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Venezuelan protesters are demanding that President Maduro resigns. (Photo: Voluntad Popular)
President Nicolas Maduro (center) has jailed opposition leader Leopoldo Lopez (left) and expelled opposition leader Maria Corina Machado from the national assembly. (Latinvex collage with images from Lopez, Agencia Brasil and Unidad Venezuela)
Wednesday, March 26, 2014
Special Reports

Venezuela: A New Ukraine? 

The deteriorating economy – more than opposition protests – may eventually force Maduro out, experts say.

BY JOACHIM BAMRUD

Will Venezuela’s protests end with the ousting of the country’s president Nicolas Maduro, following the recent example of Ukraine? The South American country appears to be facing an economic freefall while the government is ramping up its persecution of the opposition, including stripping Maria Corina Machado – a key opposition leader -- of her seat in the national assembly while continuing to detain another prominent opposition leader, Leopoldo Lopez, and the opposition mayor of San Cristobal, Daniel Ceballos.  

On Tuesday, Maduro announced that three air force generals have been arrested on charges of plotting a coup in league with opposition politicians during the country's rumbling civil unrest, Reuters reports.

In addition to demanding Maduro’s resignation, protesters are complaining about high inflation, shortages of basic foods, and one of the worst rates of violent crime in the world, the news agency says. Venezuela has Latin America’s worst crime rates, according to the Latin Crime Index from Latinvex.

So far at least 34 people have died since the protests began on February 12. Venezuelan business mogul Gustavo Cisneros, chairman of the Cisneros Group, made a rare entry into politics last week with an op-ed in the Financial Times and Spain’s El Pais calling for meddling by Pope Francis to end the growing violence. “The situation is no longer tenable, and it cries out for attention and help from the international community,” he wrote. “Pope Francis could bring to a halt the nation’s destructive journey.”

MADURO: HOW LONG?

Meanwhile, the protests – entering their sixth straight week – are raising the specter of a possible exit of Maduro, who has been president since March 2013 when long-time president Hugo Chavez died. Maduro was formally elected in April for a six-year term.

“Given how things are going, it would be surprising if he finished out his full term,” says Michael Shifter, president of the Inter-American Dialogue.
  “It is probably a mistake to underestimate Maduro’s staying power, at least over the next year. Beyond that it is likely to become more difficult.”

Otto Reich, President of Otto Reich Associates, former US Ambassador to Venezuela and former Assistant Secretary of State for Western Hemisphere Affairs, believes Maduro’s chances of staying in power over the next year depends on the economy.

“Whether Maduro stays in power for 12 months or not depends mainly on the horrible state of the economy,” he says. “It is hard to exaggerate how close Venezuela is to bankruptcy. There is no liquidity. Not enough reserves. Foreign companies are leaving, domestic investors are persecuted, there is no foreign or domestic investment, no maintenance of the industrial base. No foreign exchange to buy the 80 percent of the food consumption that must be imported, leading to unprecedented food shortages in the nation with the biggest oil reserves in the world.  Venezuela's 21st Century Socialism looks exactly like Fidel Castro's 20th Century version in Cuba. If there is not a sudden economic miracle, neither Maduro nor any other Chavista can feed 30 million people.  It is not hard to predict what would happen to the rulers in that case.”

Cynthia J. Arnson, Director of the Latin American Program at the Woodrow Wilson International Center for Scholars, sees Maduro safe for now. “Thus far the protests appear to have united, not divided the regime,” she says. 

The ultimate arbiter of Maduro’s fate will be the armed forces, should future protests look like they are getting out of hand, Arnson says.   “Maduro’s ability to improve economic performance—a real wild card—will be critical to the consolidation of his power,” she says.  “Equally critical in the near to medium term will be the opposition’s ability to adopt a unified and credible strategy for reaching beyond their core of current supporters.”

MORE OR LESS PROTESTS?

The protests may die down in the short term, due to a combination of factors, Arnson believes. “First, the government crackdown has been relentless, not only in terms of deaths but also the number of arrests and the government’s determination to clear the streets of barricades,” she says.  “Second, in Venezuela as elsewhere, the public can tire of the difficulty in navigating around the protests, so sympathy with the protestors tends to wane.  Third, without visible, positive results, the morale of the protesters themselves will lag.”

The results are likely to be seen much more over the long term, in that the regime has been incapable of addressing the economic and security crises and the country’s level of polarization, Arnson points out.  “The question is how or if the opposition will build on what has taken place since February to expand its reach into the Chavista base,” she says.

Meanwhile, Maduro confronts a dilemma, Shifter argues.  “If he cracks down further in an effort to squash the unrest, that could weaken his government, help mobilize support for the opposition and push other governments in the region to react and apply pressure on him to ease the repression,” he says.  “If he doesn’t crack down that will undermine support among hardline Chavistas and he will be viewed as weak in the face of a real challenge.”

Shifter believes the protests are likely to have their ebbs and flows and will not be easy to sustain at a high level. “But in the long term if the economic situation continues to deteriorate there may not be any other recourse for many Venezuelans than to take to the streets,” he says.

This popular uprising has already lasted much longer than previous ones did or than originally expected, Reich points out.

“That augurs badly for Maduro and his cohorts,” he says. “The heavy-handed repression seems to have shocked sectors of the population into more anti-government action, not less. The students have been joined by many other sectors of society. Maduro has lost the battle of public opinion in the world because this uprising is being televised through social media.”

Machado on Friday released a video through YouTube showing the government repression. It received nearly 800,000 visits during the first four days.

DEVALUATION, MORE INFLATION, POSSIBLE RECESSION

On Monday, the government launched a third currency system, Sicad 2, that effectively devalued the Bolivar by 88 percent. The new platform sells dollars at 6.3 bolivars
for preferential goods and around 11 bolivars for other items.  On the black market, greenbacks currently fetch around 57-58 bolivars, according to Reuters.

The government’s 11-year old restrictions on dollars have led to massive shortages of imports, the paralyzation of the once-booming auto sector and the suspension of most flights in and out of Venezuela.

"A more flexible exchange rate system is a step in the right direction, although doubts remain about its viability,” Juan Pablo Fuentes, economist at Moody's Analytics told the Inter-American Dialogue’s daily Latin America Advisor. “For the new system to succeed, the government must allow supply and demand to determine exchange rates. Yet the government has indicated it will intervene as needed to prevent wild swings in Sicad 2."

Paula Diosquez-Rice, a senior economist for Latin America & Caribbean at IHS Economics, agrees. “Unless the system is allowed to work without extensive government intervention, SICAD II will not reduce the demand for foreign exchange in Venezuela,” she said in a commentary yesterday.


Given that the central bank and government have limited amounts of dollars, demand might quickly overwhelm the new market, Fuentes says.  “In the most likely scenario, the government will need to restrict demand by setting limits and/or limiting the number of buyers,” he warns. “If so, the new market will be ineffective in replacing the black market.”

The result is likely to be higher inflation and a further push towards economic recession, he warns.

Venezuela is likely to have the world’s highest inflation rate this year, according to a Latinvex analysis of the latest figures from Venezuela (56.2 percent) and forecasts from the IMF for 188 countries. Iran, the second-worst country, will likely see inflation of 42.3 percent.


KEEPING CHAVISTAS IN LINE

The economic crisis is impacting traditional followers of the government, although it’s unclear how many of them will be joining the opposition protests.

“The Chavista base can’t be happy with the ongoing economic turmoil, especially the rate of inflation, which cuts more deeply into the purchasing power of the poor than anyone else,” Arnson says. 

Some transfer of loyalties away from the regime because of economic hardship was clearly seen in the razor-thin vote margin by which Maduro won the presidency in 2013, she points out.  “But it’s important to remember that issues of identity and dignity motivate the Chavista base, not just material benefits received through government social programs,” Arnson says.

Meanwhile, many Chavistas still prefer to support Maduro over the opposition. “Maduro retains quite a bit of support – not because he is particularly appealing or well-liked or inspires confidence, but because the alternative to a Chavista-led government is not clear,” Shifter says.  “The opposition has a long way to go before it closes the deal with the Chavista base. There is still a great deal of mistrust and suspicion.  Of course, if the economy continues to get worse, Maduro could lose support among the traditional Chavistas, but he still has some policy instruments at his disposal that could at least slow down the economic decay and soften its effects."

However, many Chavistas are increasingly worried about the outlook. “They seem to be worried since many of them have sent much of their money and many relatives out of Venezuela including, incredibly enough, to the US,” Reich says. 

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