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Wednesday, May 20, 2015

Disbanding the Venezuelan Mafia | Stratfor

Disbanding the Venezuelan Mafia | Stratfor
A number of powerful individuals who were propelled into positions of influence during the administration of former President Hugo Chavez have used that influence to shape the economy into a mangled instrument that suited their personal interests. These individuals now function less as a government than as a mafia.

Disbanding the Venezuelan Mafia

As the price of Brent crude continued its five-day dip, settling at $64 per barrel Tuesday, we can assume the latest slump is extremely worrisome for Venezuelan President Nicolas Maduro. The petrodollars he needs to keep the Venezuelan economy afloat are dwindling. He has only $17.8 billion sitting in largely illiquid reserves, most of which are stored in gold, and total reserves are declining by roughly $2 billion every month. Less oil revenue means fewer dollars to fund imports, which in turn means the average Venezuelan with a necessary ID card can shop only on days designated by the government. And on those days, that citizen has to rush to stand in maddeningly long lines patrolled by security guards only to find that basic goods, from toilet paper to milk, are stripped from the shelves.
But the drop in the price of oil is not the only thing Venezuelans can blame for the shortages. Festering within the government are a number of powerful individuals who were propelled into positions of influence during the administration of former President Hugo Chavez and who have used that influence to shape the economy into a mangled instrument that suited their personal interests. These individuals now function less as a government than as a mafia. Military generals and government officials have worked hand in hand to move cocaine from Colombia through Venezuela while gaming the country's purchasing and distribution mechanisms and subsidized exchange rates to realize profits from various arbitrage schemes. So even when the government is able to import basic goods, their partners in crime can hoard products at ports or in warehouses to sit and rot or eventually be sold on the black market.
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Maduro inherited a government stacked with officials and generals whose primary interest is to maintain the influence and the perks that come with their positions. But Maduro has a problem. Venezuela's shortages are eventually going to reach a critical point as the country's financial cushion deflates, creating the potential for more serious unrest. At the same time, elections are due this year, and the ruling United Socialist Party of Venezuela is going to struggle to win votes when the government is running on the fumes of the Chavez era. If Maduro has any chance of carrying the country through this crisis, he will have to start by dislodging Chavistas who are distorting critical parts of the economy through their elaborate corruption schemes.
Obviously, this is easier said than done. If Maduro had the power to purge his government, he would have done so by now. The people in question are powerful for a reason, and they have military backing and links to armed groups that can cause trouble if they are crossed. The prospect of messy street protests means he needs the support of his security forces more than ever.
It is for these reasons that we are particularly interested in the growing number of leaks and rumors on U.S. prosecutors and Drug Enforcement Administration members working to build cases against high-level Venezuelan officials complicit in drug trafficking. Following weeks of rumors in Venezuelan media on impending indictments against high-level officials, The Wall Street Journal captured a great deal of attention on Monday with its detailed investigation on this very issue. The report claimed that National Assembly President Diosdado Cabello, Aragua state Gov. Tareck El Aissami, head of the National Guard Nestor Reverol, Gen. Luis Motta Dominguez and retired Gen. Hugo Carvajal are under investigation in the United States, giving credence to previous claims in Venezuela that Cabello, in particular, is at the top of the United States' list of targets.
Of course, these cases have been building for some time, particularly after the 2010 arrest of Venezuelan drug kingpin Walid Makled. But it is notable that the rumors are intensifying at the same time the United States is trying to repair its relationship with Caracas. U.S. State Department Counselor Thomas Shannon met with Maduro on May 11, following up an April visit, and is reportedly expected to have more meetings with him in the coming weeks. The investigation of such high-profile Venezuelan officials would be discussed in these meetings. It is also reasonable to believe Cabello would be a central point as well.
Cabello, who participated in the 1992 coup attempt led by Chavez, has served in several powerful positions in the government and has influence over several members of the military. So long as he remains in a position of influence, the members in his criminal network are also protected. For now, as president of the National Assembly, Cabello has diplomatic immunity from any charges that the United States could throw at him. But if he loses his power — either through elections or through a decision by Maduro — then he and his cohorts will be susceptible to arrest and extradition if they leave the country now that he faces an impending indictment. Such concerns may be at least part of the reason we have not yet seen the Venezuelan government follow through in setting a date for the elections, even though Maduro likely knows that canceling the elections would result only in more severe and possibly unmanageable unrest on the streets.
That brings us back to the talks between Shannon and Maduro. Holding charges over the heads of powerful members of the Venezuelan government enables Washington to pressure Caracas into making political concessions, including a power-sharing arrangement with the opposition. But there may be more to the negotiation as well. Maduro may not be able to purge powerful figures such as Cabello and El Aissami on his own, but there is a possibility they could be sacrificed as part of a bargain with Washington — beginning the process of routing the government and the economy of its most destructive elements and delivering a message that the criminal networks distorting the economy are not impenetrable.
One way or another, Maduro needs to mitigate food shortages and secure economic aid. The United States is in no way the whole answer to Venezuela's problems or a substitute for the structural reforms needed to repair the economy, but it may be able to offer Maduro a partial solution. That prospect alone should have Cabello nervous.

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