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posted on 30 April 2016

Looking For A Way Out Of Venezuela's Crisis

from STRATFOR

In Venezuela, there are more political moves afoot than the country's political impasse suggests. As Venezuela slouches toward a potentially catastrophic default on foreign debt and wider social unrest appears more and more likely, individuals in the ruling United Socialist Party of Venezuela (PSUV) are looking for a way out of the crisis, largely motivated by self-interest. After all, if the crisis in Venezuela continues unabated, the country's elites are sure to lose political status, and with it, the security it brings them.

Analysis

During the first three years of Nicolas Maduro's presidency, Venezuela's economy deteriorated rapidly, causing the PSUV to split into several factions. Of these factions, the ruling clique - represented by Maduro and his wife, Cilia Flores, legislator Diosdado Cabello, and, to a lesser extent, Aragua State Gov. Tareck el Aissami and National Guard Commander Nestor Reverol - is the most resistant to economic reform and political dialogue with the opposition. For them, political change in Venezuela poses an existential threat, and ceding political ground to the opposition is not in their interests. In light of ongoing criminal investigations of Cabello and Flores, losing political sway in the country could jeopardize their futures. Similarly, swift economic adjustments - no matter how necessary - could threaten Maduro's presidency, further driving up inflation that already totals around 300 percent annually. Consequently, Cabello and Maduro have chosen a path of inaction on the economic front, while continuing to deflect political challenges from the opposition coalition.

Different Factions, Different Goals

Several state governors, ostensibly led by Zulia State Gov. Francisco Arias Cardenas, represent the other major faction to emerge in the United Socialist Party. Based on growing public dissatisfaction with the ruling party, even within the party, the governors in this faction oppose holding gubernatorial elections later this year. They would sooner support Maduro's departure from office, whether by referendum or resignation, than risk holding elections they could very well lose. In removing Maduro and transitioning toward a new government, the governors likely hope to mitigate public anger at the ruling party and avert a major electoral defeat. Among those in favor of holding a referendum to remove the president is former Interior Minister Miguel Rodriguez Torres. Rodriguez Torres - whom Maduro ousted in 2014 - has the support of a few unspecified dissident allies, but it is unclear whether he falls in Arias Cardenas' camp.

Although the ruling party has so far managed to contain political threats from the opposition, Venezuela's socio-economic and political crises will present a continual risk in the coming months and years. Decreased imports and chronic underinvestment in public services have contributed to accelerating inflation in food prices and increasingly erratic electricity service. To make matters worse, a drought is exacerbating the country's water supply problems. Amid a period of sustained low oil prices, and with no real reform measures on the horizon, the social crisis will continue to worsen, posing a greater threat to the government as protests rise across the country. So far, protests have been too small, isolated and disorganized to really affect the state. But that could change.

Threats to the Ruling Party

The government faces two major threats as the year progresses. If the state energy firm Petroleos de Venezuela defaults on its roughly $5 billion foreign debt in the fall, its access to overseas capital will likely be restricted further, aggravating the country's economic and social crisis. But a second risk could manifest even sooner. If water levels in its reservoir drop to between 244 and 240 meters above sea level, the Guri Dam, responsible for around 60 percent of the country's electrical output, may have to shut down some of its turbines. As of April 4, the water level had fallen below 244 meters. Since the rest of the country's electricity sector would likely be unable to compensate for reduced output from the Guri Dam, even a partial shutdown of the dam's generation would cause months of blackouts across large swaths of Venezuela. Extensive blackouts could fuel protests in Venezuela, as a wider section of society would feel the effects of electricity shortages.

Facing the possibility of renewed social discord, Arias Cardenas' faction is worried about the prospect of gubernatorial elections this year. Given the landslide win for the opposition Democratic Unity Roundtable in the December 2015 legislative elections, the governors likely fear a similar outcome in the impending elections. Now the question becomes whether they can convince key individuals and constituencies to back a transition away from Maduro. Although Maduro's circle of elite supporters has been shrinking, one of its most important members, Defense Minister Gen. Vladimir Padrino Lopez, has not overtly proposed Maduro's removal. As long as Padrino Lopez, accompanied by a segment of the country's military and political elite, is allied with the president - or at least not actively working against him - Maduro stands a chance of retaining his office until his term ends in 2019.

If the governors prevail and Maduro is forced to resign before January 2017, the outcome will be quite different. New elections would have to be held within 30 days of his resignation, and the opposition would have a realistic shot at victory. But if Maduro were to resign after January, the presidency would go to the standing vice president until the next presidential vote in 2019.

"Looking for a Way Out of Venezuela's Crisis is republished with permission of Stratfor."

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