As its society crumbles, Venezuela is building Russian rifle factories and buying Chinese military hardware, writes Lucinda Elliott.
By Lucida Elliott | January 23, 2018
Desperate Venezuelan shoppers continue to queue for hours outside supermarkets as the country enters its fifth year of acute recession. Once inside, they’re disappointed. Stale crackers and useless washing-up liquid are the only affordable provisions left on shop shelves.
Venezuela’s complex exchange control system coupled with catastrophic economic mismanagement has failed to create enough hard currency to ensure adequate levels of imports, leading to drastic shortages of basic goods from car engine oil to medical gauze. But something that doesn’t appear in short supply is Kalashnikov rifles. At the end of 2017, as the economy contracted by double digits, Venezuela finally agreed to complete a Russian Kalashnikov AK-103 gun factory more than a decade in the making. Forget flour mills for bread-making or car factories for spare parts that are hopelessly scarce, officials are prioritizing arms.
Posing for the cameras in the Russian town of Sochi, Russian government representatives shook hands with strained smiles, declaring this time Moscow had found a “common language” with its South American partner. There have been at least four rounds of promises to open the weapons plant since the two nations signed the factory deal in 2006.
The plant, officials said, would be operational in 2019. It’s a “farcical” estimate, as one former high-ranking Venezuelan military officer described it, given how cash-strapped the socialist government has become. Mired in scandal, corruption, and delays, the Kalashnikov project is a small reflection of the increasingly strained strategic relationship between Venezuela and its military partners over Caracas’s inability to pay its debts.
Why does Venezuela need so much gear?
For Venezuela, arms are increasingly key to the beleaguered administration’s grip on power. President Nicolas Maduro derives a great deal of power and support from the military. Appeasing the military through the purchase of expensive equipment was a policy introduced under Maduro’s predecessor, Hugo Chavez. When oil prices were high, the military was showered with ample funds.
Top generals are in charge of entire ministries in Venezuela; the army today even controls food distribution. Maduro has been a prolific promoter of generals since he assumed the presidency in 2013, while also providing them with juicy business contracts. On one day in 2016, he promoted 195 low-level officers to the rank of general, bringing their total number to more than 2,000. The most recent is Major General Quevedo, who is now in charge of PDVSA, the state-run oil company. By comparison, the United States gets by with just 900 generals.
A regime change, the opposition argues, will only come when the army withdraws its support for the government. Keeping it combat ready – and therefore on side – is a survival tactic.
US to Russia and China
Venezuela’s arms suppliers have shifted significantly over the past 20 years. Before Chavez assumed power in 1999, Venezuela had a close security relationship with the US. According to Dr Evan Ellis, research professor of Latin American Studies at the US Army War College’s Strategic Studies Institute, the US supplied F-16 fighter jets to Venezuela, helping ensure the South American country had a “very capable” air force back then.
But relations soon turned sour. Part of Chavez’s socialist rhetoric was to present himself as a force against the US bogeymen. “Around 2005, the US became resistant to supplying spare parts for the F-16 jets, so in frustration, the left-leaning government had to look elsewhere,” Ellis said. Venezuela first turned to Europe to update its equipment but had little luck with the US ally. It was forced to approach new strategic partners, the first being Russia.
This move to the Kremlin has since transformed into an $11bn relationship. Russia began selling Venezuela mid-level capability aircraft, which are considered a backbone of its national air force. Later Russia received a jumbo-sized order including helicopters and weapons, topped off with an agreement that Venezuela would purchase 100,000 AK rifles and, down the line, build a production plant.
At the same time, Russia supplied financing for the equipment. “The principal creditor was the Russian Development Bank,” Ellis noted. This funded short-term loans that were, in his view, paid off in full. According to the Russian Ministry of Finance, a $4bn loan made to Venezuela in 2011 was paid on time in regular, agreed-upon installments up until the end of 2015. But payments stalled as Venezuela began struggling to commit to greater military spending and ran out of money. In November 2017, the outstanding debt used to purchase big-ticket military items from Russia was reportedly restructured, giving Caracas a further 10 years to pay off its initial loan. It is unclear how much debt is outstanding.
China becomes a US regional counterweight
To some extent, China is displacing Russia with arms sales as part of Beijing’s broader strategy in to become a US counterweight in the Americas. China is by far Caracas’s biggest creditor; it has loaned the country $65bn since 2005. Chavez even went so far as to say Mao Zedong and Latin American independence hero Simón Bolivar would have been friends.
Meanwhile, Chinese state banks have lent billions more to Latin American governments since the early 2000s. In 2010 alone, China doled out more loans than the World Bank, Inter-American Development Bank, and US Ex-Im Bank combined.
China “really came in” with arms sales in 2011, said Ellis, first with less sophisticated equipment such as radars and aircraft to train pilots, and more recently with reinforced vehicles and replacement parts.
Most military goods that arrived in 2017 were Chinese, including riot gear and armored tanks, according to Venezuela’s National Guard commander. The vehicles, alongside water cannons and tear gas, were largely used to fend off anti-government protesters who took part in mass street demonstrations against Maduro earlier this year, in which more than 125 people were killed.
Fewer big-ticket items, but not stepping aside
Selling to a controversial partner like Venezuela, which may fail to pay on time or ever, would force many vendors to sever business ties entirely. But for China and Russia, there are benefits beyond simply selling goods. It keeps their defense technology sectors warm at home, constantly testing and adjusting quality, while also strengthening their overall ties to the region.
China and Russia have their investment eyes closely fixed on greater access and control of Venezuela’s vast natural reserves, which range from oil and gas to diamonds and coltan, a metal used in smartphones. As Venezuela desperately looks for credit, the Maduro government has established a Constituent Assembly full of government loyalists that has the power to change the country’s constitution and could allow the government to mortgage vast assets to pay off its debts. The likes of Russia’s state oil company Rosneft could soon be granted free rein to assume a more intrusive role in Venezuelan oil operations, pumping the country’s petroleum and taking hefty profits. Selling a few rifles seems small change if the current government prevails.
Venezuela’s financial collapse is undoubtedly forcing important financiers to make a choice to invest in engine overhauls and help maintain existing combat equipment or stop supplying the country altogether.
“They’ll keep selling small items, like armored vehicles, and help through the technical issues that need to be fixed,” Ellis said, “but they’re not selling Venezuela new equipment that the country cannot afford to pay back.” China and Russia will do this as long as it means they can increase their overall leverage in Venezuela and across Latin America. Shiny bulletproof cars driving past Caracas’s empty supermarkets are frequently Chinese brands. China, at least for the moment, does not appear to be stepping aside.
Lucinda Elliott is a British journalist specializing in Latin America from the region. Formerly at the Financial Times in London, she reports between Caracas and Sao Paulo for both news and magazine publications.