Maduro's Last Days? Venezuela's Transformative Elections

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1 Maduro's Last Days? Venezuela's Transformative Elections R. Evan Ellis U.S. Army War College t Strategic Studies Institute Presentation to the Hudson Institute Washington D.C. December 17, 2015 For more information, contact: Dr. R. Evan Ellis Robert.e.ellis78.civ@mail.mil

2 Political Challenges for Venezuela s New Majority Coalition 112 / 167 seats in Nat. Assembly (Supermajority), but new Chavista Supreme Court appointments (32) Ability to declare laws unconstitutional? Veto power (esp. if part of opposition can be coopted) Maduro administrative powers Renewal of rule by decree (Special session of AN)? Independent funds (eg. FONDEN) Communal councils ( 65% budget in 15) Communal parliament (seated in AN) Vulnerability to a Paralyze and Blame MUD strategy?

3 Signs of a Broken Economy and Governance Structure Rampant Crime (69+/100k in 2014) Rampant Corruption (#161/174 by TI 2014) Narcotrafficking / Narcostate Printing money w/o products = Rampant Inflation 204% for 2016 IMF + Currency controls (SICAD II) = Runaway unofficial exchange rate (857 Bf/USD) Subsidies + Controls: Rampant Smuggling Market + Domestic Shortages Gasoline Goods (40% of subsidized food stolen?) Currency

4 The Economic Challenge Venezuela is Broke, its Economy Broken Running Out of Money This image cannot currently be displayed. This Venezuela image cannot International currently Reserves be displayed. (BCV + FEM) Source: BCV Unable to Supply Basic Needs Domestically Disincentives to invest/operate + supply chains technically/financially inoperative + lack of physical and legal security + Mismanagement/Corruption + Isolation from those who could help

5 The Economic Challenge (2) Running Out of Money $14.6B in official reserves But $11B of that in gold This image cannot currently be displayed. This image cannot currently be displayed. Versus $10.5B in debt payments in 2016 But Outstanding debt to PRC only $25B

6 The Economic Challenge (3) Running Out of Money - Sources Production Revenues Low and Declining Oil=96% of foreign currency revenues Falling oil prices: $31.24/bbl This image cannot currently be displayed. This image cannot currently be displayed. Flat (or falling?) oil production: 2.48M b/d Source: Petroleum and Mining Ministry

7 The Economic Challenge (4) Running Out of Money - Sources Petroleum Production Costs Lack of investment in upgraders-> Import crude for blending This image cannot currently be displayed. Lack of other capital investment-> Shutdowns at refineries, etc.

8 Diversion of revenues The Economic Challenge (5) Running Out of Money - Uses Missiones - $33B in 2013 ( > spending on Ops ) 157,000 PdVSA employees & contractors by 2013 ALBA Petrocaribe (18 nations) $20B financed (53% of Ven rt revenues to Carib. Exports to Carib 06-12) Now (eg. DomRep $1.9B) Loan payback (Jan 15) Domestic gasoline subsidies 5 /gal ($12B/yr cost) : <1.9M B/day left for export

9 The Economic Challenge (6) Unable to Supply Basic Needs Domestically Disincentives to production: (Mfg 47% in 3q2015) Freezing of prices for 539 days, 3 year extension of freeze x firing, 30% in minimum wage (Nov 15) Confiscations (eg. For Violating Law of Fair Prices) + Nationalizations + Land/Property Invasions Lack of physical security Broken supply chain: Imports 65% (Jan-Oct 15-16) Difficulty acquiring foreign currency to import goods (CENCOEX-SICAD II) Bureaucratic obstacles to distribution (eg. 30 tons of wheat stuck in Pto Cabello? [Cavidea]) Venezuela is #140 on Forbes business environment index

10 The Economic Challenge (7) Unable to Supply Basic Needs Domestically Gov t Pmt. delays (eg. PdVSA/Corpovex: 60 ships waiting for cash to unload (Dec 15) This image cannot currently be displayed. Inability to obtain equipment (eg. Yutong, Haier, Chery, ICTV factories) Spending of money without results (SERLACA, Barquisimeto busses) Other: eg. Colombian border closure Lack of Predictability

11 Uncertainties How will the Presidency-SC vs. Congress Contest Play Out in an Ambiguous Constitutional Playing Field? Who will Lead the MUD in the National Assembly? Will Chavistas Succeed in Dividing / Coopting Members of the Coalition? Bribes + Threats + Issues (Guyana Border) As Conditions Deteriorate, Will Maduro Succeed in Focusing Popular Discontent on MUD? How Will the Coming Tide of International Criminal Indictments Impact the Dynamic? Will PRC and other Countries Expand Credit During Political Transition, or Wait to See Outcome?

12 Strategic Inflection Point For the Region? Venezuela Mid-Term Elections Election of Macri in Argentina Decision of Correa not to seek reelection in Ecuador Crisis of PT and Dilma in Brazil Normalization of Cuba-US Relations Postponement of Nicaragua Canal and future of Sandinistas? This image cannot currently be displayed. This image cannot currently be displayed. Collapse of key nodes of Latin American populist-socialist coalition due to own internal contradictions but a fleeting and difficult to exploit window of opportunity for those who now share responsibility to govern to demonstrate to a skeptical population the benefits of a more market-oriented, rule-of-law approach

13 Questions? Comments?

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