It would be fair to suggest that Nicolás Maduro’s first three years of office haven’t gone quite to plan.
Snap back to 2013. On the 5th of March, after receiving treatment in Cuba, Hugo Chavez, Venezuela’s most charismatic politician this side of Simón Bolívar, dies of cancer. Brent Crude is around $100 a barrel; the IMF forecasts real GDP growth of 5% for the year. Venezuela’s largest trading partner, the U.S.A, is coming out the other side of recession and China, the nation’s second biggest, is enjoying GDP growth of 7.9%. In social terms, fewer Venezuelans are living under the poverty line than in 2000, and education, employment and literacy levels are all favourable when compared with the pre-Chavez era.
Enter Chavez’s appointed successor: Mr. Maduro.
Nicolás Maduro’s political career, like so many others in leftist politics in Latin America, started in the transport trade union movement. Maduro joined Chavez’s MBR 200 revolutionary group in the early 1990’s and rapidly gained favour within Chavista circles. After successfully running for the Chamber of Deputies (the lower house) in 1998, Maduro was elected to the National Assembly (the upper house) a year after the successful Chavista coup in 1999. In 2006, Maduro was elected Foreign Minister and shortly after Chavez’s Presidential victory in 2012, he was appointed Vice-president, and anointed heir apparent should Chavez’s health situation deteriorate.
Flash forward to 2016. The economy, like Mr. Maduro’s cycling exploits, has fallen flat on its face. The government predicts inflation will be around the 141% mark (independently, it’s expected to be in the region of 720% making Venezuela’s economy one of the most inflated worldwide); On 8th March this year, Mr. Maduro raised the price of petrol by 1300% (the first price hike in 17 years) many believe this to be too little too late, and a pinch on Venezuelans; and the Bolívar is trading around 130x the officially pegged rate (B.s.10/$1) on the black market. What is more, the IMF predicts that the economy will shrink by a whopping 10% this year.
And as you might expect, the country’s credit situation is desperate too. While Venezuela has prioritized meeting debt obligations in the past, the risk of a default on government debt is higher now than ever before. With the Bolívar in free-fall Venezuelan debt is a no go zone. The country owes around $125bn; of which $10bn is due this year. Credit Default Swaps on Venezuela’s debt are trading at all time highs (with spreads of 5860bps, vs. 19bps on German debt or even 1892bps for war-torn Ukraine), and the fiscal deficit has grown steadily over the past 5 years, and fell off a cliff in 2015. A default event would be utterly disastrous, and the only way the government has thus far met their obligations is printing more money, thereby further driving inflation. One possibility, heretofore not discussed would be to follow Ecuador and dollarise. While adopting the Dollar seems unlikely under Mr. Maduro’s leadership, it’s a move that a subsequent politician or movement might want to consider. What would be lost in fiscal autonomy would be compensated for in stability.
Equally alarmingly, Venezuela is now even less safe than it once was. Figures collected by the United Nations Office on Drugs and Crime suggest that Venezuela is one of the most dangerous countries in the Americas, with a homicide rate of 53.6 per 100,000 in 2012 (representing a 63% rise since 2000). In 2013, Mr. Maduro rolled out his “Plan Patria Segura” policy, which involved the deployment of troops in an effort to reduce crime rates. Despite government proclamations of success, the situation appears to be worse. In 2014 the Venezuelan Violence Observatory estimated that almost 25,000 people were murdered suggesting a homicide rate of 82 per 100,000. Press freedoms have also suffered. In 1998 close to 100% of Venezuela’s newspapers were independent of government control, now that figure is closer to 60%. Journalists who are critical of the government are branded traitors and American hacks, and dissenting politicians are thrown into prison and accused of trumped up corruption charges.
To be sure, Mr. Maduro can’t solely be held to account for the country’s dire straits. Venezuela’s economy is married to the caprices of the oil market, and like other OPEC countries, it has suffered enormously as a result of Brent’s collapse. But nor can he, or defenders of his predecessor point fingers at a grand global capitalist conspiracy. The glut and resultant depression of oil prices has been exacerbated in Venezuela by inefficiencies. Venezuela has one of the highest break-even prices per barrel of any OPEC country, and petroleum and petroleum products are the countries largest export.
The government’s complacent attitude towards diversifying the economy has had a stultifying effect on Venezuela. Sitting atop the worlds largest oil reserves had allowed the PSUV (Mr. Maduro’s party) to fund its ambitious social reforms. With a Dollar revenue stream all but assured, the Chavista regime has done little to encourage the growth of other industries. Protectionist and nationalist policies preventing foreign direct investment in the economy have proven disastrous. Basic necessities such as milk, eggs, cooking oil and fish are now in scarce supply. In an attempt to combat the country’s frequent power shortages, Mr. Maduro has called for an extended Easter break. The government blames the El Niño weather cycle, but it has been suggested that a lack of investment in the maintenance of Venezuela’s largest damn is largely responsible. Even in light of the “good times”, and the implementation of the government’s social amelioration agenda, recent studies have shown that prosperity did not increase consistently in Venezuela 2000-2013, but rather has fluctuated, and certainly worsened in the last 4 years.
This economic and social unrest has yielded a rare political animal in Venezuela: an effective opposition. Elections in December returned a 2/3rds majority for the MUD (Democratic Unity Roundtable), a movement that opposes Chavismo. Despite this clear democratic mandate, the PSUV controlled supreme court have blocked the appointment of a handful of delegates thus preventing the supermajority which would allow parliament to override the executive veto. Nonetheless, the MUD has pledged to force Maduro out before the end of his term in 2019, and they intend to use a three pronged attack to do so: a recall referendum; a constitutional amendment; and mass protests.
It’s not just Mr. Maduro’s political track record that’s being challenged. In a move straight out of the Donald Trump handbook, a recent investigative report by Los Informantes, a local news program has even tried to suggest that Mr. Maduro’s dual-nationality (his mother was Colombian) constitutionally prevents him from holding office! Whatever the case, the Venezuelan people have grown weary of the Chavista experiment. The onus now falls on their elected representatives to attempt to salvage the situation before it gets any worse. Sadly, until the market adjusts, and oil prices rise, progress and transformation in Venezuela will be an uphill battle.