Transcription
[Music] Hello, I'm Adrian Finnegan. This is Counting the Cost on Al Jazeera, your weekly look at the world of business and economics.
This week, we're focusing on Venezuela. Hungry and without access to medicine, Venezuelans are suffering as a political crisis unfolds. We'll look at what it's like to live inside the world's worst economy, where hyperinflation is a reality and one-tenth of the population has left.
Ninety-nine billion dollars in debt, and much of it in default. Venezuela is a country with many creditors, but where did all the money go? Plus, confusion reigns in energy markets as the US slaps sanctions on Venezuela, where it hurts. How the game of oil is playing out in Venezuela.
People don't have enough to eat. At least one-tenth of the population are economic refugees, according to what official data is available. Infant mortality is soaring at a faster rate than in Syria. This economic crisis is a humanitarian crisis, and we're in a new chapter.
On January 23rd, the leader of the legislature, Juan Guaidó, began a push to remove current president Nicolás Maduro. The United States has imposed an embargo on Venezuela's state oil company, PDVSA. The sanctions aim to transfer control of Venezuela's oil wealth to those that oppose Maduro. And oil is a good place to start. How did a country with the world's biggest oil reserves end up so impoverished and bankrupt?
The Orinoco Belt holds one of the world's largest reserves of heavy crude oil. The problem is, though, oil accounts for 98% of Venezuela's foreign earnings. There's a lack of other sectors, but worst of all, no sovereign wealth fund to invest all the money. The government controls everything, and it's been spending more than it's been earning. Venezuela's issued billions in sovereign bonds and borrowed heavily, using the country's natural resources as collateral. Now, though, it's in default.
Strict control of foreign currency exchange has restricted people's ability to access foreign-produced goods. This imbalance has led to hyperinflation. That means inflation running at a million percent, and it's rendered the bolívar worthless.
Our Latin America editor, Lucia Newman, is on the ground in Petare, Caracas, talking to people about what it's like to fight for survival in Venezuela right now.
I'm standing in a line in Petare, that is one of the largest slums in all of Venezuela. These people have been waiting so that they can buy a treat. It's called sardines, one of the very few things that they can actually afford these days. "Too, too expensive. We can't afford anything. They raised the minimum wage to 18,000 last month, but we can't buy anything at all. A kilo of cheese costs 15,000 bolívares, and there goes practically your entire salary."
Everybody here is holding loads of bills in their hands, but their apps, they're almost worth nothing. What you see here are 15 new bolívares. This is in August, were worth $250. A dollar with 60 bolívares. Now they're worth less than five. This is almost a full month's salary, but you can hardly buy much more than these sardines with this. This is one of the ways we have of surviving, because that is what we're doing, barely surviving. We see the sardines as a lifesaver, and people here are telling me they actually don't like sardines, but it's the only thing they can afford at this point.
What can you buy with the minimum wage? I'm going to show you how long this line is, and it formed in just a few minutes. Word of mouth, as people heard that something was being sold. In fact, they usually line up without even knowing what's at the other end, because whatever it is, they say they're going to need it. And in this country where hyperinflation has surpassed 1 million percent and expected to go up even further this year, people are telling me that prices in the last two weeks alone have more than quadrupled, especially since the political crisis got worse.
"Listen, there's nothing left in this country. Everyone here knows it. There's no money, no food here. We're all starving to death." The problem is, people don't want to say it either because they're embarrassed or because they may be beaten up. But you can't be afraid to tell the truth.
So, these sardines are being sold at a discount by the government, but directly in front of me, you can see a whole row of shops. They're all closed. One of them was a butcher shop, the other used to sell cheese, ham, salami, things like that, but now they've all gone out of business. So, people here are beginning to get rather agitated and upset. The queue is still extremely long, but they can see up there that the sardines are going to be running out pretty soon. And if they don't make it to the top of the queue before that happens, many people are telling me they'll have nothing to feed their families tonight.
For Counting the Cost, Lucia Newman, Al Jazeera, Caracas.
Joining us now in Doha is Hayro Lugo-Ocando. Hayro is the director of executive education and graduate studies at Northwestern University here in Qatar, but is originally from Venezuela. Welcome to Counting the Cost. What are you hearing from friends and family in Venezuela about what life is like right now?
Well, it's, it's very difficult at the moment. Uh, my own sister is living with a salary of $10 a month as a teacher. Uh, they struggle. I was there last year and went through the border, had to go out through the border with Colombia, and I could see, you know, thousands of people crossing the border. You can see that they were moving because you could see the type of thing they were carrying out. People on a basic salary cannot buy the basics of food. They depend on, on the staples provided by the government, which are, do not reach the majority of the population. So, there's a dramatic situation, and hospitals are collapsed. Over 22,000 doctors have left the country since 2015. There's a cancer mortality rate which is up 15% because there's no treatment for chemotherapy or radiotherapy available. Um, and, and a lot of the situation goes down to basically the mismanagement of the economy and, and, and political turmoil.
So, how do people feel about Maduro and, and about his, his predecessor Chávez?
Now, yeah, I think Chávez was very popular, particularly because he represented a, a, a, a hope for the whole process of, of confronting corruption and decline in the economy of the previous years. And for a while, that popularity went up, and with also with the rise of the oil prices, but also because President, um, former President Chávez was very, you know, charismatic and had a very strong connection with the people. That's not the case of Maduro. Maduro not only doesn't have that connection with people, doesn't have that charisma that unites, it decorates that connection with the people, but he doesn't either have the money. The, the oil price has gone down from $112 a barrel to, yes, over $60 for the Venezuelan Tijuana, which is the average type of oil that Venezuela uses, and that represents a huge dramatic drop in the coffers of the government. On top of that, the government had indebted itself massively during the Chávez period. We went from an international debt of $34 billion, which was our international debt by 1998, to one that is over $200 billion at the moment. So, the government, uh, is basically serving the debt now instead of a paying adapter, and that's the origins of the collapse.
I want to clarify that a lot has been said about US sanctions. Well, the collapse of the economy started way before any sanctions were even announced. For the first time, the government of Maduro had decided that they had to honor the debt, that they would not go to the International Monetary Fund, and because of that, they give preference to the payment of debt. That meant a reduction of 80% of the money that it was dedicated to imports of food. This is in a country in which 98% of the income in the country depends on oil, basically. We produce oil and nothing else. And, and once you do that reduction in imports, you create this situation of massive, uh, hunger and, and mass exodus from the people.
Is there anyone in Venezuelan society who's weathering the storm here, or is it affecting everyone?
It is affecting every single one of them. I know people in, in, uh, in the, uh, in the, you know, in the middle class. Poor people, obviously, the poor people are the most affected by this crisis because they are the ones who cannot reach the basics. Depends. The middle class normally would have, in some cases, or in many cases, will have people abroad who send money back home. But even that has been limited. For example, if you want to send medicines to Venezuela to a family member, the government just confiscated in the airport. They allege that because that they have to do that to prevent, you know, uh, comfort medicine to one in. But the truth is that the patients in Venezuela either have any access to local medicines.
Hayro, it's really good to talk to you. Many thanks indeed.
Thank you.
Now, both China and Russia are standing by Nicolás Maduro. He's regarded as Beijing's staunchest ally in Latin America, a friendship underpinned by huge loans, investments, and weapons sales. Here's our China correspondent, Adrian Brown.
They were jumping for joy when President Nicolás Maduro was last in China four months ago. But today, the leadership here is not excited about the prospect of Venezuela without him at the helm. China is Venezuela's biggest creditor, has invested heavily in its oil industry, and regards President Maduro as its strongest ally in South America. China has lent more money to Venezuela, upwards of $60 billion, than it has to any other country in the world. It's probably been repaid up to two-thirds of that, but that leaves anywhere in the neighborhood of $20 to $30 billion that Venezuela owes China. Analysts say China's leaders are concerned about whether the deals will be honored if the opposition party takes. But for now, China continues to voice support for Maduro, coupled with veiled warnings to the United States.
"China opposes foreign interference in the internal affairs of Venezuela, especially the Venezuelan government to uphold national sovereignty, independence, and threatening military interference, and continue to support efforts made by the stability."
The growing political, economic, and humanitarian crisis in Venezuela has attracted global headlines and concern. The main evening news on state-controlled television has shown pictures of the protests, but so far made no mention of the violence or suffering of the people. As in Africa, Chinese influence in South America is expanding fast, especially in Venezuela. Besides money, China's also been helping the Maduro regime in another important way. It's now Venezuela's biggest provider of arms, including weapons for crowd control, which have been proving so effective during the current unrest.
Still to come on Counting the Cost: a wake-up call for the mining industry in Brazil. One of the worst disasters in the nation's history puts the spotlight on the world's biggest producer of iron ore. But first, more on our top story, Venezuela.
There, things like rice, cooking oil, and other basics are in short supply. People have to scavenge for food. According to reports, parts of the coastline have become havens for ex-fishermen turned pirates. Venezuelan smugglers in 2019 are exchanging drugs and guns for things like nappies. And on the other side of the equation, the rich and powerful in Venezuela are known as the "boliburgueses." Many of them are high-ranking military. The US alleges that they've been stashing their money in safe havens like US luxury real estate in places like Miami.
Well, oil isn't the only resource in Venezuela. The country claims to have the world's fourth largest gold mine. There were reports this week that President Nicolás Maduro is getting ready to ship 20 tons of gold out of the country. The Bank of England has blocked Maduro's officials from withdrawing $1.2 billion worth of gold that's being stored in its vaults.
Joining us now from London is Diego Moya-Ocampos. Diego is a principal analyst for country risk in the Americas team at IHS Markit. Good to have you with us, sir. Diego, so we have the US slapping sanctions on Venezuela, a country which relies on oil for 95% of its foreign currency earnings in order to pay for imports. There's great confusion in the energy markets at the moment in just how to trade in Venezuelan oil. What's going to happen?
Well, certainly these sanctions on the oil sector are a game-changer. It will make it very, very difficult for the administration of Maduro to get access to the proceeds of the sales of oil, and certainly it is going to accelerate pressure for him to step down.
Diego, where are Venezuela's assets, uh, right now? Unknown billions of dollars hidden in possibly US real estate, rumors of gold reserves being flown out of the country, pirates in the Caribbean we're hearing about at the moment. Where is all of this money?
Well, uh, the reason why Venezuela's economy is in such a dire state is because of years of widespread corruption among government officials and epic mismanagement. Some of these proceeds have been laundered, uh, in different places in the Caribbean, in European countries, even in the US, in some Latin American countries, and, uh, it's, uh, at the moment difficult to precise exactly where these assets are located and who has been operating a fraud man for many of Maduro's top, uh, government officials. But what is clear is that the National Assembly in Venezuela, which is controlled by the opposition and which is the only legitimate democratically elected institution in the country, has legislated to establish the necessary mechanisms so that these assets could be frozen abroad and be channeled to the administration of Juan Guaidó, the head of the National Assembly, who has stepped in as provisional president and who has been recognized by the US, by Canada, by most Latin American countries, and many, uh, EU countries. And I think this is, uh, the first steps towards trying to get control of these assets. We think that the fact that these countries have recognized the administration, well, though, will make it more easy for authorities of those countries to freeze those assets. But separate than that, those assets would, which did do belong directly to the government of Venezuela, to state-owned companies, I mean, refineries, bank accounts, and so on. The US Treasury and the US, in particular, is taking the necessary steps so that the revenues and the control of those assets go directly to the administration of Guaidó. So, to make it more difficult for Maduro to govern. We have to remember that despite the fact that Maduro's not being recognized internationally, he's still in control of government functions and enjoys the support of the military, at least until now. And, uh, the fact that Guaidó will access this funding for his diplomats, which are being recognized by these countries, and for humanitarian aid, are concrete steps towards not only paving the way for a democratic transition but also to generate an influx of revenues for, by those administration.
Diego, really good to talk to you on Counting the Cost. Many thanks indeed for being with us.
Thank you. Adrian, always a pleasure.
Now, it's being called the most hated company in Brazil. Vale, the world's number one iron ore producer, is being held to account for its role in a dam collapse, an industrial accident which has devastated a local mining community. It's feared that more than 300 people have died, buried under tons of toxic sludge, and there's growing anger because this is the second time in five years that Vale's mining waste has devastated the local environment. Al Jazeera's Daniel Schweiner has our report from Brumadinho in Brazil.
The first funerals are some of the first victims to be recovered and identified. The whole town of Brumadinho is grieving. Their brothers and sisters, sons and daughters, were employees and subcontractors at Vale, the company that owns the iron ore mine where the dam burst.
[Applause]
We didn't hear anything from the company. If we hadn't looked for him, his body would most probably still be in the mud. After the accident, we wanted information. Francis was 34 years old, married and with a four-year-old daughter. How many people won't ever be found? How many fathers, mothers, and kids? How are we going to cope now? I don't know how I will cope about my brother. How will his daughter cope without her father? How will my father be without his son?
Dozens of bodies have been recovered. That many hundreds more remain unaccounted for. We don't have space for more than three bodies in the funeral parlor. So many people are gathering here, they might end up doing a collective funeral in the sports center. I think emergency teams are still involved in the rescue operation, although most say there is little hope of finding more survivors after the tragedy. The morning. This is a mining town, but it's a small town where everybody knows everybody else, and with many, many more funerals to come, the anger people here feel is only going to grow. There are already signs of it at lessons not learned, at insufficient investment in safety. It's mostly directed at the mine owners, Vale, the same part owners of a nearby mine where a dam burst in 2015, killing 19 people and causing immense environmental damage. Others in this profoundly religious country have their own way of showing their grief and support.
We came from a nearby city to give emotional and spiritual support to these people who are suffering. We brought donations too, but we are mostly here to hug and console our neighbors. Mining is the region's major employer. Amidst the grief and the recriminations, the Brazilian government, the mining industry, and this devastated community must now tackle what is emerging as one of the biggest crises in the country's history.
Joining us now from Buenos Aires is Ximena Blanco. Ximena is the head of Latin America research at Verisk Maplecroft, a risk analysis and forecasting company. Good to have you with us. Brazil's frozen more than four billion dollars worth of Vale's assets. The company itself has said that it's going to spend more than one billion dollars decommissioning dams like the ones that failed. It's somewhat worrying, isn't it, that there are potentially more disasters like the ones like the one we saw that that could happen?
Well, you know, our research at Verisk Maplecroft shows that community opposition and, and community concerns around mining largely relate to water management issues across Latin America. One of those issues is how water is stored and disposed of after it has been used in mining operations. And of course, you know, in the case of Brazil and, and in this particular disaster in question, uh, there's a lot of work that will need to be done around, uh, regulations and enforcement and how the industry responds to to this disaster to prevent future ones from occurring again.
Is this a, a test case for the government? Environmentalists are worried that President Bolsonaro will open up the Amazon to more logging, farming, and soy production. This is a timely reminder of of potential man-made disasters. What lessons will President Bolsonaro take from this?
Well, it remains to be seen if the government will respond to this disaster by reevaluating its own environmental policy. The question then becomes, you know, has the, the risk threats in Brazil increased enough, uh, that large companies, uh, you know, with very responsible business plans, environmental management mechanisms, would not want to go into these environmental sensitive areas that the government is planning to open up to the sector? And the other question to be asked is, can the government actually implement its reform program around environmental regulation and easing environmental, uh, regulatory processes, or will the government have to go back to the drawing board because of not just investor pressure, and even sector pressure, because of, of course, the, the mining sector, uh, you know, really works very hard to, to try to mitigate this perception that, uh, all its operations are environmentally damaging with many responsible companies operating these countries, uh, in a safe manner. But there will also be a lot of social pressure, even from, uh, potentially the president's support base, if these are communities that are exposed, uh, to, to mining operations and have concerns about, uh, potential environmental disasters.
Yes, following the, the Petrobras scandal, which, which ultimately took down the last government, and what's your, your gut feeling about what's, what's going to happen here?
Well, in the perspective of, you know, government stability going forward, our projection indices, which look at the six-month outlook and the two-year outlook, we actually see the stability of this government strengthen over the six-month period. The simple reason for that is because it's a new government, uh, in power with a new support base in Congress, uh, and it's not facing the potential risk of impeachment that we've seen in Brazil over the, the past three years on a pretty recurring basis, both for Dilma Rousseff and Michel Temer. The question then becomes, what happens if this government is unable to deliver the reforms and the changes and the improvements it has promised, for example, on the security front or on economic growth? And when we talk about corruption, a corruption in Brazil is not linked to one particular party or one particular administration alone. It's really an entrenched problem in the political class. And of course, there are members of the new administration who are being investigated for corruption, and new allegations are emerging every day against different members of, of the new government. So, really, we need to look at how those investigations evolve and whether a threat emerges more in the medium term. So, we're looking out at, to the one or two-year outlook rather than in the very short six-month term.
And that's our show for this week. If you'd like to comment on anything that you've seen, you can tweet me. I'm at @AFinnegan on Twitter, but please use the hashtag #AJCTC when you do, or you can drop us a line. Counting the Cost at Al Jazeera dot net is our email address. As always, there's plenty more for you online at Al Jazeera dot com, CTC, that takes you straight to our page, and there you'll find individual reports, links, even entire episodes for you to catch up on. But that's it for this edition of Counting the Cost. I'm Adrian Finnegan. From the whole team here in Doha, thanks for being with us. The news on Al Jazeera is next.