Caracas Chronicles

From bodegones to luxury cars and padel clubs, the “Venezuela is fixed” system that has served Maduro too well might be the root cause of his current struggles. In an attempt to ease the economic collapse of the country and appease his elites, Maduro has engaged in a process of economic liberalization over the last years. At first glance, the economy has relatively stabilized and the riches of the chavista elite have been growing significantly.

However, that has not only contradicted Chavez’s socialist ethos, but also opened a pandora box for Maduro. The formula is simple: the greater the economic liberties, the greater the exposure to political shocks. Therefore, the current power struggle taking place in the country is not only a result of the contested July 28 election, but it is preceded by the economic liberalization and its impact on Maduro’s grasp on power. The key to the regime’s long term survival lies on whether Maduro will continue opening the economy or reverse his policy decisions.

Expropriation, devaluation, price control raids and import bans; these are some of the policies that characterized the Venezuelan economy a few years ago. In exchange for these restrictive measures, Maduro’s regime had a firm and centralized control. Meanwhile the country experienced the largest economic collapse in the world, leading to an unprecedented humanitarian crisis. However, as the situation became unsustainable for Maduro and his elite (who were also craving larger gains) the regime decided to go against the very own socialist principles that once lifted them to power.

First of all, it ignored the socialist dogma of fighting inequality. Today, as you drive through Las Mercedes in Caracas, the new dawn of Maduro’s policies is clearly visible. De facto dollarization of the economy, imports from all around the world in store shelves and a selected business class who is thriving. However, as the reality changed for a few, the majority was left behind. Although luxury markets emerged around the country, impoverished communities continue to grow. As capital gains from investments rapidly outpace labor income, the inequality gap stretches even further. 

Consequently, people look at the economic paradigm shift wanting to take part of it and frustration grows towards the emerging business class who increasingly controls decision making. Data from the Venezuelan Observatory of Social Conflict suggests that protests since 2020 mainly concern economic rights for workers and pensioners. Therefore, as the government grants contracts and economic freedoms that enrich their elites, the likes of public sector personnel and pensioners continue to see their salaries and benefits unchanged while their value plummets. This prompts their frustration and willingness to protest, and represents a major reason why the country has averaged 18 -20 daily protests since 2021.

While frustration increases and the risks of civil unrest is higher, the growing business class pressures the government to safekeep their economic interests. Take the example of Alex Saab: as his economic and political power has increased within the elite, the government has met his demands by going great lengths to safekeep and strengthen his position. Therefore, as the elite expands, becomes wealthier and is given more power, Maduro needs to consider their demands. These mainly include protecting their economic interests domestically and internationally. In other words, not constraining economic freedoms and protecting their wealth from foreign threats such as sanctions. Therefore, Maduro’s decision to grant economic freedoms has come at the costs of new risks and tensions rising allowing for political shocks to occur.

What Maduro might do next

Political shocks are the cracks in the concrete wall the regime has built over the years. They represent opportunities for a rapid shift in political and economic power. As the latter changes hands, it has spillover effects on the political dynamics of the country. Hence, Maria Corina Machado’s takeover of the opposition and her challenge to the regime is no coincidence. 

The fallen statues of Chavez after the contested 28th of July election represent a social dissent that was believed to be lost given the economic struggles families face on a daily basis. These demonstrations of civil unrest showcase a dormant frustration from a population that has been sidelined from the growing riches of the country. 

Thus, the economic reforms taken by the regime from which a selected few are the only beneficiaries will continue to stir discontent amongst the population. This has been crucial in energizing the sentiments that inspired people to protest on July 29 and consequently legitimized Maria Corina’s ability to increase expectations for political shocks. As Maduro’s economic power continues to be decentralized, one of his traditional mechanisms of authority, coercive economic control, will start to falter. 

Given the decentralization of control over the economy, tensions have been rising within the regime’s elite. From former members of the elite imprisoned on corruption charges to key ministries for the economy changing hands constantly. It is clear that Maduro is playing with a fine balance to appease the needs and demands of the growing elite that surrounds him. Therefore, Maria Corina has the opportunity to appeal as a viable alternative to protect their economic interests.

Nonetheless, the reality is that although Maduro has given away economic freedoms, which have undermined his grasp on power, policies are still heavily influenced by him and his closest allies. Which begs the question, what will Maduro do next? On one side continuing down the reformist path provides a short term certainty on the economy, given that avoiding its collapse is crucial for the regime. However, risks of political shocks will increase as inequality rises and further demands from his extended elite emerge. Additionally, an emboldened opposition will seek to make the most out of these opportunities. Thus, in the long run, Maduro will empower the very forces that threaten him: deeper social frustration and a wealthier and extended elite.

On the other hand, Maduro may still be on time to reverse his policies by constraining economic freedoms to gain back centralized control. In the short term this will serve him for political risk mitigation, reducing the propensity of political shocks and increasing his oversight and mechanisms of control over the country. However, in the long term there will be a return to a stagnant economy with an escalated risk of high inflation, prompting his extended elite to look for alternatives. Consequently, this will bring further threats of losing the small foreign direct investment that has made its way into the country. Therefore, it would be a scenario of short term risk mitigation against long term survival, as the country dives into another economic crisis, which has also shown to be an existential threat to the regime.

Looking ahead to January 10 and given the moment of political uncertainty the country is currently undergoing, Maduro’s next steps are critical for his survival. Although opening the economy fundamentally changed the public perception of Venezuela, he is at a critical juncture in his economic policy decisions. Failure to strike the correct balance will give away more ground to the opposition and even to threats within his elite.