“Gimme all your money or I’ll contribute to global warming”

Environmentalists were left disappointed Friday when Ecuadorian president Rafael Correa announced that Ecuador would be abandoning its ambitious plan to receive payments for oil it didn’t drill in the Yasuní National Park. The premise of the project was that Ecuador would abstain from exploiting the significant oil reserves within the Yasuní National Park located in the Amazon, in exchange for the international community compensating the state for the foregone revenues and carbon savings. Correa was hoping for payments in the range of $3.6 billion but the mechanisms created to raise the money only managed $13 million. Correa is now pursuing a bill to beginning exploration in a small section of the park.

In general, the problem with initiatives like what Correa was proposing in Yasuní is that, even when scaled up, they cannot deal with the root problems associated with climate change, while each initiative is highly unreliable in the medium term. Not exploiting the oil reserves in Yasuní serves a useful role at a mircro level; it prevents the possible future emissions of both burning the oil and the deforestation that drilling for it would create. However, it does not address the root causes of global warming in anything but an ancillary way. The reserves are significant, but drilling or not drilling for the oil would have virtually no discernable impact on gas prices, and by extension consumption and emissions. Similarly, it would do nothing to address other deforestation pressures such as agricultural expansion or illegal mining.

Even if enough of these initiatives could be patched together to start having macro-level impacts, there would not be a way to ensure that they would persist, even in the medium term. For example, in the Ecuadorian case, there was apprehension that Ecuador would take the money and then end up drilling for the oil anyway, either under the current government or a future opposition one. Ecuadorian promises to return all the money if it reneged on its obligations failed to assuage concerns, at least in part as a result of Correa’s previous decision to default on Ecuador’s foreign debt in 2008. These issues would not be limited to Ecuador, however. There is a limit to the amount of coercion the international community can exert on any given country, so there is always room for governments, especially oil producers, to get out of previous commitments without serious consequences. As a result, so long as the oil remained in the ground, there would always be the temptation for that country to exploit it and no amount of promises would ever make donor countries confident that would not happen.

Though initiatives like the Yasuní National Park one are very attractive in theory, they will likely never constitute more than a small portion of the effort to combat climate change. I think, much like with drugs or even illegal immigration, any attempts to limit the supply of emissions (in the form of products which produce emissions) will fail and that the only really tangible solution is to limit demand for emissions, likely through some sort of a carbon cap. Of course, those types of solutions require a level of international cooperation that is extremely difficult to muster, so more attempts like Yasuní to try to make impacts on the margin will surely be made.

When in Caracas, don’t act like those in charge

Yesterday I attended an event at the Inter-American Dialogue entitled “What’s in Store for Venezuela?” that happened to coincide rather closely with the Tribunal Supremo de Justicia (TSJ) in Venezuela throwing out Henrique Carpiles’ lawsuits alleging fraud in the April 14th elections and then fining him for having the temerity file them in the first place. That the court threw out the lawsuits is hardly surprising, though the ferocity with which they did so perhaps is. I highlight this because both speakers, Javier Corrales of Amherst University and Dan Restrepo of the Center for American Progress, felt it was a positive sign that the opposition in Venezuela has not abandoned democratic politics, while fretting that other governments in the region were not committed to supporting democratic politics in the region. Meanwhile, Francisco Toro argues that the TSJ ruling marks the effective end to democratic politics under chavismo and that the future of the opposition depends on its ability to function in a non-democratic world. I actually agree with all three of them. The abject failure of the Inter-American system to stand up to the democratic erosion in Venezuela over the last decade and a half has left Venezuela’s democratic opposition totally isolated and empowered chavismo to become ever more openly autocratic.

As in any situation like this, the eventual solution will have to be domestic; no one can impose its will on Venezuela to force it to become more democratic. That said, Latin American governments have largely either tacitly approved of Venezuela’s democratic backsliding or actively encouraged or rewarded it. For example, Venezuela has been accepted into Mercosur thanks to Paraguay’s suspension as a result of impeaching its president in a hasty, but legal process. All of this happened during the middle of a presidential campaign in which the opposition was practically barred from the airwaves while Hugo Chávez abused his power to invoke cadenas to take over the airwaves for hours at a time to campaign. More tacit approval can be seen in the non-reaction of Latin American governments this January when the TSJ ruled that the legally mandated presidential inauguration could be postponed while Chávez was in Cuba receiving treatment for the cancer that eventually killed him. Similarly, when Chávez died and Nicolás Maduro inherited the presidency before the April 14th special elections, despite a clear constitutional mandate (article 233) that the temporary presidency pass to the head of the National Assembly, governments around the region said nothing. And these are just a few examples from the past year I could mention, notwithstanding the dozens of other instances.

Any criticism of how the Inter-American community has reacted to the deterioration of Venezuelan democracy must be tempered by acknowledging that the existing democracy promotion framework is overwhelmingly biased toward incumbent executives. Part of this is due to the fact that the impetus for developing the framework was the return to democracy of most of Latin America in the 1980s following two decades of near constant military intervention in countries across the region, mainly in the form of coups. Moreover, both within the Organization of American States (OAS) and in nearly every other regional grouping with a democratic mandate, it was executives who designed the mechanisms designed to protect democracy, and unsurprisingly, they designed mechanism that help protect incumbent executives much more than democratic systems of government as a whole. This means, for instance, that only the executive has authority to summon the OAS in the event of a constitutional breakdown. Hardly much of a safeguard against an over wielding executive.

It is therefore hardly surprising that leaders from around the region have been reluctant to embrace Venezuelan opposition forces, both National Assembly members and Capriles. Many presidents, both from the right, and more commonly in recent times, from the left, have looked to amass as much power as possible, often blurring the lines between the different branches of power in a way similar to what chavismo has done in Venezuela. The current status quo suits all current presidents quite nicely whereas embracing the Venezuelan opposition’s cause necessarily means upsetting that system and, potentially, exposing oneself to the risk that democracy promotion will mean protecting separation of powers and rule of law rather than incumbent presidents. Combined with the fact that a number of presidents in the region openly sympathize with the chavista government, or have significant constituencies within their governing (or, in Michelle Bachelet’s case, her campaign coalition) who do and the lack of response makes sense.

This leaves the opposition in Venezuela in a terrible place. On the one hand, they face a government that controls all the levers of power and is increasingly less restrained—either by arrogance, or more likely desperation—by any need to conceal its authoritarian tendencies, and therefore impervious to legal challenges. On the other hand, it receives minimal support from the region’s other governments, despite their professed commitment to democracy, leaving it with no means of legally coercing a change out of the chavista government via outside pressure. However, elevating a leadership more comfortable operating outside a democratic, legal framework, as Toro seems to suggest, risks winning the battle against chavismo at the expense of losing the war to save Venezuelan democracy. Those types of leaders might be effective at bringing down the chavista state, but are also the types of leaders disposed to becoming authoritarian once in power.

During the Q&A at the event yesterday, Javier Corrales was accused of being too optimistic by one of the attendees. I will confess, despite everything I have just written, I remain optimistic that the strategy Toro seems to have become resigned to will not be necessary. I am deeply pessimistic about the state of the Venezuelan economy, and bullish on the idea that oil prices are likely to stagnate over the next few years, which will, as Corrales mentioned, force the chavista government, which has heretofore relied on ever rising prices, to deal for the first time with the politics of economic adjustment. I do not believe that Maduro possesses the political talent to navigate that type of challenge, nor do I believe that Venezuela has the institutional capacity to do so. In short, despite lacking a legal avenue to challenge chavismo, the opposition may still be best suited to maintaining its current strategy because the chavista state is so fragile that it’s likely to collapse on itself in the face of any serious economic challenge. It’s a cynical type of optimism, but surely better than the alternative.

Crónica de un fracaso anunciado

The Argentine government announced yesterday that CEDIN (Certificados de Depósito para Inversión), the most prominent of the government’s attempts to stall the rapid capital flight affecting the country, had only repatriated US$11 million in its first month compared to the US$400 million the government hoped it would bring in over its three months. This is obviously a huge failure on the part of Cristina Fernández de Kirchner’s economic team, which had designed the program as a means of bringing “blue” dollars—undeclared dollars possessed by Argentines—back into the formal system and burnishing the country’s dollar reserves. However, looking at the basic design of the program, it’s hardly surprising that few Argentines have been willing to hand over their dollars to the same government responsible for the economic conditions that have driven them to convert their savings away from pesos in the first place.

My understanding is that the CEDIN function this way: a person in possession of undeclared dollars can declare them without facing any tax or fine in exchange for a CEDIN certificate, which Axel Kicilof, the Secretary of Economic Policy and Development Planning, compared to a traveler’s check. The CEDIN certificate can then be used in any commercial transaction, but can only be exchanged back for dollars if it is used to buy property or for materials for construction. The government hoped that this would allow it to simultaneously shore up its faltering dollar reserves while channeling investment into the construction sector, which has been in decline for more than a year as a result of strict capital controls (called the cepo cambiario in Argentina).

In practice, however, this has not proved a sufficient carrot to draw people back into the peso economy. This is hardly surprising. For one, the exchange rate for the CEDIN while higher than the official rate, is still well below the black market rate. Intially, the CEDIN used for construction and property purchases (CEDIN aplicados) was $7.45 pesos, and those for other purposes (nuevos) at $7.15 pesos. With a 57 percent difference between the official exchange rate and the black market (dólar blue) it’s understandable that a person might not want to trade in dollars worth more than 8 pesos when they can only get back dollars worth a bit more than 7 pesos and potentially worth less than 6 pesos. Moreover, nearly nothing has been done to address the reasons why the peso is depreciating so rapidly, so any program would have to make holding pesos extremely lucrative, something the CEDIN do not do. Finally, while there is no punishment for declaring dollars during this blanqueo, the mere act of doing so is an admission of having broken the law previously. With several parts of the Argentine still tightly restricted—such as access to dollars and import licenses—and control over those mechanisms highly arbitrary, there is a major risk to admitting possession of undeclared dollars that is not counterbalanced by the benefits of the CEDIN.

In short, it was not difficult to imagine how the CEDIN program was likely to fail; it provided far too little incentive relative to the risks it incurred. As I’ve argued before, with an economic as distorted as the Argentine, no single measure is likely to dramatically improve the situation. Yet, at the same time, the big, dramatic measures that are becoming increasingly necessary will also be more disruptive in the short run and therefore less politically feasible all the time.