As Venezuela’s great experiment with “Bolivarian” socialism implodes, it is creating a humanitarian and refugee crisis comparable to Europe in 2015. Travelling by bus, boat, and even on foot through treacherous terrain, around one million Venezuelans have fled to Colombia alone, and another two million are estimated to be in other, mostly neighbouring, countries.
There, they often live in desperately unsafe conditions with little food and no medicine, sleeping anywhere they can. So far, there are no United Nations refugee camps, only modest aid from religious organisations and other NGOs. Hunger and disease are rampant.
By and large, Colombia is doing its best to help, providing care to those who show up at hospitals. And its large informal economy is absorbing many refugees as workers. But with a per capita GDP of only around $6,000 (compared to $60,000 for the United States), Colombia’s resources are limited. And the government must also urgently reintegrate some 25,000 FARC guerrillas and their families under the terms of the 2016 peace treaty that ended a half-century of brutal civil war.
Colombians have been sympathetic to their neighbours in part because many remember that during the FARC insurgency and related drug wars, Venezuela absorbed hundreds of thousands of Colombian refugees. Moreover, during Venezuela’s boom years, when oil prices were high, and the socialist regime had not yet decimated production, several million Colombians were able to find work in Venezuela.
But the recent tsunami of Venezuelan refugees is causing massive problems for Colombia, beyond the direct costs of policing, ensuring urgent medical care, and providing other services. In particular, the influx of Venezuelan labour has put significant downward pressure on wages in Colombia’s informal sector (including agriculture, services, and small manufacturing business) — and just when the government was hoping to raise the minimum wage.
The first waves of Venezuelans included many skilled workers (for example, chefs and limousine drivers) who could reasonably hope to find gainful employment quickly. But more recent refugees have been predominantly uneducated and unskilled, complicating the government’s efforts to improve the lot of Colombia’s own underclass.
The long-term problems may be even more severe, with diseases that were once under control, such as measles and AIDS, running rampant among the refugee population, which intermingles easily with the culturally similar Colombians. More forward-looking Colombian leaders, including the new president, Iván Duque, argue privately that humane and decent treatment of Venezuelan refugees will benefit Colombia in the long run, after the regime falls and Venezuela again becomes one of Colombia’s largest trading partners. But no one knows when that will come.
What is known is that after many years of catastrophic economy policy, starting under the late president, Hugo Chávez, and continuing under his successor, Nicolás Maduro, Venezuela’s regime has squandered an inheritance that includes some of the world’s largest proven oil reserves. The country’s income has collapsed by a third, inflation is on track to hit one million percent, and millions are starving in a country that ought to be reasonably well off.
One might think there would be a revolution, but so far Maduro has been able to keep the military on the regime’s side in part by granting it licence to run a massive drug-trafficking operation that exports cocaine around the world, particularly to Europe and the Middle East. And, unlike oil exports, which are encumbered by massive debts to China and others, the proceeds from the illegal drug exports are by nature unencumbered, except in rare instances of seizure.
Sadly, many on the left around the world (for example, British opposition leader Jeremy Corbyn) were willing to turn a blind eye to the brewing disaster, owing, perhaps, to a knee-jerk impulse to defend their socialist brethren. Or, worse, perhaps they actually believed in the chavista economic model.
Altogether too many left-leaning economists (including some who ultimately worked on the 2016 presidential campaign of Senator Bernie Sanders in the US) were diehard supporters of the Venezuelan regime. There were also opportunistic enablers, including Goldman Sachs (with its ill-considered purchase that propped up Venezuelan bond prices), and some on the right, such as the inauguration committee for US President Donald Trump, which accepted a large donation from Citgo, the US-based subsidiary of Venezuelan oil company Petróleos de Venezuela.
In recent weeks, Maduro has put in place a half-baked plan to stabilise the currency, issuing new bills supposedly backed by the government’s cryptocurrency, which is like building a house of cards on a garbage dump. Whether or not the new currency takes root, we can be sure that the Venezuelan military will continue to conduct its operations in $100 bills.
In response to the domestic and regional crises generated by the Maduro regime, the US has put in place severe trade and financial sanctions, and Trump has reportedly floated the idea of invading Venezuela. American military intervention is of course a crazy idea, and even the many Latin American leaders who desperately want to see the regime go would never support it.
But the US can and should greatly step up financial and logistical aid to help neighbouring states deal with the overwhelming refugee problem. And it is not too soon to start planning for reconstruction and repatriation of refugees after Venezuela’s brand of socialism — or, more accurately, oil and cocaine clientelism — finally comes to an end.
The writer, a former chief economist of the IMF, is Professor of Economics and Public Policy at Harvard University
©Project Syndicate, 2018