Previous Quarterly Editions
Expropriation Risk: 86 85 84 78 Political Violence Risk: 86 89 92 90 Terrorism Risk: 54 56 59 60 Exchange Transfer and Trade Sanction Risk: 88 92 94 94 Sovereign Default Risk: 94 96 96 96
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The impasse in Venezuela continues, although prospects of an outcome may be growing. Neither the government of President Nicolas Maduro nor interim opposition president Juan Guaidó have the political strength to remove each other. At present, both retain the support of external allies, with Russia, China and Turkey still backing Maduro while the US, the EU and a majority of Latin American countries stand behind Guaidó. However, both leaders will sense their support softening. In August, China suspended imports of Venezuelan oil while Turkey ended Maduro’s ability to use the lira to conduct trade. Meanwhile, there are suggestions that Washington is losing patience with Guaidó and wants to negotiate Maduro’s removal directly, particularly after the departure of hardline national security adviser John Bolton. Russia’s interest remains centred on acquiring Venezuelan oil assets, many of which are pledged as collateral for loans. Moscow remains Maduro’s chief supporter but is increasingly considering Venezuela in the wider context of its relations with Washington, particularly in terms of sanctions on Rosneft. Two rounds of dialogue were sponsored by the government of Norway following Guaidó’s failed April uprising against Maduro. While significant progress was apparently made during discussions in Oslo, a follow up meeting planned for August in Barbados was boycotted by Maduro’s team in response to a tightening of US sanctions a few days beforehand. While welcomed by Guaidó as a means of preventing Maduro officials from pillaging state resources, the measures were also criticised for exacerbating the acute humanitarian situation. They come on top of US sanctions in the finance, gold and oil sectors that have crippled Venezuelan access to dollars for essential imports. However, there is little evidence that sanctions alone will remove Maduro, with his administration proving adept at shifting responsibility for the dire economic situation on Guaidó’s US backers. The Guaidó camp was also damaged by a major embezzlement scandal in June involving US aid. Guaidó himself is now under intense pressure from radical factions on the right of his alliance who are seeking to outflank him in Washington and trigger an external military intervention to remove Maduro. For ordinary Venezuelans, the economic crisis continues. In May, the first data from the central bank since 2015 showed that the economy has contracted by more than 50% since Maduro came to power in 2013, and that inflation reached 1,047% for the first four months of the year. IMF projections show a contraction of 25% this year to follow the 35% experienced last year. A major blackout hit Caracas and some 18 of the country’s 23 states in July, following earlier blackouts in March that left much of the country without power for several days.
Venezuela’s complete policy paralysis has diminished the Maduro administration’s appetite for further expropriations. Instead, it is now facing protests from workers in nationalised industries and from rural communities that received redistributed land. The protesters are frustrated at the failure of state officials to deliver promised resources to boost industrial, manufacturing and agricultural output. While this anger within the PSUV’s traditional Chavista support base will be concerning for the Maduro government, it remains confident that the prospect of mass privatisations under an incoming Guaidó administration will ensure that the protesters ultimately remain loyal.
Guaidó and Maduro have both been weakened by the political impasse, and each faces pressures and challenges from their inner circle. They may reach a point at which they can no longer control their own supporters if any concessions are made in future dialogue efforts, and the risk of sustained political violence remains extremely high. The number of weapons now circulating throughout the country increases the potential for paramilitary-style political violence. The ongoing possibility of some form of US military incursion to remove Maduro remains, with a military conflict likely to expand the outflow of people from the country. In June, the UN estimated that some four million Venezuelans have left the country since 2015, when the population was 31 million, and that a quarter of those have done so since November 2018.
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Bombings and other tactics associated with terrorists have not been an aspect of either the pro- or anti-government movements. However, the risk of such incidents is increasing amid the breakdown of political leadership and the frustration among anti-Maduro groups, including factions of the Venezuelan armed forces. If Maduro is forced from office, armed Chavista cells may link up with left-wing insurgent groups in Colombia in an effort to destabilise a new government through the use of terrorist tactics.
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Although oil sales to Russia, India and Turkey continue to provide options for Venezuela to circumvent US sanctions, production levels have fallen below those of Colombia for the first time and export revenues are eroding. There is continuing confusion over the status of CITGO, the eighth-largest oil refiner in the US, which is an arm of state oil company PDVSA. The Trump administration helped Guaidó take over management of CITGO, valued at 30 billion dollars, earlier this year but Maduro has been seeking to reclaim control through the US courts. The black market rate for the bolivar collapsed to a new low of 15,735 against the dollar in August.
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Guaidó’s team needs to plan for restructuring some 150 billion dollars in debt, including the amounts owed to Russia and China, in the event that he eventually assumes the presidency. Sovereign and PDVSA debt payments of 3.5 billion dollars are due in October and November. The situation is complicated by Guaidó’s need to retain control of CITGO by successfully fighting off attempts by Venezuela’s creditors to take ownership. In July, a federal appeals court rejected an appeal by Guaidó to set aside an order allowing a Canadian gold mining company to assume shares in CITGO as compensation for expropriation of a gold mining project valued at 1.2 billion dollars in the original 2016 compensation award. Meanwhile, the Maduro government has apparently pledged CITGO as collateral for a Russian loan.
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