How should MNCs interpret the results of Venezuela’s gubernatorial elections?

On October 15, Venezuela’s political forces went head to head again paving the way to further escalate the country’s dire economic situation. The National Electoral Council (NEC) declared that President Maduro’s party, the United Socialist Party of Venezuela (PSUV), won 17 out 23 governorships, while the opposition Democratic Unity Roundtable (MUD) won only 5, with Bolívar state still undecided. According to the NEC, these elections were the result of a record number participation of 61.14% of the electorate. This was a clear win for the PSUV and Maduro’s government. For the opposition it was a day of reckoning that will force them to reshuffle their political strategy. Maduro’s government is showing a popular support of only 23.2%, after previous months of social unrest that caused a death toll of 125. It is hard to believe that Maduro’s political allies could have such a robust performance in the midst of growing popular discontent and bleak economic environment. In FSG’s view, the election results will widen Venezuela’s political fracture, putting more pressure on the dreadful economic prospects for the country.

The political landscape in Venezuela now looks more polarizing

Venezuela’s gubernatorial results are another round in a long feud between the opposition and the government. The opposition had been successful when it showed a united front against chavismo. For the opposition, the argument against the government was clear a few months ago: corruption and an authoritarian regime are wrecking the country’s wealth and destroying the well-being of Venezuelans. But when the opposition decided to fairly compete against the government and Constituent Assembly (CA) in the October 15 elections, by registering candidates from 22 political parties and not being certain that the electoral process would be fair, they put themselves in a contradictory position afterwards: not recognizing the results that favored the government but recognizing the results of the elections that favored the opposition. For example, Laidy Gómez (Democratic Action), the governor-elect of the Táchira state, demanded to Maduro to “tone down” his victory claims and “threats” against the opposition. She also claimed she will help those members from the MUD that feel that an “electoral fraud” was made against them. At the same time, she asked the people from Táchira to join her when she takes the oath of office on October 16. A more polarized scenario is around the corner.

Venezuela’s governability crisis will escalate with no end in sight

At the current moment, there is no clear sign for a political settlement between the government and the opposition forces. FSG, however, believes that the upcoming escalation of the political crisis will have an immediate effect on the following points:

  • Dialogue between the opposition and the government that was taking place in the Dominican Republic (DR) will be stalled: This means the opposition will not continue the dialogue with the government in the DR, unless the results of the elections and a new electoral roadmap become part of the agenda.
  • The United States, the European Union, and the Lima Group, are likely to increase diplomatic and financial pressures on Maduro’s government: After the MUD decided to not recognize the results, it is likely that a new round of sanctions and diplomatic pressure from the Trump administration, the European Union, and the Lima Group (the 12 LATAM and Caribbean countries that strongly condemned Maduro’s government on August 9) will further dampen the economic situation of the country.
  • Maduro’s government will protract its hostile takeover of the legislative assembly through the Constituent Assembly (CA) to have an upper hand in future negotiations with the MUD: Since the results of the elections are not going to be recognized by the opposition and the government will present them as a validation of the legitimacy of the CA, both parties will reassert their positions, leaving few margins to maneuver. Consequently, the Maduro government will encourage the Constituent Assembly to block any attempt by the opposition-led legislative body.
  • Maduro’s government will now launch an international diplomatic campaign that in Venezuela there is no “dictatorship” and the opposition is just conspiring to overthrow him: Maduro’s government won a victory before the elections were even held on October 15. By organizing the gubernatorial elections that were overdue since late 2016, Maduro’s government divided the opposition and placed them to compete in difficult electoral conditions. The MUD decided to participate, underestimating Maduro’s government decisive influence in the state apparatus. Maduro’s government already has an argument to present to the international community that there is no dictatorship or authoritarian regime in Venezuela because the elections took place. But that argument is baseless if one considers what happened in Venezuela during the last 5 months, which were characterized by a governance crisis, acute social and economic problems, ever-higher risk to default on foreign debt. 

How to monitor the situation

MNCs should monitor how the Venezuelan governance crisis evolves after the results announced yesterday by doing the following:

  • Tracking Venezuela’s government efforts to meet its foreign debt payments in the short-term since it would likely increase currency volatility: Venezuela’s foreign debt and payment to bondholders is due in October. Maduro’s government and PDVSA must pay US$1.634 billion in October and US$ 1.890 billion in November. It will be challenging, but not impossible, for Venezuela to meet these payments because only US$3 billion of its US$9.855 billion foreign reserves are available in cash. In addition, US sanctions imposed on August 25 forbid the emission of new bonds to repay current debt.
  • Venezuela’s debt could have an impact on the geopolitical triangular relationship between the US, Russia, and Venezuela: At the bilateral level, Venezuela owes Russia US$ 4 billion, due in 2017 and 2018. Russia’s Finance Minister, Anton Siluanov, just recently announced that Russia and Venezuela are working on an agreement to restructure Venezuelan debt by the end of 2017. For Venezuela, Russia’s support is essential from both economic and diplomatic standpoints. For Russia, Venezuela’s financial troubles are already having consequences on its finances. According to Bloomberg, Venezuela did not meet the payment on a 2011 debt restructuring agreed last year, causing an estimated loss of US$940 million to Russia’s budget revenue. With more US sanctions likely on the horizon, Venezuela’s dependency to Russia might increase the Kremlin’s influences on Venezuelan soil and Venezuela’s strategic energy interests in the US (e.g., Citgo, Venezuela’s own energy company).
  • Adapting to a more complicated external environment for businesses in Venezuela: Multinationals operating in Venezuela should work to tighten payment terms with customers, communicate clearly with channel partners to ensure that they are well capitalized, and formulate short-term contingency plans to prepare for severe shocks, including further economic deterioration, devaluation, social unrest, and political instability, which may imperil your current operating model in the country.

FSG will continue to track developments in the lead of post elections results and their impact on the local economy. For more in-depth briefings FSG clients can contact their client services director.


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