What does the drop in petroleum revenue mean for the Venezuelan government? How will Venezuelan ‘social power’ diplomacy be affected? Can President Maduro afford to continue the foreign policies enacted by the late Hugo Chávez?

On 6 December 2015, the United Socialist Party of Venezuela—formerly the Fifth Republic Movement—lost its majority in the National Assembly for the first time in 16 years. Many welcomed the change in the face of increasing inflation, recession, and consumer good shortages. Others remained confident that President Nicolas Maduro would lead the nation through difficult times. Maduro, however, seems more intent on securing control of key state institutions than in resolving the increasingly volatile conditions in his country. For example, shortly after his party’s loss, Muduro eliminated the National Assembly’s control over nomination and removal of central bank directors and gave the central bank the ability to finance government institutions without legislative approval. This measure was aimed directly at the opposition, who had expressed the need to overhaul the central bank.

Maduro’s actions come as no surprise. Data from the International Monetary Fund (IMF) suggest that Venezuela’s economy shrunk by 10% in 2015 and is expected to shrink by another 6% in 2016. Inflation in Venezuela is also predicted to increase to 204% in 2016, up from an average of 159% in 2015. Less conservative figures place inflation for 2016 at 720%. And the bad news is not over. On 26 January, four small explosive devices were detonated in Caracas, including one near the National Assembly building. The devices—which appear to be the work of the Bolivarian Liberation Forces, a radical leftist group—dispersed pamphlets critical of the opposition but also of Maduro’s actions.  To worsen Venezuela’s international reputation, Caracas has now been identified as the deadliest city in the world for 2015—with about 120 homicides per 100,000 residents. To top things off, Venezuela’s crude oil prices have fallen 75% since 2014. This is particularly devastating for a country that relies on oil income for most of its government revenue. It is no surprise that some have begun to predict the collapse of Venezuela’s government and economy.

While the decrease in oil prices will surely spark changes in the internal workings of Venezuelan society, what should we expect regarding its foreign policy, particularly towards the United States? While foreign policy is not necessarily dependent on the health of a nation’s natural resources economy, Venezuela’s distinctive form of foreign policy—soft balancing through the use of social power diplomacy—is particularly vulnerable to fluctuations in the oil market. If oil prices remain low and if Maduro fails to improve the state of the oil sector, Venezuela’s diplomacy efforts will also collapse.

Soft Balancing: The Rise of Social Power Diplomacy in Venezuela

Since Hugo Chávez assumed the executive office in April 2002, Venezuela’s foreign policy sought to ‘soft balance’ against the U.S. while ‘hard balancing’ involves the reconfiguration of the international distribution of power against the hegemon, soft balancing seeks less grand goals, centered on weakening the support group of states for the hegemon. To do so, Venezuela used ‘social power’ diplomacy. Similar to hard power and soft power, social power diplomacy allowed Venezuela to attract allies by providing them with generous handouts, peppered with a pro-poor, distribution-prone discourse. According to Javier Corralesleading scholar in Latin American politics—“[w]ith social power diplomacy, other nations are not necessarily cajoled into bowing to the economic or military might of the projecting nation, as is the case in the realm of traditional hard power politics. Also, nations are not necessarily attracted to the magnetic appeal of the projecting nation’s ideology and values, as is the case with the realm of soft power politics. Instead, social power diplomacy attracts allies because it provides governments with far more latitude in domestic spending than is the case with any form of Western aid. This domestic freedom produces close international ties.”

According to Corrales, social power diplomacy in Venezuela emerged for three reasons: the election of Hugo Chávez, Venezuela’s regime configuration, and a favorable political economy. First, even before becoming president, Chávez employed anti-market rhetoric and cultivated ties with anti-U.S. governments. This position was reinforced after the failed U.S.-backed coup in 2002. Second, social power flourished in Venezuela because Chávez created a hybrid regime—not quite democratic but not too authoritarian—that undermined checks and balances and nurtured his goals. Had checks and balances remained, foreign aid would have had a harder time getting approved in the face of social problems in the country. Finally, social power was only possible due to Venezuela’s favorable political economy. High oil prices not only paid for Venezuela’s social power diplomacy but also increased the demand for those policies by making oil-importing countries more desperate for oil subsidies.

To soft balance against the U.S., Chávez used a variety of other more traditional diplomacy tools. One of these is the regional organization ALBA, the Bolivarian Alliance of the Americas—a political, economic, cultural, and ideological organization founded as an alternative to the neoliberalism promoted by the U.S. According to Joel D. Hirts, ALBA seeks to create international relationships based on solidarity, cooperation, and fair trade to assist the economic, political, and cultural development its 11 member countries. In this framework, members retain sovereignty and are able to develop institutions according to their own necessities. Several other specific programs—some part of ALBA and some not—aided Venezuela’s attempts to soft balance including aid programs, and cultural education and promotion.

First, as Corrales notes, one of Chávez’s central policy goals was to promote development, especially to aid the poor at home and abroad. For example, in 2006, Venezuela’s direct investments abroad were 8% of its fixed capital, higher than the average prior to Chávez. Estimates suggest that between 1999 and 2007, Chávez committed $43 billion abroad in the form of subsidies, grants, and donations. Benefactors included Argentina, Bolivia, China, Cuba, Iran, Nicaragua, and even the U.S. Venezuela also provided multilateral aid, as in the case of Petrocaribe, a Venezuelan program to provide Caribbean countries thousands of barrels of oil every day and petroleum products at preferential payment terms. Other actions demonstrate ALBA’s commitment to aid:  ALBA workers have performed over one million eye surgeries for those without the means to afford them and it has sent 75,000 health workers to visit over two million homes. Chávez also took advantage of international events. For example, Venezuela was a major contributor to Haiti after its disastrous earthquake and provided heating oil for 500,000 Americans in the aftermaths of Hurricanes Katrina and Rita. Chávez ‘sactions, coupled with Washington’s suspicion, embarrassed the U.S. and lent credibility to the Venezuelan government.

Second, Chávez placed significant effort on promoting education and Latin American culture. The goal was to provide Latin Americans with a better understanding of their history and region. To this end, Venezuela encouraged international exchanges. For example, it welcomed tourists seeking to explore methods of cooperative ownership, land redistribution, and regional integration, as discussed by Michael J. Bustamante and Julia E. Sweig. Venezuela also helped fund Olympic style ALBA Games in Havana with participants from over thirty countries, sponsored tourism fairs, literature competitions, and produced movies. To broadcast all these programs, Venezuela created Telesur, a Latin American television network serving as a counter-weight to the influence of CNN. Telesur was the main communicational initiative under ALBA and sought to develop a new communications strategy for Latin Americans by promoting their news and culture. While Telesur certainly informs Latin Americans, it also advertises the good deeds of the Venezuelan government.

For years, this behavior allowed Venezuela to refract possible scrutiny from other nations. This seemingly altruistic behavior also allowed Chávez to be openly critical of the flaws of neoliberalism and globalization—ideas that resonated strongly with many poor Venezuelans long disenchanted with inequality and endemic corruption. This strategy, however, would not last. The decrease in oil revenue makes these practices unfeasible.

Soft Stumbling: The Fall of Social Power Diplomacy in Venezuela

In the short term, social power diplomacy gained Chávez two types of international allies: states that refused to criticize Chávez because they received aid and intellectuals with some affinity towards anti-American rhetoric. In the long run, however, Venezuela’s diplomatic strategies failed to advance its foreign policy goals—to soft balance. The failure was evident during Chávez’s presidency and continues to reveal itself under Maduro.

Because social power diplomacy is highly dependent on the health of Venezuelan petroleum production and income, their decline implies the decline of its foreign policy as well. As Corrales notes, Chávez made the critical mistake of allowing Venezuela’s oil sector to decay. Between 2004-2008 (the high peak of petroleum prices), Venezuela’s petroleum sector shrunk instead of expanding. The productivity of PDVSA (Petroleum of Venezuela) began dropping in 2002 while its payroll grew by about 250%.  This is particularly damaging given that Venezuela is the world’s largest holder of proven oil reserves. Instead of using oil profits to reinvest and maintain PDVSA, Chávez hired employees loyal to him and not qualified experts. Chávez also alienated possible international investors. His preference of state-owned rather than private-owned multinationals increased the costs of doing business for the latter and foreign direct investment suffered.

Part of Chávez’s foreign policy was to convince foreigners to stand in solidarity with the Bolivarian Revolution as it faced what he described as external threats and provocations from the U.S.  However, the idea that his country was somehow a victim was hard to sell for several reasons. For example, Chávez openly supported and provided resources for certain political candidates and home and abroad, the same behavior for which he criticized the U.S.  More importantly, Venezuela’s soft balancing policy gained little traction due to its close commercial relationship with the U.S.  The U.S. remains Venezuela’s leading supplier of goods and the largest export market for its oil, positions it has held for most of the last century. These facts cast doubts over the authenticity of Venezuela’s anti-American rhetoric; while Chavista leaders are critical of the U.S., they have never placed restrictions on U.S.-Venezuelan commercial relations.

Additionally, Venezuela’s main foreign policy approach—social power diplomacy—is hopeless when oil does not provide the necessary revenue. This is crucial:  PDVSA provides 96 percent of export earnings and 25 percent of Venezuela’s GDP.  Without the high earning of the past, Venezuela is becoming largely innocuous. A struggling oil sectors has also put Venezuela oil commitments on shaky ground; Petrocaribe has sustained delayed shipments and readjustments of exchange rates. There is now speculation that Maduro will increase gas prices by the end of February.

However, foreign policy is the least of Maduro’s worries now. At home, Venezuelans are in critical conditions. Currency and price controls and a thriving black market for the U.S. dollar have contributed to inflation and goods shortages, catalyzing widespread discontent. It is no surprise that Maduro’s approval ratings were 22 percent in early December 2015. For all these reasons, Maduro has begun reaching out to Latin American nations. During last week’s Community of Latin American and Caribbean States summit in Quito, Ecuador, Maduro stated, “Venezuela is in a very difficult situation.” Later, Maduro continued, “I’ve come to propose a series of possible measures for Latin America to respond to Venezuela’s economic emergency, to boost free trade, to increase complementarity and solidarity.”  

Venezuela needs help fast but Maduro’s actions might be too late. Venezuela’s economy is on the brink of collapse. Along with it will come the collapse of its foreign policy towards the U.S.

About The Author

Juve J. Cortés

Juve J. Cortés is a Post-Doctoral Fellow in the department of Diplomacy & World Affairs at Occidental College. He holds a PhD in Political Science and International Relations from USC. His work explores the advent of new democratic institutions in the U.S., Latin America, and Europe.

  • Manolo Dualcez

    Great article! President Maduro would be wise to give it a read.