Perspectives on Geopolitics, History, and Political Economy

Why Did Trump Accept Venezuela’s Money?

Commentary from Project Syndicate

Caracas. February 1, 2017. Workers of the state oil company PDVSA march in a parade on the Paseo de los Próceres. – Editorial credit: stringerAmLat / Shutterstock.com

By Keneth Rogoff

CAMBRIDGE – There is a certain irony in recent news that Venezuela donated a half-million dollars to Donald Trump’s presidential inauguration through Petróleos de Venezuela (PDVSA), the state-owned oil company. Venezuela, of course, is a serial defaulter, having done so more times than almost any other country over the last two centuries.

Recently, Venezuela’s despotic socialist government has been so desperate to avoid another default (which would be the country’s 11th since independence) that it mortgaged its industrial crown jewels, including the United States-based refiner Citgo, to the Russians and the Chinese. (The Citgo brand is especially famous in my hometown of Boston, Massachusetts, where the company’s iconic sign has become a landmark in the environs of Fenway Park, where the Red Sox baseball team plays.)

It is not exactly clear why Venezuelan President Nicolás Maduro is so desperate to avoid defaulting on the country’s foreign debt that he is starving his own people, much the way Romanian dictator Nicolae Ceauşescu did in the 1980s. With such severe shortages of food and basic medicines, there is little doubt that if and when the autocrat is finally deposed, there will be some eerily familiar horror stories.

It is simplistic to portray the Venezuelan tragedy as an apocryphal tale of what happens when a country is taken over by left-wing populists. The right-wing governments of the 1980s and 1990s were also corrupt; and, while national income rose, income distribution was among the most unequal in the world. But it is true that Venezuela’s current horror show is very much a product of two decades of left-wing misgovernment.

There was a time when a contribution such as the one Venezuela made to Trump was a mere pittance in a much larger aid budget. Under its previous president, the charismatic Hugo Chávez, Venezuela spread its oil money far and wide, mostly to support other populist anti-American governments in the region. Chávez even funded heating fuel for some low-income households in the US, a program made famous by former US representative Joe Kennedy II’s 2006 television ads.

That was back when high and rising oil prices helped to maintain Venezuela’s revenues even as economic mismanagement sent oil production into a downward spiral. Mind you, Venezuela was never nearly as rich as the US, so its aid budget was like giving to the poor by taking from the almost poor.

Now, with oil prices having fallen dramatically since Chávez’s death from cancer in 2013, his successor, who has all the charisma of a lifelong apparatchik, is being forced to get by without the same easy revenues. And while Chávez was also autocratic, he probably won his elections.

Maduro’s election in 2013, by contrast, was a very close affair that many people question; for one thing, the opposition was allowed virtually no television time, even if starry-eyed US academics insisted that Maduro won fair and square. It is understandable that left-leaning scholars found some of the socialist government’s redistribution and education policies appealing, as Nobel laureate Joseph Stiglitz did when visiting Caracas, the country’s capital, in 2007. But the left’s willingness to overlook the dismantling of democratic institutions in Venezuela is more reminiscent of right-leaning Chicago-school economists’ relationships with Latin American dictators in the 1970s.

Today, Venezuela’s economy is a full-blown disaster, with the collapse in growth and near-hyperinflation causing widespread human suffering. In such circumstances, one might expect a traditional Latin American military coup. The absence of one in Venezuela is hardly a reflection of strong democratic institutions. Rather, the government gives the military a free hand in running the drug trade, making many generals and officials extremely rich – and able to buy the loyalty of key troops.

And this bring us back to the bizarre spectacle of this economically desperate country helping to fund Trump’s inauguration festivities. Like Joe Kennedy II, the Trump organizers can plead that if Venezuela wants to spend its money on making life better for its much richer northern neighbor, who are they to say no?

Well, in both cases, the US should have said no: while the aid is transparent, the symbolism of a rich country taking money from a poor neighbor with millions of suffering people is hardly attractive. And it is particularly bizarre that even as US policy toward Mexico has greatly increased the chances of an anti-American Chávez-type character becoming president there, officials are providing positive publicity to a government that is a caricature of disastrous governance.

Trump’s predecessor, Barack Obama, took a principled stand in US dealings with Venezuela, imposing sanctions to rein in rogue behavior, a policy that drew broad bipartisan support. The Trump administration needs to stay the course, especially as lower oil prices have weakened the Venezuelan government’s hand. Instead of bashing Latin America, the US needs to show it can be a steady and principled friend that will not be swayed by corrupt bribes of any type.

Kenneth Rogoff, Professor of Economics and Public Policy at Harvard University and recipient of the 2011 Deutsche Bank Prize in Financial Economics, was the chief economist of the International Monetary Fund from 2001 to 2003. The co-author of This Time is Different: Eight Centuries of Financial Folly, his new book, The Curse of Cash, was released in August 2016.

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