Streetwise Professor

Igor is not pleased with Maduro’s Venezuela, which is stiffing him:

The head of Russian oil company Rosneft (ROSN.MM), Igor Sechin, flew to Caracas this week to meet Venezuelan President Nicolas Maduro and complain over delayed oil shipments designed to repay loans, two sources briefed on the conversation said on Saturday.

The visit, which was not publicly disclosed, is one of the clearest signs of strain between crisis-stricken Venezuela and its key financier Russia.

Over the last few years, Moscow has become Venezuela’s lender of last resort, with the Russian government and Rosneft handing Venezuela at least $17 billion in loans and credit lines since 2006, according to Reuters calculations.

State oil company PDVSA is repaying almost all of those debts with oil, but a meltdown in its oil industry has left it struggling to fulfill obligations.

Sechin and a large delegation of executives met with officials at PDVSA in a Caracas hotel this week. Sechin also met with Venezuela’s leftist leader Maduro, and chided him over oil-for-loans shipments that are behind schedule.

“He brought information showing that they were meeting obligations with China but not with them,” said one source with knowledge of the talks.

Two things strike me about this story.

First: Hahahahaha.  Suckers.

I remember vividly snickering at those who thought the Chinese and Russians were sooooo smart to extend credit to the Venezuelans..  How this was a geopolitical masterstroke.

Really?  How’s that working out?  Obviously not well.  Ask Igor!

Tell me again how it is GENIUS! to lend money to a country that is imploding because it is in the thrall of an insane crypto-socialist ideology.  Venezuela’s trajectory was obvious at the time the Chinese and Russians thought they would lend it money.  Seriously: lending to socialists is hardly ever a paying proposition, and lending to Bolivarian socialists was certainly so.

But by all means, keep pouring money down ratholes! Be my guest!

Second.  The Venezuelan experience demonstrates the truth in Adam Smith’s aphorism about there being “a great deal of ruin in a nation.”  The torment of Venezuela is extreme.  The populace lives in utter penury, which only grows worse by the day.  The inflation rate is currently in the 6 figures, and is on track to reach 7 figures late by the end of this year, or early in the next.   This is Weimar-Hungary-Zimbabwe territory.  Crime is rampant.  Human degradation is everywhere.

Yet the Maduro regime is largely secure.  It maintains the loyalty of the security forces, and this has deterred a serious popular uprising.   Indeed, the economic catastrophe is not causing Maduro to relent: to the contrary, it spurs him to crack down even more intensely.

This situation has been developing for years.  Indeed, you can pinpoint the decisive moment, and it relates to Sechin’s current target–national oil company PDVSA. In the aftermath of an abortive US-supportive coup in 2002, Maduro’s predecessor Hugo Chavez responded to opposition within the company by purging the technically and managerially competent, and replacing them with loyalists.  What was once one of the most competent national oil companies in the world began its descent into failure, and the entire country followed in its wake.

There is a broader lesson here: Smith’s dictum, empirically validated in Venezuela, implies that expectations that economic pressure on rogue regimes will lead them to moderate their behavior, or result in their overthrow, are chimerical.  Rogue regimes respond to pressure and economic failure by intensifying oppressive measures.  By doing so, they can survive for a very, very long time.

The problem of coordinating opposition against a steely regime is difficult to overcome.  Usually, such regimes fall only when they attempt to respond to popular discontent through “reforms” and a softening of repression (cf. Gorbachev in the USSR).  Hard men like those in Venezuela or Iran understand this lesson, and have no intention of relaxing their grips.

That is, economic failure, whether internally created (as in Venezuela) or the result of internal dysfunction exacerbated by external pressure (as in Iran or North Korea) almost never results in the collapse of repressive regimes.

This is not to say that economic sanctions or other forms of economic pressure are not justified.  It is just that the expectations for such acts must be realistic, and the goals chosen accordingly.  Realistically, economic pressure can reduce the capabilities of rogue regimes to wreak havoc outside their borders.  It cannot truly threaten the existence of these regimes.

Since there is so much ruin in countries–especially highly repressive ones–expecting to change them by ruining them is futile.