Anyone stuck holding the bag of PDVSA debt in 2020 before the U.S. banned Americans from trading it still won’t be able to offload that junk next year. Nor will Venezuela come back from the brink. Next year is shaping up to be another year of economic contraction in Venezuela.
It is not easy to get data out of Venezuela. The economy is basically as closed as Cuba, the ruling Socialists United (PSUV) party’s favorite nation. As of March 2019, Venezuela’s GDP contracted by 26.8%. The official unemployment rate is just under 7%. Surely it is at least double that. Many healthy economies have unemployment rates of 7%. Economies contracting by double digits for two years in a row, on the other hand, do not.
Monthly inflation is astronomical. The currency is worthless. There are seashells on Margarita Island, Venezuela, that are worth more.
“Chavismo has mismanaged Venezuela, a country loaded with oil that should be the richest country in Latin America. The question is not if, but how that regime goes,” says Ariel Cohen, Director of the program on energy, growth and geopolitics at the International Tax and Investment Center in Washington and a senior fellow at The Atlantic Council. “The U.S. will stick to its mantra that it has to be a peaceful departure (for president Nicolas Maduro), maybe like what we saw in the election in Bolivia.”
Sanctions have had no measurable impact on Maduro. He is still selling crude oil, particularly to India.
“I expect more economic and covert pressures on Maduro from Washington,” says Cohen. “Whether it works remains to be seen, but overall Maduro is doomed.”
The U.S. tried unsuccessfully to lobby Venezuela’s military to give up on Maduro and back National Assembly president Juan Guaido instead. Guaido’s call for protests have dissipated lately, and it is unclear if they will spark up again in 2020.
Venezuelans have proven themselves able to withstand malnutrition, violence, and families and friends splitting for Brazil, Colombia and—those with money—to Miami and Madrid.
Colombia has estimated that over 1.3 million Venezuelans are now living in its borders, having fled PSUV’s failed state.
Venezuela’s left has something in common with the American left. They both blame Trump for … [+] everything wrong in their lives. Make no mistake about it, Venezuela’s crisis is Made in Caracas, not in Washington.
Carlos Becerra © 2019 Bloomberg Finance LP
Maduro has held onto office, and unless PSUV and the military believe they can cut him loose and save the party, he will be in Caracas for another five years. The president serves a six-year term and can be reelected indefinitely. There are no term limits. In theory, he can be there until he is too old to lead. Maduro is 57 years old.
The Maduro administration has clamped down violently on dissent through a complex security apparatus, squashing threats to the status quo for years. They largely see the U.S. as its mortal enemy, fighting a blended war that is one part Cold War and one part the anti-colonialism fight led by PSUV founder and diehard socialist Hugo Chavez.
It is unclear how Latin America’s biggest socialist country keeps its lights on.
Some have said that it is a narco-state, not unlike Colombia when the Medellin and Cali drug cartels, coupled with the FARC, were more powerful than the official government. Washington has sanctioned high-level Venezuelan government officials, like Maduro’s old vice president Tareck El Aissami, for drug trafficking.
The Economist Intelligence Unit, the business intel unit of The Economist magazine, said in a Latin America political risk year-ender, published on Tuesday, that the Maduro government is “showing no signs of fracture.”
The population has developed “protest fatigue,” having seen no benefits from taking to the streets over the last two years.
Many people are protesting the government by fleeing the country, either on foot or by plane.
The de facto dollarization of the economy has slowed inflation, creating a perception of relative stability, according to the EIU. Ironically, Venezuela is dependent on the very colonial mechanism it claims to abhor. Without the dollar, Venezuela would be starved of resources.
For 2020, most Venezuelans’ New Year hope will be simply to survive and not to kick Maduro to the curb. They have been left exhausted by PSUV.
This does not mean that there will not be bouts of unrest in 2020, EIU analysts wrote yesterday.
They see some potential triggers, including more blackouts (Maduro will blame the U.S.), water shortages (the U.S. activists in favor of Venezuela will blame climate change) and the scheduled elections to the National Assembly next year. The National Assembly is the one body of government still under the control of the opposition. Could they actually lose it? If so, Venezuela’s transition into one big Cuba would be complete.
Economic recession and Venezuela’s shunning by its neighbors, from Bolivia’s new government to Brazil, means political and economic isolation is guaranteed yet again next year.