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Venezuela Government: What is Next?

Although news headlines have focused on the severe challenges to world order stemming from the crisis in Ukraine and the continuing conflicts in the Middle East, mounting economic and political problems in Venezuela have profound implications for the United States and the countries of the Western Hemisphere and for international companies with investments in one of Latin America’s most important economies.  Venezuela, with the largest proven oil reserves in the world, is also the fourth largest exporter of crude oil to the United States, accounting for 10% of all imports.  Since his election to the presidency in 2008, Hugo Chavez was able to garner significant domestic support for his “socialism of the 21st century” through massive transfers of oil revenues for social programs at home and foreign policy successes with discounted oil sales to the Caribbean and favorable terms for India and China.

Those policies, however, proved costly when combined with economic measures hostile to foreign and domestic investment, intrusive price and exchange-rate controls coupled with increased corruption.  This resulted in one of the world’s highest inflation rates, a dramatic drop in the country’s currency reserves, and high levels of indebtedness, particularly in the beleaguered oil industry.  Oil production has declined by over a quarter due to mismanagement, lack of investment and the shift of exports away from the United States to less profitable ventures in Asia.

The death of Chavez in November 2013, whose leadership had loomed large over government and society, left a significant vacuum and sharply deteriorating state authority.  Adding to the woes of ordinary Venezuelan’s coping with a serious scarcity of basic goods is the growing problem of public insecurity with skyrocketing crime rates.

It was a student protest against runaway crime that sparked a larger protest movement that led to serious confrontations between regime supporters and opponents, with many in the opposition calling for the immediate resignation of President Nicolas Maduro.  Maduro, Chavez’ chosen successor, who barely won the presidential election to succeed his mentor, has struggled to retain control over the disparate forces of chavismo, particularly a military establishment dominated by Chavez’ companions in arms who have come to dominate senior government positions and state enterprises, undermining further the professionalism of public service.

Despite his efforts, Chavez’ heir has been unable to garner even a fraction of his mentor’s charismatic authority.  Close to 80% of the public feels that the country is headed in the wrong direction and the president’s own popularity stands around 35%.   His predicament, however, has not translated into higher approval ratings for opposition leaders, as ordinary Venezuelans chafe not only at supermarket shortages, but barricades and traffic congestion caused by the protest movement.

Belatedly alarmed by the deteriorating situation inside Venezuela, where the United States has limited influence, UNASUR (the Union of South American Countries) together with the Vatican have sought to lower tensions by establishing a mediation effort between government and opposition.  So far, they have met with limited success as the government has resisted meeting opposition demands to relax controls on free expression and assembly and release imprisoned leaders charged with subversion.

The government’s intransigence is increasingly antagonizing the UNASUR countries that have sought to help defuse crisis—a development that could force Maduro to rethink his stand, lest he risk further regional isolation.  What may contribute to that shift, is the relative success of a quiet and parallel dialogue taking place between the government and private sector leaders that has already shown that the authorities may be willing to address the countries economic problems with a greater degree of pragmatism, shorn of previous ideological rigidities.

At the same time the protest movements have lost some of their initial energy. But time is running out.  Although rumors of a possible military coup or full-scale institutional collapse are clearly premature, it is an error to conclude that Venezuela will be able to overcome in the short term its serious economic and political challenges.

© 2019 Covington & Burling LLP

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About this Author

Arturo Valenzuela, Latin America Advisor, Covington Burling Law firm
Senior Advisor

Arturo Valenzuela is senior advisor for Latin America based in Washington, DC. Dr.Valenzuela, a non-lawyer, is a highly regarded scholar, diplomat, and international business consultant. He provides strategic advice, risk assessment and consulting services to U.S. and international clients with investments and operations in Latin America and Latin American clients interested in expanding their operations overseas. His clients have included Fortune 500 firms and leading Latin American multinationals. He is the recipient of the highest diplomatic honors bestowed by the...

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