Was Maduro's cabinet change a missed opportunity for Venezuela?

President Maduro's changes to his cabinet did little to address pressing problems like the economy - and he may have increased the challenges facing his country. 

Miraflores Palace/REUTERS
Venezuela's President Nicolas Maduro speaks during a ceremony where government houses are distributed to low-income beneficiaries in Caracas, in this September 5, 2014 handout picture.

 David Smilde is the moderator of WOLA's blog: Venezuelan Politics and Human Rights. The views expressed are the author's own.

President Nicolás Maduro’s [cabinet] shakeup announced a week ago was, of course, anti-climatic. There were no major announcements of measures that might address the dramatic distortions in the Venezuelan economy. What changes were announced seemed to muddy the waters for reform.

In the hours after the announcements, analysts warned that the lack of relevant moves was negative for the economy and for international perceptions. Luis Vicente León said, “Nothing was announced to tackle the causes of the crisis. So for now the crisis can only worsen.” Indeed international markets left no doubt about their view of the changes: In the following days, bonds fell and country risk increased, meaning Venezuela will have to pay more for credit on the international market.

One analyst likened Maduro’s moves to a “rotation of used tires” designed to balance internal forces but not much else.

Here we look at the four most important changes made and suggest they represent an internal reordering that could lead to economic and political reforms in the medium term. Nevertheless, they probably represent a lost window of opportunity.

Rafael Ramírez to Foreign Ministry

The most important move by far was the removal of Rafael Ramírez from his simultaneous positions as President of PDVSA, Minister of Energy and Mines, and Vice President of Economy and Finances. He was designated instead as Minister of Foreign Affairs and Vice President for Political Sovereignty.

From Maduro’s position, the logic of this switch seems to have been to diversify control over and responsibility for the economy. In his multiple positions Ramírez controlled the majority of the country’s GDP.

What is more, he has been a central figure in Chavismo just as long as Maduro and apparently saw himself as a potential successor to former President Hugo Chávez before the latter designated Maduro. As such, it was never entirely clear that Ramírez shared the interests of the Maduro government. Indeed rumors of his removal have been circulating for at least a year. It is likely that Maduro regards Ramírez as something less than a loyal ally and thinks changes could be implemented in a better or different way without him.

Analysts differ regarding whether moving Ramírez to the foreign ministry was a strategic move or simply a consolation prize. Opposition legislator Henry Ramos Allup suggested that Ramírez might be more effective in securing foreign loans than Elias Jaua was. In contrast scholar Kenneth Ramírez (no relation) said that Venezuela’s oil diplomacy is already at its limits, that Ramírez would have little power in a Foreign Ministry packed with Maduro allies, and probably would be out of the government in six months.

Nevertheless, there is some logic to having the architect of Venezuela’s oil regime as Foreign Minister. Beyond the need for new loans, Venezuela’s oil industry faces some serious challenges that will require international cooperation to address. PDVSA is currently exploring new international agreements to import light crude to mix with its heavy crude, which could reduce its current dependency on US petrochemical exports. And if PDVSA sells US affiliate Citgo it will need to find refining capacity for its heavy crude.

As well, Venezuela has a declining ability to supply oil to its allies through Petrocaribe and other agreements, which could seriously affect its regional support.

All of these factors suggest that moving Ramírez not only gave Maduro more control over the oil industry but put a relevant person at the head of Venezuela’s oil diplomacy.

New Economic Team

The most immediate interpretation of Ramírez’s removal is that economic pragmatism had been marginalized. In June and July Ramírez had publicly suggested the need for reform measures such as unifying Venezuela’s multiple exchange rates and raising gasoline prices. However, on closer examination this interpretation is less than clear.

The measures that Ramírez put on the table are still there and could still be implemented. Some insiders suggest there could be reform announcements soon. Others suggest Maduro is going to wait until his economic conference in November to announce relevant measures which would give him more political cover than if he had announced them last week. 

Furthermore, the changes in economic team actually seem to be in a technocratic direction. Indeed some of the left of the Chavista coalition portrayed Ramírez’s marginalization as a betrayal of socialism. Rodolfo Marco Torres who retains his post as Minister of Finance and gains the position of Vice President for the economy is not considered a radical. And both Eulogio del Pino (President of PDVSA) and Asdrubal Chávez (Minister of Energy and Mines) are engineers who have been involved in the oil industry since before the Chávez period. Their designations were applauded in Venezuelan business circles.

The changes suggest PDVSA might focus more on the oil business than the multitude of other tasks it has taken on over the past decade, from distributing food to building houses.

Unification of Accounts

Maduro announced the creation of a unitary fund in the Venezuelan Central Bank (BCV) that will bring together the different pools of money such as the Development Fund and the Venezuela-China Fund. Since the BCV publishes its figures, this could improve the transparency of Venezuela’s foreign reserves and could conceivably improve international confidence. It should also reduce the government’s discretionary use of these funds, which might have been part of Ramírez’s removal. There have long been complaints that he had too much control over these accounts.

Increased transparency could also bring some accountability by uncovering important corruption cases such as this one in the Venezuela-China Fund.

Maduro announced that this unitary fund would be started with $750 million dollars, an announcement that some analysis suggested was all that was left of the $119 billion that entered the strategic reserves between 2005 and 2014.Others have suggested there is likely around $10 billion, still a disappointing figure.

Elias Jaua to Ministry of Communes

Moving Elias Jaua from the Foreign Ministry to Ministry of Communes and Vice President of Territorial Socialism was widely read as a demotion. But he is actually better placed there since he has a big following on the radical left and is a key player in the idea of reformulating the state and creating “popular power.” Changing him indicates there could be some significant movement towards the “communal state”  over the coming year.

As Lopez Maya suggests, it is not at all clear that the government has the resources to push forward with any significant push to reformulate the state. However, if the Maduro government prioritizes it and finances it well territorial reformulation could be used in favor of the PSUV in the 2015 elections. Jaua is well positioned to mobilize the Chavista base and could use the institutions under his supervision for electoral proposes.

These four changes clearly do not amount to the “shakeup” observers expected, and do not represent any immediate change in course. For the time being, an absurdly overvalued currency, the printing of inorganic money, and gasoline subsidies that costs Venezuela approximately $25 billion per year remain intact, and Venezuela appears to have entered recession.

Maduro’s moves responded more to his government’s political objectives than to immediate economic necessities. The political costs of even modest economic reforms are high and Maduro is reluctant to assume them himself. Economic reforms announced in November would likely be represented as collective decisions. Measures taken before then will likely be announced by ministers rather than Maduro.

The question is whether a few months down the road Maduro will have the same opportunity he had this summer.

This has been Maduro’s most significant lull in the political struggle that began when he squeaked out a victory in the April 2013 Presidential elections. The protest movement that started in February had largely subsided by June. Maduro came out of the July PSUV congress with increased political capital announcing potential reforms. In July and August the opposition has been preoccupied by its own internal struggles and largely sidelined from the political debate. And there are no elections planned for at least another year.  

What is more, August and September are Venezuela’s vacation months and a convenient time to push through unpopular changes. With job approval ratings that still hover between 35 and 40%—not at all bad for a sitting president—Maduro still has some political capital with the population he could have used to push through more significant measures.

A couple of months from now the Christmas season will be right around the corner, and by early 2015 all attention will be directed to the 2015 elections. Both will make reform difficult.

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