Prospects for Venezuela in 2022

Thursday, November 25, 2021

Subject

Prospects for Venezuela in 2022.

Significance

President Nicolas Maduro’s administration will enjoy a period of political ascendency following success in this month’s regional government elections. Economic recuperation ahead of the 2024 presidential election will be the policy priority. Opposition parties will be preoccupied with addressing internal factionalism and diminished popular support. The contradictions in US strategy on Venezuela will persist and undermine multilateral dialogue initiatives.


            Voters waiting at a polling station in Caracas on Sunday, in front of a mural of late President Hugo Chavez (Miguel Gutierrez/EPA-EFE/Shutterstock)

Significance

President Nicolas Maduro’s administration will enjoy a period of political ascendency following success in this month’s regional government elections. Economic recuperation ahead of the 2024 presidential election will be the policy priority. Opposition parties will be preoccupied with addressing internal factionalism and diminished popular support. The contradictions in US strategy on Venezuela will persist and undermine multilateral dialogue initiatives.

Analysis

The year 2021 has been another year of consolidation amid adversity for the Maduro government. Against a backdrop of searing economic contraction that has plunged three-quarters of the population into poverty, the ruling PSUV swept the board in legislative and regional elections in 2020 and 2021:

  1. In December 2020, the opposition lost control of the National Assembly, with the PSUV's Patriotic Pole alliance taking 253 of the 277 seats on a 30% voter turnout (see VENEZUELA: Legislative elections increase uncertainty - December 9, 2020).

  2. In November 2021, the PSUV won control of 20 of the 23 state governorships and a majority of local mayors, with a 40% turnout (see VENEZUELA: Regional election results are uncertain - November 10, 2021).

As over the last two decades, PSUV election success was by default, because of the opposition's limitations. Although the Maduro government has created significant obstacles to a free and functioning electoral and democratic system (see VENEZUELA: Election report outlines virtues and vices - November 24, 2021), the opposition also carries many self-inflicted wounds. These must be resolved if the opposition is to present a coherent or successful campaign for the presidency in 2024.

Opposition obstacles

A major obstacle to opposition renewal and reconnection with Venezuelan voters is the continued US recognition of Guaido as interim president (see VENEZUELA: Government-opposition talks advance slowly - September 8, 2021):

  1. Guaido holds no elected office, his Voluntad Popular party is small, he has no authority over US based right-wing opposition factions of his multiparty alliance, and his oversight of public monies reserved to him by the United States has been weak.

  2. President Joe Biden's administration has broadened engagement to represent better the diversity of Venezuelan opposition voices beyond Guaido, but in continuing to recognise him as executive, Washington distorts the political options and balance of influence and power within the wider opposition movement.

The decision taken by Guaido and his Group of 4 (G4) alliance of political parties not to participate in the 2020 legislative elections was a tactical error that gifted the PSUV hegemony by default. G4 attacks on opposition parties that opted to participate (grouped in the Democratic Alliance) has deepened antagonisms and popular frustration with the opposition more broadly.

At the same time, the decision by the G4 to participate in the November 2021 regional elections was taken too late, no primaries were held, and the failure to reach agreement with the Democratic Alliance split a collective opposition vote of 52%, contrasting with 46% for the PSUV

52%/46% Total votes for opposition parties/PSUV in November

Continued US recognition of Guaido as interim president is despite the fact that European and some Latin American countries withdrew their recognition when Guaido ceased to hold the position of National Assembly president. Without a distancing of US influence over coming months, the opposition will struggle to define a viable presidential candidate. In the immediate term:

  1. Continued US recognition of Guaido will leave complex issues of debt and compensation payments to creditors in suspension, including claims on Venezuelan state assets such as US-based refiner CITGO.

  2. As the United States again veers towards a unilateral position on Venezuela, with a hasty post-election statement from Secretary of State Antony Blinken this week (see VENEZUELA: Election doubts will not ease stalemate - November 23, 2021), multilateral dialogue initiatives that gained traction in late 2021 will need resuscitating in early 2022.

If no progress on US sanctions lifting is to be expected, the Maduro government will maximise opportunities for sanctions-busting and hew back to traditional allies Russia, China, Turkey and Iran.

Chavista challenges

While Maduro is in a position of relative political strength, his government faces a potentially challenging year. Succession issues will dominate internal PSUV deliberations, although these will be kept out of public view.

Maduro is unpopular among voters, although he continues to benefit from a residual 'Chavez effect'. He would struggle to face down a unified opposition candidate in 2024.

The challenges to Maduro and his circle come from a younger generation of PSUV leaders frustrated by corruption, centralisation and cronyism. Factions divide between a more technocratically oriented centre-left and traditional Chavistas frustrated by lack of progress toward socialism. If these divisions and deliberations crystallise over coming months, the influential military will lean toward the technocrats.

Both the PSUV and opposition 'old guard' are reluctant to empower the next generation

The persistence of old and discredited leadership faces on both sides of the political divide will accelerate popular ennui with parties seen as unresponsive and out of touch.

Economic crisis persists

While Maduro and the PSUV enjoy political dominance across all institutions of state, hegemony does not equate to policy competence and the government has intense challenges ahead. Economic recovery is urgent. The government's capacity to channel vastly diminished public resources as a reward to supportive communities is exhausted.

Over recent years, the Maduro government has pursued a gradualist approach to a more liberal economy. The modest steps that have been taken have galvanised protests from unions and left-wing parties, which see efforts to generate domestic and foreign investment as a betrayal of the ideals of '21st Century Socialism' (see PROSPECTS 2021: Venezuela - November 11, 2020). The slow nudges forward by the government have nevertheless been effective in reducing hyperinflation and supply pressures:

  1. The last three years have seen an easing of controls on prices, dollar exchange and the use of foreign currencies in the domestic economy, as well as successive currency devaluations, most recently in October.

  2. The private sector is an increasingly important partner for the government, with improved cooperation and private sector opportunities promoted through the October 2020 anti-blockade law

  3. Efforts to attract foreign private and public investment through favourable opportunities in Special Economic Zones have faltered; these options remain unattractive due to US sanctions and the Venezuelan record of poor governance, weak oversight and corruption.

The UN Economic Commission for Latin America and the Caribbean predicts a contraction of 4% in 2021 and 1% growth in 2020, following a 30% fall in GDP in 2020.

The government's capacity to reactivate the economy amid US sanctions is limited. Economic support from traditional allies such as Russia, China and Turkey will be modest, with Iran an increasingly important partner in projects such as reactivation of the oil sector. Sanctions will remain the sharpest tool in the Biden administration armoury, but at the cost of weakening the political challenge to Maduro.

Conclusion

Ongoing US support for ‘interim president’ Juan Guaido will prove unsustainable. Following Maduro’s withdrawal of government representatives from Norwegian-led dialogue efforts in October, the international community's priority will be to kick-start talks. The appetite of the ruling United Socialist Party of Venezuela (PSUV) for re-engagement will diminish, in part due to Guaido’s eroded credibility as opposition leader. No immediate progress can be expected on US sanctions easing.

© Oxford Analytica 2021. All rights reserved. This content contains general information about geopolitical, macroeconomic and social developments or (where stated) other matters. It does not contain advice or recommendations that may be relied on. Where links to external websites are provided, this does not indicate that Oxford Analytica or Emerald Group agree with, endorse or have checked for accuracy the contents of said sites.

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