More than two years into the global oil price downturn, Venezuela’s myriad problems have caught up with it. What began as persistent economic distortions has evolved into a major crisis that threatens the country’s social order. Years of overspending, heavy subsidies and currency controls that fostered corruption have sapped the government’s finances. Now, Venezuela faces extreme inflation and a major reduction in food imports — both of which may soon generate severe social unrest. Amid the discontent, factions from both leftist and more centrist opposition parties are trying to position themselves as viable alternatives to President Nicolas Maduro, but his administration still holds all the cards. The main question now is what path it will take in dealing with the multiple crises at its doorstep. The government likely will be unable to fix its economic problems any time soon, but it will almost certainly try to hold on to power by further clamping down on its opponents.
To consider how the Venezuelan government will deal with the crises in 2017, it is important to trace their origins. Venezuela is, by definition, a petrostate: Crude oil and related products account for 95 percent of its exports. Successive governments have long viewed oil revenue as a source of boundless wealth to be spent on political patronage for allies and on imports — both staples and luxury goods. Historically, oil has been the only meaningful source of wealth in the country, and the development of other domestic industries has languished. As a consequence, Venezuela’s long-term economic well-being has been entirely at the mercy of the global oil market. Every time it falls, taking the country's export revenue with it, another economic crisis is triggered.
In 17 years of rule under former President Hugo Chavez and his successor, Nicolas Maduro, the country has more or less followed that pattern, albeit to an extreme. Despite the sharp rise in oil prices during the mid-2000s, Chavez’s heavy focus on populist spending, political patronage and subsidies drained the country’s finances. An attempted coup against him in 2002 led to a purge of skilled employees at state oil and natural gas firm Petroleos de Venezuela, or PDVSA, lest the company’s ability to slow production be used as a political weapon against Chavez.
During his reign, Chavez's overwhelming popularity — and the selective use of oppression — led to increasing marginalization of the political opposition as it was gradually shut out of participation in the system. Currency controls created incentives for both government figures and private individuals alike to game the system and siphon off public money for private gain. Subsidized prices for food, fuel and consumer goods created a thriving smuggling economy sending products from Venezuela to Colombia and Brazil, where they could be sold for an easy profit, to the detriment of Venezuelan consumers. And behind the scenes, government and military officials abetted the widespread shipment of cocaine from Colombia through Venezuela to markets abroad, primarily the United States and Europe.
Now that the oil wealth has dried up, the country is in dire financial straits. Popular social policies that fostered inefficient public management — the currency controls and food and fuel subsidies — are all still in place, likely because the government perceives that they help maintain the state’s tenuous grasp on stability. So where does the government go from here? How will Maduro's administration coexist with its opponents amid a rising social crisis? The likely short answer: It won’t.
Maduro and his allies are moving to centralize power as a means of dealing with the mounting crisis. Their main dilemma is how to best hold off political opponents while tackling the country’s economic deterioration. Because of the economy's oil dependence, its structural shortcomings cannot be effectively addressed at this point. So an opposition clampdown is an easier choice. The Venezuelan leaders' concerns likely lie in the potential for any opposition movement — either within the ranks of the ruling United Socialist Party of Venezuela (PSUV) or within the opposition — to channel dissatisfaction against the state in any eventual election. The circle of elites around Maduro and powerful former National Assembly speaker Diosdado Cabello appears willing to go to extreme lengths to hold on to power. Losing control of the government would not only erode their political status but also potentially lead to prosecution of some of their ranks for criminal wrongdoing. To maintain its grip, the state will likely set up as many barriers as possible to prevent the ruling cadre's opponents from becoming viable electoral alternatives.
Although the government controls all meaningful political and security institutions, challengers to power are emerging. Approval for the Maduro government is increasingly low within the ranks of its former supporters, particularly in light of the economic pain inflicted by the failed currency swap program announced Dec. 11. Within Caracas' Barrio 23 de Enero neighborhood, historically a bastion of pro-government left-wing patronage groups, approval for the government has declined, largely because of the severe economic and social crises afflicting those who live there. During a three-day outburst of looting in Ciudad Bolivar that began Dec. 16, some of those groups, known colloquially as colectivos, refused to assist the National Guard in putting down protests, showing the extent of the ideological gulf forming between the state and its grassroots political supporters.
Meanwhile, upstart leftist political faction Marea Socialista, led by intellectual Nicmer Evans, is seeking to challenge Maduro's rule — though it is barred by the state from registering for elections, likely because it represents a viable electoral alternative. It and the more centrist opposition coalition Democratic Unity Roundtable represent the major would-be challengers to the government. But they are all at a disadvantage, as they hold no real power, and the government maintains control of key institutions such as the armed forces, as well as food distribution networks that could be used to coerce people into maintaining support for the administration.
According to Stratfor sources in Caracas, Maduro is considering disbanding the opposition-controlled National Assembly, potentially within the next couple of weeks. And while this is an unconfirmed report, PSUV figures such as Cabello have publicly made the threat to dissolve the legislative body before. However, this time, the possibility appears to be plausible. It is possible that the government will seize on the National Assembly’s planned "political trial" of Maduro after it reconvenes from the holidays on Jan. 5 as a trigger to start the process of disbanding the lawmaking body. Such a move would not come without consequences: Hawkish foreign policy officials within President-elect Donald Trump’s incoming administration could push for further sanctions on Venezuela if it happens. The damage such sanctions could do to the government largely depends on their reach; sanctions on individuals would not have much of an effect, but a comprehensive sanctions package on PDVSA definitely would.
The administration's course of action is clear: resist inroads by any opponent at all costs and shift Venezuela further toward one-party rule, as recent government-led moves suggest. But economic and social forces are adding to the growing uncertainty over Venezuela’s future. Venezuela is more dependent than ever on foreign capital to maintain oil production, yet it continues to drop as the national oil company's cash-flow problems erode its ability to produce oil and refine fuel. The company could default on its foreign debt in 2017, but that would eventually lead to an even sharper production decline (and a matching destabilizing decline in food imports), which makes default an eventuality that the government will try to avoid at all costs.
Venezuela experienced an economically rough 2016, but it is headed toward an even tougher 2017. The Maduro administration apparently intends to successfully navigate its problems by remaining the only real contender for power nationwide.
