Mrs. Vicenta Balbi just gave up on paying for her internet service.
“Look at this, look at the bill,” she says. “It never worked, so now they’re charging in dollars. But who can pay for this?”
Her internet provider, a private company offering an alternative to the service offered by the state, charges her monthly for both cable TV and internet. Every first day of the month, the bill shows up on her inbox, along with a reminder that, to her, sort of sounds like a threat: “Remember to pay on the first three days of the month, to avoid penalties and service shutdown.”
“Well, they’re gonna cancel my service,” she says. “I understand that inflation makes everything more expensive, but I can’t take price leaps like this. I either buy meat, or I pay for the internet.”
And she’s certainly fuming. After months of a steady (and expected) rise, the fee for the cable-and-internet combo that she normally pays rose by 100% between the months of September and October, without any warning from the cable company. All the planning she had done for the month is useless now—and it’s not only this service that’s becoming harder to pay.
Mrs. Balbi is, for the Venezuelan context, privileged. A middle-class retired woman in her early seventies, she mainly survives on the money her son sends her from London—£50 every couple of weeks, which helps her quite a bit when she turns them into dollars or the official local currency, bolivars. That exchange, though, takes time and it’s exposed to the very unstable (and ruthless) nature of the black market Venezuelan dollar.
Right now—literally as you read these words—Venezuela is going through a hyperinflationary explosion, already in an out-of-control-inflation context that’s been two years long, so far. A look into Monitor Dólar, one of the most popular websites among Venezuelans tracking the value of goods and services in local currency, will tell you all you need about today’s economic reality.
This is in a country that rules its economy according to this black market rate while most of the population has no access to hard currency. While many are charging in greenbacks for their work, all public workers (like teachers) are paid in bolivars. The minimum wage, mind you, is 436,140 bolivars—its real value is less than a dollar.
The effects of this savage dynamic are described frankly by Mrs. Balbi.
“Well, I think it’s great that (my cable company) charges in dollars,” she says, “but then they’re gonna have to wait until I get my remittances, and I turn them into bolivars. I’ll first go to the store and buy my medicines and my food, then I have to pay for rent and power. I have to do this as quickly as I can, because a delayed day can be an important difference in prices. Then, if I can, I’ll pay for the internet.”
And listening to her, you can only wonder: What if you don’t get remittances?
A Sick Game of Economic Abuse
“The main feature of the Venezuelan black market, regarding dollars, is the presence of a huge actor (the state) that gets the biggest amount of dollars into the economy although, until very recently, it employed an official exchange rate that was disconnected from reality, with a discretionary selection of who would get cheaper dollars and who wouldn’t—a practice that gave way to the black market distortions and shady businesses we have in Venezuela.”
For Daniel Urdaneta, economist from the Universidad Central de Venezuela, MSc in Economics (Pontificia Universidad Católica de Chile), CFA Charterholder and contributing author at Caracas Chronicles, the savage tides of the Venezuelan economy are explainable through offer-and-demand principles, and what happens when these precepts get distorted.
The basics: In practice, there isn’t a single price of the dollar; there are multiple offers around a reference price and both buyers and sellers have negotiations where the big factor is the urgency that buyers have for dollars (immediacy raises the price).
The evolution of the exchange rate over time is truly about how many bolivars there are flowing in the economy and how many dollars are available for sale in the local market. “In Venezuela,” Urdaneta says, “a savage policy of printing banknotes began as a way for the government to deal with fiscal deficit—the Central Bank prints money to satisfy debts.
“These particular explosions of the black market dollar in short time spans come as a consequence of the government moving from a fantasy exchange rate to one that’s much more closer to the black market rate. They realized that if you raise the price of the dollar, you can earn more bolivars to help you cover the deficit. But when PDVSA has debts and no bolivars to satisfy them, it’s back to the money-printing machine.”
These particular explosions of the black market dollar in short time spans come as a consequence of the government moving from a fantasy exchange rate to one that’s much more closer to the black market rate.
This is a lot of money that enters PDVSA and is then used to pay contractors and other associates, who are getting a lot of bolivars with little value by themselves. “The contractors end up buying dollars with this money, and that’s a hard pressure they’re applying on the dollar price.”
Urdaneta paints the picture of an economy susceptible to abuse: “This is amplified when you have individuals with privileged information on when these bolivar payments will be done and when there will be a peak in dollar demand, so they strategically diminish the dollars offered at the right time. The result is a savage spike on the dollar price. Whenever these spikes happen, the market eventually reestablishes itself after the possibility of pushing buyers disappears. It’s a cycle that repeats itself again and again.”
For Urdaneta, hyperinflation in Venezuela comes down to three points:
“The local offers of good and services went to hell after years of price controls and expropriations, and the Dutch disease—a lesser offer means higher prices; then you have over ten years of chavismo spending way more than what it gets, and just printing money to cover the gap; then there’s the crash of oil prices of 2014, and a Venezuela isolating itself away from the rest of the world—all of this predates the American sanctions, by the way.”
A Very Fragile Bubble
The theory and the details just described are a bit away from Melissa Azuaje*, a 31-year-old working in customer service for a gambling site on the internet.
Melissa describes herself as part of the precious “bubble,” those Venezuelans with a steady supply of hard currency that gives way to exclusive options in day-to-day Venezuela. Her wage of $250 comes once a month, and in bitcoins.
“I have to exchange those for bolivars and dollars,” she says, “although getting dollars has gotten hard recently. 2020 has complicated things, because my mom is the typical housewife and my dad, who used to work at the restaurant of a Caracas hotel, has gone out of a job ever since the quarantine began in March. So now I take care of myself and my parents. Almost all of my money goes away in food.”
“We have the pension money that my parents get, that isn’t much, but it’s a tiny push at the store. But if I have to buy something for myself, money is taken away from our food budget.”
A resident of middle-class Bello Monte, in Caracas, Melissa says she usually surfs the Venezuelan economy with more or less skill, working in a trade that’s almost untouched by the lockdown measures (even before the quarantine, she worked from home).
The spikes of the dollar and their direct effect on the inflation are throwing a wrench on her personal economy, where “you have your spending all planned out, and tomorrow the inflation screws everything up.”
“The food I can afford right now isn’t even all of the food we need,” she says. “We have the pension money that my parents get, that isn’t much, but it’s a tiny push at the store. But if I have to buy something for myself, money is taken away from our food budget—although I do buy things for myself. Sometimes you just have no choice. I just bought new glasses, for example, which is something I needed. That purchase took away from expenditures on food and services, particularly now.”
So how can you consider yourself in a bubble?
“Well, I live in a good place, and I can buy meat, which many people can’t—my neighbor, for example, buys meat occasionally and he makes do with what he can. I can pay for the services. When the month is ending, I do feel the strain, but this year has been very mean on most Venezuelans, and I’ve been able to do okay. Last month, I bought several things I needed—underwear, nail polish, an iron, stuff that people may criticize, but I refuse to see all my money go on food. Most people out there can’t allow themselves the luxury of buying toys for their nephews for next Christmas, you know?”
Venezuelans today live in a reality of a predictable (disillusioned) political arena, and a completely anarchic, unforeseeable economy. The apparent stability that the nation experienced in the last couple of months of 2019 are a bitter memory while prices soar from a day to the next, punishing everyone but the most privileged among the privileged. And it’s all happening at once: citizens don’t know when the next power cut is going to be (or how long it’ll last), whether their next paycheck will be enough to cover for basic food items, or what they’ll do if the somewhat distant promise of coronavirus becomes a sore emergency. Right now, for example, there’s another shortage of fuel across the country and nobody to tell when the lines at gas stations will end.
There’s an evident wrongdoer, apparently indifferent to the woes on the street.
“That narrative of how the black market dollar is controlled in Venezuela by a bunch of guys at a Home Depot or a club of oligarchic businessmen doesn’t stand the minimum smell test,” Urdaneta says. “Who brings the dollars in and decides their price of sale and even the buyers of those dollars, if not the government?”
Read More: Caracas Chronicles
At the core of the current war between the Ethiopian central government and the Tigrayan People’s Liberation Front is the realignment of politics and the contest for political hegemony.
In my view, it is about Prime Minister Abiy Ahmed allying with the Amhara to destroy Tigrayan power. This is an attempt to consolidate his position and that of his Amhara supporters.
Abiy declared war on the Regional Government of Tigray in early November 2020. The region is led by the Tigrayan People’s Liberation Front. He accused the regional government of attacking and looting the armaments of the Northern Ethiopian Military Camp.
The Tigray People’s Liberation Front controlled and dominated Ethiopian politics for 27 years through the Ethiopian People’s Revolutionary Democratic Front coalition. The coalition included the Amhara National Democratic Movement, the Oromo People’s Democratic Organisation, and the Southern Ethiopian People’s Democratic Movement. The Tigrayans were the dominant force in the coalition.
The Tigrayan elites squandered their political opportunities by attacking the Oromo Liberation Front. They violated the human rights of the Oromo and others. This is what gradually led to the demise of their power in Addis Ababa (Finfinnee).
Ethiopia has about 80 ethno-national groups. The major ones are the Oromo (the largest), the Amhara and the Tigrayans. Emperor Menelik, the architect of the Ethiopian Empire, was from the Amhara. His rule resulted in the Amhara elites and Amhara culture and language dominating the empire for more than a century. These elites now claim that they are the rightful group to shape Ethiopia today in their own image.
The other most powerful groups are the Oromo and Tigrayans who have been fighting their own corners, often through liberation armies. Abiy, a political chameleon, has been manipulating ethnic divisions among the Amhara, the Oromo, and the Tigrayans.
Tigray’s dominance of Ethiopian politics
For nearly three decades – from 1991 to 2018 – the Tigray People’s Liberation Front dominated the Ethiopian People’s Revolutionary Democratic Front. The democratic front controlled Ethiopian politics and economics.
Throughout this period, the Tigray front and its collaborators were accused of gross human rights violations against Ethiopians of different ethnicities. In Oromia, the Oromo People’s Democratic Organisation was a partner in the looting of Oromo resources such as land and in committing heinous crimes.
Meles Zenawi , a Tigrayan by birth, was the master of coalition politics. His deputy, His Haile Mariam Desalegn, became prime minister when Zenawi died in 2012.
In response to pressures for reform, and to placate the Oromo Youth Movement, the then-coalition replaced Desalegn with Prime Minister Abiy Ahmed.
Abiy used his affiliation with the Oromo people to come to power. He promised to address issues such as the right to self-determination, political and cultural freedoms, sovereignty (Abbaa Biyyummaa), democracy, making the Oromo language a federal language, and enabling the Oromo to repossess their lands. After coming to power, Abiy ignored all these Oromo demands.
Abiy’s father is Oromo. But he was raised by his Amhara mother, a fact that he has used extensively. Considering his cruelty against the Oromo who embraced him at the beginning, most Oromos now think that his close affinity with his mother shaped his values, philosophy, ideology, and culture.
Abiy’s leadership triggered a realignment within the coalition. One of the consequences was the Oromo People’s Democratic Organisation becoming an ally of the Amhara party. For its part, the Tigrayan front retreated to its home state to reorganise.
Reform agenda gone wrong
On coming to power Abiy launched a reform agenda. It included releasing political prisoners and allowing exiled and banned political leaders to return to Ethiopia.
He also promised to expand the political space, respect human rights, build independent institutions such as an elections board and independent judiciary, and to institute economic reforms.
Based on these promises – and because he initiated peace with Eritrea – he was awarded the 2019 Noble Peace Prize.
But since then, things have gone downhill. Abiy started to implement his political objectives by using the empire’s economic resources and the army. He ignored most stakeholders demanding the collective formulation of a political road-map for the transition to democracy. He began to attack and delegitimise the Oromo movement that had propelled him to power.
He even went as far as deploying the military in the Oromia regions of Wallaga, Guji, and Borana. Civilians have been killed extra-judicially. There has also been widespread killing and imprisonment of Oromo political opposition activists, sympathisers, and journalists. And elections have been postponed.
Abiy claims that it it is necessary to establish command posts in many Oromia regions to fight and defeat the Oromo Liberation Army.
Abiy also spearheaded the disbanding of the ruling Ethiopian People’s Revolutionary Democratic Front. He replaced it with the new Prosperity Party. Since the launching of the party on 1 December 2019, Abiy has dramatically shifted his focus from a democratic transition to consolidating power through violence and terror.
Abiy has introduced four interrelated political initiatives that consolidate his personal and party power. A combination of these factors has led to the current crisis and war in Tigray.
His first approach was the medemer philosopy. Medemer means “coming together” in Amharic. Abiy has co-opted political organisations, activists and politicians by appointing them to state positions. He has also tried to bring ethno-national groups together but without addressing historical and existing collective grievances and contradictions. These include unequal access to political power and economic resources as well as the denial of the right to self-determination and democracy.
Secondly, his use of the Prosperity Party to centralise political power under his leadership has led to Abiy’s critics characterising his government as a modern version of the authoritarian and colonial models of previous Ethiopian leaders, namely Menelik II and Haile Selassie.
His third initiative was to gradually diminish the power of the Tigray ruling elites. He removed them from the central government and important political positions.
The fourth initiative has been to suppress and dismantle the Oromo Liberation Front and the Oromo Federalist Congress, the most popular and influential parties in Oromia.
Some scholars argue that the central government is uneasy with the autonomy of Ethiopia’s federal units. Others say the conflict is about unresolved ethnic tensions and the underlying battle for control of the state.
Either way, the Abiy government and its supporters are keen to dismantle the Tigray region’s autonomy. It’s a paradox of history that Tigrayan elites used their control over central government to suppress and exploit other ethno-nations, only to lose control of central government and return home.
Abiy’s main aim is to replace Tigray’s leadership with a government that is subordinate to the central state. Abiy’s position as premier would be stronger without pressure from the Tigrayans and the Oromo. These two groups have been most aggrieved by his reforms.
To his advantage, the war is fully supported by key federal allies. These include the Amhara regional state, former Oromo Democratic Party members, and political parties such as the Amhara National Movement, the Ethiopian Citizens for Social Justice, and the Baldars party. All are dominated by the Amhara elites.
Using the Abiy government and the Ethiopian army, the Amhara elites want to recover from Tigray the land they claim belongs to them and to demolish Tigrayan power in order to dominate the empire.
But I believe that Abiy and the Amhara are naive in their belief that they can subjugate ethno-nations such as that of Tigray and Oromo by war.
An immediate ceasefire is needed. And an independent, neutral, and internationally endorsed body should be established to investigate major crimes committed over the last three decades to facilitate a national reconciliation. Also, the transition that has been derailed must be resuscitated and negotiations must begin on how to establish a transitional government that will prepare Ethiopia to become a true democracy. Otherwise, Abiy and his supporters are leading the empire in the wrong direction, one that may result in the collapse of the state, more humanitarian disasters, and the end of the empire as we know it.