Latin America Advisor

A Daily Publication of The Dialogue

Is Maduro Maintaining His Grip on Power in Venezuela?

Q: Next month marks the one-year anniversary of Venezuelan opposition leader Leopoldo López's imprisonment and a year since massive protests broke out across the country. Meantime, the Andean country is suffering the world's highest rate of inflation and plunging prices for oil, its chief export, with parliamentary elections set for later this year. What does 2015 hold in store for Venezuela? To what extent is Maduro maintaining his grip on power? A: Michael Shifter, president of the Inter-American Dialogue: "All signs point to 2015 being the year when Venezuela's mounting troubles will come to a head. The trends are uniformly negative, and it is hard to see how any of them are going to abate in the short term. The economy, aggravated by declining oil prices, appears to be in freefall, with the government being either unable or unwilling to take sufficiently strong corrective measures. The most crucial political dynamics will play out within the ruling Chavista coalition, and less in the opposition. Maduro has been on shaky ground from the outset of his rule, but with sinking poll numbers (currently less than 23 percent), his standing in 2015 will be even more precarious. The situation appears increasingly unsustainable, especially if oil prices do not recover. The scenarios are highly uncertain. The government is worried about possibly significant losses in the parliamentary elections later this year, though it is counting on the opposition remaining fragmented and lacking an effective political strategy to keep its control. Although the government does not seem to face imminent collapse, given the country's downward spiral Maduro may have great difficulty sustaining enough political support to remain in power. Ruling factions, especially the military, could be looking for alternatives within Chavismo. On the external front too, Maduro is not finding much relief. The U.S.-Cuba thaw means his aggressive posture against Washington will not get a lot of sympathy from Latin America. The region, after all, is applauding what Obama has done on Cuba policy." A: Luis Vicente León, president of Datanalisis in Caracas: "Could there be changes in the economic policy of Venezuela's government? This crisis is of large dimensions as it combines the negative impact of a primitive control model with the impact of falling oil prices. Venezuelans believe that they are living a terrible crisis, and the reality of it is just beginning. The pressure for change is large, but it is blocked by the political cost. Maduro's popularity has fallen more than 30 percentage points, and the majority of the population opposes necessary measures such as devaluation, a rise in gasoline prices or price adjustments. It is likely that the government will take some steps in the correct direction, but with insufficient speed and depth to address the crisis. Will Chavismo lose strength? Chavismo is now half as strong as Chávez left it. Maduro's nightmare is that he will not be able to win an election under these conditions, unless the opposition is disjointed. A parliamentary defeat would not mean ungovernability in a country controlled by the president. However, it would strengthen the opposition and open the way for more organized struggles. The risk, however, is that it would lead different groups of Chavistas to protect themselves. Could the opposition gain strength? It wouldn't be easy as they are divided, with differing thoughts, objectives and egos. An improvement in the opposition's opportunities and accords among them are difficult because everyone wants to control something they do not yet have. Their biggest problem is the despair among some opposition groups that believe they cannot wait and that there is no electoral solution. One cannot rule out a scenario in which Chavismo stimulates the radical opposition, which is the way Chavismo could emerge politically unscathed." A: Mark Weisbrot, co-director of the Center for Economic and Policy Research: "Venezuela will certainly have to adjust to lower oil prices if they remain at these levels. However, oil prices have been notoriously unpredictable, so there is no way of knowing when they will rebound. Venezuela has already had a huge adjustment: imports have declined by 33 percent in the last two years. For comparison, if we look at Greece, which has gone through one of the most wrenching adjustments in the world, there is no decline that big in any two- or even three-year period during the last six years of its recession. So Venezuela has already done most of the adjustment necessary to live with much lower oil prices, if they remain low. With help from China and other countries, the government can make sure that this adjustment does not cause the kind of prolonged recession and mass unemployment that we have seen in countries like Spain and Greece. On the other hand, Venezuela has high inflation, shortages, capital flight and a huge black market premium. To fix these problems, the government will have to fix its exchange rate system-preferably by unifying the exchange rate and allowing it to move to a sustainable level. That is the central economic reform that is necessary to resolve the other problems. As for the foreign debt, default is very unlikely. At current prices, the government could buy up all the outstanding principal due over the next three years for about $8 billion or $9 billion, which is much less than the government's $14 billion just in gold reserves." A: Asdrúbal Oliveros, director of Ecoanalítica in Caracas: "Given the economic crisis, the outlook for 2015 is far from promising. On top of the multiple imbalances in the Venezuelan economy, we now have to add the drop in oil prices. Expectations are pinned on the measures that the president will have to take. It is evident that, given such a significant drop in revenues (the scenarios for 2015 in terms of the drop in revenues are between $9.2 billion and $24 billion), the government will start to implement some kind of adjustment. The impact it will have on the different key variables will depend on the quality, scope, design and timing of the adjustment. In any event, macroeconomic performance over the next year will be marked by the adverse impact of oil prices, and the outlook is grim. 2015 will be characterized by an economic contraction around 5 percent, inflation above 100 percent and the devaluation of the weighted official exchange rate. The challenges facing the Maduro administration are not minor ones. Chavismo has become accustomed to living with high oil prices, to hiding imbalances and to postponing adjustments. The challenge is how to downsize a government that today needs an oil barrel price of $122 in order to function to the point where it can manage with an oil barrel at half that price or less, with the political costs that this implies." A: David Smilde, Charles A. and Leo M. Favrot Professor of Human Relations at Tulane University and senior fellow at the Washington Office on Latin America: "Chavismo as currently formulated seems to be coming to an end. Economic growth based on state spending and an overvalued currency had already stalled in 2013. Now, after failure to reform the economy in 2014, the economy is in crisis with 70 percent inflation and widespread scarcities. To make matters worse, the price of oil has dropped by half, and Maduro's popularity is below 25 percent. If they stay the course, Chavismo will likely lose this year's legislative elections and a recall referendum that will become available in 2016. To avoid that, they will either need to put forward significant economic reforms--no small task for a coalition whose ideological cornerstone is anti-neoliberalism--and hope to recover by the time of the legislative elections (most likely at the end of 2015), or become a significantly less democratic government. It is important to remember that while Maduro's and the Socialist Party's popularity is flagging, they still control all institutions of the government, including the armed forces, the state oil company and the supreme court. The December designations (and in two cases re-designations) of National Electoral Council (CNE) rectors left the CNE largely unchanged. In recent years, it has not been able to ensure a fair campaign, but has carried out a clean election by international standards. This should facilitate an electoral solution to the crisis. A dysfunctional opposition, however, could well fail to capitalize on their most significant opportunity in 16 years. They still have not put forward a strategy for the legislative elections or even a plan for choosing candidates. Nor have they forwarded any ideas regarding what they would do to confront the crisis were they to obtain power. Instead they are planning a strategy of street mobilizations that could generate the type of conflict we saw in 2014."

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