Election Day Briefing—The Maduro Government

David Smilde

Venezuela’s municipal elections today are mainly interesting for what they will indicate about the strength of the relevant political coalitions and what this will mean for their strategies and directions over the coming year. These elections have long been touted by the opposition as a sort of plebiscite on the Nicolás Maduro government, an interpretation that has been resisted by the government as it smelled danger. However, if the government does well it almost certainly will treat the results as strong evidence that the Chávez revolution is alive and well.

Giving the events of the past month, polling numbers are volatile. But our default expectations should be that the government will win the popular vote by five percent, give or take five percentage points. This means a good day for the government would see them win by ten percent. A good day for the opposition would see them repeat the April 14 elections in which Henrique Capriles lost by a point and a half.

In these three “election day briefings” I will provide a review of the main three stories to watch: what these elections mean for the Maduro government, what they mean for the opposition coalition, and what they mean for Venezuela’s institutions of electoral democracy.

This evening I will live blog as election results start to come in.

The Maduro Government

Maduro’s first seven months as president have not been easy. Having won the April 14 snap presidential election by only 1.5% after Hugo Chávez left him with a 15-20% lead only a month before, inevitably meant that people would question whether he was up to the task. The opposition saw him representing a new level of incompetence and smelled opportunity. But Maduro’s problems within his own coalition were just as big. Many thought that Chávez had not chosen the right successor and feared Maduro would drive the revolution into the ground.

Other than the release of a taped conversation of pro-government talk show host Mario Silva talking to a Cuban intelligence official, the internal battles and lack of control within the governing coalition was largely kept out of view. Its most tangible manifestation was inaction on urgent economic measures.

Already in May it was clear that the Venezuelan economy was experiencing serious problems with scarcities and inflation from a readily identifiable source: a shortage of dollars in an economy whose inflated exchange rate creates an insatiable demand for them. Already in June and July, Minister of Finance Nelson Merentes was talking about ways to improve the flow of dollars by altering or diversifying foreign exchange mechanisms. But action never came forth as radicals and moderates jostled for position. Maduro himself did not seem to have the political capital to pick a winner and impose a policy line on the rest of the government.

By mid-October it became clear that moderates had lost out and there would not be a pragmatic set of economic reforms. However, the economy had reached 50% annual inflation, scarcities and electricity power outages were widespread. Maduro’s attempt to blame these problems on sabotage were believed only by core supporters. And no other relevant actions were being taken. The Maduro government looked lost, immobile and headed to a serious drubbing in the municipal elections.

All of this changed in early November when Maduro launched his “war against speculation.” These measures provoked derision among many observers (including me). In economic terms they attack the symptom rather than the disease and will be counterproductive in the medium term. But sociologically, for average Venezuelans they seem logical and intuitive. They not only lower the cost of consumer goods in the here and now, they also put a name and face on “the economic war,” thereby explaining the cause of inflation. Indeed Datanálisis’ survey data has shown that almost half of Venezuelans now think there is indeed an “economic war.” The measures also deftly cornered the opposition into the tough political position of either not responding or looking like they were siding with price gouging entrepreneurs.

If the government does better in the popular vote in these elections than in the April 14 election, and that now seems likely, it will clearly bolster Maduro’s political capital. This will perhaps put him in a position in which he can more effectively lead his coalition during the next year and a half until the legislative elections in 2015. He will need it as the economic challenges will be considerable. The government still faces a medium term dollar shortage. Furthermore, it will be increasing its role in the production, importation and commercialization of consumer goods, roles they have not exercised efficiently in the food chain.

The results will likely affect the government’s direction over the coming year. If the government wins by five percent or more it will serve as a clear lesson to Maduro that radicalization is the way to go. If it wins by less than five percent it will give Maduro some breathing room but probably result in a more pragmatic economic line.

The government has already taken a number of measures to improve its position in dollars: floating $4.5 billion in PDVSA bonds, reducing the terms of dollar-draining inititaves like Petrocaribe, and seeking to sell some of its gold. However, it has understandably left for after the election harder measures such as devaluing the currency or otherwise soaking up some of the liquidity in the economy. If the government takes a pragmatic direction it will likely act quickly on a devaluation. If it takes a more radical line it would probably postpone it or push forward with some “stealth” devaluations, for example reducing dollar concessions at the official rate and expanding them through auction mechanisms like the SICAD.

If the government were to do poorly, repeating the April result or losing the popular vote, it would cement perceptions that Maduro is not up to the task. This could lead to moves within the government coalition for others to take over elements of the presidency, or could lead to an effort by Maduro to moderate and expand his coalition away from radicals.