With sanctions tightening on Venezuela, embattled President Nicolas Maduro will struggle to hold onto power and his downfall within months is increasingly likely. But after four years of economic collapse and more than a decade of economic mismanagement, Venezuela will need foreign assistance. The United States, the Lima Group and various European countries are now coordinating with international organizations to deliver financial assistance to facilitate a transition of power there. This will prove quite costly, however, and require significant foreign oversight.
What Happened
According to a Feb. 4 report, the Lima Group, the United States and some European countries will cooperate with the World Bank and the International Monetary Fund to provide reconstruction funding to Venezuela. Venezuela will require at least $60 billion in lending for reconstruction, the Colombian Finance Ministry has estimated. Separately, Carlos Vecchio, the representative to the United States of Juan Guaido — the opposition Venezuelan leader whose claim to the presidency has won partial international recognition — has said the Guaido government will introduce legislation eliminating a requirement that state energy company Petroleos de Venezuela hold a majority stake in all joint ventures.
Why it Matters
The planning for future economic assistance to Venezuela shows that a road map for economic stability post-Maduro is emerging and will increase the pace of the country's return to fiscal health. Though entrenched criminality and corruption will persist, stabilizing Venezuelan public finances in the next few years would alleviate hyperinflation and slow the movement of Venezuelan migrants into neighboring states. Amendments to Venezuela's hydrocarbons legislation would also promote investment, helping public finances, but corruption and the effects of mismanagement in the energy sector will last for years.
Amendments to Venezuela's hydrocarbons legislation would promote investment, aiding public finances, but corruption and the effects of mismanagement in the energy sector will last for years.
Background
The main priorities for Venezuela's government after the fall of Maduro will be stabilizing public finances and inflation, encouraging economic growth through regulatory changes, and restructuring debts to international financial institutions (and possibly to China and Russia). Accomplishing the first priority will require extensive foreign lending and economic austerity, along with anti-corruption drives enforced by the military. Reducing regulatory barriers will help in the reconstruction of Venezuela's oil and natural gas sector, serving the second priority of sparking economic growth. Preferential U.S. trade treatment — like that afforded to Andean nations under the Andean Trade Promotion and Drug Eradication Act and to Nicaragua after its civil war — could aid economic growth.
No matter how things shake out in Venezuela, the country will remain a petrostate in the short term. Oil exports will remain its quickest, most efficient means of building up national wealth. The main obstacle to encouraging economic growth in the oil and natural gas sectors will remain the military's extreme corruption. As the single most powerful force in an economically destroyed country, it will be able to demand bribes extensively even if the opposition crafts anti-corruption legislation. Cutting down on such corruption will probably require significant oversight from the United States or opposition-aligned military commanders. Absent such oversight, Venezuelan investment in the country's energy sector will remain vulnerable to predatory military commanders.
