Venezuela: Staring into the economic abyss as political crisis escalates
May 8, 2017
The largest protests since 2014 have brought the country to a standstill. The proposal by the government to rewrite the current Constitution has caused the political opposition to rise against what it perceives to be the biggest power grab by the increasingly authoritarian government to date. The government’s decision comes amid large social mobilizations that started in late March when the Supreme Court attempted to invalidate the opposition-controlled National Assembly. The climate of intense political polarization has thrown the country onto a perilous path at a time when the economy is in freefall.
The latest wave of protests are unprecedented due to their intensity and the circumstances in which they are occurring. Demonstrations have been staged daily across the country and discontent has spread to former government strongholds. The opposition considers street demonstrations to be the only viable solution to bring change. Last year, courts blocked a recall referendum and international mediation proved futile to meet protestors’ demands. Despite growing discontent, analysts do not expect a change in government anytime soon. The government holds a strong grip on almost all the state’s institutions, and particularly the military.
The latest government maneuvers, however, spell bad news for the crisis-struck economy as political matters have taken center stage, sidelining economic management. Our panelists already had very low expectations that the government would implement more market-friendly reforms after the latest cabinet reshuffle saw hardliners take the helm of key ministries and institutions. As a result, the economy is set to continue languishing as the crisis unfolds and oil prices fail to rally significantly. Moreover, the government has shown no commitment to reform the complex exchange rate system or remove price controls, suggesting that economic activity will continue deteriorating from its already abysmal state as the crisis unfolds.
Panelists participating in the Venezuela Latin Focus Consensus Forecast have slashed 0.8 percentage points off the country’s GDP outlook for 2017 and now foresee a sharper 5.2% contraction. For 2018, the panel foresees a drop in output of 3.0%.