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Crown Capital Blog Management - The Future of U.S. - Venezuelan Relations

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The Future of U.S.-Venezuelan Relations


The United States should leverage business interests in Venezuela to open diplomatic engagement and repair U.S.-Venezuela relations.


By Clay Moran

Contributor
October 28, 2013

“Yankees, go home!”These were President Nicolas Maduro’s words on September 30th as he expelled three U.S. diplomats, including Chargé d'Affaires Kelly Keiderling, accusing them of plotting to sabotage Venezuela’s electrical grid. While news outlets worldwide briefly reported on this incident, most failed to analyze the diplomatic turmoil within the larger context of U.S.-Venezuelan relations and its potential impact on diplomatic cooperation.

Over five hundred American companies have operations in Venezuela. Over$12 billion was investedin Venezuelan in 2011, concentrated in the energy, financial, and manufacturing sectors. Venezuelan imports rose by 122 percent from 2000 to 2011,reaching $12.3 billion. Washington and Caracas have developed a trade relationship that both parties value: U.S. companies gain substantial profit from operations in Venezuela, while Venezuelans gain access to higher quality job opportunities.

Despite the large volume of trade, political relations remain fractured at best. The United States and Venezuela have each been without ambassadors since 2010, when then-President Hugo Chávez suspected the United States of sponsoring a coup to overthrow his regime. Each country has retaliated against the other through a series of diplomatic expulsions. Venezuela has also restricted commerce from leaving the country. Capital controls put corporations in a tricky situation,trapping an estimated $8 to $12 billion within the country. Current President Nicolás Maduro has no intentions of lifting these controls, although Venezuela continues to experience inflationrising over 45 percent per month, threatening to erode profits. As a temporary measure, corporations have begun reinvesting these profits into Venezuelan real estate.

Domestic politics add another dimension to the problem. Former President Chávez formed the Chavista coalition, which consists of an array of lower and middle class citizens aimed at empowering workers and the urban poor. The bottom line is that Chávez’s governing doctrine, Chavismo, has united unlikely groups into the Chavista coalition due to favorable economic conditions. However, the erosion of economic stability due to rising inflation over the past year is beginning to unravel the Chavista coalition, which is the very force that brought Maduro to power. This can be seen in the March 2013 special presidential elections, in which theopposition lost by a margin of 1.5 percent. Maduro’s response has been to consolidate power byundermining his political opponents.

Venezuela needs foreign firms to operate within the country, but expelling U.S. diplomats while restricting U.S. profits does not bode well for constructive bilateral relations. The best prospect for improving these relations is for Washington to send a diplomatic convoy to Venezuela to meet with President Maduro and administration officials and discuss interests in attaining greater domestic stability to maintain corporate operations. Furthermore, the United States must meet with European counterparts that conduct business operations in Venezuela in order to establish a joint approach to address the rising political instability. Since Venezuela controls the domestic climate for U.S. corporations, the U.S. should take the initiative in securing its business interests.

The Obama administration can also offer to negotiate the Iran Sanctions Act, which was enacted in 2011 against the state oil company, Petróleos de Venezuela, because of Venezuela’s exports of reformate to Iran. These sanctions currently prohibit Venezuela from competing for U.S. government procurement contracts and receiving financing from the U.S. Export-Import Bank. Washington should negotiate with Caracas, maintaining the position that if Venezuelan currency controls are completely removed, the portions of the Iran Sanctions Act pertaining to Venezuela could be lifted – an option that looks more plausible given the current U.S. – Iran rapprochement.

Unless domestic turmoil subsides enough to allow for secure business operations in Venezuela, the likelihood of U.S. companies minimizing their business operations increases. Coupled with desolate diplomatic relations, revamping U.S.-Venezuela relations proves to be a complex process that will take time, cooperation, and concessions from both sides. A key opportunity to improve relations does exist, but the United States must demonstrate to Maduro the vital role that U.S. companies continue to play for Venezuela’s economy. Securing Venezuela as a quasi-ally will not only secure longer-term U.S. business interests, but also give the U.S additional leverage in Latin America, a region that the Obama administration has neglected.

Clay Moran is an M.A. Candidate in International Affairs, with a concentration in Development Security, at the Elliott School of International Affairs. His research focuses on democracy and governance in developmental programs. Previously, he lived and studied in Argentina, and spent substantial time in Bolivia and Spain.

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