Hugo Chavez’s Legacy at Risk

Exclusive: Over the past generation, Venezuela’s Hugo Chávez changed the political dynamics of Latin America with a socialist experiment that spread the wealth and improved the lives of the poor. But nearly a year after Chávez’s death, his movement is in jeopardy, writes Andrés Cala.

By Andrés Cala

Fifteen years into Venezuela’s Chavista socialist revolution and almost a year since the death of its charismatic founder Hugo Chávez the movement’s new leader, President Nicolás Maduro, is running out of time to consolidate a sustainable political and economic regime.

His most immediate ticking clock is 2016 when the opposition will likely try to force a recall referendum to remove Maduro from power. Assuming Maduro survives that, Chavismo will face another test when Maduro’s presidential term ends in 2019.

At this point, the survival of Chavismo is almost entirely dependent on public opinion. Under Maduro, it has few repressive tools to wield and thus needs to retain the loyalty of the nation’s poor and, at least, the partial support of the middle class.

Maduro’s challenge since he took power after the death of President Chávez on March 5, 2013 has been to prove Chavismo is a mature enough movement that it can outlive its founder. The old tactic of blaming foreign and oligarchic enemies for waging an “economic war” against the revolution will probably not be enough to win another election. Maduro barely survived the last two electoral tests.

Simply put, the Chavista socialist regime will not survive unless Maduro can bring economic sustainability to the revolution that he inherited. Facing an economy in shambles, he has two years to get things in order and convince the electorate that better days are ahead, all while facing significant internal and external pressures. If he fails, the opposition will surely try to gut the Chavistas’ share-the-oil-wealth approach.

Beyond relying on Venezuela’s oil resources, Maduro must show skills in managing the economy to benefit most of the nation’s nearly 30 million people, especially the hard-hit middle class. If Maduro continues to lose middle-class support in the cities, he will find it hard to prevail by relying on Chavismo’s strength in the countryside.

Maduro, like Chávez, has accused Venezuela’s traditional ruling elites and their foreign backers of trying to undermine the revolution. But populist price controls and currency strategies meant to counter this so-called “economic war” are failing to improve the lot of many middle-class supporters of Chavismo who are losing faith that Maduro can carry on the movement effectively.

Inflation rose more than 50 percent in 2013; crime is at record levels; and the value of the bolivar has plunged. As oil revenues decline, Venezuela’s dollar reserves have shrunk to a 10-year low, even as demands for more public spending grow. At this point, Venezuela is spending more than it earns, which might not be a problem except the economy is forecast to keep shrinking and along with it the quality of life for the average Venezuelan.

Amid these economic troubles, markets are demanding a higher premium for Venezuelan debt than that of Argentina and even Greece. Foreign investment is drying up, and international creditors namely the Chinese doubt Maduro’s promises to deliver meaningful economic reforms and a more stable security for investment.

So the squeeze is on Maduro and Chavismo. Either Maduro controls inflation, stops the plunging value of the currency and jump-starts the economy or Venezuelans are unlikely to hand him another electoral mandate. And two years might not be enough time to convince disenchanted voters that a turnaround is underway.

In short, Chavismo appears to be cracking under the combination of economic and political pressures. Plus, Maduro lacks the personal charisma of Chávez, which often was the glue that held the movement together. Yet, while fissures are appearing in the Chavista bloc, the opposition is united in a single-minded priority: end Chavismo.

A Two-Year Respite

Still, Maduro was granted a year to rule by decree and eked out a slim margin of victory in municipal elections last December. So, he has about two years to address the nation’s troubles before voters will likely deliver a verdict on whether to extend his mandate.

Venezuela is also a very wealthy country, thanks to 2.8 million barrels of oil per day that it produces. According to government estimates, it also possesses the world’s biggest reserves, some 297 billion barrels. During the last decade, Chávez used this vast oil wealth to significantly increase public spending. Cutting back that spending would be unpopular with many Venezuelans who were mostly shut out from the oil riches under the old oligarchy.

Much of the money has been spent to reduce Venezuela’s poverty, achieving the most impressive results in all of South America. But corruption, cronyism and mismanagement are also rampant. Maduro pledged to stop wasteful spending at the start of his term but met resistance from his coalition, including the military. Thus, there has been little improvement.

And, Maduro must remember that the last time a Venezuelan government tried to seriously cut public handouts, including almost free fuel, Venezuelans revolted in a 1989 uprising known as the Caracazo, which eventually led to Chávez sweeping to victory. So, Maduro will have to walk a fine line, trimming waste and tackling corruption within his ranks, while preserving the more successful welfare programs for the population.

Maduro has ruled out a devaluation of the currency, even if a dollar trades for 80 bolivares in the black market, compared to the official 6.3 rate, and the recently relaxed rate for travelers of around 11 per dollar. But achieving the necessary economic reforms without a devaluation will be difficult, especially as Venezuela’s fiscal deficit increases and its credit dries up.

Venezuela also desperately needs to attract foreign investors, but Maduro would stir up widespread anger if he invited back in the big bad Western companies, which Chavismo regularly denounces. But Maduro also has failed to retain Chinese trust that the revolution will be able to pay its debts, a feat that Chávez managed skillfully.

The Chinese government, in effect, has frozen additional credit for Venezuela, pending new rules to ensure proper controls over projects involving Chinese companies. Chinese companies, especially in the oil sector, also have frozen most investments until Venezuela pays for its part of the capital investments, but that money is lacking.

Without those investments, oil production will keep falling along with the revenue that Maduro needs to pay for public services. Of course, economic mismanagement is not new to Venezuela. But Chávez was able to surf a wave of high oil prices to consolidate his regime’s hold on power.

But even Chávez realized in 2010 that his regime was vulnerable to shifts in public opinion. Without resources, Chavismo risked losing its hold. Thus, Chávez implemented limited reforms to attract more foreign investors, diversify the economy and boost oil production.

However, as Chávez’s health deteriorated, the regime increased its populist spending to secure Maduro’s electoral victory. But that left Venezuela in dire shape, made worse by the global macroeconomic climate, including the recent flight of capital from emerging economies.

Maduro also will not get much sympathy from Venezuelan voters, many of whom are enduring a worsening quality of life. Indeed, if the economic crisis were to boil over into social turmoil, Venezuela’s military, which is by no means a loyal servant of Maduro, could decide to restore order, as it did when Chávez was briefly deposed in 2002.

Confronted with all these difficulties and lacking Chávez’s charisma, Maduro has resorted to more confrontational and bellicose rhetoric. Yet, after 15 years under Chavismo, there is a loss of enthusiasm among many longtime supporters, including some who find Maduro’s words and style tiresome, lacking the excitement of Chávez.

So, Maduro has a two-year window to address the country’s economic woes. If he doesn’t, Chavismo the movement that has transformed Venezuela and much of Latin America over the past generation could end under his watch.

Andrés Cala is an award-winning Colombian journalist, columnist and analyst specializing in geopolitics and energy. He is the lead author of America’s Blind Spot: Chávez, Energy, and US Security.