The government's principal cause for concern is the fact that the
country is now in a much more dire economic situation than the year before.
Venezuela's political direction in the new year will thus be defined by sharply
declining revenue from oil production. This drop in dollar inflows
has already exacerbated the effects of the country's steady economic collapse
on public finances. The worsening situation will make 2015 a crucial year for
Venezuela. The Maduro administration will likely reduce at least some public
spending, but cutting subsidies to the party's support bases threatens the
stability of Maduro's presidency.
Economic Constraints on Maduro
Regardless of how long the oil price slide lasts, Venezuela's public
finances, which were already stressed by extreme social spending and heavily
subsidized gasoline, will bear the strain of reduced oil prices next year. The
country's depleted foreign cash reserves, a crucial source of money for imports
and foreign debt payments, are worth several billion dollars but only provide a
slim cushion against further declines in oil prices. Significant inflows of
Chinese loans to bolster the reserves appear unlikely, given that Venezuela
previously faced difficulties in paying off outstanding oil-for-loans
agreements.
The Venezuelan government has delayed publishing economic data through
the Central Bank or the National Statistics Institute for several months, but
there are some signs that the reduced oil income is affecting Venezuela's
ability to finance imports. Foreign currency disbursed through Venezuela's two
primary foreign currency allocation mechanisms has fallen drastically. The Sicad I mechanism, which from October 2013 to August 2014
disbursed funds three to four times monthly, has not held an auction since Oct.
14, when the government held a special sell-off to cover imports for consumer
goods. Similarly, the amount of currency allocated through the Sicad II mechanism dipped from an average of $55 million
daily in March to about $20 million daily in November. The reduced flow of
dollars through Sicad I and II, most likely due to
lowered oil income, suggests that the shortages across Venezuela will worsen in
the next year. Shortages and high prices on the black market will continue to
affect Venezuelans' purchasing power and could lead to political consequences
for the government.
It is clear that neither Maduro nor the United
Socialist Party of Venezuela retain the political support or oil revenue to
guarantee stable rule. The upcoming year will be especially problematic for
Caracas because Maduro will face ongoing economic problems as well as a legislative
election in 2015, tainted by increasing public dissatisfaction with his
performance. Moreover, the global decline in oil prices, combined with
Venezuela's outsized spending obligations, means that Venezuela will deal with
these existing problems with even less financial leeway than before. With oil
production between 2.1 million and 2.3 million barrels per day, Venezuela lacks
the influence within OPEC to negotiate production cuts that would offer Caracas
an economic lifeline. The government's current strategy of avoiding potentially
controversial economic reforms while maintaining high deficit spending is
untenable and likely to prompt steps toward increasing Venezuela's public cash
flow next year. However, time is not on Maduro's side. His inability to
conclusively address food shortages and rampant inflation will keep eroding the
ruling party's standing in the polls, and a renewed outbreak of protests is
highly plausible in the coming year.
Political Problems Ahead
In 2015, individuals and factions within the Venezuelan government will
probably continue pushing for the implementation of potentially controversial
measures to adjust Caracas' economic policy to offset the global decline in
crude oil prices. It remains to be seen, however, whether these factions will
be able to spur even slight adjustments to Maduro's economic policy. Logical
attempts to mitigate the crisis, such as increasing the price of gasoline,
slashing public spending or sharply devaluing the bolivar, will undermine the
popular support underpinning the United Socialist Party of Venezuela's rule. If
such measures were unable to fundamentally affect the fragmented party's
continued reign, either former Venezuelan President Hugo Chavez or Maduro himself
would have implemented them far sooner. Despite pressure from some quarters to
undertake partial economic reforms, the potential for public backlash and the
latent threat from officials involved in currency scams or fuel smuggling will
continue to hamper meaningful steps in this direction.
If the political cost of reform is too much to bear, the government will
rely on less controversial (albeit less effective) cost-cutting measures, such
as reducing the flow of energy shipments through the Petrocaribe oil alliance.
Mounting pressure in the ruling party suggests clear support for such
decisions. On Nov. 30, former Vice President Jose Vicente Rangel called for
increasing the price of gasoline, citing a poll that claimed 53 percent of
Venezuelans back a price hike. The government also appears to be readying the
legal basis for a possible de facto devaluation by allowing private and public
entities to purchase dollars from any market, including the black market, where
rates are unregulated. Currently, buying dollars on the black market, where the
parallel exchange rate is hovering at around 160 bolivars to the dollar, is
illegal. An enabling law approved by Maduro on Nov. 18, but released Nov. 26,
permits transactions at the parallel rate in theory, but will require
additional legislation to come into effect.
With voters steadily abandoning the ruling party, political challengers
will continue to emerge throughout the coming year from factions within the
PSUV and the opposition coalition Mesa de Unidad. A separate grouping of
opposition parties has also emerged, although they lack the backing of major
opposition political figures. None of these are yet a credible challenge to the
PSUV, and their future influence will likely depend on how many candidates they
can field in the 2015 legislative vote. Given the ruling party's significant
influence at the national electoral council, these groups face an uphill
battle. A leftist current within the United Socialist Party of Venezuela, known
as Marea Socialista, has publicly criticized the
ruling party for its economic mismanagement and arbitrary decision-making. In
retaliation, the party expelled hundreds of its members from its electoral
rolls in November, meaning that they cannot run for office as members of the
ruling party. The group will decide on whether it wants to be a political party
in March 2015. Although public approval of Maduro and other party elites has
been heavily eroded, the new challengers' popularity remains uncertain because
they have never competed in an election.
Next year will be crucial for the Venezuelan government's future.
Venezuela is clearly beyond the point at which oil revenue can offset the
significant costs of keeping all of the ruling party's
political patrons satisfied. Public spending cuts are likely and could result
in political backlash from either the public or other
ruling elites. Even without controversial government actions, ongoing economic
problems make another outbreak of protests likely in 2015.
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