In Venezuela, Maduro Tries to Buy More Time

4 MINS READJan 16, 2015 | 10:00 GMT
In Venezuela, Maduro Tries to Buy More Time
Venezuelan President Nicolas Maduro arrives in Algiers, Algeria, on Jan. 12.

Venezuela needs money, perhaps now more than ever. Its economy has long been in decline, but the fall of the price of oil has deprived Caracas of the additional revenue it needs to alleviate its food shortages, which have upset the public and divided the ruling party.

With that in mind, President Nicolas Maduro has begun a two-week fundraising tour abroad. Of course, he would appreciate any money he receives on his trip — it may help to put food back on the shelves of Venezuelan stores — but it would bring only temporary relief. If Maduro does not convince lenders to loan him money, he will likely have to adopt potentially risky economic measures that may well destabilize his government.

Maduro needs more resources to govern his country effectively. A reduced inflow of foreign currency has curbed imports, and the government does not really have enough money to maintain public spending or distribute to the public ahead of the December legislative elections. A poor showing from the ruling United Socialist Party of Venezuela in those elections could further divide the country's powerful elite, upon whom Maduro depends to manage the country.

So far, his trip has taken him to China, Russia, Qatar, Algeria, Iran and Saudi Arabia. It makes sense that Maduro would visit Russia and some members of OPEC; Caracas has an imperative to maximize its oil revenue so that it can maintain high levels of public spending in spite of the depressed oil market. In fact, Maduro sent former Foreign Minister Rafael Ramirez to these countries in November to ask that they cut production. Saudi Arabia declined to cut production significantly, and Venezuela's oil revenue shortages have persisted ever since.

Unconfirmed Promises

Media reports suggest that Maduro has secured up to $20 billion in financing from China, but there has been no confirmation that this cash could be used freely. (Beijing has confirmed that it would consider lending Venezuela money for construction and agriculture projects, but it has not confirmed an amount.) Maduro also claimed that he was in the process of securing financing from Qatari banks in exchange for food exports. Qatar has yet to corroborate that claim.

Without additional funding, the Venezuelan government will probably have to implement some difficult and unpopular economic measures to redress its food shortages. Those measures, which include devaluing the bolivar, cutting shipments of oil abroad through Petrocaribe and increasing the price of fuel, come with political consequences. They would accelerate inflation and cost the government whatever approval it still has. Maduro likely will forestall making his decision for as long as he can, but continued low oil revenue could force his hand.

Either way, the crisis has put Maduro in an unenviable position. Either he can rely on loans from other countries, or he can implement austerity measures. His predicament may not lead to his demise, but it has left him with only bad options.

Genuine Angst

However, the Venezuelan public could well disrupt his plan to wait out a decision. Long lines for food and basic consumer goods have led to protests in Caracas and in the states of Tachira, Zulia and Merida. So far, the few who have protested appear to have done so out of genuine angst, not at the behest of the political opposition. But if the shortages persist, pockets of dissatisfied citizens could grow into something more profound, particularly if Maduro fails to secure additional funding and the price of oil stays low.

Potential action against Maduro by internal rivals is also a plausible risk for the president. Rumors circulating in Caracas since the beginning of the year suggest that unidentified political factions within the government plan to remove Maduro from power. But Venezuela's economic problems are structural — removing Maduro would not solve them — and in any case, it would be difficult for any one faction to carry out a coup in such a fragmented political environment. (Under former President Hugo Chavez, the government purged potential dissidents from the armed forces after the 2002 coup and bought the support of those who remained in service. Few threats to the government have emerged subsequently.)

In the coming months, the situation in Venezuela will remain fluid. The government will proceed cautiously so that it can maintain its popularity ahead of the legislative elections, but any measures it takes in the interim are highly unlikely to turn around the country's failing economy. With no recourse available to Maduro, the Venezuelan economy will continue to falter, as will the public's faith in its leaders.

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