Caracas Chronicles

While the 2021 regional elections brought bad news for the regime—more on this below—, top regime officials view them nonetheless as an inflection point: the beginning of the end of a cycle, of a time of war. With no more scheduled elections until 2024, the Juan Guaidó-led opposition faction is in retreat against a less confrontational faction (led by Henrique Capriles), a more stable if still severely depressed economy, and favorable geopolitical trends, regime leaders believe they have finally turned a corner. 

In 2022, in their view, they’ll start to focus on a process of “normalization,” both in Venezuela—with an improving economy and the “re-institutionalization of the country”—and abroad, by reestablishing somewhat normal diplomatic relations with countries that had turned their back on them and now have to face the fact Maduro isn’t going anywhere anytime soon. While living with sanctions remains their base scenario, they nonetheless hope that this year they could get sanction relief from the European Union (EU). Regime leaders know that in order to get any sanction relief from the EU they have to do at least two things: continue engaging in negotiations with the opposition, and dial back violent repression at home. The first part is easy, while the second one can also be easy as long as the opposition refrains from taking to the streets again—which appears will be the case for the foreseeable future.

However, not all is good news for the regime. The investigation launched by the International Criminal Court (ICC) in 2021 is a huge headache for Maduro and for the regime as a whole. First, there’s a good chance at least some mid-ranking officials will eventually be charged—and maybe even high-ranking ones. Second, the high government and the Attorney General have already revealed how they plan to try to protect themselves from getting indicted: by charging and sentencing scapegoats. 

How Chavismo Could Solve Its Electoral Problem

In the past year, we had two opportunities to witness the massive electoral problem that chavismo is facing. In the December 2020 parliamentary elections, the ruling coalition managed to mobilize only 4.3 million voters to the polls, which was then the lowest number of votes garnered by chavista candidates in any nationwide election since the 3.7 million Hugo Chávez got in his first two presidential elections (1998 and 2000), when the number of registered voters was roughly half what it is today. Compared with more recent elections, it was their worst result since they got 4.8 million votes in the 2012 regional election. And sure, there are several likely explanations for the low turnout. The emigration of over 6 million Venezuelans in recent years has reduced the pool of possible voters for all sides. The election was non-competitive, with most of the opposition sitting the election out. Furthermore, in parliamentary elections, there are fewer incentives for local activists to put much effort into mobilizing voters, especially with chavismo running non-local candidates—party honchos looking for a safe seat—in several electoral circuits. Maduro, as we reported then, blamed regional PSUV leaders, and put everyone on notice: there would be no repeat of that fiasco in the November 2021 regional elections.

But things got even worse on November 21st, 2021, with chavismo’s vote total tumbling to 3.7 million–essentially the same number of votes that Chávez got 23 years ago—while 4.4 million people voted for non-chavista candidates. Not even local leaders with skin in the game in the form of governorships, mayorships, and council seats for themselves–with the help of the State and the military apparatus—managed to somewhat reanimate for a day the corpse of chavismo’s once-formidable electoral and coercion machine.

The regime, obviously, has shown time and time again that they’re willing to change election results to remain in power or, at least, to retain key governorships and municipalities. They can also manipulate elections preemptively, banning opposition candidates from running, as they just did in Barinas—and did to a degree in the 2018 presidential election.

However, while chavismo has resorted to every trick in the book in parliamentary and regional elections, it has yet to put them fully to the test in presidential elections, which is what truly matters going forward. 

What happened yesterday in Barinas is pretty telling. After using the Supreme Court and the “official opposition” to annul the election won by Freddy Superlano on November 21st, and reschedule it to January 9th, chavismo attempted to divide the opposition vote with Claudio Fermín and to dispose of the Chavez family bad legacy by registering (perhaps) the worst candidate possible, Jorge Arreaza. Nothing seemed to work this time for the revolution. For once, the strategy seemed to be all over the place. While Arreaza originally had the nod from the Chavezes given his family ties with them, the clear Chávez-fatigue that has fueled a rebranding of PSUV politicians all over the country hit Barinas specially hard (the Chavezes have been ruling the state for over 20 years). In a strange balance between respecting the Chávez legacy and dealing with Chavez-fatigue, Arreaza made a public statement taking distance from the supreme commander’s family and vowing loyalty to Maduro. Meanwhile, the regime dunked a bunch of cash into the state by launching a plan to pimp Barinas with better infrastructure, security, and health plans. The face of the plan? Arreaza himself.

Chavismo also tried to divid the opposition vote with fake oppo candidates, but they performed terribly (Claudio Fermin got around 6,000 votes and Adolfo Superlano even less); and the real opposition managed to act coordinately and prevail. With Freddy Superlano and many parties supporting the candidate from Accion Democratica, Sergio Garrido—a guy with real local leadership, not imported from Caracas—, the opposition triumphed with an advantage big enough to inhibit the temptation of fraud: Garrido won with at least 172,000 votes, leaving Arreaza behind with a little more than 128,000, according to the report from CNE on Sunday night. 

Chavismo maneuvered to repeat an election and finished losing not by a hair as happened with Freddy Superlano and Argenis Chavez on November 21st, but with a massive difference. Actually, we saw the very rare event of a chavista candidate admitting defeat before the official announcement, when Arreaza tweeted that he had lost. And the opposition did in Barinas what it didn’t do in other states like Miranda, where unity and effective mobilization proved impossible. 

Barinas querida. La información que recibimos de nuestras estructuras del PSUV, indican que, aunque aumentamos en votación, no hemos logrado el objetivo. Agradezco de corazón a nuestra heroica militancia. Seguiremos protegiendo al pueblo barinés desde todos los espacios.

— Jorge Arreaza M (@jaarreaza) January 10, 2022

This Barinas story shows that the regime can no longer count on the opposition to take themselves out of elections and doesn’t want to be seen as stealing elections at a time when they want sanctions relief. Chavismo’s disadvantage against the opposition in a minimally fair election with decent turnout would be so wide that “stealing” the election would not entail simply shaving a few thousand voters here and there, but millions.

With at least some limited sanctions relief on the balance—even if just from the EU, and not from the U.S.—and an international court with a record of always finding something once they start looking, the cost of pulling any of these tricks is a lot higher.

There are hopes within the top ranks of the regime that economic stability–with the economy expected to grow in single digits next year by most estimates—will improve chavismo’s chances in a national election or referendum. We are deeply skeptical that chavismo–especially led by Maduro–can become appealing enough to voters to at least lose by a small enough margin to be able to steal an election without much fuss, and we’re likewise skeptical that the regime will leave their fate in the hands of the economy, the oil market and voters.

There are preventive steps they can take, starting this year. One of their options is to change the electoral system in the country to an indirect election system—via parliament, the Supreme Tribunal, or another National Constituent Assembly, therefore rejecting the modern elections culture Venezuela acquired in the 1940s. They could also opt to scrap the recall referendum from the Constitution, or make it so difficult to activate that it becomes a fantasy (it’s already very difficult). While these options might seem radical, there are signs they have put a lot of thought into it already in the past years, with plans to establish a “communal state,” under which the current regional and local authorities would be replaced—or made irrelevant—by communes, which could then elect representatives to an assembly that would, in turn, elect the president or decide on a recall referendum. With a little gerrymandering—overrepresentation of chavista strongholds and underrepresentation of opposition voters—the regime could easily design an indirect election system that allows them to remain in power through elections without changing results or banning opposition candidates, even while being a minority electoral force. 

However, we don’t see such a radical change coming all at once in 2022 while the regime engages in negotiations with the opposition and its international allies, but it’s something we will likely start hearing more about. If you can’t win by rigging the game, change the game.

The Backlash to Dollarization

Starting in 2019, the Venezuelan economy has become increasingly dollarized, even if it isn’t formal. Even the government is frequently using foreign currency—mostly dollars and euros, in cash—to pay for goods and services inside the country, and top managers in ministries and public institutions receive dollar payments on top of their meaguer, $10-a-month public salaries that are paid in bolivars. The government is also working with local banks to establish a new wire transfer system to allow Venezuelan migrants abroad to send remittances to Venezuela seamlessly and with a competitive exchange rate.

The informal dollarization is part of a wider set of economic adjustments made in the past two years, with the government cutting public expenditures and the fiscal deficit, relying more on domestic tax revenues and oil revenues—and not on funny money via Central Bank financing—and generally getting their fiscal house in order. According to sources, Patricio Rivera—an Ecuadorian economist and former Finance minister under Rafael Correa in Ecuador—is the brains behind these efforts, and is working closely with Delcy Rodríguez and other top officials.

However, we shouldn’t equate Maduro’s support for this process—or at the top of the regime, more broadly—with them actually agreeing to make these changes their new, long-term economic policy.

The fact that they have allowed dollarization to take hold doesn’t mean they like it: they view it as a necessary and temporary evil, with “temporary” being the keyword. According to their own statistical surveys, dollarization isn’t as widespread as the press or local consulting firms report (private surveys put it at over 50% of all transactions), and they have no intentions to abandon the bolivar. Furthermore, they view 2022 and the years to come as the start of a “new era”—with the radical, Guaidó-led opposition defeated and elections out of the way until 2024–during which they can focus on the economy, sanctions relief, and “re-institutionalizing” the country—on their terms—and as a time to set aside odious temporary measures to which they were driven out of necessity, such as dollarization.

The increasing inequality around dollarization—which is mostly driven by both the government’s inability and unwillingness to pay their employees and beneficiaries in dollars as is happening in the private and informal sectors—could trigger a backlash by the regime if there’s public outcry from their base around it. They could start looking to put the dollarization genie back in the bottle—as they hope to do at some point. We are skeptical they can actually pull it off. However, something being a bad idea has never stopped the government from trying it, especially when it comes to the economy. And, if they do try, we expect it to be clumsy and heavy-handed, and could include legal action and persecution against manufactured evildoers in the private sector, new regulations over the use of foreign currency, and price controls.

While we focused on dollarization—since it’s the most visible and newsworthy change in policy of recent years—it’s not the only change they have made. Nationalizations have mostly stopped, price controls aren’t being enforced (or at least, only surreptitiously for some services, such as telecommunications), businesses that were once banned are now allowed to operate (e.g. casinos), import duties and permits have been suspended or ignored, and the private sector has been mostly left alone relative to the hounding there were once subjected to through over-regulation and persecution. But we shouldn’t believe the leopard has changed its spots. At the top of the regime, they view these past two years as a time of war that required extraordinary measures, but when it comes to the economy, they haven’t abandoned their Marxist roots. The narrative of “economic liberalization” under Maduro in the international press isn’t a point of pride for them, and sooner or later they will seek to rein in the private sector, and reassert the power of the State over the economy.

The government has been reporting a progressive increase in oil production that is getting closer (but not quite there yet) to their 2021 goal—the government reported that they hit the 1 million barrel per day mark on December 24th.

Although the exact figure is still murky (some international media outlets have been reporting similar numbers to the government’s, but our PDVSA sources say the real number is quite lower), the truth is that PDVSA did work its way into an increase in production. On the political side, this trend, along with a pricier oil barrel, may embolden some chavista traditionalists who will believe they won’t need to rely on the crutch of the private sector to flush the economy with cash, and may want to steer the model back to subsidizing staples as a means of social control. 

This may also play against a legislative modification of the oil business model to allow more participation of the private sector—small and informal private partners have been key to the increase in output. Our view is that, as the regime has been able to fare with the sanctions and the bodegón economy has presented some opportunities for people close to chavismo, the government is waiting it out to see if they are able to get out of the crisis without making a gesture that symbolically would represent a “surrender to capitalism.” Furthermore, the government has been handing out licenses to operate public companies and doing business deals in secret, under the cover of the Anti-Blockade Law enacted in 2020, which allows for confidentiality in public contracts under the guise of protection from sanctions. 

Additionally, the oxygen in the pockets of the private sector aren’t shared by the public administration. The quality of public services has cratered, the health system is in shambles, and most government entities work part-time. A key factor behind this collapse is the lack of a qualified workforce in public institutions. The lack of talent goes deep, from the harder to replace—such as medical doctors for the health sector—to others that should be easy to find, such as people with basic programming skills to do simple tasks like manage databases and develop basic software tools. With very few qualified employees left to run massive public services and utilities, the slow-motion collapse of these services will continue in 2022, and could be the driver for social unrest and put the “normalization” process so desired by the government to the test. 

Some Final Thoughts

In all this context, the opposition is tangled in a conflict where Juan Guaidó and those who still support him pulled off the survival of the caretaker government for one more year, with the assets abroad and the recognition of some governments like the U.S. as the leverage, while others work to leave all that behind and redesign the opposition once again. Henrique Capriles is in his own path to seek the recall referendum (our sources say Guaidó could support this move) and the group led by María Corina Machado is moving to remove their recognition of the caretaker government and double down on their proposal to renew opposition leadership through popular vote. 

Even if the opposition’s victory in Barinas adds to the argument of believing in the electoral route, we don’t expect the recall referendum to prosper and it’s hard to imagine the opposition rebuilding unity, on that agenda or any other, under any leadership.

While some members of the international community may be restless and see the caretakership as an obstacle to resolving the crisis, many will follow the lead of the United States, which isn’t likely to modify its strategy in the short term—at least until the midterm elections.

That world beyond the problematic borders of Venezuela will have a say in the domestic political developments in 2022. Chavismo will feel more at ease to strengthen control over economic and political variables with a more favorable international environment, especially if Gustavo Petro wins the presidential elections in Colombia (the elections in Colombia are a high priority for the regime as we’ll see in upcoming reports) and Lula da Silva returns to power in Brazil. With the probable exception of Turkey, where Recep Tayip Erdogan is experiencing a loss of influence, its foreign allies in Cuba, Iran, Mexico, and Russia remain strong. The surge of center-left governments in Chile, Honduras, and many European countries complete the good geopolitical prospects for Maduro in 2022.

Inside the country, the pandemic doesn’t seem to exert political pressure, not even with the arrival of the Omicron variant to Venezuela, and we don’t have reasons to believe emigration will stop. The heirs of Chávez will compete to succeed Maduro and we will see more of a debate of who represents true chavismo and who’s betraying the old Bolivarian ideals. But all of them will play their part in 2022 to preserve the system they control. With the cards that chavismo has in its hands right now, a talented advisor could find the right balance so they could remain in power while opening up to the minimum international standards of democratization. The question resides on whether chavismo will try to expand the relative stabilization that some people are enjoying or will it cocoon back into economic controls and repression. Although we could see how chavismo may have some incentives to look for the former (relative stabilization)—it would make more countries in Latin America and Europe comfortable to reestablish relations—, we must remember that the regime responds to a logic that isn’t dictated by the same incentives of democratic countries. PSUV politics are violent and discrete, understanding these incentives and the nuances of the power struggle within the government party will be our main focus in 2022.

In the full report, you’ll find information on what’s going behind the curtains of the Venezuelan political struggle. You can subscribe to the PRR here.