A combination of economic mismanagement and a steep decline in global oil prices has thrown the Venezuelan economy into a crisis. Spiraling inflation, a lack of access to foreign exchange, and widespread shortages of basic goods are creating hardship for households and businesses alike, and recent developments suggest that the situation is going to get worse—possibly much worse—before it gets better. The black market value of the currency has fallen by 56% just since May 2015, and some analysts are warning that Venezuela is at the doorstep of hyperinflation.
That prospect is generating increased pessimism regarding Venezuela’s ability to avoid sovereign default. The government has used a variety of methods to bolster its foreign-exchange reserves, including the assumption of new loans from China against future oil production, selling gold and other non-liquid assets, and significantly reducing the outstanding debt of regional oil customers in exchange for up-front cash payments worth just a fraction of what those countries will save in debt payments. The moves amount to the mortgaging of Venezuela’s financial future in a bid to fend off a debt crisis until after legislative elections scheduled for early December.
Even if successful, that is unlikely to be enough to spare the governing PSUV from defeat. A recent poll showed President Nicolas Maduro’s popular support sinking to less than 25%, suggesting that he retains the backing of hard-core supporters of his charismatic predecessor, the late former President Hugo Chávez, but has lost the confidence of just about everyone else in the country. A net gain of 19 seats by the opposition MUD coalition would cost the PSUV its majority, and could jeopardize Maduro’s ability to serve out a full term. The constitution allows for a recall referendum to be held after the midpoint of the presidential term, and a strengthened opposition would undoubtedly be emboldened to launch an effort to remove the president at the earliest possible date.
Under the circumstances, the possibility that the opposition might be denied a victory by means of fraud on the part of the government cannot be ruled out, and there are no guarantees that Maduro will recognize a result that endangers his ability to govern. Ominously, the president has vowed to personally lead his supporters in defense of Chávez’s “Bolivarian revolution,” and some top military leaders have in the past hinted that they might feel compelled to intervene if the future of the socialist project is thrown into doubt.
Even if the MUD wins in December, the result is unlikely to halt the downward slide of the economy. Maduro’s administration will continue to call the shots in terms of policy, and there is little that lawmakers can do to address the problems at the center of the economic crisis without the cooperation of the president. Under the circumstances, the opposition will most likely focus its energies on securing Maduro’s removal. Even if successful on that score, the damage inflicted on the economy in the meantime could take years to repair.