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Venezuela stops making Coca Cola: Is there a way out of bigger economic crisis?

Coca-Cola announced a halt to production of its signature drink in Venezuela, citing scarcity of sugar. It is the latest chapter in an unfolding economic crisis, which observers say will require deep political change to overcome.

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    A protester with a Venezuelan flag is pushed away by National Guard soldiers trying to keep demonstrators from reaching the National Electoral Council (CNE) in Caracas, Venezuela, Wednesday, May 11, 2016.
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The latest to succumb to the crisis roiling Venezuela is Coca-Cola, forced to halt production of its namesake beverage because of a shortage of a key ingredient: sugar.

In a country currently suffering the world’s deepest recession, with inflation fast approaching 700 percent, the cola's demise is the latest hardship facing the South American nation, as the country teeters on the edge of economic and political collapse.

There is a way out, say observers, but it requires deep economic reform, which current political leaders seem unwilling to embrace. Increasingly, it seems as though the power to determine which direction Venezuela takes may rest with the armed forces.

Recommended: How can Venezuela resolve its political crisis? Six views.

“The economy is imploding and there is no economic light at the end of the tunnel,” says Ricardo Hausmann, former minister of planning of Venezuela, and former chief economist at the Inter-American Development Bank.

“Until there’s political change, there won’t be economic change,” Dr. Hausmann, now director of Harvard University’s Center for International Development, tells The Christian Science Monitor in a phone interview. “The government is trapped in a psychotic narrative that everything is being caused by an international economic war.”

Indeed, Venezuelan President Nicolás Maduro stated his belief Tuesday that his country’s economic woes stemmed from an international conspiracy originating in the United States. He accused the head of the Organization of American States (OAS), Luis Almagro, of being a CIA agent.

In response, Mr. Almagro called the Venezuelan president a “traitor”, saying he risked becoming “just another petty dictator.” Former Uruguayan president, José Mujica, a fellow stalwart of the Latin American left, declared that President Maduro was “loco, loco como una cabra” [crazy, crazy like a goat].

That such insults are being traded between heads and former heads of state is perhaps symptomatic of the desperation of the situation in Venezuela. In the eyes of many, a humanitarian crisis is unfolding.

Last month, Empresas Polar, the largest food and beverage company in the country, stopped beer production because of the scarcity of another imported product, barley. But far from being limited to soda and beer, shortages are being seen in basic necessities such as toilet paper. Electricity production has reached such critical levels that government workers now only work two days a week.

Hospitals now face chronic shortages of medicine, creating the aura of “a battlefield clinic in a country where there is no war,” as Nicholas Casey recently reported in the New York Times.

The crumbling economy is accompanied by a disintegration of law and order, with a rise in criminal gangs. The capital city, Caracas, was last year rated as the world’s most dangerous city, when excluding those embroiled in a war or inhabited by fewer than 300,000 people.

That violence has three roots, according to Caracas councilman Jesús Armas: the levels of poverty and inequality, a culture of lawlessness, and the government’s approach to managing the violence, which “has nothing to do with protecting life, liberty and property of citizens, but on the contrary, has driven a socialist model that seeks to limit those freedoms, using crime as a way to maintain power and control of the population.”

Indeed, the Venezuelan state is “unwilling to accept there’s a crisis,” Hausmann says, because it is determined to maintain the fiction of its “socialist paradise.” When oil prices were high, the state ran a deficit of 18 percent, quintupling public debt and expropriating core industries, such as steel and cement producers, supermarket chains, milk processors, banks, and telephone companies.

When global oil prices collapsed in mid-2014, and government revenues plummeted, the government-run enterprises simply slashed imports to reduce costs.

Restoring the economy is “impossible without massive international support,” says Hausmann, which essentially means the International Monetary Fund (IMF), “but the government doesn’t want to hear about the IMF: it is their ideological nemesis.”

That's why many observers say that the most likely path out of the deepening crisis lies in changing the political leadership. The opposition, which now dominates the National Assembly, gathered 2 million signatures weeks ago on a petition that required only 200,000 calling for a recall referendum, in an effort to oust the president.

Yet the “supposedly independent, but nakedly biased” National Electoral Council has been delaying its consideration of the petition. Moreover, the supreme court has been hampering the efforts of the National Assembly to implement any changes of their own.

The people have been protesting, clashing with security forces, desperate for their voices to be heard. A recent poll found that two-thirds of Venezuelans want an end to Maduro’s presidency.

The Army has long been used to wearing the mantle of “king-maker”, as Juan Nagel, a Venezuelan economist based at the Universidad de los Andes in Chile, told the Monitor, and it seems as though that role is once again being thrust upon them. The leader of the opposition, Henrique Capriles, called upon the Army Wednesday to choose sides, to either stand  "with the Constitution or with Maduro."

The road ahead

“My guess is that the armed forces, being a relatively large organization, will share the opinion of most Venezuelans: get the government out,” says Hausmann, “but leaders of the military are involved in gigantic corruption… and their future outside this regime looks bleak.”

Writing in Military Review earlier this year, Leopoldo E. Colmenares G., associate professor in the Economic and Administrative Sciences Department at Simon Bolivar University, Caracas, agreed that the Venezuelan military is intimately entwined with the state:

“[Hugo] Chávez´s [Maduro’s predecessor] rise to power was accompanied by the militarization of the most important state institutions through the strategic placement of his comrades-in-arms [Chávez having himself once been a commando] in a large number of influential government positions”.

Maduro has continued this tradition, whereby “dozens of high-ranking officers occupy senior positions in ministries.”

The consensus seems to be that “nobody knows very much about what’s going on in the military,” as Cynthia Arnson, director of the Wilson Center’s Latin American Program, tells the Monitor in a phone interview. “Nobody talks to the military, not even the opposition in Venezuela.”

Yet if the leanings of the armed forces are somewhat inscrutable at this point, there is perhaps another avenue for progress. “The main hope for avoiding either a naked dictatorship or a descent into chaos may be international mediation,” notes The Economist. “Early in May it was reported that Pope Francis, who played an important role in the rapprochement between Cuba and the United States, had written a personal letter to Mr. Maduro.”

And former prime minister of Spain, José Luis Zapatero, and a former president of Panama, Martín Torrijos, recently held a meeting with President Maduro and were also expected to see the opposition.

But don't expect to see any Coca-Cola served at such meetings.

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