Venezuela’s President Maduro calls for elections: 4 takeaways

After almost two months of escalating turmoil, Venezuela’s unpopular leftist President Nicolas Maduro ordered the electoral authority (“CNE”) yesterday to announce (1) the election of members of a constituent congress to rewrite the constitution by the end of July and (2) regional elections for December 10th, 2017.

What is behind such announcement? Below, I explain why and how this new move may consolidate autocratic rule in the Latin American country. The context of the crisis relates to a popular unrest that started after the Supreme Court nullified the opposition-led congress, last March, 29th , provoking extremely disproportionate repression from the regime and taking the lives of –at least- 55 protesters.

1. The proposed constituent congress will not come from competitive elections. Since 80% of Venezuelans reject the socialist regime and want a change, the government engineered a mechanism to win these elections without the support of most voters. According to their rules, universal direct suffrage to elect “most” members is not allowed. The socialist government is establishing two ways to get the majority needed to create a constitution that keeps them in power indefinitely.

First, those few districts where the government could win will have more representatives. This disproportional method means that if the congressional elections that the opposition won in 2015 were held under such conditions, the ruling party (“PSUV”) would have obtained 12 seats and the opposition (“MUD”) 10 seats in the state of Miranda, although only 36% of the population voted for PSUV and 62% supported MUD.

The second tactic is the establishment of sectoral elections that would resemble the soviets -from the Soviet Union- or the corporate State -under Mussolini’s fascism. By these means, unions, local networks (like the so-called communal councils) and professional associations controlled by the regime would elect candidates of a congress that is expected to have 540 members.

In sum, this is much more than gerrymandering and would eliminate Venezuela’s democratic and constitutional system of popular majority (one person, one vote) and establish a mechanism whereby the regime could control any outcome and win most elections, one way or another, irrespective of its popularity.

2. Towards A de facto One Party State. This constituent congress will not allow the participation of political parties. It also forbids current opposition leaders holding public office to be elected as members of this body. What real democracy on earth disqualifies political parties from participating in elections?

3. The announcement of regional gubernatorial elections is a tactic to deceive the opposition and the international community. According to the constitution, this electoral process had to be held last year. The regime may want to kill several birds with one stone. (1) At the level of the local and international political discourse, it allows the regime –and its defenders- to argue that the country will celebrate such elections this year –therefore, suffocating the pressure it was put under.

(2) A common pattern in modern autocracies is to mimic democracy by using liberal democratic institutions –competitive elections, branches of power, etc.- and exploiting elite co-optation to remain in power. Regional elections may represent a “candy” for some sectors within the opposition, so that they endorse the constituent congress in exchange of their chance to run for office. In the past, this electoral tactic has helped the regime to divide dissidents by obtaining the support of some while disqualifying others, making the opposition’s capacity to achieve sustained cohesion a major challenge.

(3) However, if the constituent congress is set up, it would have the power to not only take current opposition-led congress out of the way once for all, it can also suspend the regional elections at some point in time. Moreover, based on the electoral precedent set by the constituent congress, universal direct suffrage may not be guaranteed here either.

4. The main goal is to avoid a presidential election and hold onto power beyond 2018. It is expected that the new constitution –if passed- would set provisions whereby the ruling elite could have legal –yet undemocratic- grounds to remain in office indefinitely while weakening political parties and undermining collective action mechanisms from civil society, as a way to mitigate potential unrest in the future.

Claudio J. Sandoval (Twitter / Linkedin / Instagram: @Claudiopedia), lawyer and political analyst.

Russia pushed Maduro into taking over Congress

This is neither a conspiracy theory nor an intuitive analysis but a piece of intelligence: Maduro needed cash to service PDVSA debt -due next Wednesday- and Moscow wanted to help him out by investing in PetroPiar (PDVSA) but was unsure about the “legal mechanism” to protect this investment at the domestic level.

Before getting into detail, let me first talk about how this works. Russia and China, countries with very aggressive extractive policies, have been shaping Venezuela’s legal framework since the beginning of the “revolution”. It first started with mid-ranking officials, organizing investment rounds and signing agreements on behalf of Venezuelan “interests”.

As soon as debts and new investments got bigger, Russia and China required the intervention of high-ranking officials. Rafael Ramirez was the most prominent of these guys, during his tenure in PDVSA and the Ministry of Petroleum & Mining.

At some point, Venezuela’s rulers were asking so much money and so often, that the eastern hegemons would only move forward as long as the president himself was directly involved in the negotiations. For those who did not know why Maduro travels around and then comes back to Caracas talking about loans and multibillion-dollar projects, this is the main reason.

There is also the unoficial side of this process, involving bolichicos and boliburgeses. For example, sometimes the government would appoint an enchufado as the unoficial representative in a business or guisness (corrupt transactions). The enchufado would offer presidential decrees or laws comprising every condition and prerogative investors wished to be included to undertake the transaction -for those interested in this specific topic, check out some decrees and other acts related to “Gran Misión Vivienda Venezuela”.

That changed dramatically after december 6, 2015, when they lost their grip on Congress. Now, the ruling elite has to compromise with the opposition whenever they need congressional approval on relevant matters, including foreign debt and certain joint-ventures. At this moment, such idea (common in a democracy) is unthinkable for the dictator and his bad hombres.

The thing is that the Russians know this very well and, therefore, were not satisfied with a presidential decree to seal the deal of PetroPiar. As result, Miraflores came with a solution, the Supreme Court would render a decision establishing that the legality of oil & gas joint-ventures did not require congressional approval but the Supreme Court’s endorsement. Moscow accepted the proposal.

What went wrong? Russia only wanted a formal document against the potential denunciation of the PetroPiar transaction by the Venezuelan Congress. Instead, the government crossed the line by using the Supreme Court to dissolve Congress in what was later considered as an Auto-Coup.

The Russian negotiators tried to make some money and help Maduro with a lifesaver but their condition became an anchor. Here is the the issue: the moment when the government has nothing to offer but poor guarantees for Russian investments is approaching. Will Russia (this also affects China) stop pouring money into Maduro’s hands, let his regime die and give away its stake in Venezuela?

Russia’s damage control, after this huge mistake, will be important to monitor in coming weeks.

Why Venezuela should not be added to the List of State Sponsors of Terrorism?

 

1.       A ban on arms-related exports and sales

1.           In the first place, the United States will lose total control of the sector, as the Venezuelan government would be incentivized to replace its US imported arsenal with another technology. Supply of US arm-related items under strict standards could protect Venezuelans against repression and prevent a potential internal and/or regional armed conflict.

2.           Venezuela’s armed forces still use American technology. It is complicated to replace it. This process may take several years as it requires massive training programs and extra investment to successfully achieve the adjustment, among other practical aspects.

3.           In case the United States decides to terminate arms-related relations with Venezuela, the government will have an excuse to buy technology from Russia, China and Iran, countries with geopolitical interests not only in Venezuela but in the entire hemisphere. This is a security threat to the United States since none of those three countries operate under democratic standards.

4.           In the second place, the United States would be giving away a market and losing whatever is left of its influence –in terms of doctrines and relationship- in the Venezuelan Armed Forces.

2.       A terrorist with a Venezuelan passport and US visa will be able to enter the country

 5.           Current “nationals” from the three countries designated (Iran, Sudan, and Syria) can travel to the United States just as an alien with a Venezuelan passport will be able to enter the United States, if he/she has a valid visa.

6.           As a result, if this measure is aimed at preventing Venezuelan passport holders from entering the United States, the goal will not be achieved. General immigration bans against Iran, Sudan, Syria or any other country are not constitutional, according to recent judicial decisions.

3.       Controls over exports of dual-use items

7.           Venezuela is not required to be included in this list to receive special treatment. The United States could implement different controls unilaterally.

4.       Prohibitions on economic assistance

8.           Venezuelans are in need of humanitarian assistance due to the ongoing economic crisis. The United States would abandon its leadership role in support of Venezuela’s economic recovery.

5.       Imposition of miscellaneous financial and other restrictions

9.           Prohibition to U.S. firms from engaging in financial transactions with PDVSA and other state-owned companies would lead to immediate chaos in Venezuela and energy-related problems in the United States, which depends to certain extent on Venezuelan commodities.

10.         Tax and other transactional obstacles for Venezuelan firms in the United States could kill what is left of the Venezuelan private sector.

11. On the other hand, Russia and China are financially sustaining Venezuela’s government. It is unlikely that current government will ask for loans at the World Bank and the International Monetary Fund.

12. Any type of embargo against Venezuela threatens the stability of the entire region. Chaos could even lead to a humanitarian problem in the United States, caused by mass emigration of Venezuelans, fleeing from a country in total collapse.

Socio-political implications

13. Sanctions against Venezuela entails sanctions against all Venezuelans. This measure will certainly backfire at the socio-political level. It would be the perfect excuse for the government to victimize itself and to find grounds for polarization. It would be a mistake to unify the nation around a wrong nationalistic cause and provoke domestic and international condemnations against the United States.

Recommendations

 1.           The United States could deny visas and entry into the country to holders of Venezuelan passports who do not speak Spanish. US authorities could carry out discretionary interrogation of suspicious individuals. This would help determine the individual’s native language, country of origin and real ties with Venezuela.

2.           At this moment, measures against Venezuela should not be general but take the form of targeted sanctions against officials involved in illegal activities.

3.           The United States should continue its regional and international efforts, creating awareness of the Venezuelan crisis to push a hemispheric collective reaction in defense of Venezuela’s democracy.

4.           Both targeted sanctions and international diplomacy will keep putting the Venezuelan government under pressure and may force them to agree upon a negotiated transition.

5.           Chavismo is experiencing internal divisions. Both targeted sanctions and international diplomacy could boost the expected split. This will be particularly relevant for the rest of 2017 and 2018, when the regional, the municipal and the presidential elections should take place. As a result of said differences within Chavismo, those legitimate leaders excluded from power positions may be willing to negotiate a transition.

6.           December 2018 is the deadline provided by the Venezuelan constitution for the activation of the electoral mechanism. Any extreme measure by the United States before the constitutional deadline, such as including Venezuela in this list, could help the government remain in power indefinitely and strengthen its ties with enemies of the United States of America.

[MY COMMENTS ON] O’Neil: Venezuela’s Collapse Has Further to Go

Today, Dr. Shannon O’Neil, senior fellow at the  Council on Foreign Relations, spoke on Bloomberg Surveillance about the situation in Venezuela. Below, I elaborate on my initial reactions to this interview.

Fearing defeat, the National Electoral Council (under President Maduro’s control) did not activate the gubernatorial elections and the recall referendum.

The opposition engaged in such “dialogue” with two publicly declared goals: 1) make the recall against president Maduro happen and 2) achieve the release of 71 political prisoners, including Mr. Leopoldo Lopez.

Unless any of those goals are accomplished, it looks like these talks will not result in a political solution (For more information, see my report Venezuela This Week).

Why the Democratic Unity Roundtable (MUD) gave up the recall referendum and wants to wait until 2018? Venezuela’s opposition is divided into two main positions: The MUD prefers a pacific and electoral long-transition whereas another group, represented by Leopoldo Lopez, Maria Corina Machado and Diego Arria, insists on a constitutional referendum that could become a non-violent and electoral short-transition.

Who is right? Could a deeper humanitarian crisis and gross violation of human rights be prevented now? Is it permissible to tolerate famine and deaths -due to current economic crisis-, arguing this could save thousands of Venezuelans from a potential violent conflict?

Those who believe this dire situation must be stopped before it gets worse, would support Mr. Lopez’s approach. People who think that it will actually get worse if the opposition attempts to protest now on the streets instead of talking,  would bet on the MUD.

Since politicians behind the MUD want to be the main leaders of the opposition, it is understandable why they are willing to agree upon the government’s breaches of basic democratic rules as long as president Maduro orders the National Electoral Council to celebrate gubernatorial elections in 2017 and the presidential election in 2018.

However, would president Maduro agree to carry out any of said elections? The electoral calendar does not give him too much choice.

On the other hand, what if Chavismo accepts defeat in both, the gubernatorial elections and the presidential election? Apparently, the problem would be solved.

Nevertheless, facts show it will not be that easy. By avoiding the celebration of the gubernatorial elections and the recall referendum, this year, the government demonstrated it is not giving any advantage, no matter if it has to break constitutional rules to stay in power.

In the event Chavismo undertakes the elections, would them be free, fair and transparent? Would the attempt by the government to steal the elections end up in the bloodshed the Obama administration and the Vatican wanted to prevent?

As of today, the MUD is wining -and, of course, the government too. If initiatives like #SiHaySalida do not take off, president Maduro may be still ruling the country by 2018 -I give more details in my post When will Venezuela’s Maduro exit the presidency?

Mr. Trump might decide to have a dog in this fight. It is very tricky because his good intentions may end up helping Mr. Maduro, in case the Trump administration intervenes to help the wrong people oust president Maduro.

There is always a possibility that a popular uprising and/or Venezuela’s army intervention backfire, victimizing president Maduro.

The bottom line: At this stage, certain measures outside diplomatic boundaries could be more damaging than helpful.

Why Venezuela has a black market for toilet paper?

toilet-paper-dollar-roll
Reuters/Umit Bektas

I was checking twitter yesterday and read what Tomi Lahren (@TomiLahren), host of “Tomi” on TheBlaze, said about Venezuela.

Tomi is right with this tweet:

So, as a Venezuelan, I want to give -a kind of For Dummies- explanation about the most important causes of this ridiculous situation: Venezuela’s price and currency controls.

Foreign Currency Exchange Control

It is all about crony capitalism at its worst. With this corrupt and ineffective system, the government provides its “socialist” friends billions of dollars -literally- to import a wide variety of products, including toilet paper and other basic goods.

Instead, most of these guys use the money for different purposes, like selling dollars in the black market -economists call it arbitrage– or purchasing properties in the United States.

Why they would prefer arbitrage?

Because it is more profitable. As of today the bid price for $1 can reach 3,000 bolívares (the local currency). So, the government gives them dollars at a cheaper rate (for example Bs. 600 per $1 and they sell at Bs. 3,000). This huge gap along with high impunity rates (they would not end up in a Venezuelan jail) make arbitrage easier and less risky than imports.

Why Venezuela must import toilet paper and other basic goods?

The socialist government of President Hugo Chavez, continued by his disciple President Maduro, carried out all kind of expropriations and confiscations you can imagine. This led to the collapse of local industries, including the agriculture and the manufacturing sectors.

Thanks to the oil boom ($100+ per barrel) the government was able to do this (and hit the private sector) through export substitution  (replacing domestic production with foreign imports).

Why  toilet paper shortage? 

Since oil prices plummeted in 2014, the government has had troubles finding enough petrodollars to buy stuff abroad and meet demand.

Why the government is running out of cash and can’t get enough from other sources?

Venezuela’s oil revenues represent some 95 per cent of export earnings.

Price Control

On the top of that, the government imposed a regulated price for toilet paper to “guarantee” anyone could buy the basic good. As expected, the product vanished from store shelves and suddenly became a hot black market item, with a much higher price.

How can this mess be fixed?

Venezuela must get rid of both controls. This is so basic and unanimous that even Mark Weisbrot, a pro-government economist, said that

The fastest and best way to break this cycle is to allow the currency to float.

… the government can begin to lift some of the dysfunctional price controls.

 Why the government insist on those controls?

The two main reasons are corruption and political cost. First, the so-called Bolibuguesía (a group of oligarchs from both public and private sectors) is getting richer and richer with that system.

BTW, the government has a sophisticated audit platform to know which firms receive cheap dollars at the official rate and whether they import goods or swindle the money. However, the government protects those officials and businessmen doing dirty deals through the exchange control.

Second, the government is extremely unpopular (as Hannah Dreier reported “80 percent of voters want Maduro gone this year“). The elimination of the control regime could be their last decision in power, since the initial market imbalance (with price increases) will put them out of their comfort zone and could even unleash a social upheaval. It is natural they are afraid of lifting controls.

 

Venezuela This Week – SAT 26, 2016

* My selection of  some important news about Venezuela