Update Country Report Curaçao 12 Jan 2018

Event

The Venezuelan government has extended the closing of traffic with Aruba, Bonaire and Curaçao, which has now lasted a week. The move has drawn rebuke from the Dutch and local governments.

Analysis

On January 5th the president, Nicolás Maduro, ordered the closure of all passenger and commercial traffic with the islands. Mr Maduro claimed that the islands' governments have not done enough to curb illegal smuggling between the mainland and the islands. The ban was to last for 72 hours, but the vice-president, Tareck El Aissami, later announced the extension of the ban, indicating that it would last until the three islands' governments agree to a joint plan of action with Venezuela.

The move drew criticism from the Dutch and the islands' governments, who denied any complicity in smuggling. However, they did not attempt to increase tension, agreeing to discuss better co-operation protocols with the Venezuelan government. Given ties between the countries, it is unclear how long the Venezuelan government will maintain its stance. Facilities in Bonaire and Curaçao are a key part of the supply chain of PDVSA, the Venezuelan state oil firm, and Citgo, a PDVSA subsidiary, is currently upgrading a refinery in Aruba. These ties, which provide considerable resources to the islands, may well explain their reluctance to escalate the rhetoric with the Venezuelan government.

The Venezuelan government has long blamed, among other things, smugglers and black-market profiteers for the country's ills, which include severe shortages of basic goods and hyperinflation. However, other than giving the impression that the authorities are taking action, the measures are unlikely to be effective, as the country's economic malaise is the result of the government's own policies. Indeed, partial closures along the border with Colombia-where smuggling is common-have been in place for years, with little effect other than to hinder the journeys of Venezuelan transient workers and economic refugees. So far, the transport bans to Aruba, Bonaire and Curaçao have seemed to have had a similar effect. The Curaçao police reported on January 11th that four people died and 28 are missing after a boat transporting them from Venezuela to Curaçao sank.

Impact on the forecast

The Economist Intelligence Unit does not believe limits on transit between Venezuela and its island neighbours will result in an easing of the Venezuela's economic woes. The spat will continue to strain already deteriorated relations. As such, we maintain our current political and economic forecasts.