Sunday, March 1, 2015

Venezuelan Spring – Regime at the Precipice

The recent killing of a young protester by police in St. Cristobal, a city located in the traditionally anti-government western region, during anti-government protests has sparked additional protests throughout the country.

This potent reaction occurs as a result of the arrest of dozens of mayors throughout the country, particularly the high-profile arrest of the mayor of Caracas. This is surely as sign of a desperate regime at the precipice of implosion.

Venezuela has an inflation rate of 70%, a paucity of foreign reserves and declining oil production which represent over 90% of Venezuela’s revenue in a global low-price environment. Venezuela requires $117/bbl to balance its budget with the average global oil price at about $50/bbl.  To make matters worse, President Maduro’s approval rating hovers at an abysmal 20% which means he’s already lost support of a broad base of the population.

Because Maduro is increasingly isolated he is resorting to aggressive action which are even being questioned by his remaining ardent supporters to maintain control and remain in power. Venezuela is rapidly devolving into a failed state on the brink of collapse with no short term options to appease the highly discontented citizenry. In other words, there is no upside to supporting Maduro.

It’s possible that the mass arrests of mayors and death of a young man represent the new revolutionary call – the collaboration of the opposition factions - for action to foment a Venezuelan Spring similar to that after the death of the Tunisian street vendor in 2011 provoking mass protests that roiled the Arab governments not long ago and gave birth to the Arab Spring.

A change of regime may be a mere month or two away.  By some dint of Twilight Zone irony this century, regime change has occurred in Venezuela in April.  During Hugo Chavez’s first term an unsuccessful coup was attempted on April 11, 2002. After Chavez’s passing, Maduro was elected on April 14, 2014 based on election questionable results.

If this trend continues a possible regime change may occur this April 10-11.  Often coups occur when the leader has left the country to attend to matters of state elsewhere.  The upcoming 7th annual Summit of the Americas is taking place in Panama and represents the window of opportunity for the opposition, led by the military, to seize power. More ironically, if that occurs, Maduro will be stranded in Panama with the only option to flee to Cuba, a major Venezuelan benefactor, who will be attending this summit for the first time.

During this volatile period, the oil fields will remain untouched and production will not be directly affected. However in the short-term the financial mechanism for Venezuela to initially receive payments in US dollars will be complicated until some form of stability returns. The post-Maduro environment will still have elements of high uncertainly because the opposition is still highly fractured. To avoid Venezuela descending to a dysfunctional political Libya, there may be an extended delay in rescheduling elections.

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