Will Venezuela Get The New Government It Needs?

Earlier in September the U.S. Ambassador to the United Nations, Nikki Haley, joined a group of people on the street who were protesting the President of Venezuela, Nicolas Maduro.

“We need your voices to be loud, and I will tell you going to tell you the United States voice is going to be very loud,” Haley said.

Her words raise the chances that Venezuela’s rotten regime may bite the dust, which has the potential to be great for the downtrodden people of that country and also for investors.

Venezuela’s President Nicolas Maduro addresses the 73rd session of the United Nations General Assembly, Sept. 26, 2018. AP Photo/Frank Franklin II.

In general, economic hardship does not lead to regime change. If it did plenty of countries would have seen their leaders ousted recently, Venezuela among them. You can read about this phenomena here.

The people of Venezuela, without doubt, are downtrodden at the moment. Despite having the world’s largest reserves of crude oil, the country gets poorer by the minute. The economy is contracting quickly. Last year the country’s GDP declined by more than 13% and the year before by over 16%, according to data collated by the TradingEconomics website. It will no doubt see more declines this year as well.

Hyperinflation is ravaging what is left of the economy, and the country’s oil production has plummeted. Even the official annual inflation rate, which woefully understates the size of the problem, is now 200,000%. Crude oil production has fallen to less than half the level it was at the beginning of 2014. Both figures are from TradingEconomics.

Food and medicines are in short supply. People are fleeing the country if they are able to do so.

In short, Venezuela is an economic disaster that is overwhelmingly due to the absurd economic policies pursued by Maduro in the name of socialism. It seems to be lurching toward becoming a failed state.

The problems could be fixed in a trice. However, the leader refuses to do so, and the people of the country are now so beaten down that they have little hope of overthrowing him on their own.

Hope?

But following this month’s comments from Ambassador Haley, it seems there might be some hope for regime change. Talking to protestors outside the UN headquarters in New York she said:

I can tell you that I talked with President Trump and he is fired up about this. He is angry at Maduro. His comments were we are not just going to let the Maduro regime backed by Cuba hurt the Venezuelan people any more.

As mentioned above, it is rare for even the worst regimes to get ousted without some help from outside the country. But with help from the U.S. administration, there might be a chance.

United States Ambassador to the United Nations Nikki Haley speaks a protest against Venezuelan President Maduro outside United Nations HQ, Sept. 27, 2018. AP Photo/Seth Wenig.

There are reasons for the U.S. to want change.

  • The collapse of the Venezuelan economy has caused a humanitarian crisis.
  • The malaise wracking the country could be a destabilizing influence on South America. That’s never a good thing, but it is particularly bad for the U.S. given that the country is in America’s backyard.

It is hard to know precisely what actions if any, the Trump administration will take concerning Venezuela. However, the chances of a regime change are far higher if the administration does lend a helping hand. Haley words this month add to the chances that some action will get taken.

Investor potential?

If a new regime that embraces a market economy does take power in Venezuela, there could be huge potential for investors in the economy, particularly those with knowledge of the oil business.

Not only does Venezuela need foreign capital to grow, but it also requires technical know-how. The socialist regime has routinely appointed party cronies to key positions within the state-owned oil company PDVSA, regardless of their technical knowledge of the oil industry. The results haven’t been optimal.

Companies that could benefit include Exxon Mobil, Chevron, and ConocoPhillips. They are all U.S.-based, which plays into Trump’s America-first policies, are well capitalized, and they all have deep strength in the business of oil extraction.

The only question now is whether a regime change will happen.

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