How Venezuela could find a way out of the chaos

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Questions about what could be done to resolve Venezuela’s economic and political crisis are increasingly urgent as the nation plunges deeper into the political and economic abyss after this week’s much contested election for a National Assembly constituent. The election ultimately aims to change the country’s constitution in a way that many observers say would give President Nicolas Maduro dictatorial powers. The vote was immediately followed by accusations of fraud, new US sanctions, growing street protests and rejection of the results by most of Venezuela’s South and Central American neighbors.

To get a feel for what a potential solution to the Venezuelan crisis might look like – as difficult as it may be to find one – Knowledge @ Wharton spoke to a number of experts, including: Dorothy Kronick, professor of political science at Penn’s School of Arts & Sciences; William Burke-Blanc, professor at Penn Law and expert in international law and global governance; and Jennifer mccoy, professor of political science at Georgia State University and specialist in Latin American politics. (McCoy and Kronick discussed ways Venezuela could emerge from its current struggles on Knowledge @ Wharton on Wharton Business Radio on SiriusXM channel 111. Listen to the podcast at the top of this page.)

The Venezuelan crisis has worsened since March. Street protests have left more than 120 dead; the economy has contracted by 30% in four years; inflation – at 700% – is the highest in the world; and the currency plunged from about 630 bolivars per dollar in 2013 to 200,000. The result is that life is a daily struggle for most Venezuelans – unemployment is rampant and accompanied by severe shortages of food and medicine.

The almost daily street protests “have been fueled by opposition to what a majority of Venezuelans see as Maduro’s attacks on democratic institutions and a violation of the constitution, and also in response to a massive economic contraction,” Kronick said. In the meantime, although the economy is almost at a standstill, McCoy, like many observers, sees “no prospect” of negotiations between the Maduro government and the various opposition forces.

Recent events, such as elections and the imprisonment of opposition leaders, have pushed the two camps even further apart, Burke-White said. “Plus, Maduro feels emboldened after the election, which makes him less likely to compromise.” The president may have the upper hand for now, “but ultimately these events push resolution into the streets, where he is less likely to be able to hold power forever.”

“Now is the time to create the political pressure necessary for regime change [in Venezuela]. –William Burke-White

Burke-White further noted that Maduro “succeeded in creating a bogus political mandate through electoral manipulation, scare tactics and the usurpation of political authority. “On the one hand, he is more powerful with the elections behind him, [but] on the other hand, most people in Venezuela and abroad can see through his ‘victory’. Meanwhile, the economic and social situation on the ground in Venezuela continues to deteriorate. “Ultimately, there will probably be a tipping point crossed that will lead to the collapse of the regime, whatever the electoral mandate,” he predicted.

After Sunday’s controversial election to vote in Venezuela’s new assembly, which Maduro is leading to rewrite the country’s constitution, the international community has responded swiftly. The Trump administration called the Maduro government a “dictatorship” in a declaration and slapped on the new one punishments, freezing Maduro’s assets and ordering that “American people not be allowed to do business with him.” Such isolation means the new assembly will not be able to maneuver in international financial and trade markets, Kronick said.

Brazil, Argentina, Colombia, Peru, Panama, Costa Rica and Chile joined the European Union and the United States in announcing that they do not recognize the results of the vote. Other reports noted that Venezuela was planning to leave the Organization of American States (OAS) after some members, including Canada and Mexico, said they would not recognize the authority of the assembly. Brazil, Argentina, Paraguay and Uruguay, members of Mercosur, have already suspended Venezuela’s membership in the regional economic group due to human rights concerns.

The trade impact of Venezuela’s instability has long been evident. US companies that have used operations in Venezuela to supply the region have suspended or pulled out – most recently Coca Cola and GM. Airlines such as United Airlines and Delta have suspended operations to Caracas for the past two months. McCoy said U.S. businesses have lost confidence due to all the volatility and the risky outlook of being paid given the fall in the Venezuelan currency.

“Both sides are going to need assurances that they will not be wiped out by the other – that there will be a winner and a loser.” – Jennifer McCoy

Will the sanctions work?

Kronick noted that the latest US sanctions on Maduro are different from the economic sanctions President Trump and Vice President Mike Pence threatened before the last vote. These economic sanctions would have limited Venezuelan oil exports and the country’s ability to buy the light crude it badly needs, and they could have been “very damaging to the Venezuelan economy”.

Still, Kronick felt the targeted sanctions against Maduro played the game for him and allowed him to describe the US president as “Emperor Trump” and not wanting the democratic process to continue in Venezuela. “Some people call these sanctions a gift for Maduro,” she said. “It helps his rhetoric of… blaming US meddling for Venezuela’s problems.” She noted that in recent polls 63 percent of Venezuelans said they oppose U.S. economic sanctions on oil exports, including those against the Maduro government.

McCoy said the oil sanctions would be devastating for the local population. Already, the revenues of the Venezuelan oil industry have been affected on two main fronts, she noted. One is a drop in oil prices, and the second is a drop in production and production capacity. Meanwhile, Venezuela depends on the United States to buy a third of its oil production. Venezuela also exports another significant portion of its oil production to China in loan repayments, but this does not bring in any income. Supplying domestic demand and discounted exports to Caribbean countries like Cuba and other regional allies account for the remainder of its oil production.

A way out of the storm?

According to Burke-White, economic recovery must begin with political recovery. “There is no reason to invest in the country at the moment. New sanctions are making economic recovery all the more difficult. A recovery requires regime transition, stable governance and new political leadership. “Now is the time to create the political pressure necessary for regime change,” he said.

McCoy said that for negotiations to take place, “both sides will need assurances that they will not be wiped out by the other – that there will be a winner and a loser” who will be barred from occupying a political post in the future or to receive economic benefits. . Fears of a witch hunt, the lack of due process and the imprisonment of opponents only widen the political divide.

“Some people call these sanctions a gift to Maduro. It helps his rhetoric to talk about American meddling and blame American meddling for Venezuela’s problems.” –Dorothy Kronick

In addition to ensuring due process and an independent judiciary, McCoy called for “some form of transitional justice” for some people, with reduced sentences in return for reparations, recognizing responsibility for wrongdoing or transmitting information to aid investigations. Kronick said the idea of ​​transitional justice “may sound distasteful to some people, but maybe that’s what’s needed.”

Burke-White disagreed with ideas of transitional justice. “Such early amnesties or pardons are extremely dangerous,” he said. “While they can be seen as promoting short-term peace, they ultimately undermine the quest for longer-term justice and promote impunity. It is quite possible that the regime’s leaders seek to leave the country in exile and thus feel at least temporarily protected from prosecution. “

Could an interim government help?

McCoy said the most desirable formula would be to negotiate an interim government acceptable to both sides, but that it would not be a political government as long as it does not run for office in future elections. Instead, he would be tasked with working with the international community, which would help organize emergency aid and loans to help Venezuela stabilize the economy and renegotiate its external debt. “We need to focus not only on sticks and sanctions, but on incentives,” she said.

A caretaker government is one of many transitional solutions that could work, said Burke-White. However, this requires political preconditions such that Maduro is “ready to leave the scene and the opposition must be able to be at the negotiating table”.

In Venezuela’s attempts to revive its economy, Russia and China hold important cards as lenders, McCoy said, adding that large debt repayments are due in November and next year. (Overall, foreign debt is estimated at around $ 5 billion.) Any help rescheduling those loan repayments could aid near-term economic recovery efforts, Burke-White said. Such an accommodation “is entirely possible given that China and Russia seek to extend their political influence in the region,” he added. “However, this would primarily give Maduro a respite to consolidate power, rather than lead to a significant shift in political or economic realities.”



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