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Venezuela: drama now start

Sunday, December 13, 2015

OK, so we’ve now seen Episode One, Second Series. Last Sunday’s election gave Venezuela’s opposition a hefty two-thirds majority in their National Assembly.

So: a win for democracy. South America has moved on from the days of blood-stained military coups.

But what comes next? In the Westminster system, we would by now have a new prime minister and cabinet. 

Venezuela does not have a Westminster system. Nicolás Maduro is still president. His term does not end until 2018. Until then, he appoints the Cabinet and heads the executive.

The outgoing National Assembly, where his supporters hold a majority, does not dissolve until January. 

And he still has significant support; 41 per cent of the voters were loyal to his United Socialist Party. That’s a bigger slice of the pie than many election winners. Britain’s David Cameron won last May with only 37 per cent of the votes.

Meanwhile, the oil price is tumbling. Last week, WTI crude dipped below US$37, one-third of its mid-2014 price level. And much of Venezuela’s remaining revenue stream is pledged to China.

Opposition supporters last week let off fireworks and danced in the streets. But they have little to celebrate. Foreign exchange will not flow freely, whoever is in power. 

“No more standing in line,” Opposition Leader Henrique Capriles said last week. He’s wrong; the hours-long food lines are not about to disappear. 

Welcome to the world of cohabitation—a president and cabinet from one party, and the opposition in control of Parliament.

The French are good at handling that. The Americans and Guyanese less so. And Venezuela? We can expect a bumpy ride.

There are powers and counter-powers, enough to keep the lawyers happy.

Maduro can veto legislation passed by the National Assembly; but there’s a last-ditch process to overturn his veto.

He can rule by decree, bypassing Parliament. Indeed, Maduro has ruled by decree for 21 of his 33 months in office. Most recently, the National Assembly in March gave him emergency powers which run to December 31. 

The outgoing Assembly could extend that time span this month. But the new National Assembly could then reverse that vote.

The Assembly can remove ministers—but there is little point, as the president has the right to appoint a successor.

The Assembly can remove members of the Electoral Commission. It can summon a constituent assembly to rewrite the Constitution. It can block government spending.

Most important, it can call a referendum to force Maduro out of office; though again, there are counter-measures and complications. 

Meanwhile, the Opposition Democratic Unity Roundtable isn’t a single party with a maximum leader. It’s a loose coalition of at least 13 partners. Maduro and his allies will try to wedge them apart. A few defections, and the two-thirds majority vanishes.

Like I said, a bumpy ride.

So, what does this mean for the English-speaking Caribbean? 

ExxonMobil is expected to drill early next year in Guyanese waters claimed by Venezuela. Both sides of the Venezuelan divide will try to look tough. If Maduro wants emergency powers, a confrontation could be the perfect excuse.

And PetroCaribe? That’s likely to get the chop. The Opposition loathe it.

In some ways, that won’t matter. Right now, full price for Venezuelan oil would be less than US$35 per barrel. In mid-2014, the full price was over US$100. With a 50 per cent PetroCaribe rebate, that came to US$50 or more. Even without PetroCaribe, importers will still be US$15 better off.

But cutting import bills was only half the point. PetroCaribe’s soft loans provide a slush fund for politicians to spend with minimal oversight. With oil at US$100, the loan fund was US$50 per imported barrel. With oil at US$35, it is down to US$8.75. PetroCaribe is already half-departed.

Even if Maduro goes back to bus driving, Venezuela’s drama will be far from done. To set the economy to rights, a sane government would need to massively devalue the bolivar, end subsidies which make motor fuel all but cost-free, and cut the budget deficit, now around one-quarter of GDP.

All of that would jack up inflation, which nobody loves. The payoff, in real investment and growth, would not come for years. To many voters, the Chávez time would look like a golden age. Trouble again?

Our near neighbour’s troubled drama will run to a third Series, and a fourth.


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