Shortly after the inspiring July 16 Venezuelan opposition-organized vote that rejected President Nicolás Maduro’s unconstitutional constituent assembly, President Donald Trump declared that he would impose “strong and swift economic actions” if the government went ahead with the constituent assembly elections on July 30th. Senator Marco Rubio later echoed those statements and a senior administration official hinted that they could include a U.S. ban on importing Venezuelan oil—which the Andean country sells 700,000 barrels of per day to its proclaimed enemy, Uncle Sam.
The frustration of the administration and the handful of U.S. Senators who care about Venezuela and the region is understandable. Not only does the Maduro regime defy international norms regarding popular sovereignty and human rights, much of a region that once prided itself on its democratic commitment has remained silent as the oil-rich country predictably spins into a humanitarian crisis and represses its citizens with impunity. While I support the dozen or so targeted, individual sanctions that the U.S. has imposed on Venezuelan officials implicated in corruption, human rights violations and narcotics trafficking, the floated economic sanctions are of a different order that would have negative consequences for the U.S. strategy for Venezuela and for Venezuelans.
Below is why, and a proposal for where the U.S. should better invest its energy.
You’ll make the opposition own the humanitarian crisis
The Maduro government and its allies have painted the democratic opposition as running-dog lackeys of U.S. imperialism. They aren’t, though for some that claim has stuck for a while. Now, though, as the opposition focuses on the economic suffering of Venezuelans, it has earned broad popular support. A U.S.-imposed embargo on Venezuelan oil, on which the country depends for more than 95% of its export revenue, would deepen the country’s dire economic crisis in which Venezuela’s economy has contracted by more than 20% since 2014, 11.4% of its children are malnourished and inflation that could reach 1,700% this year would worsen popular suffering and by doing so hand the government a much-needed excuse for its failures: the U.S. and its allies, the opposition.
Today, there is no question that the Maduro government’s incompetence and corruption is to blame. Should the U.S. close off Venezuela’s overwhelming-source of income—and hard currency to import much-needed food and medicine on which Venezuela depends—legitimately aggrieved Venezuelans will have a new enemy, the U.S. and its alleged allies, the opposition.
You’ll intimidate the regional community from speaking out and acting
I’ve heard that privately a few government officials have raised the need for the U.S. to ramp up its pressure, implying implicit support for such an effort. But—as we have seen repeatedly in the region (remember that so-called U.S. airbases in Colombia in 2009)—facing regional pressure and the risk of popular fall out, even seeming allies will back away when the U.S. is painted as overreaching.
Never underestimate the power of anti-gringo indignation by sitting governments. Just at a moment when the regional community is beginning to stand up—though too late and not actively enough—the imposition of U.S. economic sanctions on the country could reshuffle the deck. Those 20 countries that voted in favor of a resolution condemning the constituent assembly and the deterioration of democracy in Venezuela at the June Organization of American States General Assembly? I can guarantee a few of those will second guess their courage.
You could trigger a Venezuelan default and, potentially, a broader debt crisis
By recent reckonings, the Venezuelan government—through sovereign debt or through debt owed by its state-owned oil company PDVSA—needs to meet at least $55 billion in international loan payments. And no one believes that the Central Bank has that much in hard currency and gold that it can make that. (The announcement this week of an MOU with the government of Angola to extract gold and diamonds and the Maduro Central Bank president’s declaration that the government will count diamonds as part of its international reserves both indicate that they are in a panic and that the government is bizarrely counting on a medieval return to a barter economy to pay off its creditors.)
So, a block on the country’s main source of hard currency will, almost inevitably provoke a Venezuelan default. Alone, that will drive the country even further into economic despair and isolation—and again potentially putting the blame at the feet of the democratic opposition. A default and the lack of hard currency and isolation from international capital markets, wouldn’t hurt the regime, which has shown a remarkable willingness to impose the costs of its economic failings on its own people, as much as it would hurt the very people the U.S. and the opposition claims to defend. Social services, food and medicine imports would be cut. The National Guard and military’s budget for rubber bullets, tear gas, and truncheons though would likely remain the same.
But there is even a darker scenario here. A Venezuelan default could trigger a broader debt crisis in the hemisphere. Yes, Venezuela is not Colombia, Peru or even Brazil which despite problems are on better economic terms. But capital markets are not rational and mom-and-pop investors are not always all that savvy about the nuances of Latin American economies or their governments’ solvency. In the past, individual countries’ seemingly isolated economic troubles—as in the 1997 Asian crisis—quickly spread across borders to countries that were not directly linked to the original risk.
So, what is to be done?
I would like to think that there could be a broader strategy here: that by putting out there the potential that the U.S. may impose economic sector sanctions on Venezuela, and that the Trump administration is trying to force the hand of other countries and blocs (the European Union, Colombia, Chile, Mexico, Canada, for example) to step up with their own targeted sanctions to avoid a broader and destructive U.S. sanction policy.
But such an effort would require an active behind-the-scenes-diplomatic effort to get Latin American and Western European countries to draw a line in the sand with the July 30th vote and declare that should it go forward, there would be targeted diplomatic and economic costs. If the Trump administration’s threat works to get them to do that, hey, I’ll take it. At least that’s what I’m hoping.
