Investing & Day Trading Education:  Day Trading Academy

The Return Of The Opposition In Venezuela

Coat_of_arms_of_Venezuela.svgThe tide is finally turning against the leftist populist movement of Chavismo in Venezuela. It has been hemorrhaging support as the economy of the country heads for collapse. Yet the political party founded by Hugo Chavez, has won every election since 1998. Without his stature and the near economic chaos now taking hold of the nation, the possibility for political change has now arrived. Millions of Venezuelans dealing with near catastrophic living conditions in their daily lives and runaway crime, are finally ready to challenge the near autocratic system entrenched in place.

Nicolas Maduro has the misfortune of succeeding to the larger than life Chavez, just as the price of oil began heading towards a prolonged slump. It has complicated the ability of the government to provide lavish subsidies and social spending to the public at large. Crude which had been selling near $100 USD (United States dollar) a barrel is now in the upper $30s and is threatening to soon dip even lower. It is totally undermining the ability of the government, to continue the socialist engineering of Venezuelan society.

Nicolas Maduro, the current president

Nicolas Maduro, the current president

The results of the legislative elections held on December 06th, are an important indicator that many Venezuelans are tired of the dominating and bombastic style of their present government. It is the worst defeat for the United Socialist Party (PSUV), since Chavez first gained power. Although it is clear the opposition has won a majority, at the time of this writing it is the size of the victory that will matter. The National Electoral Council has already announced the resistance has won 99 seats, with 22 yet to be declared. The Socialists have garnered a mere 46 seats.

If the opposition alliance made up of conservative and centrist parties is able to take 112 seats out of 167, that would give them the necessary two thirds majority. This would enable them to pass legislation over the objections of President Maduro. It would permit the release of political prisoners and would allow the dismissal of top appointments in the judiciary. That would have far reaching consequences for the Socialists.

Democratic Unity Roundtable

Democratic Unity Roundtable

The opposition under the banner of the Democratic Unity Roundtable (MUD) could even call for a national referendum, once the Maduro presidency reaches the halfway point in April of next year. This would circumvent Maduro, way ahead of the next presidential elections due to be held in April of 2019. The legislative election results can be seen as a referendum on President Maduro and the socialist policies of the government. With voter participation at 74.3%, it is clear the citizenry of Venezuela want a change in direction.

President Maduro claims his party works to the benefit of ordinary people and wishes to complete the Bolivarian Revolution begun by his predecessor Hugo Chavez. Yet with the domestic economy in near free fall, it is hard to see how that assertion can be validated any longer. The GDP (Gross Domestic Product) is projected to shrink over 10% in 2015. An additional 6% contraction, is forecast for 2016.

Hugo Chávez, president from 1999 until his death in 2013.

Hugo Chávez, president from 1999 until his death in 2013.

Unemployment will surge beyond 18% next year. The government instead claims it is just 6.7%. Inflation is already galloping over 159%. It is by far the highest rate in Latin America and globally. Ukraine comes in second place,with just under 50%. Inflation is now projecting to edge even higher in 2016, topping out at 200%. The government which has not released any figures for this year, claims inflation is at just 85%. This denial of reality, just promotes further distrust of the citizenry in the present government.

Maduro continues to blame the deteriorating state of affairs on the economic war staged by the opposition both domestically and internationally. He refuses to recognize that the mismanagement of the economy by Chavez and himself, has made a bad situation far worse. The massive spending on subsidies and social welfare are simply not sustainable, with the near collapse in crude oil prices along with other world commodities.

Empty Store Shelves in Venezuela

Empty Store Shelves in Venezuela

Venezuelans are dealing with a chronic shortage of many consumer staples. These now include even items like coffee, corn flour, cooking oil, milk, rice and sugar. Imports have become largely unaffordable, even if they can be found. The imposition of currency and price controls have led to the virtual disappearance of a number of normal household products.

Throughout the country, going to the supermarket has become a frustrating and time consuming affair. The situation has become almost untenable in the last two years. In addition to the long lines and hours of waiting time, often what customers may wish to purchase is no longer available at many locations. Many of the 42 staples that the government controls the prices on, cannot be had at all through normal channels.

In addition to the immense difficulty in bringing imports to market because of government restrictions, domestic producers are often not able to manufacture needed consumer commodities profitably. Regulated prices often fail, to keep up with the near runaway inflation rate. The government on the other hand, insists that these companies are deliberately stockpiling products to drive prices even higher. The end result, is that many exasperated customers go home empty handed.

Federal Legislative Palace, Caracas

Federal Legislative Palace, Caracas

Government provided health care is hampered, by a shortage of some 70% of all medications across most pharmacies in the country. It fuels the desperation that many citizens feel and encourages alternative methods to acquire needed medical drugs and supplies. Like with regular consumer goods, it is permitting a thriving black market. Prices there are often three times higher, but many needed items are at least available.

An untenable situation exists in the exchange rates as well. There are three official rates and of course the illegal black market. The first two are used in paying for imports, that are considered essential by the government. The third one exists for Venezuelans who lack proper authorization, to buy dollars at preferential rates. At the lowest official rate only 6.3 bolivares are needed to buy $1.00 USD. In the black market, the rate is 800 bolivares to one American dollar.

Currency controls have been in place since 2003, to prevent the flight of USD out of the country, but it also has helped to fuel the near runaway inflation rate. It is forced many companies and individuals to totally give up on needed imports and instead look for local substitutions, regardless of customer preference or quality.

The increasing authoritarian behavior of the government will now be arrested. If the Democratic Unity keeps its election promise of passing a amnesty law, opponents of the government can no longer be arrested for political reasons. Individuals like Leopoldo Lopez who was given an unjustified 13 year prison sentence for inciting violence, will soon be released.

President elect Macri

President elect Macri

The electoral results are another defeat for the socialist revolution throughout Latin America. It comes just two weeks after, the resounding victory of center-right President elect Mauricio Macri in Argentina. The plunge in oil prices has also seriously hampered the ability of the Venezuelan government to support similar movements in various countries around the region.

The economy of Venezuela is largely tied to the international price of oil. At present it accounts for over 90% of all exports revenues. The socialists in power since 1998, made little attempt to diversify the economy away from such dependence during the years of abundance. The country is purported to have the largest reserves globally. However, the failure of President Maduro to convince other members of OPEC (Organization of the Petroleum Exporting Countries) to raise prices to at least $88.00 USD a barrel by cutting production, is having a devastating impact in Venezuela.

The National Assembly in attempting to deal with the new economic reality, passed a 2016 national budget with crude oil prices set at $40.00 USD last week. The benchmark price is already below $38.00 USD this week. If prices continue to drop, it will make the budget projections quite meaningless.

The achievement of the socialists in reducing inequality and poverty are being undone in the present economic climate. Poverty levels that were halved between 2003 and 2011 are rising rapidly again. Whereas in 2013, it was deemed that just 27% of the population could be classified as being poor, the present economic calamity has pushed that rate well above 50%. Some analysts put the figure even higher, at above 70%. Of course, the government insists that not only has poverty not increased, extreme cases of it have actually declined in 2015.Venezuela_UNOCHA

Worse yet, many of the social programs that helped alleviate the huge disparity in living conditions, will become unaffordable as the country enters a deep recession. It is no wonder that the citizenry of Venezuela, have largely rejected the economic priorities of the present government. A change is direction is way past due, but it will do little to change an economy that is near collapse.

When the new members of the National Assembly take their seats in January, they will face a myriad of economic issues that will be difficult to solve in the short term. They will also continue to have an intransigent and unconvinced President, who will attempt to forestall, delay and block needed reforms.

The year 2016 will give new hope to many Venezuelans, but the electoral results of this month will not alone bring a return to normalcy. It will be a major challenge to begin to unwind the layers of corruption and inefficiency, that have been allowed to become established during the sixteen years of socialist dominance.

It will take time for business leaders and foreign investors to gradually return to the beleaguered country. It is likely that the country will gradually begin to repair frayed relationships, with countries in Europe and most importantly the United States. With that will come an influx of new money, which will begin to repair the near ruined economy of Venezuela.

1 Comment

  1. We win, we win! Finally we are seen light at the end of the tunnel. It will take years to overcome the damaged caused by this _________ goverment. I hope to be able to see changes of love and light in my country and return to see the beautiful country I was born in.

Post a Comment

Your email address will not be published. Required fields are marked *