Previous Quarterly Editions
Expropriation Risk: 85 84 78 72 Political Violence Risk: 89 82 90 85 Terrorism Risk: 56 59 60 58 Exchange Transfer and Trade Sanction Risk: 92 94 94 94 Sovereign Default Risk: 96 96 96 94
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The extraordinary situation of duelling presidents in Venezuela continues to ‘normalise’. Having been unable to secure the support of the military, interim opposition president Juan Guaido lacks the power to displace President Nicolas Maduro. In November, Guaido added to a succession of failed efforts to force Maduro from office, with a muted popular response to a day of anti-government mobilisation. It is becoming clear that protests are losing their utility as a show of opposition strength as sentiment in the country is characterised primarily by exhaustion with the ongoing impasse. Household priorities have shifted to addressing family needs in a situation of ongoing scarcity. Lacking a strategy to overcome Maduro on the domestic front, Guaido has relied heavily on external support. Despite being recognised as the legitimate president by 55 countries by virtue of his position as president of the National Assembly, Guaido has not been able to parlay this backing into political change. Moreover, by the end of 2019 it was clear that the attention of important regional allies is shifting. The governments of Chile and Colombia are preoccupied by their own domestic protests, Guaido’s ally President Macri lost his re-election bid in Argentina, and with the departure of John Bolton as his national security adviser President Trump’s interest has moved increasingly towards a domestic agenda ahead of his re-election bid. Luis Almagro, the general secretary of the Organisation of American States and a crucial Guaido ally, faces re-election in May. Regional sympathies are moving towards a negotiated solution as advocated by the governments of Mexico and Uruguay. On the other side, the removal of Evo Morales as Bolivia’s president has deprived Maduro of an ally, although the messy way in which it was done has strengthened reservations, most particularly among EU countries, about the merits of foreign military intervention. A stronger external push for dialogue between the two sides will be problematic for Guaido as the opposition remains divided over the next steps, and he faced a much less certain runup to re-election to the presidency of the National Assembly in January given his inability to oust Maduro. Approval ratings for Guaido and the National Assembly fell by half during 2019. By contrast, Maduro entered 2020 in a relatively comfortable position, but an over-confident approach to the December 2020 legislative assembly elections risks igniting a new round of turmoil. The economic crisis continues to bite deep following Washington’s sanctions on the oil sector and all transactions with the government. Figures from the central bank suggest that the economy contracted by almost 40% during 2019. Accumulated inflation to October was estimated at 4,680% but with signs of stabilisation as the monthly inflation rate slows to around 50%. Policy shifts, including the lifting of foreign exchange and price controls and of restrictions on sales of goods and services in foreign currency denominations, are leading to the dollarisation of the economy. An estimated half of all retail sales are now in dollars. While this has improved the availability of goods, a sharp cleavage is emerging between those who have access to dollars and those who do not.
There is mounting speculation that the Maduro government is considering a sharp change in economic strategy in response to pressure from Russia and China. As the economic situation stabilises and the challenge from Guaido diminishes, privatisation is now being presented as a means to kick-start investment in key sectors. The PSUV governor of Carabobo state is among a number of figures in the ruling party openly discussing the possibility of privatising the electricity sector as a means of overcoming crippling under-investment and deteriorating infrastructure. However, such an opening will bring significant risks for investors in an uncertain political and legal environment, as well as strong resistance from unions and Chavista loyalists. Amid a backlog of debt and compensation repayments, the government no longer appears to have any appetite or resources for further expropriation.
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With the relative lull in political conflict at the start of 2020, the potential for political violence has fallen but the situation can change quickly. The Venezuelan military were credited for engaging with protesters during the November anti-government demonstrations and the relative restraint of the policing was contrasted favourably with the recent violent repression seen in Chile and Bolivia. The number of weapons circulating in the country means the possibility for paramilitary-style political violence also remains, with both right-wing and left-wing groups moving between Venezuela and Colombia. Another risk is that the growing social divisions between those with access to dollars and imports and those without may trigger anti-government protests from within the PSUV’s traditional base of support.
Terrorist attacks have not been a feature of Venezuela’s protracted political conflict, although Guaido’s weakening authority within the broad opposition movement is a cause for concern if he cannot control radical right elements implacably opposed to any form of negotiation with Maduro. The frustration of some anti-Maduro groups is articulated on social media, with US and Colombian based networks discussing potential targets for attack and the viability of ‘lone wolf’ strategies. To date, Venezuelan and Cuban intelligence have contained perceived threats to the Maduro government, although there are claims that the ‘discovery’ of alleged terrorist plots, most recently in December, is primarily a mechanism to intimidate the opposition.
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Venezuela is reported to have become adept at skirting US sanctions and was definitely increasing its crude oil exports by the end of 2019. Most of the shipments have been going to India and China, with tankers switching off transponders to avoid detection. However, OPEC figures suggest that overall Venezuelan crude production continues to fall, suggesting that US sanctions are impacting production levels even if they are not preventing all exports.
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In November the US government conceded a 90-day exemption for holders of PDVSA 2020 bonds. This was intended to prevent default on 913 million dollars in payments and claims on PDVSA’s US subsidiary CITGO, which is valued at 10 billion dollars. The US move is intended to ensure the integrity of CITGO, which the US has put in the hands of Guaido to provide tangible support for the opposition.
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