Index Trend Previous Quarterly Editions
Expropriation Risk: 84 Political Violence Risk: 92 Terrorism Risk: 59 Exchange Transfer and Trade Sanction Risk: 94 Sovereign Default Risk: 96
Risk Temperature 92 (Extreme) +1
TREND ▲ ▲
In the weeks following the abortive uprising on April 30 headed by interim head of state Juan Guaido that failed to dislodge President Nicolas Maduro from office, there have been reports of meetings between representatives of the two sides mediated by the EU contact group in Caracas and by Norway’s foreign ministry in Oslo. There is some optimism that the possibility of dialogue has been increased by the weakened position of both leaders. The April uprising was the third unsuccessful effort to remove Maduro since Guaido used his position as president of the National Assembly to describe Maduro’s inauguration in January, which followed presidential elections in May 2018 that were widely regarded as neither free nor fair, as a usurpation of power. In May, Maduro proposed bringing forward elections for the opposition-dominated National Assembly elections to this year from 2020, while the pro-Maduro National Constituent Assembly, which has largely usurped the National Assembly's functions since 2017, announced its intention to sit until the end of next year. Guaido, whose position in the National Assembly makes him the interim president in the event that the presidency is claimed illegally, has been recognised by over fifty countries worldwide. However, this has not significantly changed the domestic political matrix. Maduro has proved able to retain control of Miraflores Palace for three key reasons: the continued support of the Venezuelan military, the active support of Russia and China, and persistent miscalculations by Guaido’s team. The last point is significant because, while in theory representing the wider anti-government movement, Guaido’s interim presidency has so far been centred on a narrow partisan circle that rejects any form of negotiated resolution to the crisis. That position has also been taken by key figures in Washington including National Security Advisor John Bolton and Secretary of State Mike Pompeo. They have maintained a confrontational stance not only towards Maduro but also towards the foreign governments that have continued to recognise his administration. In the absence of diplomatic outreach, Washington has failed to build sufficient support for Guaido within the UN Security Council, while his close relationship with the Trump administration has allowed Maduro to portray him as primarily an agent of US interests, especially after efforts to bring USAID humanitarian relief into the country through Guaido failed. The failure of the attempt to overthrow the regime on April 30, with the military remaining loyal to Maduro despite Guaido claiming that senior ranks had moved behind him, was another setback for the opposition.
Guaido’s interim presidency has so far been centred on a narrow partisan circle that rejects any form of negotiated resolution to the crisis.
Expropriation Risk 84 (Very High) TREND ▼ ▲
While Maduro was campaigning during last year’s presidential election, the ruling PSUV issued its traditional pledge to step up expropriations from the private sector. Once Maduro was re-elected, however, the urgent need to boost government revenues appeared to force him in a different direction, with some low-level public asset sales in the aviation and transport sector taking place before the gathering political crisis limited further moves. The prospect of Guaido replacing Maduro has raised the possibility of a wide-ranging privatisation process, but this would face intense resistance from unions and collectives that had received land and assets under the nationalisation process.
In a further escalation of US pressure, National Security Advisor John Bolton subsequently announced oil sanctions on Venezuela.
Political Violence Risk 92 (Extreme) TREND ▲ ▲
Both Guaido and Maduro have emerged weakened from the April 30 impasse, increasing the risk that both will reach a point at which they can no longer control their own supporters. The risk of sustained political violence remains extremely high. Although Washington has made a point of keeping military intervention on the table, and Guaido continues to talk of this option approvingly, the threat seems to have receded in recent weeks amid a lack of enthusiasm in neighbouring countries. However, a domestic escalation of the crisis to a paramilitary confrontation remains a serious concern given the extensive arms caches available to both sides.
Terrorism Risk 59 (Significant) TREND ▲ ▲
Terrorist activity has not been an aspect of either the pro or anti-government movements. However, the risk of terrorist incidents is increasing amid the breakdown of political leadership, and with evidence of weapons shipments and the frustration of anti-Maduro groups, including factions of the Venezuelan armed forces. Follow up incidents to the August 2018 drone attack on Maduro could include the targeting of infrastructure. If Maduro is forced from office, there is a prospect that 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.
Exchange Transfer and Trade Sanctions Risk 94 (Extreme)
TREND ▲ ▲
Washington extended its existing sanctions on individual Venezuelan officials and the country’s financial sector to include the crucial oil sector in January. It has recently been considering extending them further to include countries that it regards as materially assisting the Maduro government, focusing particularly on Cuba which it accuses of providing logistical and personnel support. Oil sales to Russia, China, India and Turkey continue to provide options for Venezuela to circumvent the US measures. However, a further tightening of the US sanctions regime without any net change in the political situation would increase criticism about the humanitarian cost of the measures.
Sovereign Default Risk 96 (Extreme) TREND ► ▲
Following a sustained record of debt repayments during the Chavez era and the early Maduro years, US financial sanctions prevented a restructuring of Venezuela’s debt in 2017. This resulted in default on 8 billion dollars of repayments on bonds issued by the government and state-owned oil company PDVSA in 2018, leading investors holding dollar-denominated bonds to file suits in New York to realise their outstanding claims through liquidation of Venezuelan assets in the United States. In a move that seems likely to set a precedent for other claims, a New York court issued a 120-day stay of execution in a ruling on Red Tree Investments 182-million-dollar claim against PDVSA for defaulted payments in light of the uncertain situation in Venezuela. The impact of financial sanctions has already complicated relations between Guaido and investors, with the interim president asking bond holders not to push for asset liquidation, specifically in relation to PDVSA’s CITGO holdings in the US.
