The United States government has shown its distaste for the authoritarian nature of the Venezuelan government for more than a decade; in order to condemn activities such as abusing human rights, suppressing freedom of expression, and illegally funneling money into government officials’ pockets, the United States has imposed more and more sanctions to punish the authoritarian regime. Most recently, President Donald Trump signed an executive order in August 2019 to impose a new round of economic sanctions on Venezuela. This latest round of sanctions freezes property and assets of anyone that is assisting or working in the Venezuelan government. It also prevents trade with Venezuela’s government, central bank, and state oil company, Petróleos de Venezuela, S.A. (PdVSA). The new move also threatens to target and impose sanctions on companies and individuals that engage in business with anyone affiliated with the Venezuelan government, a clear attempt to sever all influx of capital to President Nicolás Maduro’s administration. The Trump administration, which considers Maduro’s rule illegitimate, has recognized Juan Guaidó as the president of Venezuela instead.
As a result of the increased sanctions, humanitarian conditions in Venezuela are deteriorating rapidly: over five thousand people leave Venezuela daily, the overall hyperinflation rate has reached ten million percent, and over 90 percent of people in Venezuela live in poverty, with a minimum wage of just seven dollars a month. Oil revenues previously made up 90 percent of government revenue, but the new round of sanctions has caused oil exports to decrease by 40 percent in its first month alone, reaching its lowest levels since the 1940s. This led to a loss of more than six billion dollars in profit for the oil sector.
The consequences of the new round of Venezuelan sanctions are clear: the Venezuelan economy, and as a result the citizens, are suffering tremendously. When innocent lives are at risk, the benefits and costs of sanctions ought to be reevaluated. While toppling the Maduro regime is an admirable goal, it should not be viewed as one which should be accomplished at any cost. The effectiveness of sanctions needs to be thought of in the context of the everyday Venezuelans paying the price.
Arguments for Removing Sanctions
Sanctions have had a detrimental impact on everyday life for Venezuelans. By the end of 2020, Venezuela’s per capita income will have shrunk by more than two-thirds what it was in 2013, equivalent to three Great Depressions. More than five million people have fled the country and poverty rates have tripled, and more than three hundred thousand people are estimated to be at risk because of a lack of medicine or treatment because of sanctions. Fifteen to twenty percent of Venezuelans lack access to potable water because the foreign-made parts necessary to fix broken pumps and pipes cannot be ordered. Between 2017 and 2018, over forty thousand Venezuelans died from sanctions. More specifically, sanctions are chilling the Venezuelan economy and preventing critical imports in two ways.
First, the threat of sanctions on any foreign entity that works with the Venezuelan government has chilled critical foreign imports, such as food and medicine, into the country. Despite the fact that sanctions only prohibit business with Maduro’s government, sanctions have harmed the country’s small private sector by making it difficult to make payments abroad and find suppliers willing to import into Venezuela because they could be perceived as proxies for the Venezuelan government. This, in turn, stifles businesses and prevents the import of vital goods.
Second, sanctions have crippled the key to Venezuelan’s economy and thus the government’s social spending abilities: oil revenue. As a primarily socialist economy, the government counts on economic revenue in order to pay for long-standing public assistance programs, such as food subsidies, healthcare, and education. In Venezuela’s 2017 budget, 70 percent of government spending went towards social investment. As oil revenue falls, so does the nation’s safety net for its citizens. US sanctions have gutted the oil industry in Venezuela by taking away key customers and preventing the importation of necessary equipment needed to refine the oil. There are very few tankers willing to take the risk of breaking US sanctions. Even those that do will have to buy the heavy crude oil pumped in Venezuela, rather than the more widely used refined oil, which requires naphtha from the United States.
Even more startlingly, the sanctions are creating a perpetual cycle of oppression and suffering by preventing a long-term recovery of the economy. As of March 2019, Venezuela’s external debt was $156 billion, which is 738 percent of the value of its exports. Unfortunately, Venezuela’s economy does not stand a chance of recovering without large-scale international financial assistance and debt restructuring, both of which would restore debt sustainability and macroeconomic resilience; these are prerequisites to seeing growth and increase in investment in the region. Despite the fact that the country has defaulted on most of its debts, creditors are reluctant or unable to negotiate a restructuring of Venezuela's debt because of US sanctions. Dozens of US mutual funds and big banks own portions of the Venezuelan debt and are not allowed to have contact with the Maduro government in a negotiating context or otherwise. Without proper negotiation and bond exchanges, Venezuela can never participate in the debt restructuring it desperately needs for the economy to recover. Moreover, sanctions prevent Venezuela from accessing major international financial institutions that would assist them with restructurings, such as the International Monetary Fund (IMF) and the World Bank, further trapping them in the current dire economic state without a way out.
The consequences of a failing Venezuela stretch far beyond its borders. As refugees flee the country in one of the worst humanitarian crises in the Western Hemisphere, Ecuador, Peru, and Colombia have felt the strain. Venezuelans have become almost 10 percent of Colombia’s population, with many vulnerable refugees being recruited into gangs, sex work, indentured labor, and violent guerilla groups. Not only is this harmful to the Venezuelans, but it also jeopardizes a country that only just recently overcame civil conflicts that have torn the country apart. As Colombia makes great strides in fighting narco-trafficking, ending internal conflicts, and creating an improving economy, it is critical that the refugee crisis not increase political and social tensions during a time of recovery. In fact, a Venezuelan collapse could destabilize the investment climate of the entire region, harming Colombian peace movement.
The implications of sanctions are clear: not only do they prevent Venezuelans from accessing everyday goods, thus entrenching them in poverty, they also prevent Venezuela from pivoting out of its current economic state and towards a more prosperous one.
Addressing Counter Arguments
Supporters of sanctions argue that sanctions are necessary in order to oust Maduro and force Venezuela to diversify and embrace other sources of revenue beyond oil prices, which are very volatile.
Sanctions have been in effect since 2014, when the US Congress passed the Venezuela Defense of Human Rights and Civil Society Act. Those sanctions were escalated by the Trump administration in an attempt to clamp down on Maduro’s government and to ultimately push him out of power. However, despite six years of sanctions, Maduro’s reign has yet to come to an end. Even as Washington imposes harsher sanctions over the past two years, Maduro’s regime has only become more repressive and ruthless and he seeks to hold on to his power. Because Maduro’s regime has a history of rigging elections, increasing Maduro’s unpopularity does little to nothing for a regime change. The most effective way to end the Maduro regime would be to drain revenue and profits from the pockets of the wealthy, forcing them to make changes if they want to survive. Sanctions are ineffective at ending the Maduro regime and are not preventing the wealthy from lining their pockets for a few reasons.
First, since the economic decline of Venezuela in 2014, wealthy Venezuelans have kept their assets abroad in dollars or euros, preventing them from being hurt by inflation as the government cranks out more dollars.
Second, China and Russia see Venezuela as key to expanding their influence in the western hemisphere and have bailed Maduro out with massive loans in order to sustain his government . Maduro owes Beijing $20 billion and a Russian state-backed oil company another $2.3 billion. While the economic situation is dire, China and Russia are likely to continue investing money in Venezuela in order to maintain a foothold in the United States’ backyard. Moreover, there is a high level of uncertainty regarding whether or not the country’s debt would still be valid if Maduro is ousted. Concern that the opposition will come in and not honor their contracts makes both countries more hesitant to pull their support.
Third, Maduro and the government have pivoted to drug trading to make up for oil revenue losses. As Trump constricts Venezuela with economic pressure, Venezuela has increasingly become a transport hub for cocaine, with cocaine-carrying flights drastically increasing over the past year. In fact, over one-quarter of all Colombian cocaine passes through Venezuela, making it a key post to worldwide cocaine trade. This illicit revenue has allowed Maduro to line his pockets and fend off the economic blow from the United States. Because of this behavior, Maduro and his government will never step down. The reality is that, if he did, his crimes against humanity would likely land him in jail for the rest of his life. While sanctions could be effective at persuading some governments to change their behavior, they are ineffective at taking down authoritarian regimes. In fact, the very opposite occurs. Sanctions make autocratic regimes feel trapped; with no viable exit option that leads to freedom, successful negotiations become more and more unlikely. Clinging onto power might be Maduro’s only reasonable path to freedom.
Economic sanctions are not draining Maduro’s regime, they are draining the Venezuelan public. Even worse, Maduro’s power only appears to be more entrenched as the population is ravaged in poverty by sanctions. This occurs in three ways.
First, as the public becomes more poor and desperate, buying people’s support becomes significantly cheaper. One way Maduro rigged the last election was by using state food hand-outs to lure the hungry into voting for him. He filled TV and radio stations with pro-Maduro propaganda and stated that those who vote for the opposition will lose government jobs, public housing, food subsidies, and more. Extended shortages of water and electricity have become the norm, weakening the population. As sanctions deprive Venezuelans of basic life necessities, their support and loyalty becomes easier to buy, entrenching Maduro further into power.
Continuing sanctions allows Maduro to continue scapegoating the United States for Venezuela’s issues without addressing their root causes. In fact, rightfully blaming the United States for contributing and exacerbating the country’s economic crisis has helped Maduro rally the military around his leadership. This gives him another tool he can use to oppress the Venezuelan population. Violence (to which the government has turned a blind eye) has drastically increased, making Venezuela one of the most violent nations in the world.
Supporters of sanctions might also contend that the economic liberalization which is occuring in Venezuela shows that sanctions are effective; Maduro is pivoting away from his long-standing socialist policies and allowing the private sector to grow. However, even with loosened reins, the private sector will never flourish under sanctions because it makes it increasingly difficult for Venezuelans to get loans from abroad. When investors are scared to make investments due to US sanctions and Venezuela’s unreliable economy, the private sector in Venezuela can never get off the ground.
Moreover, Maduro is already scaling back liberalization despite sanctions, restricting the number of items that can enter Venezuela without import taxes in the name of socialism. Leaving liberalization in the hands of Maduro is a dangerous game; if he can pick and choose when he allows the private sector to access the global markets depending on his power shifts, the Venezuelan economy doesn’t stand a chance at rebounding. On the other hand, lifting sanctions would allow the IMF to get involved in fixing the Venezulean economy. The IMF is likely to give loans to Venezuela on the condition that they liberalize. This form of liberalization has a much better chance of succeeding; in a world without sanctions, Venezuela has access to capital and investors as well as permanent liberalization guided by the IMF, all of which can't be rolled back based on the whims of Maduro.
Lastly, many critics believe that the economic failures of Venezuela have nothing to do with sanctions.They claim that before sanctions, Venezuela’s economy was already enduring severe hyperinflation at a rate of 800 percent, food imports falling 71 percent, and medicine and medical equipment imports dropping 68 percent. They further claim that lifting sanctions, at this point, will not stop Maduro from continuing to starve his population. However, even if sanctions did not start Venezuela’s spiral into economic disaster, they played a large role in exacerbating its effects. Many studies have concluded that while the initial drop in oil prices were indeed independent of sanctions, oil prices usually bounce back in Venezuela. However, because of US sanctions, prices remained low and imports dropped drastically, leading to the economy never being able to recover. For this reason, these studies find that sanctions reduced the public's caloric intake, increased disease and mortality, and displaced millions of Venezuelans. Furthermore, while Maduro is certainly no saint, allowing Venezuela to restructure its debt, liberalize through the IMF, and tap back into private markets again will allow the private sector to move out from under Maduro’s thumb. If the private sector is able to grow, the well-being of Venezuelan citizens will no longer be in the hands of an authoritarian regime. Instead, those businesses can grow and line their own pockets, freeing the population from the shackles of the Maduro regime.
Sanctions have failed to take down the Venezuelan government and, in fact, often play a role of propping up the corrupt regime. In the process of trying to usurp Maduro and liberalize Venezuela, the United States has only accomplished the opposite. When the United States harms Venezuelan citizens, making them ripe for bribery and providing Maduro with a scapegoat, Maduro is able to rally the military and rule over the population with an iron fist. The continuation of sanctions is asking for the ends to justify the means even though the end is nowhere in sight. Sanctions have perpetuated the suffering of the Venezuelan people, caused a refugee and humanitarian crisis in Venezuela, and prevented the liberalization that the United States wants to promote. The best path to removing Maduro from power and growing Venezuela’s economy is lifting sanctions. This will place economic opportunities and basic life necessities directly into the hands of the Venezuelan people, freeing them from Maduro. Only then can the population participate freely in elections and feasibly grow their private sector. When Venezuela thrives independent of Maduro, his regime will end.
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Sophia Lam is a third year chemistry and political science major from New York City. On campus, she’s a member of Phi Alpha Delta and a debate teacher at Debate It Forward. She’s previously worked as an intern at Boies Schiller and Flexner and at Pfizer Inc.