Viewpoints: What Will the Top Challenge Be for the Next Venezuelan Administration?
Viewpoints: What Will the Top Challenge Be for the Next Venezuelan Administration?
Ahead of Venezuela's April 14 presidential election, five experts shared their views on what lies ahead for the Andean country's next leader.
Venezuelans head to the polls April 14 to pick their next president, choosing between interim leader Nicolas Maduro and opposition candidate Henrique Capriles. As the handpicked successor of the late President Hugo Chávez, Maduro leads in the polls against Capriles, the governor of Miranda state and Chávez's opponent during the October 2012 elections. But whichever candidate wins will have to govern in the tall shadow of the 14-year Chávez government that ended in March, when he died of cancer.
We asked five Venezuela experts and observers to weigh in on what they believe the main challenge will be for the next Venezuelan president, from energy to crime, from the economy to political polarization.
View expert contributions:
- Rory Carroll, former Caracas Correspondent, Guardian
- Luis Cedeño, Executive Director, Paz Activa
- Luisa Palacios, Head of Latin America Macro and Energy Research, Medley Global Advisors
- Christopher Sabatini, Senior Director of Policy, AS/COA
- Francisco Toro, Blogger, Caracas Chronicles
“The chalice is so poisoned that some opposition figures hope Maduro wins and that what is left of chavismo swallows the consequences.”
Regardless of whether Nicolas Maduro or Henrique Capriles takes control of Miraflores Palace, after the election the new administration's top priority will be the economy. Inflation, borrowing, crumbling infrastructure, and shortages of basic goods and real jobs demand urgent attention. This will mean untangling, or at least loosening, a web of subsidies, currency, and price controls that strangle the private sector and distort the public sector.
Unpicking Hugo Chavez's ruinous petro-populism will be a fraught task likely greeted by unrest and accusations of savage neo-liberalism. The chalice is so poisoned that some opposition figures hope Maduro wins and that what is left of chavismo swallows the consequences. If oil prices remain high, or surge even higher, the new president will have breathing space for selective, gradual, but still unpopular adjustments. If oil prices tumble he will be lucky to complete his term.
The wider challenge will be restoring basic governance, starting with security. Venezuelans of all classes despair of violent crime. While fixing the economy, the new president will also need to ease the dysfunction and corruption blighting police, courts, and jails.
Rory Carroll worked as the Guardian's Latin America correspondent in Caracas from 2006 to 2012. He now works as a correspondent at the Guardian’s U.S. West Coast bureau. His book about Hugo Chávez, Comandante, was released in March 2013. Follow him at @RoryCarroll72.
“Since 2006, every opinion poll points to personal security as the country's main problem.”
The main problem to be faced by the next constitutional president of Venezuela is growing criminality. It is not a problem that originated during the administration of President Hugo Chávez, but it reached critical levels during his mandate of 14 years.
According to official figures that were hidden from the public eye for several years, Venezuela registered 16,000 homicides—a rate of 55 homicides per 100,000 inhabitants—and more than 1,000 abductions in 2012, which makes the country one of the five most violent in the world.
Since 2006, every opinion poll points to personal security as the country's main problem, and at a rate that is more than double the percentage given to other problems, such as high cost of living or unemployment. The revolutionary government headed by the late President Hugo Chávez stood by a policy of ignoring the problem, attributing it to an opposition in search of political gain. Once the problem was recognized, weak policies and transitory measures failed to stop the crime boom.
The challenges lie in dismantling a culture of violence linked to a national policy since that dates back to the advent of Chávez as a political figure and the model of socialism that he promoted, which included the concept of class struggle between rich and poor, as well as gun proliferation. This resulted in a zero-sum game that exacerbated the levels of criminal violence already present in the Venezuelan society.
“[W]hat is required of the next president is a dramatic change in energy policy.”
Venezuela could be facing a much less constructive oil price environment and this will bring significant challenges for the next president. Given the country’s export and fiscal dependence on oil revenues, the outlook for the oil sector is key to assess Venezuela’s creditworthiness in the future. And what is required of the next president is a dramatic change in energy policy.
Since 2007 oil exports have fallen by more than 300,000 barrels per day (b/d) due to a decrease in oil production, an increase in domestic consumption, and declines in refinery output due to lack of maintenance. If imports are added, the decline in net oil exports has been of the order of 400,000b/d in the past 5 years, and this according to the own numbers of the state oil company, PDVSA. Venezuela is currently a net importer of gasoline, and these imports significantly increased last year with the explosion in the Amuay refinery in August that has yet to return to pre-crisis levels. This forced Venezuela to import more than 100,000b/d of gasoline in Q4 from the US alone.
A significant improvement in PDVSA’s cash flow situation is required. Some of the recent changes in foreign exchange policy are a step in the right direction, but insufficient. PDVSA needs to refocus itself on its core business of producing oil and allow much more participation by international oil companies in conventional crude production to arrest declines. An important revision of oil pricing policy will be needed as Venezuela currently realizes international oil prices on less than 60 percent of its oil production. This is because it sells oil products in domestic markets at unbelievably highly subsidized prices, it sells oil to Cuba and other Latin American countries with no immediate cash compensation, and it sells oil to China to pay for debt service at discounted prices.
An opposition government will be more willing and capable to push the necessary policy changes. But despite its ideological rhetoric, even a chavista government will be forced to deal with these challenges.
Luisa Palacios is head of Latin America Macro and Energy Research at Medley Global Advisors.
“[T]he government’s spending spree and inattention to productive investment is about to catch up with it.”
The problems that the incoming administration will face are almost too numerous to mention, leading to another question: “Why would anyone want this job?” Fourteen years of administrative and economic incompetence and institutional disarticulation have left a deeply polarized society, hair-raising crime levels, deterioration of key infrastructure, and a series of economic bills that will come due this year. Worse, all these problems are interlinked; there’s no isolating one or two for priority’s sake.
Two immediate challenges to address will be the country’s deteriorating security situation and the looming fiscal crisis. Regarding the first, the new president will need to establish a coherent security policy in collaboration with state and municipal governments, and a professional police force. The problem is that President Hugo Chávez created a parallel “Bolivarian” police force and armed partisan groups, generating overlapping authorities and reducing confidence.
On the economic front, the government’s spending spree and inattention to productive investment is about to catch up with it. The new president will confront a public deficit of $70 billion (or 22 percent of GDP), an inflation rate approaching 30 percent, and the likely need for another devaluation of the bolivar (after January’s 32 percent devaluation and its recent mini-devaluation). Addressing each of these will require some cost in terms of standards of living for much of the population, at a time when new sources of revenue (oil) are severely constrained because of lack of investment in productive capacity.
The first step to tackle these issues is to reduce the levels of polarization and rebuild independent state capacity in key areas of policymaking. Unfortunately, given thinly veiled divisions within both sides of the political divide and the zero-sum nature of the current government’s policies, that appears unlikely. Good luck to whomever wins.
“Ensuring the nation's stability is not compromised—and that inevitable protest is handled in ways that do not escalate conflict—will be the central concern of the next government.”
The key challenge for the next government will be to unwind the tangled web of economic distortions that 14 years of chavista government have bequeathed it, just enough to breathe some vitality into the economy, but not so much (or so quickly) as to cause a social collapse.
The unviability of the spend-it-all-and-then-some economic course Hugo Chávez charted in the last stages of his rule are now evident even to its architects, with Finance Minister Jorge Giordani forced to implement not one, but two devaluations mere weeks ahead of an election. With public spending down sharply, Central Bank operational reserves nearing zero, and new sources of credit drying up, even historically high oil prices are no longer enough.
While details will vary, unwinding the mess economic policy created is a delicate operation. However implemented, it will consist of some version of transferring purchasing power from private pockets into public hands—be it via new taxes, lower spending, higher inflation, more devaluation, or a combination of the above. Done clumsily, it's the type of endeavour that can very easily undermine an always tenuous social peace.
Ensuring the nation's stability is not compromised—and that inevitable protest is handled in ways that do not escalate conflict—will be the central concern of the next government. It will not be an easy task.
Francisco Toro writes for the blog Caracas Chronicles. He is co-author of Blogging the Revolution: Caracas Chronicles and the Hugo Chávez Era. Follow him at @CaracasChron.