Another Venezuelan Election, Another Fraud

from the FT

Venezuelans are screwed but happy,” President Nicolás Maduro chortled this month. State elections last weekend show he was half-right. The economy is in freefall, there are acute shortages of medicine and food, inflation is almost 1,000 per cent and homicide rates have soared.

Before Sunday’s vote the government — steward of this mess — had at best a 30 per cent approval rating. Improbably, though, the ruling socialist party won 17 of 23 governorships up for grabs.
“Fraud” cried the opposition.

“Another victory!” Mr Maduro proclaimed. Whatever the case, the vote’s lasting results will be pernicious: greater polarisation; radicalisation; more international isolation; an even weaker economy; and, as the country’s problems fester, a greater risk of civil war.

There is a still a way out of this mess. Venezuela is not Syria or North Korea. It does not suffer from sectarian violence; nor does it have nuclear arms. Rather, the regime in Caracas is more akin to a group of mafia mobsters that has run out of options. The amounts they have looted are breathtaking: as much as $300bn, according to disaffected former ministers. A negotiated transition, perhaps with selective amnesties, is still possible. Indeed, although distasteful, it is the only real and lasting option for the country. The question is how best to get there?

The politics are the hardest part. The regime has dug in. It has cynically used past mediation efforts — led, among others, by the Vatican — to pretend to talk. One problem is that, although the country’s situation is dire, it is not yet catastrophic for Mr Maduro and his cronies. Presently, their incentive to negotiate is low. This needs to change.

To this end, targeted sanctions by Washington have frozen the US assets of corrupt officials. This has pressured regime members without harming the broader populace. Latin America has also begun to do its bit. In August, 12 of the region’s biggest countries, including Brazil and Mexico, said they would not recognise the all-powerful constituent assembly installed by Mr Maduro, nor any of its laws.

Now the EU needs to follow suit. The aim should be a package of sanctions that is conditional on the country holding free, fair and internationally monitored presidential elections in 2018. That is what the constitution stipulates. Disclosure by banks of financial information on public officials who have stashed stolen funds abroad would be a good place to start. For one, it would expose the sham of “Bolivarian socialism” and undercut government support.

The economics of a transition would be only slightly less complex. Encouragingly, the International Monetary Fund has begun to ponder this eventuality, as the Financial Times revealed this week. Venezuela’s external financing needs will probably amount to upwards of $30bn a year. Such a large programme would test the IMF’s funding rules, as in Greece and Ukraine. It would require a write-off of an estimated $140bn of foreign debt. Adding to the complexity will be Russia and China, both major Venezuelan creditors, IMF shareholders and sometime Caracas allies. Their role will be crucial.

Of course, the international community is not going to provide large sums of money unless it is accompanied by a fresh government with broad consensus on required economic policies. That day will come. When it does, Venezuela will be able to borrow from the IMF at 2 per cent, instead of the extortionate 48 per cent lending rate Caracas has used of late. Consumption will rise. Austerity will lift. Venezuelans will no longer be so screwed, and much happier.