently deceased patron Hugo Chavez (who Maduro succeeds as president). In response to the ballot rigging accusations the government has avoided dealing with the charges and instead accuses Colombia of plotting to assassinate and install his rival (Henrique Capriles) who lost the close presidential election. Meanwhile the Chavez efforts to run a centrally planned economy have backfired badly causing rising unemployment, inflation, shortages and crime rates. The growing number of shortages included food (especially staples), many consumer items and even a recent major national shortage of toilet paper. By 2013 Venezuela led the world in murders and kidnappings. The government blamed this on conspiracies hatched by the United States and its puppet government in Colombia. It was all bizarre and tragic at the same time, as well being financed by massive corruption.

By late 2013 Venezuela was becoming increasingly unstable and that made it a more secure sanctuary for Colombian drug gangs and leftist rebels. The socialist policies pioneered over a decade earlier by Hugo Chavez had trashed the economy, brought on an unprecedented crime wave and led to massive corruption. Venezuela was supposed to be a socialist paradise by 2013. But like every other attempt at this use of centralized economic planning and control it has only resulted in more poverty and growing shortages of basics. Chavez’s successor Nicolas Maduro lacked the charisma to maintain popularity for the dysfunctional government. Determined to maintain control Maduro resorted to police state methods and increasingly desperate measures. That included expelling three American diplomats after accusing them of being responsible for the collapse of the electrical generation system. This sort of thing is noticed by everyone as the lights went out for two-thirds of the country for a while. The cause was a combination of mismanagement and corruption that left electricity production and distribution facilities poorly maintained. Oil production was falling and sometimes there was no fuel for the power plants. Meanwhile Maduro’s political subordinates and allies grew rich from stealing and dealing. Bribes from drug gangs keep the cocaine flowing through Venezuelan ports and air fields. Maduro was trying to build a popular militia loyal to him and the ruling party, but the country was already running out of money for buying enough loyalty. A recent attempt to get a large loan out of China, a major customer for Venezuelan oil, was rebuffed. The Chinese see where this is going and want to cut their losses. Corruption also leads to foreign suppliers not getting paid, which in turn leads to regular suppliers refusing to ship to Venezuela. This has played a role in the growing food shortages. Finding new suppliers is not easy once you have a reputation for not paying.

In 2013 the price of oil began to fall, eventually by more than half from its 2008 high. The oil price collapse wen from over $100 a barrel to as low as $30 and by 2017 was expected to get no higher than $50 to $60 a barrel. For the moment the record high of $132 a barrel (in mid-2008) was gone and even with OPEC states agreeing to cut production many are losing enthusiasm for that. To make matters worse the Venezuelan oil is the most expensive to get out of the ground and because it is “sour” and tar-like it is more expensive to refine. No foreign investors are willing to commit the billions need to update and revive the Venezuelan oil operations, mainly because of the massive corruption and the sense that the government is not rational nor dependable. China has been tempted but so far has refused to do more than loan the government a lot of money (nearly $100 billion) that is increasingly unlikely to be repaid. Russia and China agreed to a lot of those loans only after Maduro pledged a lot of oil-related facilities as collateral.

And then there was Venezuelan chief prosecutor Ortega who, with her husband, fled to Colombia in mid-August via a small aircraft. Ortega had been illegally removed from office in June and banned from leaving the country. Ortega says this was not just because she criticized government efforts to establish a dictatorship but also because she was gathering evidence on large scale (over a $100 million worth) corruption that mainly benefitted the Maduro family. In late June the Venezuelan Supreme Court approved efforts to remove Luisa Ortega as Attorney General for criticizing the effort to change the constitution with an illegal process backed by the Supreme Court. According to the current constitution only the parliament (national assembly) can remove an attorney general from office. But the Supreme Court has ruled that the current parliament is illegal. The parliament describes these actions as a coup and most Venezuelans agree with that. Unlike most other democracy constitutions Venezuela does not allow the legislature to impeach (remove) the president. Rather the Supreme Court, whose members are appointed by the president (and approved by the legislature) do so. But before Maduro’s party lost control of the legislature in the 2015 elections he appointed enough loyal (to Maduro) new judges to the Supreme Court to block any efforts to remove him from power. The legislature and the government have not been able to agree on a compromise solution for this problem. Meanwhile Ortega arrived in Colombia with documents and other evidence (like videos) that implicate Maduro and his close aids in corruption. Maduro denounces this sort of thing as another illegal effort by the United States to destroy his government. That doesn’t convince many Venezuelans anymore and the Ortega evidence is more about convincing the UN and world public opinion that Maduro is most definitely a bad guy with no redeeming value.

Maduro not only has former officials to worry about, they are now busy trying to deal with the growing number of local and foreign journalists who are documenting the rampant crime and economic disintegration throughout Venezuela. Particularly troubling are the stories of the police and army participating in illegal activities. Testimony, pictures and video are documenting torture in prisons and other government facilities. Another journalistic practice frowned on by the government is local or foreign journalists documenting the real state of the economy. Inflation for 2017 is about 700 percent and continuing to increase. Economists believe that without some fundamental changes in government economic policy inflation will be over 2000 percent in 2018.

Widespread poverty and hunger are one thing but more damaging to the government is the growing gap in living standards between senior officials and everyone else. There is still a lot of wealth in the country and people are realizing where much of it is disappearing to. It is no secret that a lot of it is lost to corruption. Government officials take bribes, steal when they can and have taken the lead in plundering government reserves of foreign currency. The biggest offenders in exploiting the official (far below the black market) exchange rate between dollars and the local currency has been government officials. The black market rate for a dollar is now over 26,000 bolivars, way up from 4,400 six months ago, 3,100 at the end of 2016, 800 at the end of 2015 and 400 earlier in 2015. In 2013 it was under 30 bolivars. Before the 1999 socialist revolution inflation was much lower and you could buy a dollar for six bolivars. The average inflation in neighboring countries is still at 1999 levels while it has soared in Venezuela. At this point the official exchange rate is 10.2 bolivars per dollar but that is only available to government officials and well-connected businessmen. That used to be a lot more lucrative for corrupt officials but the country is so broke in late 2017 that there are few dollars (or other foreign currencies) they can get and sell on the black market.

The Venezuelan government seems paralyzed. One reason the government no longer releases economic data they collect is because it would show the skyrocketing poverty rates. Lowering the poverty rate was the main justification of the leftist government to take control of the economy. But private surveys in Venezuela see the current poverty rate at a record high of 75 percent and growing. The rate was 48 percent in 2014 and 27 percent in 2013. It was about 50 percent when the leftists took power in 1998 on promises that they would drive the rate down. They did, until they ran out of money. Current cash reserves are under $10 billion and most of that will be gone this year to pay off old debt (another $4 billion in October and November). If those debt payments are not made Venezuela is in default and unable to get new loans. Total foreign debt is believed to be $150 billion but most of the debt pressure comes from mandatory payments of $8 billion by late 2018 and more than $30 billion by 2022. With cast reserves nearly exhausted, oil production declining, hunger and unrest growing and oil prices stuck at record low levels Maduro faces an impossible situation.

Cuba and Iran have no useful advice because both nations had police states established and social controls in place before economic disaster hit. Cuba did use tourism to bring in sufficient foreign currency in the 1990s to avoid complete economic collapse. The tourism option won’t work because of the murder rate and crime in general. Although the government stopped releasing inflation and murder rate data in 2016 there were other ways to collect data. Thus it’s no surprise that the Venezuelan capital (Caracas) has become the murder capital of the world with 130 murders per year per 100,000 population. On a list of ten cities in the world with the worst rates four are in Venezuela (ranging from 72 to 84). All ten cities are in Latin America, with number two being Acapulco Mexico with 113 per 100,000, mostly because of drug gangs. In Venezuela the reasons are mainly economic and political. A global survey of how safe people feel ranked Venezuela as the least safe (according to their own citizens) in the world. These were results for 2016 and matters have gotten worse in 2017. Thus while perceived safety (according to this Gallup survey) have been stable for Latin America (on average) for the last few years, Venezuela is a glaring exception and getting worse.

Most Venezuelans fear the criminal gangs and, increasingly, people who are literally starving. For a few Venezuelans, even senior judges and other government officials, there is the growing threat from the government security forces. Those officials who criticize the government, or simply go public with proposals for different economic policies the government does not consider socialist enough, are subject to arrest and indefinite detention or worse. These officials have access to cash and foreign contacts to get out of the country and more of them are doing just that. Most of these escapees go very public outside Venezuela with personal experiences of what is going on in Venezuela, a place where nothing seems to work anymore.

FARC Fragments In Colombia

Despite the FARC peace deal there are hundreds of FARC members still active and considered outlaws. All disagreed with the peace deal and for different reasons. Most of the holdouts felt they were doing well economically in the cocaine business and surrendering with the rest of FARC members would harm their drug operations and cut their income substantially. Such men, and women, felt it was better to just ignore the peace deal and keep their drug business going. A minority of the holdouts are political true believers who insist that revolution and communism is the only solution for all that ails Colombia. These holdout groups are expected to grow in the next year as some FARC who did surrender encounter problems adjusting and decide to go back to the outlaw life. Most will join drug gangs, but some will seek out the political holdouts and FARC will continue exist as a tiny armed rebel group for years.

American intelligence agencies cooperated with their Colombian counterparts to identify who the leaders and other key people were in FARC (as well as ELN, drug cartels and their counterparts throughout the region). In doing that it was discovered that a lot of drug gang leaders in Colombia and elsewhere in Latin America, were claiming to be FARC members and applying for amnesty. The government suspects fraud, with many non-FARC gangsters buying their way into the amnesty. This was apparently often done on the advice of lawyers who had long worked for FARC and drug gangs who noted the fraud opportunities present in the FARC surrender deal. At the very least this is going mean a lot of unanticipated work for lawyers. The U.S. already has evidence of drug gang leaders paying FARC leaders millions of dollars for each name that was added to the FARC member list (along with assistance from FARC in concocting a credible “history” of the fictional FARC member).

October 11, 2017: The Colombian Constitutional Court ruled that the FARC peace treaty could not be amended by the government until 2029. This settled the threat of new governments changing the terms and triggering a resumption of the leftist rebellion.

October 9, 2017: China launched a second remote sensing space satellite (VRSS-2) for Venezuela. The first one (VRSS-1) was put into orbit in September 2012. China builds its own remote sensing satellites and has put many in orbit. This satellites typically operate at an altitude of 600 kilometers (more or less) can be used for scientific exploration and surveillance or for military purposes. Equipped with either radar (SAR or synthetic aperture radar) or digital cameras, remote sensing satellites are often used to scan the ocean for ships. A typical SAR can produce photo quality images at different resolutions. At medium resolution (3 meters) the radar covers an area 40x40 kilometers. Low resolution (20 meters) covers 100x100 kilometers. Venezuela can quietly rent out its remote sensing satellites to anyone, but outlaws like drug cartels or nations up to illegal mischief would pay a premium to use the Venezuelan satellites for keeping track of their foes (the DEA, coast guard, warships in general) or for planning violence or whatever.

Since 2012 China has become a major supplier of weapons, vehicles and other equipment for Venezuelan national police and that gear has been very visible lately as the government has had to deal, often violently, with large anti-government demonstrations. China considers this good advertising for their police products, which they will sell to anyone who can pay.

October 8, 2017: Argentine Airlines has cancelled service with Venezuela because of financial and security problems. Three months ago Colombian Avianca airline joined a growing list of foreign airlines and shut down its operations in Venezuela. Aeromexico did so a year ago and most major airlines in the Western hemisphere followed. This is something that began in 2014 because the government would not let the airlines get money out of the country to pay for operating foreign flights into and out of Venezuela. The extreme foreign currency restrictions were deemed necessary because the shrinking economy was providing less foreign currency to buy essential imports of food and consumer goods. Air Canada was the first of many foreign airlines that halted operations in Venezuela until foreign firms could again move cash out (mostly to pay for foreign goods and services, not profits). Cuba, since the 1960s, has cheated foreign companies out of billions of dollars by never letting them get their money or assets out of the country and, in most cases, eventually simply stealing the company assets in Cuba. Many companies operating in Venezuela have lost money in Cuba years ago and have not forgotten, so Venezuela won’t have the opportunity to steal as much as Cuba did. Not many Venezuelans can afford to use air travel anymore and the government officials can make special arrangements. At this point there are still six major foreign airlines flying in and out of Venezuela, often only occasionally. One of them, Copa Airlines, does not allow its flight crews to stay overnight in Venezuela because it is too dangerous and expensive.

October 6, 2017: In Venezuela the opposition (which is actually the majority of Venezuelan voters and political parties) went public (an increasingly dangerous move these days) to point out that the government was trying to rig the October 15th national elections for the governors of the 23 provinces. Currently 20 of the governors are Maduro supporters and if the vote were fair no Maduro supporters would win in the upcoming vote. The government is eager to prevent a fair vote because they are certain they would lose.

The police arrested three journalists (one local, one Italian and one Swiss) as they entered a prison with a camera crew to do a story on abuses in the Venezuelan prison system.

October 5, 2017: In the southwest Colombia (Narino) coca farmers that work for a drug cartel tried to block police who were in the rural area near the Pacific coast to destroy coca crops. National police used force to get past the blockade and that led to violence that left at least ten dead and even more wounded. The same police blocked UN investigators and the situation escalated until a week later the government ordered 102 police involved out of the Narino area.

The UN agreed to provide monitors for the ELN ceasefire in Colombia.

October 1, 2017: ELN began its first joint (with the government) ceasefire. It will last until January 9 2018 with an option for renewal until a peace deal is worked out.

September 26, 2017: President Maduro, soon to be president-for-life, recently announced that Venezuela would no longer sell its oil for dollars but demanded euros or yuan (the Chinese currency). This will increase the costs of selling the oil and means less income for Venezuela. This seems counterproductive but Maduro is trying to impress China and encourage China to move forward with plans to invest billions to build new oil production facilities in Venezuela. China is willing to say nice things about Maduro but is not willing to risk a lot of additional money. Maduro relies a lot on its mismanaged oil wealth and the fact that China and Russia have loaned Venezuela so much money he believes that it is in their interest to provide the tech and technicians to get the Venezuelan oil facilities going again. China and Russia will do that, up to a point and for a price. Maduro recently travelled overseas to negotiate the best deals he could and came back without much to show for it. That’s how a corrupt and inefficient dictatorship works. You steal what you can and pay what you must to keep it. Since 2013 Venezuelan GDP has dropped nearly 40 percent and per-capita GDP is down even more. Things will get worse before they get better even with a police state. That’s because the new government must put priority on keeping the government employees, especially the ones with guns, satisfied and content to follow orders. You don’t need a Cuban advisor to point that out but the Cubans provide practical advice on how to get it done as quickly as possible. Russia and China are willing to provide the needed equipment on credit once they are assured that Maduro will be around long enough to pay for all this. China is not optimistic about Maduro surviving.

 


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