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Three Factors Driving Venezuela’s Impasse

by Matthew Taylor
October 28, 2016

Demonstrators clash with members of Venezuelan National Guard during a rally demanding a referendum to remove Venezuela's President Nicolas Maduro in San Cristobal, Venezuela October 26, 2016 (Reuters/Carlos Eduardo Ramirez).

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[This post was co-authored with John Polga-Hecimovich*]

The increasingly dangerous crisis in Venezuela (described in the first post of this series), has been complicated by the political economy of the Chavista regime. Three aspects of the regime as it has evolved under the Nicolás Maduro government are particularly important to understanding where things stand: the policy centrality of the country’s impending debt default; the absence of an adequate exit strategy for many members of the regime; and the central role of the military as a likely guarantor of any solution to the crisis.

Venezuela’s sovereign debt is reaching a critical juncture: the country has payments of US$15 billion due by the end of 2017, against foreign reserves of only US$12 billion. Maduro faces an unenviable dilemma: continue to make debt payments and possibly run out of money to finance imports, or default, which could also deepen the government’s cash squeeze by triggering legal action (i.e. bondholder lawsuits) from creditors, limiting even further the foreign exchange inflows the government desperately needs to finance imports of key staples. The regime has so far opted for the first scenario, managing to kick the can down the road by lengthening PDVSA bond maturities through the recent partial swap. If the government defaults, it would be left with three options for financing: reserves (less than US$12 billion), borrowing in bolívares (whose issuance is already creating hyperinflation), or running arrears. None of these options are good.

A second major consideration is the degree to which senior government officials and members of the armed forces benefit from their access to power, and would face consequences with a change in the status quo. Many influential members of the regime are suspected of having made small fortunes through arbitrage (raspao) on top of government policies aimed at altering public prices: selling dollars obtained preferentially on the black market; smuggling foodstuffs and other price-controlled goods; and even profiting from high-yield government debt. Government figures themselves have also spoken of more than $20 billion laundered out of the government through outright corruption. Several leading regime figures, including leading military officials (known as the Cartel de los Soles, for the sun-like emblem that decorates general’s uniforms), are known to have profited handsomely from command of drug transit routes from Colombia in the west. Given that these actors face legal prosecution and even international penalties if Chavismo loses power, they are understandably reluctant to see any kind of pacted solution with the opposition—or even engage any meaningful political dialogue. Irregular armed groups, such as the paramilitary colectivos that have played a major role in repressing public protest, would be similarly disinclined to any kind of compromise that might place them in legal jeopardy.

Third, and perhaps least recognized by international observers, the military has become an increasingly influential actor within the Maduro regime, and is in many ways a “de facto branch of Chavismo.” Indeed, after his appointment in July 2016 as head of national food distribution and a coordinating chief of staff, Minister of Defense General Vladimir Padrino López has become a co-president of sorts to Maduro. But the military’s role has been building for a long time. Article 328 of Chávez’s 1999 Constitution established that the national armed forces would play a role of “active participation in national development,” and Chávez relied on the force beginning with the national emergency relief and development project, Plan Bolívar 2000, from 1999 to 2001. Chávez politicized the organization beginning with a series of purges and new patterns of regular reassignment after the failed 2002 coup, and he named close senior military officials—both active and retired—to government positions. A large number of cabinet positions, state governorships, and appointments within the state bureaucracy now go to senior officers. Maduro recognizes the enormous power the armed forces wield, as well as their vested interest in maintaining the status quo: he has named officials to cabinet positions, defended and even promoted those hit by foreign indictments, and surrounded himself by senior officers, tying his own destiny to theirs. Given their power and presence in the government, it follows that the armed forces will be the ultimate arbiters of change in the country.

Taken together, these three factors mean that a pacted transition in which Chavismo leaves office voluntarily is possible, but increasingly unlikely. Maduro could plausibly reverse policies, and seek to unwind the current mess through significant reforms agreed to with international actors like the International Monetary Fund (IMF), or perhaps China, which holds a third of Venezuela’s outstanding debt. But he seems ideologically unwilling to do so. More importantly, he cannot disavow Chávez’s policies without risking a backlash from Chavistas eager to preserve the ex-president’s legacy, as well as from hardliners like Diosdado Cabello who would stand to lose a great deal from the end of Chavismo. Similarly, a solution in which Maduro steps down in favor of a moderate, like Vice President Aristóbulo Istúriz, seems likely to face internal opposition from the hardliners who have the most to lose.

At this point, the options for a constitutional exit are limited. Article 233 of the Constitution stipulates that the president can prematurely leave office or be constitutionally removed via death, resignation, impeachment by the Supreme Court (TSJ), physical or medical incapacity certified by a medical board designated by the TSJ and approved by the National Assembly, abandonment of office as declared by the National Assembly, as well as by recall referendum—but it does not provide for the figure of impeachment by the legislative branch. The opposition’s goal of putting Maduro on trial in the legislative branch is unlikely to be upheld by the courts or respected by the regime. With a defanged National Assembly, packed courts, and a frustrated referendum, Maduro’s resignation may be the opposition’s best, and perhaps only, option.

Members of the opposition seem to be calculating that massive street protests will force the government to open up and hold the recall referendum, or prod the military to either take part in negotiations or replace Maduro. A crucial element of this calculus is the hope that the armed forces would balk at violently repressing massive protests, given its role in the 1989 Caracazo (during which as many as 2,000 Venezuelans were killed). This is a brave gamble, not least because the armed forces are not the only armed actors who could be brought in by Maduro or hardliners in his coalition to repress protesters: the National Guard and the colectivos have been very effective in cowing opposition in the past, and as the 2014 protests made clear, the government is not shy about using these actors to violently repress dissent.

To summarize, a recall referendum has all but disappeared as an option. Maduro shows no signs of resigning freely. Yet the critical economic situation also suggests that it will be increasingly difficult for Maduro to hold onto power against a restive opposition without resorting to increasingly arbitrary legal maneuvers such as those employed by regime-controlled courts last week, or violent repression of the opposition. The consequence is that the military is now the central player, whether it is as the muscle for an increasingly authoritarian Maduro presidency or as the ultimate arbiter of his removal.

With these factors in mind, the next post in this series evaluates the role of the U.S. and the international community in seeking solutions to the crisis.

*John Polga-Hecimovich is an Assistant Professor of Political Science at the U.S. Naval Academy. His research interests include comparative institutions of Latin America, especially the executive and the bureaucracy, as well as presidential instability. He has published peer-reviewed articles in The Journal of PoliticsPolitical Research QuarterlyElectoral StudiesParty PoliticsLatin American Politics and Society, and others, and conducted fieldwork in Venezuela, Ecuador, and Brazil. His Twitter handle is @jpolga.

Disclaimer: The views expressed in this blog post are solely those of the authors and do not represent the views of or endorsement by the United States Naval Academy, the Department of the Navy, the Department of Defense, or the United States government.

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