On Friday the Turkish lira fell to its lowest level on protracted concern about geopolitical and economic factors that have been steering Turkish policy decisions of late. The lira dropped 17% against the US dollar, prolonging a slide that has attracted the attention of global markets. Throughout the day, a growing number of media outlets placed blame for the lira freefall on President Trump’s announcement of increased metal tariffs on Turkey, and the deteriorating relationship between Ankara, and Washington. This on-the-fly analysis fails to take into consideration the role Turkish President Erdogan’s unconventional economic policies have played. After the president won re-election in June, he assured the Turkish populace that his newly acquired near-absolute executive power would enable him to repair Turkey’s faltering economy. Unfortunately for Erdogan, he failed to make good on his promise, and the economy continues to backslide.
Turkey’s geopolitical situation brings additional uneasiness. The continuing rift with the United States is only exacerbating Erdogan’s economic problems, and highlighting the economic vulnerabilities that have built up during his time in power. Trump was entirely correct when he said US-Turkish relations are ‘Not good at this time.’ In fact, this is something of an understatement. The US-Turkish relationship has been souring for a long period of time, and the current tensions show no sign of easing.
Also on Friday, Turkish Treasury and Finance Minister Berat Albayrak unveiled the nation’s new economic policy to the world. He said Turkey will be undertaking major cost-cutting steps in the public sector, and the government is moving to secure 35 billion lira (roughly $5 Billion at the moment) through increased revenue and savings. He also said Turkey will be shifting to a more efficient model for funding mega-projects, however, he did not elaborate further.
Unfortunately, Albayrak’s presentation appears to have done little to allay fears in Europe. The ECB (European Central Bank) is examining the exposure of European banks to Turkey. Bank shares fell when word of this became public. Talk of a possible Turkish bail out at some point in the future was also heard today, though the likelihood of Turkey becoming the next Greece is remote for now. Still, a Turkish bailout scenario is frightening to say the least, and could very well lead to the permanent breakup of the European Union.
The days of Venezuelan President Nicolas Maduro and his regime might finally be numbered. Massive protests were staged on Wednesday in Caracas and across the country. Hundreds of thousands of Venezuelans took to the streets to protest the government as the nation marked the 207th anniversary of the revolution that led to its independence. The anti-Maduro sentiment boiled over into violence with dozens injured and at least three people known to have been killed. National Guard and government-backed militias clashed with protesters in a series of running battles. More protests are expected to take place today and through the weekend.
Opposition groups in Venezuela were galvanized by the Supreme Court’s attempt to dissolve the opposition-dominated legislature. Venezuela’s Supreme Court is controlled by loyalists to Maduro. The move set off a firestorm of dissent, so much so that Maduro ordered the court to backtrack on much of its ruling. Since then, Maduro has continued to tighten his hold on power through other measures such as barring his most likely candidate in the next presidential election from holding political office for 15 years.
This latest protest movement is different from previous ones that sought the removal of the government from power. The demands this time are centered around a timetable for elections, which the opposition is confident it will win. Along with the new strategy comes a renewed presence in the streets that does not appear ready to lose energy.
Despite the prolonged opposition and protest movements aligned against him, Maduro has survived and continues to hold power. As the political and economic crises facing Venezuela continue, Maduro remains committed to his strategy of applying a socialist band aid to the country’s wounds. Yesterday, authorities seized a General Motors factory in Valencia. Normal operations are no longer possible and GM has announced it is suspending operations in the country. It’s not clear exactly how seizing the factory will help the Venezuelan economy. Realistically, the move was probably made to rally support from Maduro’s political base.
Maduro’s take on the here and now has always been suspect. While the nation suffers, he is either unwilling or incapable of putting forward effective measures to push Venezuela back onto an even keel. As the opposition strengthens and protests intensify, Maduro’s inaction makes him appear more like Nero and Venezuela more like Rome with each passing day.
Venezuela is rapidly approaching the moment when economic Armageddon becomes a grim reality and there is practically nothing its government can do at this point to reverse course. Data released by the nation’s central bank indicates Venezuela has only $10.5 Billion in foreign reserves left. In 2011 the amount was $30 Billion, and by 2015 that number had diminished to $20 Billion. Venezuela will pay $7.2 Billion to countries it owes debt payments to this year, suggesting that the moment when Venezuela runs out of money entirely could arrive at some point in the near future. The government has promised not to default on its debts, but at the current pace default is a very real possibility.
As the monetary reserves are thinning, hyperinflation has resulted in food and medical shortages that are compounding the everyday trials and tribulations being endured by Venezuelans. Food, and staple goods are becoming more and more scarce. Many hospitals are unable to render more than the most basic care. The sick and elderly are dying in ever-increasing numbers. The crime rate has soared with looting and unrest now the norm in many cities. As bad as the humanitarian crisis is, the economic crisis that Venezuela is mired in bodes even worse for the nation’s long term fortunes.
An Economic collapse is imminent. Some economists say that it has already arrived and will only worsen as time goes on. My personal belief is that Venezuela is teetering on the brink of collapse, and has been for some time. Conditions have deteriorated at a rapid clip, but it will take something major for the collapse to begin in earnest. Defaulting on its debts will probably do the trick. The moment that happens, the economy will collapse entirely, bringing about a complete and irreversible collapse of Venezuela as a nation-state. There will be a massive exodus of citizens into neighboring countries, potentially causing a refugee crisis like South America has never before seen. Colombia will bear the brunt. Tens of thousands of incoming Venezuelan refugees would tax Colombia’s national infrastructure and act as a potential destabilizing force at a time when Colombia is finally getting its act together domestically.
Internationally, there is little that the world community can do but watch and wait. In the United States the number of Venezuelan immigrants entering the country over the last year has skyrocketed. Now, with the immigration laws and policies about to be restructured, there is concern in the US-Venezuelan community that the number of future immigrants will be limited. Activists in Florida are expected to petition President Trump to exclude Venezuelans from future immigration restrictions as the humanitarian crisis there appears likely to continue and worsen.
As Venezuela’s political and military instability continues on with no end in sight, China is reconsidering its strategic relationship with the South American nation. Over the past decade China has been a major supporter of Venezuela’s economic growth. Over $60 billion in loans were poured into the country and China took a leading role in helping to develop and modernize the Latin American country’s infrastructure. In return, China received a secure source for oil. Beijing has long regarded Venezuela as its most important ally in Latin America and has treated her as such until now.
China has stopped the flow of cash to Venezuela, finally accepting that the situation there is probably irreversible. The economy is teetering on the verge of collapse. Conditions for companies doing business in Venezuela, as well as the Venezuelan people, have dropped to near-nightmare levels. There is a nationwide shortage of food, medicine, and nearly every type of consumer good imaginable. Food riots are now a regular occurrence in Venezuela’s largest cities. Exports and imports have nearly dried up and many nations are quite reluctant to import Venezuelan goods. Beijing has realized that things will not improve for Venezuela any time soon. As long as Nicolas Maduro and his government holds power, the economic downfall is not going to be reversed.
Maduro’s days could be numbered. As the socialist economic system his predecessor implemented comes apart, the political opposition is rallying to oust Maduro from power. However, the recall process will be a long one beset with obstacles. If a recall referendum is set in January of 2017 and Maduro loses, he would be replaced by his vice president, a man that Maduro has personally selected. Referendum or not, the socialists will remain in power until the next regularly scheduled presidential election in 2018. So, the opposition is at a crossroads and needs to come up with an alternative to its referendum strategy.
Having Maduro in power does not benefit China if the economic situation in Venezuela continues to deteriorate. Unless the economy shows signs of rebounding, China’s coffers will remain closed. On the flip side of the coin, the absence of loans from China make it even more difficult for Maduro to move the country away from the edge of the cliff where it is currently positioned.
And if Maduro’s efforts to reignite the economy fail entirely, how long will be until Venezuela collapses altogether? Probably not very long.