Referendum in Venezuela: Light at the end of the tunnel?

In early June, the Venezuelan national electoral council accepted the petition on Maduro recall referendum handed over by the opposition on 2 May. Nearly 1.8 million signatures were collected, six times more than was needed to trigger the process. The next step will be to validate signatures between June 20th-24th.

A minimum of 200 000 voters must validate their signatures in person before moving to the second step of the recall process that involves a new signature-gathering phase, which requires 20% of the electorate (about 4 million votes) to validate their signatures. Then a referendum date can be set. However, given the extent of the country’s economic challenges and widening social divisions, an orderly transition could be hard to achieve.

Since the opposition won the legislative elections in December 2015, it plans to request for a recall referendum to oust the president Nicolas Maduro. Venezuela is facing an unprecedented crisis with a sharply deteriorating public health sector, scarcity of food and basic goods, energy shortages and widespread crime. Added to this is an intractable governance crisis where the opposition-controlled assembly seems unable to enact any changes as it confronts judicial and electoral systems dominated by the executive.

Timing is essential for the opposition to oust president Nicolas Maduro. According to the Constitution, if the referendum is held before the fourth year of the President term, by 10 January 2017 and President Maduro loses, a new election will be called. If it is held after that date and the vote goes against him, his vice-president takes over and remains in power until the end of the presidential term in January 2019. This latter scenario would be unlikely to resolve either the political or the economic crisis.

Risks

Despite the first victory of the opposition, the referendum process could be long and may not be achieved in time especially because the electoral council, which is viewed as being close to the executive, could delay the process even more, considering that officials have worked only two days a week since April 2016.

The administration’s resistance to the constitutionally enshrined recall referendum could lead to social unrest. Public dissatisfaction with the populist government is deepening amid the growing economic crisis according to the independent local press:

Seven out of ten people want the departure of the president. Even if president Maduro leaves and his government is replaced, the economic situation would not recover easily. First of all, the opposition does not seem to have an alternative economic strategy to tackle the country’s problems. Their political programme is concentrated on social and political components such as amnesty for political prisoners, a seed law against American companies, a working law reform and the request for a recall referendum.

Secondly, without a rebound in oil prices, the economic situation is expected to remain extremely precarious. On this point, Coface does not expect a significant oil price rebound (an average of $45 USD per barrel for 2016 and $52 for 2017) while the equilibrium price for the sustainability of Venezuelan public finance is estimated at $120 USD per barrel. Persistent weak oil prices will continue to seriously limit the government's room for manoeuvre given that oil accounts for 96% of Venezuelan export earnings and more than half of budget revenues.

Thirdly, two decades of irresponsible policies, which led the economy to collapse, then following the global oil slump together with the continuously deteriorating oil extraction capabilities of Venezuela’s national oil company (PDVSA), cannot be resolve in the short term.

An overthrow of the current government should at least facilitate international financing from multilateral agencies, bilateral loans and assistance from other organisations in order to resume imports (notably food and medicines), easing the humanitarian crisis that is currently hitting Venezuela. A new government could open up new financial alternatives and lay the groundwork for a pro-market policy correction and for debt restructuring.