EU Not Considering Oil Embargo On Venezuela

On February 4, 18 European countries recognized Juan Guaidó as the interim president of Venezuela. The move came eight days after the European Union gave Caracas eight days to announce new presidential elections.

Now it appears that the EU is willing to increase the pressure on the regime of Nicolás Maduro further.

Reuters reports that the EU is considering placing more sanctions on individuals in the Venezuelan government.

Malta’s foreign minister, Carmelo Abela, said that the sanctions needed to be targeted: “The intention … is that sanctions can be possible on certain individuals rather than on issues that might have an effect on an already weakened economy.”

“Having further (sectoral) sanctions is not excluded but primarily we are focused on certain individuals,” said Abela.

Targeted sanctions may not be enough to force Maduro to adopt new policies. Some experts say oil and financial sanctions may be the only way to force meaningful change in Venezuela.

The United States and India imported the most crude oil from Venezuela in 2017, the latest year with complete data from UN COMTRADE. In that year the US imported $10.7 billion and India imported $5.9 billion worth of crude oil.

As the graph below shows, China, India, and the US are in the best position to put pressure on the Maduro regime through trade sanctions or an oil embargo.

Reported imports of crude oil from Venezuela in 2017 under HS 2709 from UN
COMTRADE

European countries represent a much smaller fraction of all crude oil exports than China, India, or the US. However, given the state of the Venezuelan economy, European countries and the EU can still apply significant economic pressure through trade sanctions or an embargo on Venezuelan oil.

Sweden, Spain, and Germany were the top importers of Venezuelan crude oil in 2017.

Reported imports of crude oil from Venezuela in 2017 under HS 2709 from UN COMTRADE

Although they may be reluctant to impose oil sanctions at the moment, European countries may need to take a closer look at the option in the near future if Maduro continues to cling to power.

Chile Maintains Rate But To Continue Reducing Stimulus

This article originally appeared on CentralBankNews.info on December 4, 2018. It is reproduced here with permission from the author.

Private inflation expectations have eased in line with lower international prices of oil and fuels while they remain at the central bank’s 3.0 percent target for 2 years out.

Chile’s economy slowed in the third quarter more than expected, mainly due to specific factors related to mining and manufacturing. The Gross Domestic Product growth eased to 2.8 percent from 5.4 percent in the second quarter.

The central bank added the EES market outlook pointed to annual economic growth of 4.0 percent this year and 3.5 percent in 2019 and 2020.

The Central Bank of Chile issued the following statement:

In its monetary policy meeting, the Board of the Central Bank of Chile decided to keep the monetary policy interest rate at 2.75%. The decision was adopted by the unanimous vote of its members.

Externally, the data continues to confirm that global growth is moving to a stage of lower expansion than in previous years. Since the previous Meeting, less auspicious activity figures have been noted in the Eurozone and China, a downward adjustment in the prices of risky assets in developed markets and a market perception that the process of monetary normalization in the United States will be more limited next year. Also worth noting is the significant drop in the price of oil, which reduces some shortterm inflationary pressures, in a context where the other commodity prices show no big changes. The Brexit is nearing definition, while the trade conflict between the US and China seem to have opened some formal room for negotiating.

The Chilean peso and stock market continued to fluctuate significantly in recent weeks, while longer-term interest rates decreased in line with events in the developed markets. Risk indicators posted minor changes. The credit market continues to be characterized by low interest rates and higher growth in commercial and consumer loans.

Third-quarter 2018 national accounts showed a slowdown in activity beyond expectations, caused mostly by mining- and manufacturing- specific factors. In the latter case, the calendar effect took a toll on activity in September, which was fully undone October according to sectoral indicators. On the expenditure side, the data continues to point to significant momentum from investment and somewhat slower from consumption, although October’s sectoral retail data suggests a strengthening of the latter. The revision to remuneration indexes by the INE and the consideration of the effect of immigration on the behavior of employment confirm the vision of a labor market that evolves in line with the growth pace observed since mid-2017. For the period 2018-2020, the market outlook (EES) points to an annual GDP expansion of 4% this year and 3.5% in 2019 and 2020.

October’s inflation (0.4%) was in line with forecasts, so annual CPI inflation decreased to 2.9% and CPIEFE inflation remained at 2.1%. The prices that are more sensitive to the activity gap, such as non-regulated utility rates in the CPIEFE, continue to accelerate steadily. At shorter terms, private inflation expectations have fallen in line with the lower international prices of oil and fuels, while at two years they remain around 3%.

The Board’s decision considered that the analysis contained in the December Monetary Policy Report, and the data available at the statistical close, confirm that the evolution of macroeconomic conditions make it necessary to reduce the monetary stimulus, a process that will continue to be implemented gradually and cautiously. Key to this judgment is the evaluation of the size of capacity gaps compared to the magnitude of the monetary stimulus: while the former have narrowed and inflation has increased, monetary policy remains highly expansionary. With this, the Board reaffirms its commitment to conduct monetary policy with flexibility, so that projected inflation stands at 3% over the two-year horizon.

The minutes of this Monetary Policy Meeting will be published at 8:30 hours of Wednesday, 19 December 2018. The next Monetary Policy Meeting is scheduled to take place on Tuesday 29 and Wednesday 30 January 2019 and the statement thereof will be released this same day at 18:00 hours.

This article originally appeared on CentralBankNews.info on December 4, 2018. It is reproduced here with permission from the author.

Huracán María Evidenció Alto Riesgo Climático En El Caribe

Este artículo fue escrito por Patrick Corcoran y originalmente publicado por LatinClima en diciembre 6, 2018 . Se reproduce aquí bajo creative commons.

Bastó tan solo un huracán para que Puerto Rico escalara del puesto 105 al primero en la más reciente edición del Índice de Riesgo Climático Global (IRC), correspondiente al 2017, elaborado por la organización Germanwatch. Lo mismo sucedió con Dominica, que pasó del puesto 120 al tercero.

Ambos estados caribeños fueron gravemente afectados tras el paso del huracán María en setiembre del 2017. Puerto Rico reportó 2.975 víctimas, mientras que la tormenta en Dominica dejó 31 muertos. Asimismo, en Dominica, el huracán dejó un saldo de 1.200 millones de dólares en daños.

En este ránquin de riesgo climático les sigue Sri Lanka (puesto 2), Nepal (4), Perú (5), Vietnam (6), Madagascar (7), Sierra Leona (8), Bangladesh (9) y Tailandia (10).

En total, en 2017, 11.500 personas murieron como consecuencia de eventos climáticos extremos y se contabilizaron 375.000 millones de dólares en daños. “Por eso, 2017 fue el año con las mayores pérdidas relacionadas con el clima que hayan sido registradas”, destacó Germanwatch.

La afectación de los países no termina con el impacto del evento climático extremo, como el paso del huracán, sino que -según lo observado en el 2017- las precipitaciones extremas fueron seguidas por inundaciones y deslizamientos de tierra que siguieron cobrando vidas humanas e incrementando los daños.

“Los países pobres son los más afectados, pero los eventos climáticos extremos también amenazan el desarrollo de países de renta media y alta y pueden incluso sobrecargar a países de alta renta”, dijo David Eckstein, autor principal del IRC de Germanwatch. Vale recordar que Puerto Rico es un estado libre asociado a Estados Unidos, una de las ocho potencias económicas en el mundo.

Los resultados del análisis realizado por Germanwatch a través de su IRC fueron presentados en una conferencia de prensa realizada en el marco de la Conferencia de Naciones Unidas sobre el Clima (COP24), que tiene lugar del 3 al 14 de diciembre en la ciudad de Katowise en Polonia.

“La COP24 tiene que redoblar esfuerzos para abordar adecuadamente pérdidas y daños que aparecen como una cuestión transversal a la que se hace referencia en las distintas corrientes de negociación -con un riesgo significativo de que se omita en el texto final de la negociación. Los riesgos de futuras pérdidas y daños relacionados con el clima son demasiado graves para funcionar simplemente como material de negociación”, se lee en el informe distribuido a la prensa por Germanwatch.

Los mismos de siempre

Para construir su índice, Germanwatch analiza dos conjuntos de datos: los derivados de los impactos de los eventos climáticos extremos (provenientes de la base de datos NatCatSERVICE de la empresa de reaseguros Munich Re) y los socioeconómicos (aportados por la base de datos del Fondo Monetario Internacional). Los datos solo reflejan los impactos directos como pérdidas económicas directas y muertos, no así impactos indirectos como, por ejemplo, escasez de alimentos debido a sequías prolongadas.

“El índice no debe confundirse con un sistema de clasificación completo de la vulnerabilidad climática. Representa una pieza importante en el rompecabezas general de los impactos relacionados con el clima y las vulnerabilidad asociadas a estos. Pero, por ejemplo, no toma en cuenta aspectos importantes tales como el aumento del nivel del mar, el derretimiento de los glaciares o mares más ácidos y cálidos”, aclara Germanwatch en su informe.

Lo que indica el IRC es el nivel de exposición y la vulnerabilidad de los países a fenómenos climáticos extremos como huracanes, monzones, tormentas, etc.

Aparte del análisis anual, Germanwatch realiza uno histórico tomando en cuenta datos de los últimos 20 años. En este sentido, cuando se analizan los datos desde 1998 hasta 2017, y debido al huracán María, Puerto Rico también encabeza esta lista histórica, relegando a Honduras -país que sistemáticamente ocupaba el primer puesto- en el segundo lugar de riesgo climático.

De hecho, en los últimos 20 años, cinco países de Centroamérica y el Caribe se ubican entre las 10 naciones más vulnerables al cambio climático a nivel mundial: Puerto Rico (1), Honduras (2), Haití (4), Nicaragua (6) y Dominica (10). El resto de los puestos se los reparten países asiáticos como Myanmar (3), Filipinas (5), Bangladesh (7), Pakistán (8) y Vietnam (9).

A nivel global, en los últimos 20 años, más de 526.000 personas murieron como consecuencia directa de más de 11.500 fenómenos meteorológicos extremos. En el período comprendido entre 1998 y 2017, las pérdidas ascendieron a unos 3.470 millones de dólares.

Algunos países como Haití, Filipinas y Pakistán suelen verse afectados por eventos climáticos extremos con regularidad, por lo que usualmente están en el IRC del año y en el IRC histórico. A eso se suma que algunas naciones pobres tienen mayores dificultades para recuperarse y no han terminado de salir de una catástrofe cuando ya deben lidiar con la siguiente.

De hecho, el IRC histórico evidencia esta vulnerabilidad de los países más pobres: ocho de las diez naciones más afectadas entre 1998 y 2017 corresponden a países de renta baja o media-baja. “En términos relativos, los países más pobres son golpeados mucho más severamente. Los resultados evidencian que los países menos desarrollados y pobres son mucho más vulnerables a los riesgos climáticos, aunque las pérdidas monetarias son sustancialmente más altas en los países más ricos. La pérdida de vidas, la emergencia humana y la amenaza existencial también están mucho mas extendidas en los países de bajos ingresos”, se detalla en el informe de Germanwatch.

“Es importante apoyar a los países en la adaptación al cambio climático, pero eso no es suficiente. Necesitan apoyo financiero previsible y confiable para hacer frente a las pérdidas y daños inducidos por el clima”, resaltó Eckstein.

Ahora bien, los países ricos no están exentos. Por ejemplo, y según Germanwatch, Estados Unidos ocupa el décimo segundo lugar en el índice de 2017, con 389 fatalidades y 173.800 millones de dólares en pérdidas causadas por condiciones meteorológicas extremas durante 2017.

“La protección climática efectiva, así como el aumento de la resiliencia, también interesa a países ricos”, dijo Eckstein.

Este artículo fue escrito por Patrick Corcoran y originalmente publicado por LatinClima en diciembre 6, 2018 . Se reproduce aquí bajo creative commons.

A Legacy of Turmoil: Peña Nieto’s Tenure in Mexico

This article was written by Patrick Corcoran and originally published by Insight Crime on November 27, 2018. It is reproduced here under CC BY-NC 3.0.

Mexico President Enrique Peña Nieto ends his six-year term amid a rising body count, allegations of cover-ups, and having failed his nation on a variety of key issues, particularly security.

Assessing the legacy of any presidency is complicated, as each carries triumphs and failures. But Peña Nieto’s tenure is unusual for starting with such promise and then foundering in virtually every realm.

What went wrong for Peña Nieto?

Spike in Violence

Peña Nieto assumed Mexico’s presidency after a dramatic increase in bloodshed that engulfed the administration of his predecessor Felipe Calderón. At the time of his inauguration, though, the worst of the Calderón era appeared to have passed; Juarez had stabilized and was no longer the world’s most violent city, while nationwide murders actually declined slightly in 2012.

Initially, Peña Nieto saw the positive trend he inherited continue. In 2013, for example, the nationwide total of murders declined more than 10 percent, to just over 23,000, before falling still further in 2014. But by the latter half of Peña Nieto’s presidency, the trend had reversed.

In 2017, Mexico tallied 31,174 murdersmore than any year in its modern history. Peña Nieto’s last year in office has seen a similar body count, meaning that incoming President Andrés Manuel López Obrador inherits a country in need of triage.

Tarnished Technocrat

Peña Nieto’s reputation abroad initially enjoyed a boost from the improved murder rate and his seeming departure from Calderón’s relentless bellicosity. Whereas Calderón announced new troop deployments and made appearances in army fatigues, Peña Nieto presented himself as a pragmatic technocrat. Foreign enthusiasm for Peña Nieto culminated in a flattering 2014 profile in Time magazine, in which his photo graced the cover beneath the headline “Saving Mexico.”

But the accolades were short-lived. Corruption and incompetence undermined Peña Nieto’s presidency. The most damning examples were the bungled investigation into the disappearance of 43 college students and the revelation that Peña Nieto’s wife received a luxury property from prominent government contractors. At the same time, increased insecurity and violence stained his and the country’s reputations.

Rather than the savior of Time’s imagination, Peña Nieto became a figure of ridicule at home and abroad.

Military on the Streets

Peña Nieto began his presidency amid pledges to back away from Calderón’s heavy reliance on the military to police Mexico’s streets. His promise of a robust new gendarmerie was aimed at removing soldiers and marines from civilian areas.

But once created, the new police force was too small and incapable of replacing the military, except in isolated areas. The military remained key to Mexico’s security strategy throughout Peña Nieto’s tenure, leaving behind a mix of operational successes and allegations of human rights abuses.

Despite his promises to curtail the use of the military, Peña Nieto eventually pursued a dramatic expansion of its powers. His 2017 security law strengthened the legal basis for domestic operations, paving the way for permanent deployment of soldiers and marines on Mexican streets. The law — furiously opposed by NGOs and political opponents — was declared unconstitutional by Mexico’s Supreme Court in November 2018. As Peña Nieto leaves office, Mexico’s military is again in a state of confusion.

Institutional Failures

During Peña Nieto’s tenure, the daunting long-term challenge of improving Mexico’s security institutions saw little headway. From the outset, Peña Nieto continued the institutional merry-go-round that is typical of incoming presidencies, launching the gendarmerie and dissolving the Ministry of Public Security. Rather than considering Mexico’s needs, these changes seemed geared toward putting his stamp on the country’s security policy. The time, effort, and money spent on this reshuffle could have instead buttressed existing institutions.

Peña Nieto also failed to tackle the endemic problems plaguing police. The persistent poor performance and marred reputation of Mexico’s police force are beyond the scope of a single administration, but Peña Nieto did little to improve it, which he could have done by strengthening anti-corruption measures within police departments or funding improved salaries for officers.

Peña Nieto also oversaw the uneven final implementation of the 2008 judicial reform, which sought to overhaul the trial system. As previously reported by InSight Crime, the reform was initially lauded, but its potential has been limited by insufficient training for judges and lawyers, inadequate funding, and other defects.

Mexico’s budget tightening also left its security agencies with fewer resources. Plataforma Mexico, a criminal database and information center created by Calderón, was rendered essentially obsolete after funding cuts. In 2017, Peña Nieto pushed a spending bill that included the first slash to security funding in a decade.

Corruption and Cover-ups

Mexico’s inability to tackle corrupt and abusive officials has long increased the power of criminal groups, undermined the government’s moral high ground, and hindered efforts to secure public cooperation on security issues.

Unfortunately, Peña Nieto’s government allowed the impunity to continue, deepening the public perception of a dishonest and incompetent state. The federal government’s investigation into the 2014 disappearance of the 43 students from the Ayotzinapa Rural Teachers’ College was marked by corruption and cover-ups, serving only to muddy the waters and obscure the chain of responsibility for the presumed massacre.

Before the disappearance of the college students, Mexican soldiers allegedly summarily executed 15 of 22 criminal suspects shot to death in a warehouse in the central Mexican city of Tlatlaya. A military court later acquitted six of seven soldiers charged in the killings. One soldier was convicted on charges of failure to obey orders, and he served a year in prison. A recent order, however, to reopen the investigation offers some hope that the extrajudicial killings will not go unpunished.

Even beyond Ayotzinapa and Tlatlaya, the government’s record is littered with examples of unpunished human rights abuses. According to reports from Amnesty InternationalHuman Rights Watch, and Mexico’s National Commission on Human Rights, the use of forced interrogation tactics by Mexican police routinely include the rape and torture of suspects and witnesses.

These and other issues are clearly not solely the outgoing president’s fault. But Peña Nieto leaves his successor, Andrés Manuel López Obrador, a nation steeped in violence and a populace deeply distrustful of the state. The correct path forward is murkier than ever.

This article was written by Patrick Corcoran and originally published by Insight Crime on November 27, 2018. It is reproduced here under CC BY-NC 3.0.

Venezuela: The Rise and Fall of a Petrostate

This article was written by Rocio Cara Labrador and originally appeared on Council on Foreign Relations on November 30, 2018. It is reproduced here under CC BY-NC 4.0.

Venezuela, home to the world’s largest oil reserves, is a case study in the perils of petrostatehood. Since its discovery in the 1920s, oil has taken Venezuela on an exhilarating but dangerous boom-and-bust ride that offers lessons for other resource-rich states. Decades of poor governance have driven what was once one of Latin America’s most prosperous countries to economic and political ruin. If Venezuela is able to emerge from its tailspin, experts say that the government must establish mechanisms that will encourage a productive investment of the country’s vast oil revenues.

What is a petrostate?

Petrostate is an informal term used to describe a country with several interrelated attributes:
  • government income is deeply reliant on the export of oil and natural gas,
  • economic and political power are highly concentrated in an elite minority, and
  • political institutions are weak and unaccountable, and corruption is widespread.

Countries often described as petrostates include Algeria, Cameroon, Chad, Ecuador, Indonesia, Iran, Libya, Mexico, Nigeria, Oman, Qatar, Russia, Saudi Arabia, the United Arab Emirates, and Venezuela.

What’s behind the petrostate paradigm?

Petrostates are thought to be vulnerable to what economists call Dutch disease [PDF], a term coined during the 1970s after the Netherlands discovered natural gas in the North Sea.

In an afflicted country, a resource boom attracts large inflows of foreign capital, which leads to an appreciation of the local currency and a boost for imports that are now comparatively cheaper. This sucks labor and capital away from other sectors of the economy, such as agriculture and manufacturing, which economists say are more important for growth and competitiveness. As these labor-intensive export industries flag, unemployment could rise, and the country could develop an unhealthy dependence on the export of natural resources. In extreme cases, a petrostate forgoes local oil production and instead derives most of its oil wealth through high taxes on foreign drillers. Petrostate economies are then left highly vulnerable to unpredictable swings in global energy prices and capital flight.

The so-called resource curse also takes a toll on governance. Since petrostates depend more on export income and less on taxes, there are often weak ties between the government and its citizens. Timing of the resource boom can exacerbate the problem. “Most petrostates became dependent on petroleum while, or immediately after, they were establishing a democracy, state institutions, an independent civil service and private sector, and rule of law,” says Terry Karl, a professor of political science at Stanford University and author of The Paradox of Plenty, a seminal book on the dynamics of petrostates. Leaders can use the country’s resource wealth to repress or co-opt political opposition.

How does Venezuela fit the category?

Venezuela is the archetype of a failed petrostate, experts say. Oil continues to play a dominant role in the country’s fortunes more than a century after it was discovered in the early twentieth century. The most recent plunge in oil prices—falling from more than $100 per barrel in 2014 to a low of under $30 per barrel in early 2016—has sucked Venezuela into an economic and political spiral, from which it could take decades to recover.

A number of grim indicators tell the story.

Oil dependence. Oil sales account for 98 percent of export earnings and as much as 50 percent of gross domestic product (GDP).

Falling production. Oil output has declined for decades, reaching a new low in 2018.

Spiraling economy. GDP is expected to shrink by double digits for a third consecutive year.

Soaring debt. Venezuela has missed billions of dollars in payments since defaulting in late 2017.

Hyperinflation. Annual inflation is running at more than 50,000 percent.

Growing autocracy. President Nicolas Maduro has violated basic tenets of democracy to maintain power.

Together these have caused a devastating humanitarian crisis, with severe shortages of basic goods, such as food and medical supplies. In 2017, Venezuelans lost an average of twenty-four pounds in body weight. Nine out of ten live in poverty. Roughly one in ten have fled the country.

How did Venezuela get here?

A number of economic and political milestones mark Venezuela’s path as a petrostate.

Discovering oil. In 1922, Royal Dutch Shell geologists at La Rosa, a field in the Maracaibo Basin, struck oil, which blew out at what was then an extraordinary rate of one hundred thousand barrels per day. In a matter of years, more than one hundred foreign companies were producing oil, backed by dictator General Juan Vicente Gomez (1908–1935). Annual production exploded during the 1920s, from just over a million barrels to 137 million, making Venezuela second only to the United States in total output by 1929. By the time Gomez died in 1935, Dutch disease had settled in: the Venezuelan bolivar had ballooned, and oil shoved aside other sectors to account for 90 percent of exports.

Reclaiming oil rents. By the 1930s, just three foreign companies—Royal Dutch Shell, Gulf, and Standard Oil—controlled 98 percent of the Venezuelan oil market. Gomez’s successors sought to reform the oil sector to funnel funds into government coffers. The Hydrocarbons Law of 1943 was the first step in that direction, requiring foreign companies to give half of their oil profits to the state. Within five years, the government’s income had increased sixfold.

Punto Fijo pact. In 1958, after a succession of military dictatorships, Venezuela elected its first stable democratic government. That year, Venezuela’s three major political parties signed the Punto Fijo pact, which guaranteed that state jobs and, notably, oil rents would be parceled out to the three parties in proportion to voting results. While the pact sought to guard against dictatorship and usher in democratic stability, it ensured that oil profits would be concentrated in the state.

OPEC. Venezuela joined Iran, Iraq, Kuwait, and Saudi Arabia as a founding member of the Organization of the Petroleum Exporting Countries (OPEC) in 1960. Through the cartel, which would later include Qatar, Indonesia, Libya, the United Arab Emirates, Algeria, Nigeria, Ecuador, Gabon, Angola, Equatorial Guinea, and the Republic of Congo, the world’s largest producers coordinated prices and gave states more control over their national industries. That same year, Venezuela established its first state oil company and increased oil companies’ income tax to 65 percent of profits [PDF].

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The 1970s boom. In 1973, a five-month OPEC embargo on countries backing Israel in the Yom Kippur War quadrupled oil prices and made Venezuela the country with the highest per-capita income in Latin America. Over two years, the windfall added $10 billion to state coffers, giving way to rampant graft and mismanagement. Analysts estimate that as much as $100 billion was embezzled between 1972 and 1997 alone.

PDVSA. In 1976, amid the oil boom, President Carlos Andres Perez nationalized the oil industry, creating state-owned Petroleos de Venezuela, S.A. (PDVSA) to oversee all exploring, producing, refining, and exporting of oil. Perez allowed PDVSA to partner with foreign oil companies as long as it held 60 percent equity in joint ventures and, critically, structured the company to run as a business with minimal government regulation.

The 1980s oil glut. As global oil prices plummeted in the 1980s, Venezuela’s economy contracted and inflation soared; at the same time, it accrued massive foreign debt by purchasing foreign refineries, such as Citgo in the United States. In 1989, Perez—reelected months earlier —launched a fiscal austerity package as part of a financial bailout by the International Monetary Fund. The measures provoked deadly riots. In 1992, Hugo Chavez, a military officer, launched a failed coup and rose to national fame.

Chavez’s Bolivarian revolution. Chavez was elected president in 1998 on a socialist platform, pledging to use Venezuela’s vast oil wealth to reduce poverty and inequality. While his costly “Bolivarian missions” expanded social services and cut poverty by 20 percent, he also took several steps that precipitated a long and steady decline in the country’s oil production, which peaked in the late 1990s and early 2000s. His decision to fire thousands of experienced PDVSA workers who had taken part in an industry strike in 2002–2003 gutted the company of important technical expertise. Beginning in 2005, Chavez provided subsidized oil to several countries in the region, including Cuba, through an alliance known as Petrocaribe. Over the course of Chavez’s presidency, which lasted until 2013, strategic petroleum reserves dwindled and government debt doubled [PDF].

Chavez also harnessed his popularity among the working class to expand the powers of the presidency and edged the country toward authoritarianism: he ended term limits, effectively took control of the Supreme Court, harassed the press and closed independent outlets, and nationalized hundreds of private businesses and foreign-owned assets, such as oil projects run by ExxonMobil and ConocoPhillips. The reforms paved the way for Maduro to establish a dictatorship years after Chavez’s death.

Descent into dictatorship. In mid-2014, global oil prices tumbled, and Venezuela’s economy went into free fall. As unrest brewed, Maduro consolidated power through political repression, censorship, and electoral manipulation. In 2017, the government issued an indefinite ban on all protests, imprisoned political adversaries, and dissolved the National Assembly. In May 2018, Maduro secured reelection in a race that the United States condemned as unfair and undemocratic.

Is there a path away from the oil curse?

A country that discovers a resource after it has formed robust democratic institutions is usually better able to avoid the resource curse, analysts say. For example, strong institutions in Norway have helped the country enjoy steady economic growth since the 1960s, when vast oil reserves were discovered in the North Sea, writes Karl in her book. Today, oil accounts for 22 percent of the country’s GDP and over 80 percent of its exports. Strong democracies with an independent press and judiciary help curtail classic petrostate problems by holding government and energy companies to account.

If a country strikes oil or another resource before it develops its state infrastructure, the curse is much harder to avoid. However, there are remedial measures that low-income and developing countries can try, provided they are willing. For instance, a government’s overarching objective should be to use the oil earnings in a responsible manner “to finance outlays on public goods that serve as the platform for private investment and long-term growth,” says Columbia University’s Jeffrey Sachs, an expert on economic development. This can be done financially, with broad-based investing in international assets, or physically, by building infrastructure and educating workers. Transparency is essential in all of this, Sachs says.

Many countries have established sovereign wealth funds (SWF) to manage investment of revenues from their vast resource wealth. SWFs in some fifty countries managed more than $7 trillion in 2018.

Analysts anticipate that a global shift from fossil fuel energy to renewables such as solar or wind will force petrostates such as Venezuela to diversify their economies.

This article was written by Rocio Cara Labrador and originally appeared on Council on Foreign Relations on November 30, 2018. It is reproduced here under CC BY-NC 4.0.