Maduro’s election campaign maneuvers jeopardize economic recovery
Venezuela’s economy could boom in the near future. But this requires the rule of law.
by Alexander Busch, Latin America correspondent for Handelsblatt and Neue Zürcher Zeitung
It was not only the majority of the population that optimistically hoped for a peaceful change of government before the elections. Many companies and investors also wanted to see the regime replaced. However, President Nicolás Maduro has made it clear that he wants to remain in power despite the controversial elections.
This is not only a bitter disappointment politically, but also economically: under stable rule of law conditions, the Caribbean country could quickly become one of the fastest growing economies in the world. Alejandro Arreaza from Barcleys estimates that Venezuela would see double-digit growth over the next two years under a new government.
The Caribbean state not only has the largest oil reserves in the world. After ten years of state mismanagement, it has an enormous backlog of investment needs. Multilateral donors and the lifting of US sanctions could boost oil production and the idle domestic industry in a short space of time.
The USA had tightened economic sanctions against Venezuela due to electoral fraud from 2019. These were eased last year because the regime promised free elections. It is now unclear whether the USA will reinstate the sanctions.
Since last year, foreign oil companies such as Chevron, Eni and Repsol have once again been allowed to produce oil in Venezuela to a limited extent. The licenses have just been extended by the USA. They would therefore not be affected by a renewed tightening of the punitive measures.
Venezuela has been experiencing economic stabilization for around three years. According to the International Monetary Fund (IMF), Venezuela will grow by around four percent this year. Consumer inflation has fallen to 160 percent. The dollar has been an unofficial means of payment for three years.
Venezuela’s fall from one of the richest economies in Latin America in 25 years of left-wing government, first under Hugo Chávez and now under Maduro, has been enormous: economic output has shrunk by three quarters in eleven years. The annual per capita income is around 8,500 dollars – about the same as in Bangladesh.
In order to get the economy moving again, the government would have to organize a rescheduling of foreign debt. Venezuela has not serviced its debt of around 150 billion dollars since 2017.
However, Venezuela’s path back to the international financial markets is blocked: Creditors are not allowed to negotiate with Venezuela due to US sanctions. However, Western financiers and companies would only be able to officially invest in the country again after a debt restructuring.
Business lawyers in Caracas are also currently advising Western companies against investing in Venezuela. The legal framework conditions are not secure.
The economy has high hopes that the slight recovery in the oil industry will continue and further support growth: Barclays, for example, estimates that Venezuela’s ailing oil sector offers many opportunities for a short-term and cost-effective turnaround. Before the election, the investment bank forecast an increase in oil production from the current 850,000 barrels per day to two million barrels per day by 2030.
It will now depend on the next US administration what policy it pursues towards Venezuela – and therefore how much the oil state will grow.
