Venezuela Politics January 2016


Venezuela: Standoff between opposition-controlled Legislature and government deepens power struggle

January 21, 2016

The peaceful discourse employed by President Nicolás Maduro shortly after the 6 December legislative elections, which surprised analysts and the opposition alike, didn’t last long. Prior to the new opposition-dominated National Assembly being sworn in on January 5, President Maduro reverted to his defiant tone and passed numerous bills to ensure that the Bolivarian Revolution would continue uninterrupted by curbing the power the democratically-elected National Assembly possessed. With 112 seats obtained in the 167-seat in the unicameral Assembly, the political opposition represented by the Democratic Unity Roundtable (Mesa de la Unidad Democrática, MUD) secured a two-thirds majority, thus enabling them to pass reforms. The opposition could dismantle the political and economic project that has been headed uninterruptedly since 1999 by late President Hugo Chavez and his United Socialist Party of Venezuela (Partido Socialista Unido de Venezuela, PSUV). However, prospects for profound economic reform in Venezuela are bleak as President Maduro managed to tighten his grip on power by reshuffling his cabinet, approving a 60-day state of economic emergency that allows him to rule by decree and imposing severe obstacles for the National Assembly to pass meaningful reforms.

After the electoral blow suffered in December, Maduro reshuffled his Cabinet to tackle the economic crisis the country is facing, which was the biggest source of dissatisfaction among voters in last month’s election. Maduro split the Economy, Finance and Banking Ministry into two different ministries and created three additional ministries to deal with the chronic shortage of food products in the country. He appointed Luis Salas, a former Sociology professor, as the new VP for the Economy. Salas is considered to be a hard-line Chavista who firmly believes that the chronic food shortage is a manifestation of the so-called “economic war” waged by the Venezuelan capitalist class. Considered to be more ideological than pragmatic, Salas supports price controls and believes that inflation is a tool of the capitalist class used to seek excessive profit margins from consumers and to pressure the government. He also espouses that financing the deficit through increasing the money supply does not cause inflation.

The appointment of Salas reflects the determination of the Executive to continue with its economic plan despite the chronic shortage of basic goods and the electoral blow it received. However, Maduro appointed more pragmatic leaders to the Minister of Industry and Commerce as well as Minister of Foreign Trade and International Investment who advocate for a simplification of the three-tier Venezuelan exchange rate system and the necessity to jumpstart the Venezuelan economy. On that topic, José Asdrubal Oliveros economist from Ecoanalítica commented:

“The new economic Cabinet presents itself as a heterogeneous team. It will be led by a radical sociologists and his ministers represents the wing of Chavismo that understands the crisis, accepts it and proposes solutions that can have an impact on the economy. In other words, we have a team whose main problem would be to agree between them. This lead us to think that the situation will not improve in the short-term and that any policy implemented will not count with the restructuration, depth and amplitude that the situation deserves. On the contrary, isolated measures will be approved so the Executive can have some breathing room for the next few months. [...] Against the backdrop of the changes made by President Maduro it is worth noting the possibility of entering in a process of institutional crisis where the bellicosity of powers will be constant with a National Assembly in the hands of the opposition and the rest of the powers in the hands of the Government. Likewise, with the diversity of thoughts and profiles inside the new economic cabinet, the possibility of an internal crisis in the decision-making process is very likely. These two factors prefigure a scenario where the political will trump over the economical and leaves on the side-line the reading of the electoral results: the necessity of a change in the economic model.”

Maduro removed the National Assembly’s ability to influence the Central Bank, by reforming a Law that allowed the Assembly to nominate and remove Central Bank directors. The Opposition promised during the campaign to grant the Bank more autonomy, transparency, and resume publishing data on economic growth, inflation, and scarcity. However, prior to 5 January, Maduro passed a bill that enables him to designate the president of the Central Bank. In addition, the Bank can now finance the government without legislative approval and allows the Bank to not publish information by classifying it as secret or confidential. The new law effectively removes the Central Bank from the oversight of the Legislative Branch and gets rid of the little autonomy it already had. It also signalled that data on economic indicators, which haven´t been published in over than a year, will not be released in the foreseeable future. Even though the National Assembly can revoke the bill passed by the President, it is very unlikely to strike down the bill as the Judicial Branch can strike any law as unconstitutional.

President Maduro strengthened the judicial branch by handpicking 13 new pro-government judges to counter the Legislative Branch. Described by the opposition as a “judicial coup d’état”, the Supreme Justice Tribunal (Tribunal Supremo de Justicia, TSJ) is the best weapon at the government’s disposal to confront the opposition and block any reform attempt. An Assembly controlled by the opposition and a Supreme Court controlled by the ruling-party paves the way for a standoff and a potential institutional crisis in Venezuela with important ramifications for governance and the country’s stability.

A preview of how both branches of the government will interact was seen in early January. On 3 January, the TSJ suspended all four deputies of the Amazonas state, which included three MUD politicians, amid allegations of irregularities and electoral fraud. The MUD, however, disobeyed the ruling and swore in the deputies on 6 January. Shortly after, the TSJ ruled that the National Assembly was in contempt and, if they failed to revoke the four deputies, the TSJ would invoke Article 138 of the Constitution which would leave the National Assembly void of any political power and transfer the tasks of the Assembly to the newly-created Communal Parliament by Maduro. The Communal Parliament would have to assume the responsibilities of the National Assembly. To avoid this situation, the MUD decided to abide by the ruling and, as a result, the opposition has lost their two-thirds super majority needed to pass reforms until the investigations are finalized.

Lastly, on 15 January, President Maduro passed by decree a state of economic emergency that allows him to rule on economic issues by decree. The measure was announced just hours before the first State of the Nation address in 17 years of uninterrupted PSUV rule. The decree aims to tackle the current economic crisis more effectively by enabling the President sweeping power to modify the government budget, reduce fiscal evasion, reduce red tape on imported goods, and require public and private enterprises to increase their production levels, among other measures. The state of emergency has to be approved by the National Assembly and the Supreme Court of Justice in a period of eight days.

Notwithstanding the looming institutional dispute, FocusEconomics panelists are pessimistic about the country’s outlook amid ballooning inflation, tumbling oil prices, and a shrinking economy. The economic analysts we surveyed this month foresee GDP falling 4.8% in 2016, which is down 0.3 percentage points from last month’s forecast. For 2017, our panel of analysts expects the economy to rise 0.5%.

Author: Jean-Philippe Pourcelot, Economist

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