Previous Quarterly Editions
Expropriation Risk: 84 78 72 72 Political Violence Risk: 82 90 85 80 Terrorism Risk: 59 60 58 61 Exchange Transfer and Trade Sanction Risk: 94 94 94 95 Sovereign Default Risk: 96 96 94 95
TREND ► OUTLOOK ▲
The government of President Nicolas Maduro went into 2020 in a relatively comfortable position. Despite ongoing shortages and personal approval ratings at a record low for Maduro, the administration ‘normalised’ scarcity through selective economic liberalisation. The challenge posed by interim opposition president Juan Guaido was waning, with Guaido unable to translate international support into domestic political leverage. Despite US sanctions and international isolation, the ruling PSUV was moving towards retaking control of the National Assembly through negotiations with dissident opposition factions and the legislative elections due at the end of 2020. Then COVID-19 dramatically changed the outlook. The spread of the virus in North America and neighbouring Latin American countries led to increasing numbers of Venezuelans looking to repatriate amid lockdowns and rising xenophobia in Colombia, Peru and Brazil. An estimated 33,000 returned in the weeks after Colombia closed its borders in mid-March 2020 despite the fact that Venezuela went into lockdown on March 17 2020, with the government imposing curfews and restrictions at border crossings, and thousands more were expected during April 2020, many arriving on foot. This return process raised the risk of spreading the virus in a country with very little capacity to contain the infection. At the same time, lockdown conditions and economic contraction in countries hosting Venezuelan migrants have impacted remittances. This has affected the ability of the many Venezuelans who have come to rely on receiving money from abroad to navigate domestic scarcity through the unofficial USD economy. At the end of 2019, it was estimated that half all retail transactions had become USD based. The virus has also laid bare the country’s existing shortages of medicines, medical equipment and clinicians. Together with the limited availability of water and electricity, this makes it a terrifying prospect for Venezuelans. At a time of acute vulnerability exacerbated by the collapse in the international oil price, the impact of US sanctions is acutely evident in crippling fuel shortages. Fuel imports in March 2020 fell by 45% from the previous month, with the government imposing rationing and stationing military guards at petrol stations. The petrol shortage is already damaging the country’s already fragile food distribution network. The need to respond to the virus on top of everything else is increasing calls from civil society organisations for Maduro and Guaido to form a united front to address the situation, and Maduro has conceded the value of a unified national response. At the same time, however, the Trump administration has seen the COVID-19 crisis as an opportunity to escalate the pressure on the regime. In late March 2020, it indicted Maduro and senior government figures in relation to drug trafficking offences, offered a 15-million USD reward for facilitating Maduro’s arrest, and stationed US Navy destroyers off the Venezuelan coast ostensibly to combat drug cartels. Venezuela accounted for 13% of cocaine flows to the US according to the US’s interagency Consolidated Counterdrug Database in 2018. It is not clear how far a subsequent, softer statement from the State Department that suggested an adoption of a “democratic transition framework” would lead to a relaxation of sanctions was actually backed by the White House, where a hard line against Maduro still prevails.
TREND ► OUTLOOK ▼
Before the COVID-19 crisis, the Maduro government had been cautiously embracing a controlled liberalisation of the economy, with privatisation and ‘strategic alliances’ seen as a means to kick-start investment in key sectors. The government had been pursuing deregulation and decentralisation strategies, private sector participation in state economic initiatives, and the sale of nationalised assets in the agricultural, manufacturing and energy sectors. The process was beginning to take hold despite strong opposition from grassroots and union organisations and it was evident that the government no longer has the appetite or resources for further expropriation. It is not clear whether the need to respond to the virus will accelerate or stall this process, although the impact on the government’s decision-making capacity suggests the latter.
TREND ▼ OUTLOOK ▲
Popular enthusiasm for anti-Maduro protests had already waned significantly before the virus, eroding the viability of Guaido’s strategy of mass mobilisation as a means of forcing the government from power. The COVID-19 lockdown, mass military deployment and repression by the security sector will further reduce the prospect of protests despite the government’s low level of support and legitimacy. However, the virus-related return of migrants from neighbouring countries will foster the growing level of discontent. The most salient risk at present is targeted violence from small cells of armed anti-government actors, some of whom will feel incentivised and legitimised by Washington’s offer of a bounty for facilitating Maduro’s arrest.
TREND ▲ OUTLOOK ▲
Terrorist attacks have not been a feature of Venezuela’s protracted political conflict but continue to be a strategy for radical right groups frustrated by Guaido’s inability to remove Maduro. Cross-border movements between Colombia and Venezuela by paramilitary groups remain an ongoing concern. In March 2020, Colombian police intercepted a van heading to Venezuela loaded with semi-automatic weapons and night vision goggles that appeared to be linked to former dissident military officials now based in Colombia who were planning attacks within Venezuela, some targeted at Maduro.
TREND ▲ OUTLOOK ►
Washington has increased pressure on the small number of companies still trading with PDVSA, the national oil company, to stop doing so, further reducing Venezuela’s economic options as the oil price falls. In March 2020, the Russian state-controlled oil firm Rosneft announced it was selling the assets of subsidiaries Rosneft Trading and TNK Trading International to an unnamed company wholly owned by the Russian government. This enables Russia to maintain an energy footprint in Venezuela but without the trading options facilitated by the Rosneft subsidiaries. Washington is now urging firms not to supply gasoline to Venezuela as part of swap arrangements for Venezuelan crude that had been authorised by the US Treasury, contributing to the current shortage.
The IMF rejected Venezuela’s request for a loan of five billion USD in March 2020 following a legal dispute over whether Maduro is in fact the head of state and so entitled to sign the deal. Caracas has turned once again to Beijing, but already has outstanding loan repayments to China of 20 billion USD and owes it oil shipments worth three billion USD this year. Washington recognises Guaido as head of state and has given him management of Venezuelan assets in the US in a show of support, but the opposition leader is now under significant domestic pressure to press the US for use of these funds to aid in tackling the COVID-19 crisis in Venezuela.
Return to contents Next Chapter