Pressure mounts on Venezuela’s leader Maduro to step down

07 February 2019

What has happened?

In May 2018, controversial elections threw the already economically troubled Venezuela into political meltdown. Now, almost a year on, the country remains politically divided, with developments in the last weeks of January 2019 leaving Venezuela’s citizens with what can theoretically be described as a dual-presidency.

Since his initial election in 2013 by a fragile margin of only 1.6%, socialist President Nicolás Maduro has frequently been viewed unfavourably by the Venezuelan population – a view reinforced when the economy collapsed shortly after his election. When elections were called in May 2018, they were boycotted by a coalition in the Venezuelan National Assembly opposed to Maduro’s government. This movement was led by the Assembly’s head Juan Guaidó, whose claims that the elections were rigged and un-democratic, gained rapid following. This took the form of protests which continued over the next year, both in response to the election results and also declining standards of living. In recent weeks, these protests have left at least 40 people dead and many hundreds more injured or detained.

However, protests only began to receive renewed international attention in the last month, following Maduro’s inauguration ceremony on 10 January 2019. This was met with a renewed wave of violent protests, supporting continued, confrontational political action from Guaidó. These growing divisions came to a head on the 23 January, when Guaidó declared himself Acting President, citing articles 223 and 333 of the Venezuelan Constitution. The country has since remained at an impasse, its people divided between two leaders. Tensions are also beginning to show among the military forces which are seemingly becoming less willing to defend Maduro against the groundswell of public support for Guaidó.

US President Donald Trump’s actions have since exacerbated Venezuela’s divisions. Summarised in a tweet, Trump declared his support for Guaidó as Venezuela’s Interim President, while also labelling the current government, ‘the illegitimate Maduro regime’. Maduro subsequently accused Guaidó of being part of a US ploy to oust him as president - sparking further resentment towards the US among Maduro and his followers. Several other EU countries, including the UK, Germany and France, have followed Trump in recognising Guaidó as Venezuela’s interim leader, after Maduro steadfastly ignored the EU’s 3 February 2019 deadline to call another election.

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What are the implications?

SECURITY ENVIRONMENT

Deployment of Police Special Force Units by Maduro and continued anti-government protests are likely to pose a continued threat of property damage. This would likely take the forms of both looting and general damage resulting from conflict on the ground. The death toll from violent government repression in several of the most deprived urban areas of the country, has reached double figures. This would suggest that the country is becoming more unsafe for both its native citizens, but also for any international workers who reside and work in these areas. In the unlikely event that the government were able to suppress Guaidó’s campaign and associated protests then these risks would quickly decrease. However, growing international recognition of Guaidó as interim president will act as a catalyst for further violent clashes between his supporters and government forces.

As protests became more violent, Maduro explicitly stated that he will not rule out civil war as a means of retaining his position and government. The United States allegedly has plans to deploy troops to areas surrounding Venezuela, implying that a military response to the crisis is a possibility. If this were to occur, then the risk to property and personnel would also increase dramatically. 

TRADING & INVESTMENT ENVIRONMENT

The Venezuelan economy has long-suffered high inflation rates, but has recently also been hit by a US trade embargo on Venezuelan oil imports and prohibition of US exports to Venezuela. This is significantly impairing government revenue generation. Additionally, Venezuelan total net oil exports are expected to drop from their height of USD 71.9 billion in 2013, to just USD 15.7 billion by 2023. With more countries expected to suspend trading with state-owned oil company PdVSA, rather than compromise trading agreements with the US, oil production is set to decline further. New trade embargos will also encompass a range of products besides oil, thereby reducing PdVSA’s ability to import the necessary materials for production. This same factor has also driven a significant decline in manufacturing activity, as factories cease operations. Embargos, particularly those affecting oil exports, will also limit hard currency inflows. Venezuela’s lack of hard currency will sustain persistently elevated currency inconvertibility and transfer risks, making it unlikely that foreign investors will return to the country in the near-term outlook.

Guaidó has promised long-awaited political reforms, and this would likely be accompanied by economic change. He would be expected to move away from anti-business policies of the current socialist government, toward pro-international investor schemes, which may help to re-boot the stagnant economy. However, Venezuela’s economy had been in decline for many years before recent events, with the country facing a number of structural challenges. As a result, even if Guaidó were to take power, it is unlikely that he could reverse the country’s deep-rooted economic troubles, in anything other than the long-term.

Guaidó would also be expected to work to improve the investment environment. However, the ruling party’s control of institutions will remain deeply entrenched; undermining attempts to introduce any reforms in the near-term. If Guaidó were to successfully take the presidency, any improvements to the operating environment will take a number of years to materialise. Therefore, Venezuela’s legal environment will remain a significant deterrent to foreign investment for some years, and indefinitely if Maduro’s government remains in power.

For more information, please contact Ed Yauch, EVP, Head of CPS on 914-358-0443

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