Venezuela on Fire: How Maduro’s Petro Plan Failed to Bail Out the Country

Venezuelan leader Nicolas Maduro was sworn in for a second term on Jan. 10, amid tremendous hyperinflation, long-lasting political and economic crisis, and strict sanctions imposed by its former partner and oil purchaser: the United States.

Since Maduro first took office in 2013, Venezuela has faced several brutal riots, including the “Mother of All Marches” in 2017 and the Caracas helicopter attack in the same year,  and the current crisis is very likely to be the last for the regime. We decided to look into the last six years for Venezuela and the fate of the Petro — a national cryptocurrency that was founded to save the agonizing economy, but eventually caused even more resentment.

The legacy of Hugo Chavez

Hugo Chavez, a seemingly irreplaceable Venezuelan leader, who was in power since 1999, passed away after a long battle with cancer in March, 2013. A committed socialist and revolutionary, Chavez was held in high esteem and loved by Venezuelans for his continuous attempts to eliminate poverty and inequality. Thousands of citizens attending his funeral in an overcrowded Caracas, bearing witness to that fact.

According to the stats unveiled by the Guardian, between 1999 and 2009, the Venezuelan government has managed to reduce unemployment from 14.5 percent to 7.6 percent, increase GDP per capita from $4,105 to $10,810, and drop the extreme poverty rate from 23.4 percent to 8.5 percent. The indigenous peoples of Venezuela — who form somewhere around 2 percent of the country’s population — were among those who benefited most from Chavez’s presidency. While he was in charge, Venezuela shifted toward protecting their rights and granting them fundamental freedoms.  

Nonetheless, instead of reforming the Venezuelan economy that has always been dependent on oil, Chavez decided to proclaim an “economic war” and accused “the bourgeoisie owners” of local farms, supermarkets and mills of concealing food in order to destabilize his government.

Maduro’s Guerra: From socialism to an usurpation of power

When Maduro entered office in 2013, he inherited one of the most shaky economies in the whole South American region.

As of data provided by an online stats and market research website Statista, the average inflation rate in 2012 — the year preceding to Maduro’s presidency — was around 21 percent. Despite the fact that the year was relatively stable for Maduro’s administration, his actions only drove Venezuela closer to the brink of the abyss.

In fact, during Maduro’s first year, his government continued Chavez’s economic war, blaming wealthy businessmen of hoarding goods and pushing up prices. The policy was supported by Venezuelan lawmakers, who gave Maduro special decree powers in order to enforce price control in November, 2013. Still, by the end of 2013, the average inflation rate had climbed up to 43.5 percent.

But the real crisis emerged in 2014, when crude oil prices lost almost 40 percent in just six months. Maduro’s government first saw mass protests led by the Democratic Unity Roundtable (or MUD in Spanish). The participants of the marches that started February, 2014 accused officials of corruption, shortages and failure to prevent inflation. As the clashes between protesters and the Venezuelan army became more and more violent — with over 40 people reportedly being killed in just two months — Maduro’s supporters faced accusations of excessive use of force, while many demanded the resignation of the president himself.

By 2015, the average inflation rate got close to 68.5 percent, while Maduro yet again blamed unscrupulous businesses for shortages and price hikes. In addition to that, Venezuela’s GDP that year shrank to 3.9 percent, as of data provided by the International Monetary Fund (IMF).

In December, 2015, the Democratic Unity Roundtable won the congressional elections and became the largest group in the National Assembly, Venezuela’s unicameral parliament. The opposition soon focused on holding a referendum that would force Maduro to leave his post amid the inflation that has more than doubled in 2015, reaching 111 percent. However, the Supreme Court backed Maduro, cut the Assembly’s power, and the decision on referendum has been stuck in bureaucracy. The Venezuelan parliament then voted to begin impeachment proceedings against Maduro for violating democracy and urged the army to disobey the government in late October 2016.

In 2016, Maduro’s presidency was first labeled as a dictatorship. For instance, following a new twist in the political crisis, Forbes posted a story entitled “Sorry bond lords, Venezuela is a dictatorship now,” while the Guardian came up with an article called “Let’s call Venezuela what it is under Maduro: a dictatorship” later that year. Also in 2016, a chilling poll conducted by several local universities showed that Venezuelans barely consumed the 2,000 recommended daily calories needed, and 75 percent of citizens had lost around 19 pounds that year due to the crisis.

In 2017, the high court finally took all the power from the National Assembly, practically dissolving the body, which was considered a coup by the opposition. The decision sparked outrage in all segments of society, exhausted by long-term shortages, hyperinflation and even hunger. Starting in April, numerous marches broke out in Venezuela, once in a while brutally suppressed by government forces. The Venezuelan Observatory of Social Conflict calculated that the country saw over 6,000 manifestations from April until late July, with more than 160 people killed in clashes.

In the summer, a member of the forensic police, Oscar Perez, stole a police helicopter, flew it to the center of Venezuelan capital, dropped grenades on the Supreme Court, and fired several shots at the Ministry of the Interior. Perez, dubbed a “terrorist” by Maduro, managed to flee the city, and headed an armed resistance until he was killed during an army raid in January, 2018.

In July, Maduro finally created the Constituent Assembly — a body set up to draft and adopt a new constitution in order to provide stability and cease the protests, according to the president. The measure was heavily criticized both by the European Union, South American trading body Mercosur, the Organization of American States — which includes both the United States and Mexico. The latter tightened sanctions against Maduro, who was accused of holding “sham” elections.

In the meantime, the opposition conducted a long-awaited unofficial referendum against Maduro, with 7 million Venezuelans reportedly participating in it. According to the calculations, 98 percent of voters did not want a new constitution.

Venezuela approached 2018 with growing geopolitical tension, the ongoing violation of rights and freedoms, along with a mass exodus of Venezuelans — since 2014 more than 2 million locals left the country. The average inflation rate in 2017 surpassed 1,000 percent, and the GDP lost 14 percent, as per the IMF. Nonetheless, Maduro appeared to have a trick up his sleeve.

Petro takes the field

Maduro first mentioned the Petro, a Venezuelan cryptocurrency reportedly backed by oil, late in December, 2017. The leader claimed that crypto, which is not controlled by any government, could help Venezuela to shore up its struggling economy and to circumvent U.S. sanctions. In January, 2018, the Petro’s rate was tied to one barrel of oil, and the issuance of the first 100 million coins was ordered. Initially, the industry treated the measure as a first-ever “bitcoinization” of a sovereign state.

Throughout 2018, the national cryptocurrency set to stop the hyperinflation was actively promoted by the government. On an international level, Maduro asked 10 countries in the Bolivarian Alliance — including Cuba — to support his initiative. Later that year, he claimed that the Petro will be used for international commercial transactions, although he avoided mentioning the countries that agreed to accept the oil-backed currency.

In addition to this, the oil-rich country was reportedly going to present the Petro to the Organization of Petroleum Exporting Countries (OPEC) in 2019, as a unit of account. Maduro even offered the Petro to Russia’s Vladimir Putin. Nonetheless, Moscow, which had always been supportive of Venezuela’s domestic policies both by diplomacy and investments, refused to accept the Petro as a unit of account.

Meanwhile, within the country, the Petro was actively used as a tool against poverty, social injustice and hyperinflation. Venezuela launched the creation of the Petro-funded crypto bank for youth initiatives, which claimed to use the Petro to fund housing for homeless, obliged citizens to pay passport fees in oil-backed currency, and — prior to the official launch of coin’s circulation — made it a unit of account for salaries, goods and services.

But the experts studying the Petro were far from optimistic. An alarming Reuter's report — dubbed “In Venezuela, new cryptocurrency is nowhere to be found” — was published in late August. In it, the news agency stated that the Petro was not currently traded on any of the major global crypto exchanges. Moreover, the journalists doubted that it was actually backed with Venezuelan oil. The report claimed that Atapirire — an area that Maduro defined as an actual petroleum center for backing the coin — didn’t indicate any recent activity. “There is no sign of that petro here,” locals told the agency. The former Oil Minister, Rafael Ramirez, expressed his opinion writing that "the Petro [...] only exists in the government’s imagination.”

U.S. tech media outlet Wired also spoke to local and South American experts. Jorge Farias, the CEO of Venezuelan startup Cryptobuyer, revealed the state-owned currency was, in fact, backed by national oil company PDVSA, which had $45 billion in debt and showed no signs of any trading activity. Roger Benites, the CEO of Lima-based crypto exchange BitInka, called the Petro a “smoke curtain” to conceal Maduro's failure to reanimate the national fiat currency by devaluating it. Corre Innovation’s Dickie Armour shared his stance, dubbing the Petro a “stunt.”

By the time the Petro was finally launched in November, following a series of delays, both Venezuelans and experts doubted its real value and, overall, existence. While crypto enthusiasts studied the Petro’s white paper and came to a conclusion that it blatantly copied some parts of Dash’s documentation available in the GitHub repository, Maduro was forced to increase the Petro’s value from 3,600 to 9,000 bolivars in the midst of ongoing inflation.

Since the pension bonuses were converted into Petro, the country faced another protest, this time led by seniors who did not believe in the oil-backed coin. “I don’t want Petro, I want my cash,” said one of the protesters.

Despite all the efforts, by the end of 2018m the Petro was still “nowhere to be found” — the coin was not listed by any of the major exchanges, nor was it accepted by any of country’s allies. Venezuela\s economy kept drowning, as the inflation rate, according to the most conservative estimates by IMF, climbed up to 1.37 million percent by the end of the year. The opposition, though, provided much more gloomy data — 1.7 million percent in 2018, which, in fact, converted Venezuela into one of the three countries with the highest inflation rates in history.

The grand finale: Maduro vs. Guaido

In May, 2018, Maduro was re-elected for his second six-year term during a vote that had shown the lowest turnout — equalling 40 percent — since Venezuela’s democracy was restored in 1958. As the two main candidates opposing Maduro, Henri Falcon and Javier Bertucci, rejected the results and reported critical irregularities, the disgraced National Assembly also denied the results, calling them an "electoral farce."

The EU pointed out that the election did not comply with the minimum international standards for a credible process, and mentioned vote buying and suppression of the opposition. The Lima group — established in 2017 by countries including Argentina, Canada and Brazil in order to combat crisis in Venezuela — also rejected the results of the vote. Finally, the U.S. called the election an “insult to democracy” and a “fraud foretold.” On the other hand, China, Cuba, Iran, North Korea, Russia and Syria supported Maduro and congratulated him on his re-election.

In August, 2018, an alleged drone attack reportedly happened in the center of Caracas, where Maduro, at that time, was addressing the Bolivarian National Guard. The official version states that two drones carrying explosives detonated close to Maduro and other officials attending the parade. The president himself claimed to survive the assassination attempt, conducted by terrorists. He promised to punish the people behind the attack, and blamed the U.S. and Colombia for helping the terrorists. However, U.S. National Security Adviser John Bolton and the Colombian government consequently denied any involvement in the incident.

Several arrests were made within a week, while the opposition claimed that the accusations — as well as the attack itself — were planned in advance. According to firefighters at the scene questioned by the Associated Press, the incident itself might actually have been a gas tank explosion inside a nearby apartment.

This January, Maduro was sworn in for a second term against all odds. But this time, Venezuela does not seem to follow a peaceful scenario. As people flooded the streets of Caracas the following day, Juan Guaido — a 35-year-old leader of the opposition presented by the National Assembly — proclaimed himself the Venezuelan president in front of a crowd. He was immediately supported by U.S. President Donald Trump and his administration, while many other countries soon followed his decision.

As of press time, Guaido is supported by Canada, the vast majority of Latin American countries and the United Kingdom, while the EU and Mexico have called for dialogue, and China and Russia accuse him of an attempted coup. Maduro has recently broke diplomatic ties with the U.S., giving the embassy staff 72 hours to leave the country. However, Guaido insists that Venezuela will continue to re-establish constitutional order, along with maintaining dialogue with other countries.

The future of Venezuela might be in the army’s hands now. The country’s defence minister, Vladimir Padrino Lopez, is now supporting Maduro as the legitimate president, and Russia urges the U.S. not to intervene in the conflict. However, things may change at any time.

Throughout a year of continuous protests and growing tension, neither Venezuela nor Maduro seem to pull anything good out of the whole Petro project. Even Guaido, who is quite optimistic about cryptocurrencies, believes that the Petro is nothing but a scam. And while Maduro’s country is on fire, the president himself has completely given up on his oil-backed coin. What he desperately needs now is the most traditional asset in the world, gold. However, the golden bars worth around $1.7 billion are stuck in the Bank of England, which does not support the current regime. A similar fate awaits an additional $6.3 billion in foreign reserves held by the Venezuelan central bank, and there is no blockchain in the world that could help Maduro get that back.