Sanctions not socialism killing Venezuela

While the company line is that Venezuela is currently suffering from the ravages of Communism, Socialism, and Marxist utopian over-spending resulting from anti-democratic, anti-capitalistic, anti-free market, and anti-Venezuelan people; the truth might have much more to so with the economic sanctions imposed on Venezuela by the US government since August of 2017, mortally impacting the civilian population much more than the Nicolás Maduro-run government. Or, asserts an April, 2019, report by Mark Weisbrot and Jeffrey Sachs for The Center for Economic and Policy Research (CEPR), Economic Sanctions as Collective Punishment: The Case of Venezuela (PDF). 

Executive Summary

The sanctions reduced the public’s caloric intake, increased disease and mortality (for both adults and infants), and displaced millions of Venezuelans who fled the country as a result of the worsening economic depression and hyperinflation. They exacerbated Venezuela’s economic crisis and made it nearly impossible to stabilize the economy, contributing further to excess deaths. All of these impacts disproportionately harmed the poorest and most vulnerable Venezuelans. Even more severe and destructive than the broad economic sanctions of August 2017 were the sanctions imposed by executive order on January 28, 2019 and subsequent executive orders this year; and the recognition of a parallel government, which as shown below, created a whole new set of financial and trade sanctions that are even more constricting than the executive orders themselves. We find that the sanctions have inflicted, and increasingly inflict, very serious harm to human life and health, including an estimated more than 40,000 deaths from 2017 to 2018; and that these sanctions would fit the definition of collective punishment of the civilian population as described in both the Geneva and Hague international conventions, to which the US is a signatory. They are also illegal under international law and treaties that the US has signed, and would appear to violate US law as well.

August 2017 US Sanctions on Venezuela

The August 2017 sanctions prohibited the Venezuelan government from borrowing in US financial markets. This prevented the government from restructuring its foreign debt, because any debt restructuring requires the issuance of new bonds in exchange for the existing debt. Thus, these sanctions prevented the economy from recovering from a deep recession which had already taken a large toll on the population, which along with the economy was more vulnerable to these sanctions and the ones that followed as a result of the economic crisis. Real GDP had already declined by about 24.7 percent from 2013 through 2016, and consumer price inflation for January to August 2017 was probably somewhere between 758 percent and 1,350 percent at an annual rate. It is important to emphasize that nearly all of the foreign exchange that is needed to import medicine, food, medical equipment, spare parts and equipment needed for electricity generation, water systems, or transportation, is received by the Venezuelan economy through the government’s revenue from the export of oil. Thus, any sanctions that reduce export earnings, and therefore government revenue, thereby reduce the imports of these essential and, in many cases, life-saving goods.

Trump Executive Decisions on Venezuela

Other executive decisions made by the Trump administration resulted in the closure of Venezuelan accounts in financial institutions, loss of access to credit, and other financial restrictions that have had severe negative impacts on oil production as well as the economy, as detailed in this paper. The most immediate impact of the January sanctions was to cut off Venezuela from its largest oil market, the United States, which had bought 35.6 percent of Venezuela’s oil exports in 2018, or about 586,000 barrels per day on average. In the week of March 15, US imports of Venezuelan oil fell to zero for the first time, and they remained at zero for another two weeks before rebounding to a fraction of their 2018 average. After the January sanctions and the recognition of Guaidó as “interim president” — which made him, according to the Trump administration and other governments recognizing the parallel government — the legal owner of any funds transferred or goods bought by the Venezuelan government, Venezuela’s access to correspondent banks for international transactions was mostly wiped out. This included access to necessary credits for imports of medicine, food, and other essential goods.

Venezuelan Living Conditions

According to the National Survey on Living Conditions (ENCOVI by its acronym in Spanish), an annual survey of living conditions administered by three Venezuelan universities, there was a 31 percent increase in general mortality from 2017 to 2018. This would imply an increase of more than 40,000 deaths. More than 300,000 people were estimated to be at risk because of lack of access to medicines or treatment. This includes an estimated 80,000 people with HIV who have not had antiretroviral treatment since 2017, 16,000 people who need dialysis, 16,000 people with cancer, and 4 million with diabetes and hypertension (many of whom cannot obtain insulin or cardiovascular medicine). Food imports have dropped sharply along with overall imports; in 2018 they were estimated at just $2.46 billion, as compared with $11.2 billion in 2013. They can be expected to plummet further in 2019, along with imports generally, contributing to malnutrition and stunting in children. The United Nations finds that the groups most vulnerable to the accelerating crisis include children and adolescents (including many who can no longer attend school); people who are in poverty or extreme poverty; pregnant and nursing women; older persons; indigenous people; people in need of protection; women and adolescent girls at risk; people with disabilities; and people who identify as lesbian, gay, bisexual, transgender, or intersex.

Unilateral Sanctions on Venezuela are Illegal

The unilateral sanctions imposed by the Trump administration are illegal under the Charter of the Organization of American States (OAS), especially articles 19 and 20 of Chapter IV. They are also illegal under international human rights law, as well as treaties signed by the United States. The sanctions also violate US law. Each executive order since March 2015 declares that the United States is suffering from a “national emergency” because of the situation in Venezuela. This is required by US law in order to impose such sanctions, and the national emergency is invoked under the 1976 National Emergencies Act. This is the same law that President Trump invoked in February 2019 when declaring a national emergency to circumvent Congressional appropriation for funds to build a wall along the border with Mexico. The executive order also states, as required by law, that Venezuela presents “an unusual and extraordinary threat to the national security” of the United States.” There is no foundation in fact for either of these declarations.

Sanctions Barred the Import of Medicine, Food, and Medical Equipment

It is important to emphasize that nearly all of the foreign exchange that is needed to import medicine, food, medical equipment, spare parts and equipment needed for electricity generation, water systems, or transportation, is received by the Venezuelan economy through the government’s revenue from the export of oil. Thus, any sanctions that reduce export earnings, and therefore government revenue, thereby reduce the imports of these essential and, in many cases, life-saving goods. The loss of so many billions of dollars of foreign exchange and government revenues was very likely the main shock that pushed the economy from its high inflation, when the August 2017 sanctions were implemented, into the hyperinflation that followed. It is common in the history of hyperinflations that they are triggered by a large external shock to government revenues and the balance of payments, as happened to Venezuela following the implementation of these sanctions.

The International Monetary Fund (IMF) Withdrew Liquidity

On April 10 Bloomberg reported that the IMF had suspended the Venezuelan government’s access to nearly $400 million in Special Drawing Rights (SDRs), another source of liquidity, “citing political chaos since National Assembly President Juan Guaidó claimed in January that he was the nation’s rightful leader.” Other Venezuelan foreign assets have been confiscated by governments closely allied to the US, including $1.2 billion in gold that was held at the Bank of England and a fertilizer company in Colombia, Monómeros, valued at $269 million. The government also has some $6.5 billion in trade credits, from energy cooperation agreements, which could be marketable at an estimated $3.4 billion, in order to get cash for essential imports. However, such asset sales are also mostly precluded because of the US sanctions. In some cases, sizeable payments from countries who participated in Venezuela’s Petrocaribe program and attempted to pay have, apparently, been blocked — for example a recent $115 million attempted payment from Jamaica. On the other side of the equation — the purchase of imports — the Trump administration has dealt the public health and safety of the population a serious blow by incapacitating Venezuela’s means of payment for the imports that it can buy with the cash flow that remains. Of course, this directly reduces the population’s access to essential imports such as medicines and food. The Trump administration is able to do this by various means that prohibit or reduce both the public and private sector’s access to the international system of payments.

Restriction of Billions to Pay for Lifesaving Imports

One result of the sanctions, as described above, is to deprive the Venezuelan economy of many billions of dollars of foreign exchange needed to pay for essential and lifesaving imports. The sanctions implemented in 2019, including the recognition of a parallel government, accelerated this deprivation and also cut off Venezuela from most of the international payments system, thus ending much of the country’s access to these essential imports including medicine and food — even those that could normally be bought with available dollars. There is no doubt that all of these sanctions since August 2017 have had severe impacts on human life and health. While it is impossible to specify the counterfactual — what would have happened if there were no sanctions — we can first look at some of the deterioration of health indicators (including health care and health-related infrastructure and capacity) between 2017 and 2018. According to the National Survey on Living Conditions (ENCOVI by its acronym in Spanish), an annual survey of living conditions administered by three Venezuelan universities, there was a 31 percent increase in general mortality from 2017 to 2018.35 This would imply an increase of more than 40,000 deaths. This would be a large loss of civilian life even in an armed conflict, and it is virtually certain that the US economic sanctions made a substantial contribution to these deaths. The percentage of deaths due to the sanctions is difficult to estimate because the counterfactual is unknowable, but it is worth noting that the counterfactual in the absence of sanctions could even be that mortality would have been reduced (see below), in the event that an economic recovery would have taken place. Since these are annual statistics, they would not take into account the impact of the sanctions during the last four months of 2017. As noted above, the impact of the August 2017 sanctions on the collapse of oil production and therefore access to imports was quite immediate, so we would expect some of the increased mortality to show up in 2017. In 2018 the Venezuela Pharmaceutical Federation reported that shortages of essential medicines were 85 percent. According to a September 2018 study by CodeVida and Provea, more than 300,000 people were at risk because of lack of access to medicines or treatment. This includes an estimated 80,000 people with HIV who have not had antiretroviral treatment since 2017, 16,000 people who need dialysis, 16,000 people with cancer, and 4 million with diabetes and hypertension (many of whom cannot obtain insulin or cardiovascular medicine). These numbers by themselves virtually guarantee that the current sanctions, which are much more severe than those implemented before this year, are a death sentence for tens of thousands of people who cannot leave the country to find medicines elsewhere. This is especially true if the projected 67 percent drop in oil revenue materializes in 2019.

Impacts on Health and Premature Deaths

But the accelerating economic collapse that current sanctions have locked in have many more impacts on health and premature deaths. According to the Venezuelan Medical Federation, some 22,000 doctors — about one third of the total — have left the country. As migration accelerates in 2019 due to the tightening sanctions, more of these health professionals, as well as others with necessary technical skills, will leave Venezuela. According to the March 2019 UN Report “Venezuela: Overview of Priority Humanitarian Needs,” ENCOVI surveys find that due to malnutrition, some 22 percent of children under five are stunted.40 Food imports have dropped sharply along with overall imports; in 2018 they were estimated at just $2.46 billion, as compared with $11.2 billion in 2013.41 They can be expected to plummet further in 2019, along with imports generally. The increasing collapse of export revenue and therefore imports has also created massive public health problems in the areas of water and sanitation. The most recent UN Report notes that “lack of access to water, soap, chlorine and other hygiene inhibits hand washing and household water treatment” and that “households not connected to the water network are using improperly treated and unsafe surface water and wells.” CodeVida found that for 2018, “79 percent of health facilities experience shortages in water supply,” while ENCOVI reports that 61 percent of schools “are in communities without daily access to potable water.” The electricity crisis has also impacted hospitals and health care. It is not known how many people have died as a result of power failures in hospitals, but during the March blackouts there were press reports of fatalities due to loss of electricity. As noted above, the sanctions contributed substantially to the duration and impact of the blackouts. The UN Report finds that the groups most vulnerable to the accelerating crisis include children and adolescents (including many who can no longer attend school); people who are in poverty or extreme poverty; pregnant and nursing women; older persons; indigenous people; people in need of protection; women and adolescent girls at risk; people with disabilities; and people who identify as lesbian, gay, bisexual, transgender, or intersex.

Sanctions In Violation of International Law

A number of legal scholars have argued that economic sanctions of this type are in violation of international law, including the UN Charter and international human rights law. It seems obvious that sanctions which cause widespread hunger and disease, and increased mortality, would violate human rights law. It is worth noting that both the Hague and Geneva Conventions, to which the US is a signatory, prohibit collective punishment of civilians. Although these treaties apply only during wartime, UN human rights experts have argued that it does not make sense that civilians should only have this protection during situations of armed conflict. The sanctions also violate US law. Each executive order since March 2015 declares that the United States is suffering from a “national emergency” because of the situation in Venezuela. This is required by US law in order to impose such sanctions, and the national emergency is invoked under the 1976 National Emergencies Act. This is the same law that President Trump invoked in February 2019 when declaring a national emergency to circumvent Congressional appropriation for funds to build a wall along the border with Mexico. A number of states and public interest organizations have sued the Trump administration over this maneuver with regard to the border wall.

Venezuela Not a Threat to the United States

Of course, it is quite clear that Venezuela has not created any national emergency for the United States. The executive order also states, as required by law, that Venezuela presents “an unusual and extraordinary threat to the national security” of the United States. This also has no basis in fact. It is not clear what can be done to enforce the law with regard to these false declarations — US courts have been very reticent to enforce laws in ways that conflict with the foreign policy decisions of the president, even when they appear to violate the constitution. Again, we can never know what the counterfactual would have been. But what we can know is that the sanctions made such a stabilization program practically impossible. Most immediately, they prevented a debt restructuring that would be necessary to resolve Venezuela’s balance of payments crisis. The sanctions also prevented the government from pursuing an ERBS program because a peg to the dollar would require access to the dollar-based financial system, which the sanctions have cut off as much as possible. The whole idea of restoring confidence in the domestic currency while stabilizing the exchange rate would seem impossible when a foreign power is cutting off as much of the country’s dollar revenue as it can, freezing and confiscating international assets, and, as the Trump administration has done for nearly two years, pledging to do much more of these things — not to mention threatening to take military action. Thus one of the most important impacts of the sanctions, in terms of its effects on human life and health, is to lock Venezuela into a downward economic spiral. For this reason, it is important to note that when we look at, for example, the estimated more than 40,000 excess deaths that occurred just from 2017 to 2018, the counterfactual possibility in the absence of sanctions is not just zero excess deaths, but actually a reduction in mortality and other improvements in health indicators. That is because an economic recovery could have already begun in the absence of economic sanctions. And conversely, the death toll going forward this year, if the sanctions remain in place, is almost certainly going to be vastly higher than anything we have seen previously, given the highly accelerated rate of decline of oil production and therefore the availability of essential imports, and also the accelerated decline of income per person.