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Thursday, June 2, 2016

Is There Another Way Out Of The Venezuela Crisis?

Is There Another Way Out of Venezuela's Crisis?

    
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Summary

Venezuela faces a new dilemma, albeit a relatively tame one compared to its other crises. The Organization of American States (OAS) on June 1 held an urgent meeting to discuss the political situation in Venezuela. One day earlier, the organization's secretary general, Luis Almagro, said that Venezuela could be expelled from the body. This would require a vote on the subject of Venezuela's continued unconstitutional disruption of its democratic order — a violation of the organization's charter. Almagro was referring to the self-preservation strategy Venezuelan President Nicolas Maduro has chosen to deflect any political challenges from the opposition-controlled National Assembly. Maduro has selectively used the Supreme Court over the past six months to prevent the opposition from legally forcing his removal or weakening his powers.

Analysis

While the expulsion of Venezuela from the OAS carries a fairly low risk for Caracas, a declaration that the Maduro government is in violation of the organization's charter would deteriorate relations between the United States and Venezuela further. The decision could also make obtaining loans from international lending organizations, including the International Monetary Fund, Inter-American Development Bank or World Bank, even more problematic because of U.S. political pressure.
Still, the more immediate problem, as far as Venezuelan elite are concerned, is how to successfully retain power during the economic crisis. The approach employed so far by Maduro has ensured Venezuela's ability to meet foreign debt payments at the expense of imports. The policy has stoked severe inflation, which could exceed 700 percent in 2016 and will continue to threaten social order. It has also placed the United Socialist Party of Venezuela (PSUV) in an untenable position. Gubernatorial elections are scheduled for later this year. Presidential elections are scheduled for 2019. If the 2015 legislative elections demonstrated anything, it is that the PSUV could certainly lose future elections because of public dissatisfaction with high food prices and shortages.

Deflecting Anger

One choice the party elite can make is to continue the policy of avoiding disruptive economic reforms while waiting out low oil prices, hoping to win upcoming elections if they go back up, which would allow for increased imports. Such a plan, however, would continue to slash imports — by as much as 60 percent during the first quarter of 2016 compared to the year before. This feeds public dissatisfaction with the government and could lead to more protests over the cost and availability of basic amenities. The state is already dealing with high levels of unrest, but there is always the potential for its intensity to increase and become more widespread.
Another option open to the PSUV is to find a way out of the crisis itself, which raises the question: What form would such a resolution take? There are dissident factions in the PSUV that, despite ongoing animosity, favor reaching out to the United States. They are also not opposed to delaying a recall referendum against the president until 2017, when whoever is occupying the vice presidency will succeed the president in case of a recall. Recalling the president could deflect anger away from the ruling party, a distinct benefit in upcoming elections.

A Tentative Dialogue

There are also few ways the opposition can be directly involved if a recall went ahead. The opposition lacks unity and does not have firm control over major bodies of government. Yet they also maintain close relations with the United States, and improved terms with Washington are in Venezuela's long-term economic interest. Better political relations could eventually open up new lending opportunities from international bodies as well as foreign direct investment.
A tentative dialogue involving the United States has even begun in the Dominican Republic, between representatives of the Venezuelan government and the opposition coalition. It was announced May 28 that an initial meeting had occurred, but there is no guarantee that dissident PSUV members will convince the government to undertake major reforms to address the economic crisis. Nor does it mean that the government and opposition will inevitably reach some arrangement to coexist politically. For some PSUV members, giving up power is a threat to their political future, something that would force them to oppose a substantive negotiation. Consequently, there is a risk that the government could use any dialogue to delay the opposition's demand for a referendum.
If the discussion does not progress over the next several months, policies for addressing Venezuela's political and economic crises will likely be decided informally between opposing factions of the PSUV, independent of any influence by the opposition. Other international factors will also play their part in the near term. But whether oil prices rise significantly or whether Venezuela's simmering social unrest boils over into larger, more frequent protests, Caracas is still very much balanced on a knife-edge.