Walter Molano | Venezuela: Countdown to Armageddon
Published:Friday | February 1, 2019 | 12:32 AM
OP-ED CONTRIBUTION: EMERGING MARKET ADVISER
Podcasts are one of the most interesting venues for the dissemination of news, information and debates. It is giving an opportunity for new voices to be heard.
One of my favourite podcasters is Dan Carlin. A former news reporter and radio personality, he is not an eminent historian from an academic institution. However, he synthesizes some of the best historical works into a coherent analysis of the most pivotal moments in history. His three-hour long programmes are riveting and they can melt the clock on a trans-Pacific flight.
One of the most popular series is called, Blueprint for Armageddon. He details the chain of irreversible events that led to the start of World War I, one of the bloodiest conflicts in human history. Unfortunately, the current events dominating the airwaves seem to be a repeat of earlier collision courses. As Mark Twain said: “History never repeats itself, but it often rhymes”.
Unfortunately, ground zero is now Venezuela.
A whirlwind of events is pushing Venezuela closer to war. It started when the president of the National Assembly, Juan Guaido, declared himself interim president. He proclaimed that the presidential electoral process had been fraudulent, and that Nicolas Maduro was not the legitimate leader of the country.
Quickly, a confluence of countries, including the United States, Colombia, Brazil, Chile and Argentina, followed suit and recognised him as the legitimate leader. Hundreds of thousands of Venezuelans took to the streets, and the marches were repressed by the police and military. Dozens of civilians were killed or wounded
Within days, a subversive group of junior officers tried to overrun an intelligence unit. The attack was repulsed, but tens of thousands of protestors came out in support.
President Maduro responded by cutting diplomatic relations with the US. He gave all diplomatic members notice to depart within 72 hours. Although the US began evacuating all non-essential personnel, and recommending all Americans to leave the country as soon as possible, Secretary of State Mike Pompeo said that he did not recognize the end of diplomatic relations, because the US no longer acknowledged Maduro as the legitimate leader of the country.
Tension and chaos
This led to a showdown over the weekend, which was partially defused when Maduro said that he would extend a grace period of 30 days. Meanwhile the two countries established special interests representative offices in Caracas and Washington.
The problem is that the US relationship is with interim President Guaido, and not Maduro. To heighten the tension, Russia dispatched 200 members of a paramilitary mercenary unit, known as Wagner.
Five European governments, among them Spain, France, Belgium, Germany and the United Kingdom, gave Maduro until the weekend to hold new – and legitimate – elections, or else they would recognise Juan Guaido as the legitimate president.
These actions are already having repercussions. The government of Venezuela tried to withdraw the US$1.2 billion in gold bullion that was held at the Bank of England, but the UK government said no. Last of all, Florida Senator, Marco Rubio, warned Maduro that there would be severe consequences if anything happened to Juan Guaido, members of the National Assembly and any peaceful protestors.
The chain of events has now taken a life of its own, and other considerations are pushing the situation closer to war. In a way, China and Russia would probably welcome a military intervention in Venezuela. Under the Trump doctrine of neo-realism, multilateralism and international law have been thrown out the window. The world has been broken into spheres of influence.
Clearly, Latin America is within the domain of the US. But this means that large military powers, such as Russia and China, will have their own spheres of influence. This means that Russia may do as it pleases with Ukraine and Georgia. Likewise, this means China will have more of a say in Taiwan and Southeast Asia.
This conflict also plays well into the hands of President Trump. With his popularity sagging, and suffering a humiliating defeat at the hands of Speaker of the House Nancy Pelosi, a war with Venezuela, which will be easily swept aside, will rally the people to his side.
Therefore, this process has taken a life of its own. Unfortunately, there will be many unintended losses and casualties along the way.
In the end, it is not clear how bondholders will fare. From a balance sheet perspective, Venezuela is the richest country in Latin America. It has the largest oil reserves in the world. And its debt load is minuscule. Yet, Washington and the International Monetary Fund may want to wipe the slate clean and give the country a fresh start.
So, it’s unclear what will happen to investors. What is certain is that the clock is ticking faster to Armageddon.
Dr Walter T. Molano is a managing partner and the head of research at BCP Securities LLC.