Venezuela’s Fatal Embrace of Cuba

An oil-rich one-time ally of the U.S. has been quietly colonized by a much smaller, poorer neighbor. Now Venezuela is as wrecked and destitute as a country at war

By Moisés Naim. Mr. Naim, who served as Venezuela’s minister of trade and industry in the early 1990s, is Distinguished Fellow at the Carnegie Endowment for International Peace in Washington, D.C. Excerpts:

"In the first half of 2019, Venezuela began to suffer gasoline shortages. This, on its face, was preposterous. The nation had the world’s largest proven oil reserves—its refineries boasted the capacity to supply the country’s needs many times over. Yet drivers up and down the land found themselves waiting days on end in lines outside gas stations, bringing to mind the old joke about how if communists took over the Sahara it would run out of sand.

At the same time, tanker ships were departing from Venezuelan terminals full of oil. They did so in contravention of U.S. sanctions, turning off their satellite tracking devices to avoid detection and heading north-northwest…toward Cuba. This image tells the fundamental story of Venezuela’s multilevel disaster. Even amid crippling gas shortages that left Venezuela in economic free fall, Caracas’s priorities were clear: Cuba’s needs come first. Always."

"For much of the 20th century, Venezuela was the poster child for the successful South American republic: democratic when its neighbors were despotic, prosperous when its neighbors were poor, and stable all through the vagaries of the Cold War. Venezuela carved out a niche as the country that the U.S. State Department could highlight to make its case that democracy could work in Latin America."

"One out of five Venezuelans has fled the country, a dismal parade of more than six million penniless, frail and desperate people straggling into neighboring countries in search of charity and shelter."

"for many decades, Venezuela certainly appeared to be “developing.” Indeed, from the time that its oil industry got going in the 1920s, Venezuela was a development star, with incomes growing steadily and a strong middle class emerging in a country with no history of any such thing.

Yet starting with the debt crisis of the early 1980s, the process stalled. The country’s politics became bitterly divided. Then, in the last 10 years, the development process slammed into reverse. Today, with incomes in free fall and people literally hiking to the nearest border to find something to eat, to call Venezuela a developing country is an absurdity, if not an obscenity.

At the moment, according to researchers, 95% of Venezuelans are poor in terms of income. More than 3 in 4 Venezuelans live in extreme poverty and food insecurity. At around $3 a month, the legal minimum wage won’t feed a person for a day, let alone a family for a month. There is therefore little point in working: About half of the working age population has dropped out of the labor force, leaving remittances from relatives who have fled as the main survival strategy for about 40% of the population. GDP per capita has plummeted to levels not seen since the 1950s.

Hyperinflation set off this most recent and precipitous descent. Beginning in 2017, unbridled government spending, uncontrolled monetary expansion and a collapse in tax revenues led prices to rise out of control. Money became largely useless: Prices in local currency rose an estimated one million percent in 2018. At 45 months and counting, Venezuela’s hyperinflationary spiral is now the second longest in history, bested only by Nicaragua’s in the 1980s.

No part of life is spared the chaos. Water shortages are endemic in all major cities. Blackouts are common. Chronic gasoline shortages have ground public transport to a halt in many places: Bicycles have become the mode of transport of choice for those who can afford them. The healthcare system has collapsed, leading child mortality rates to spike to levels not seen in a generation. Diseases such as diphtheria and malaria, which were all but eradicated decades ago, are back. The sole bright spot? Murder rates have fallen because, some surmise, ammunition is in short supply and gang members have migrated to neighboring countries."

"The main culprit is clear enough: socialism, in a particularly virulent and criminalized incarnation. A wave of expropriations beginning in 2005 put much of the country’s private economy in state hands. Those firms that remained private faced a wall of state controls that left them with little say over their own operations. Wages, prices, hiring and firing, production levels, imports, exports and investment—each became subject to minutely detailed rules thought up by socialist bureaucrats with little notion of how to run a business."

"Private investment largely ceased. No sane entrepreneur would invest in an economy like Venezuela’s, unless in illegal businesses or in companies with close ties to corrupt military or government bigwigs. Of them, there were many: Bureaucrats across the growing state-owned enterprise sector looked for creative ways to extract value from the assets they controlled and ferret it away in offshore bank accounts. Soon, Caracas had turned into a major money laundering hub, with neophyte kleptocrats looking for savvier partners able to help them hide their loot.

Venezuela’s socialism was criminalized from the start, often serving as little more than a narrative that the powerful used to cover up their plunder of public assets. A ruthlessly extractive state elite ran through the nation’s economy like a plague of locusts, leaving virtually nothing behind.

How could such a destructive governance model take hold in a country with one of the most enduring democracies in Latin America? The question will keep academics busy for generations, but the first place to look for an answer is Cuba, which is where Venezuela found the model of state control that it would implement to such disastrous effect.

To call Venezuela under Hugo Chávez and Cuba under Fidel Castro “allies” is to understate the case. Beginning in the early 2000s, thousands of Cuban doctors, teachers, nurses, sports-trainers and community organizers poured into Venezuela as part of an oil-for-development-assistance deal that became an economic lifeline for the island while filling Venezuela to the brim with Cuban spies. Soon, Cubans were enmeshed in Venezuela’s state system at every level, and Chávez made little secret of the fact that he trusted them more than his own people."

"Venezuela experienced a kind of upside-down colonization, with the smaller, weaker country—Cuba—effectively taking over its larger, richer neighbor."

"Soon, Venezuelan kleptocrats were buying ranches in the Argentine pampas and castles in picturesque towns in Spain." 

"sanctioning Venezuela did little to isolate its regime. Why? Because the U.S.’s strategic competitors—including China, Russia, Iran, Belarus, Turkey, Qatar and, of course, Cuba—stepped into the breach, creating an alternative international support system that sustained the Venezuelan dictatorship."

"the Western left took up a well-funded propaganda campaign, called “Hands-Off Venezuela” and supported by the Venezuelan government, that called for “nonintervention” in Venezuela’s affairs, but in a strikingly lopsided fashion: Only the Western democracies were admonished to keep their hands off Venezuela, not the autocracies that propped up the regime."