Venezuela’s Deep-Rooted Crisis

by July 2023
Supporters of Venezuelan opposition leader Maria Corina Machado during a rally in Venezuela, March 2023. Photo credit: Jorge Mantilla via Reuters Connect

Facing pivotal elections in 2024, Venezuela remains in crisis through a combination of socio-economic upheaval and dysfunctional rule that make it the largest problem in the Western Hemisphere. 

A Background of Authoritarian Rule and Governmental Dysfunction     

In 2018, Venezuela’s President Nicolas Maduro rigged a presidential election process, moving up the date for the vote from December to May of that year. Maduru is the successor to former President Hugo Chávez who ruled Venezuela as a strongman from 1999 until his death in 2013. 

In response, and with the support of the Trump administration and other international backing,  most of the Venezuelan political opposition boycotted the 2018 elections. The United States, Canada, the United Kingdom, and most of Latin America and Western Europe rejected the election as fraudulent. The UK’s rejection of the results carried the key implication that the Bank of England disallowed Maduro’s government from obtaining access to $1.9 billion in Venezuelan gold reserves held at the Bank of England.

The tainted 2019 inaugural of Maduro triggered a countermove – the creation of an interim government led by Juan Guaidó, then the President of the National Assembly, a body that had gained international democratic legitimacy after Western and non-Western governments accepted the 2015 electoral process for the unicameral body. Guaidó received recognition as the interim president from over fifty foreign governments, including the United States, sending Venezuela into a period of dueling executives. Some $250 million of Venezuela’s assets in the US were made available to Guaidó’s team (subject to US Government approval) while the national institutions and territory remained with Maduro.

In December 2020, when new National Assembly elections took place under authoritarian conditions, the Guaidó-led opposition stuck to strategic abstention, a decision that resulted in some splintering within his coalition. Maduro successfully co-opted a number of opposition leaders into joining the election and some won seats in the Assembly. The November 2021 local elections for governors and mayors took place in a changed political environment. The Biden administration had distanced itself from the Guaidó interim presidency. Within Venezuela, hyperinflation, gasoline shortages, and unfulfilled promises of change by Guaidó left some population groups exasperated and others dispirited.

Amid broad-based participation from opposition parties, and the presence of international  election observers, most importantly a mission from the European Union, these local elections delivered some surprising results. For example, opposition candidate Sergio Garridas won the governor’s race in Barinas, the home state of Hugo Chávez and a government stronghold for two decades, in a repeat poll. The government-controlled Supreme Court had nullified the November vote count when it became apparent the pro-government candidate had lost. Overall, observer groups concluded that while the election results had been accepted by the competing parties the voting did not meet international standards of electoral integrity. 

Venezuelan opposition leader María Corina Machado during a rally held at the border of Tachira state, March 2023. Photo credit: Jorge Mantilla via Reuters Connect

Give Maduro-Opposition Talks Yet Another Chance?

The Maduro government and the Unitary Platform opposition coalition met in Mexico City in November 2022, and signed an agreement to create a United Nations humanitarian fund of $3 billion in Venezuelan assets blocked by US sanctions. Six months later, no resources have been deposited in the fund’s account. Amid the stalemate, plans for new rounds of Norwegian-mediated negotiations remain on hold. The unofficial suspension of the so-called Mexico process has added a new source of frustration for this oil-rich country’s population, which has been in desperate need of humanitarian relief since 2017. 

Even if the agreement is implemented, the key elements — the disbursement of resources to the UN Fund and the enactment of humanitarian action projects — may not be enough to revive the negotiation process, now vulnerable to new disruptions. 

The opposition’s negotiation team does not have a concrete deliverable to promote and questions are arising about whether it is truly representative. Ongoing primaries to select the opposition’s presidential candidate have seen María Corina Machado, whose party is not represented on the team, become a frontrunner. Guaido was formally voted out as Interim President by opposition parties in January 2023.  

Meanwhile Maduro, running low on hard currency reserves, is signaling to the US that he needs a big offer to resume talks. Predictably, Maduro has already begun work on building alternatives to the already-negotiated agreement. His government has a debt reduction deal with Chevron, which obtained a new license in November 2022, has expanded its joint oil ventures with Venezuela’s state oil and natural gas company, and is shipping crude to the United States. 

Failure to advance on the negotiations path in 2023 would erode international support for a presidential election scheduled for some time in 2024. Without continued high-level international engagement, negotiations are unlikely to address key issues like sanctions relief and political liberalization, thus reducing the chance of a competitive vote. 

A non-competitive electoral process, as of now the most likely scenario, would result in Maduro retaining the presidency. This in turn would consolidate Venezuela’s current path of limited international engagement and tenuous economic recovery.  Chavista supporters are intimidating opposition leaders campaigning ahead of an October 2023 primary, both verbally and physically, while the pro-Maduro National Assembly recently renamed the electoral authorities. 

President of Venezuela Nicolas Maduro. Photo credit: Mateus Bonomi/AGIF via Reuters Connect

From Economic Collapse to Fragile Recovery

The Barinas electoral rebellion had its roots in popular discontent with an economic collapse of historic proportions. The national economy contracted by 30% when the pandemic hit in 2020. Cumulatively, from 2014 to 2020, Gross Domestic Product contracted 80%. In dollar terms, Venezuela went from having a $372 billion economy in 2012, the year before Maduro took over, to having a $100 billion economy in 2018, the year he rigged a presidential election.   

Multidimensional poverty rose to 65% of the population between 2019 and 2021 while inequality gaps between rich and poor became the widest in Latin America. The cataclysm of political conflict and economic collapse drove over five million Venezuelans to flee the country between 2015 and 2022. According to a UN report in 2023, Venezuela’s total migrant and refugee population exceeds 7 million, thus placing the complexity of the humanitarian crisis on the scale of Syria.    

In 2022, Maduro adopted a more pragmatic approach to governing the economy. He reduced spending, liberalized exchange rate policy, loosened regulations over business, and changed his rhetoric in an effort to claim Venezuela was open for business. Oil production increased by 70,000 barrels per day and he also benefited from the oil price shocks created by Russia’s invasion of Ukraine. As a result, Venezuela’s economy grew 8% and multidimensional poverty declined from 65% in 2021 to 50% in 2022. 

The 2022 economic upturn also involved a “secretive” form of privatization. Maduro had passed an “anti-blockade law” in 2020 through the Constituent National Assembly, a rubber-stamp body established to give the government a friendly legislature to work with while the opposition-controlled National Assembly existed. That law allowed Maduro to secretly privatize state companies and give him full authority to make economic policy decisions, in contradiction to the Constitution which called for National Assembly review and authorization of contracts of national interest. 

The idea that pro-market policy reforms would be made in secret seemed convenient for a sworn socialist revolutionary. In practice, though, secrecy backfired. Massive government corruption schemes surfaced in the first quarter of 2023, the moment when economic activity ground to a halt anew. Faced with these facts Maduro has called for a purge of those responsible for corruption schemes, an ongoing process that, so far, has seen over fifty high-profile government officials and government-linked businesspersons receive indictments. Former Vice-President Tareck El-Aissami resigned from his posts as both state oil company president and energy minister. 

The early 2023 purge targeted billions of dollars in oil sector graft and reportedly netted the confiscation of parking lots full of new Ferraris held by alleged pillagers. Intelligence agencies investigating corrupt officials are also protecting other corrupt actors, especially in the military. Moreover, the purge event, along with a May 2023 “Asset Recovery Law,” may lead to arbitrary clampdowns, a prospect that has sent a chill down the spine of the business community. In short, the purge episode underlines how the economic recovery, if not accompanied by political-institutional reforms, could prove illusory. 

Iran’s president Raisi and Venezuela’s President Nicolas Maduro, June 2023. Photo credit: Jesus Vargas/dpa via Reuters Connect

Venezuela & Global Power Competition

Maduro is forum shopping for allies and friendly mediators. Following the welcome given to him by leftwing governments in Colombia and Brazil, he recently visited Turkey and Saudi Arabia and hosted senior Russian and Iranian officials in Caracas. 

Neither Beijing nor Moscow, Venezuela’s traditional supporters, seems likely to throw much good money after bad and step up with new loans before a presidential vote occurs in 2024. In Russia’s case, its economic position has been weakened by the Ukraine war and sanctions imposed by the West. Despite a friendly visit by Foreign Minister Lavrov there is little tangible support being offered. 

China may view its competition with the United States as the pretext for throwing Maduro a lifeline. After reducing Chinese companies’ exposure to US sanctions on Venezuela, Beijing figured out a third-party workaround for taking oil shipments of Venezuelan crude. Meanwhile, the main Chinese investment in an oil joint venture, SINOVENSA, is the best performing mixed company in the oil sector. As a result, China may feel it can begin to see the light at the end of the tunnel for Venezuela’s debt payments, which once totaled $62 billion and should fall to approximately $14 billion in outstanding debt by the end of 2023. 

When Iranian President Raisi visited Caracas for a state visit in June, the two governments signed a 20-year cooperation agreement. Iran’s government has sold Maduro gasoline and oil products, sent engineers to help repair the country’s refinery networks, and purchased gold in exchange for hard currency. The cooperation agreement calls for working groups on various new fronts, including Tehran sharing technologies for building drones, though, for the time being, it is likely that traditional trade areas will dominate.   

Options for the US

The Biden administration faces tough choices. The end of the Guaidó interim government transitioned into Biden’s recognition of the opposition-controlled National Assembly’s Delegate commission, thus continuing the position of non-recognition of Maduro. However, by mid-2022 that position was already a hard sell. Former US Ambassador to Venezuela James Story traveled with President Biden’s Western Hemispheric Affairs advisor, Juan González, to Caracas to meet with Maduro in March 2022. Other officials have gone to Caracas to discuss  the release of imprisoned US citizens. Since 2022, Washington has been exploring ways to reestablish a diplomatic presence in Venezuela (the mission currently operates from Bogotá, Colombia) to address bilateral matters such as the deportation of undocumented Venezuelans in United States territory. 

Though it is unlikely Biden will recognize Maduro before Venezuela’s 2024 elections, some engagement could still occur. For example, Biden may keep an open mind about giving some political guarantees to Maduro — who in 2020 was charged with narco-terrorism by the Department of Justice which also published a $15 million award for information leading to his arrest or conviction. Maduro has complained about having to skip international meetings — a recent forum in Buenos Aires, for example — owing to fears that some country would seek to bring him before US authorities. It is also possible the United States would send another delegation to Venezuela to meet with Maduro, either in the name of keeping direct diplomatic channels open or of negotiating a more substantive agenda of sanctions relief, democracy protections, security and energy concerns. 

Biden seems unlikely to use the stick of further sanctions, although if Maduro continues to take a hard line toward the opposition, Biden could look at weaponizing the new Chevron license. 

Given how the opening chapters of the 2024 electoral cycle have unfolded, recreating the conditions for a competitive process is going to be an uphill battle. A competitive race would probably result in the opposition candidate winning the most votes. Though a clean vote would not guarantee a transfer of power, it could lure some key ruling party members into joining a transition pact with the opposition, thus disclosing a way to move on from Maduro without losing governability. 

The limited scope of these potential moves captures a key paradox of US-Venezuela ties. Washington controls important levers of influence in Venezuela, including sanction relief, but it does not have a tried-and-true formula for leveraging these tools on behalf of re-democratization. 

Michael McCarthy
Michael McCarthy is President of Ceibo Growth Strategies, a business consulting firm with expertise in Argentina, and an adjunct professor at George Washington University.
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