President Nicolas Maduro has gained special powers to fight Venezuela’s economic woes. However, things are unlikely to improve under the tense political atmosphere.
On November 19th, Venezuelan President Nicolas Maduro gained special powers that will enable him to rule by decree for 12 months without the need to consult Congress. The special law that gives him these powers – the Enabling Act – was passed in a tight and controversial vote in Venezuela’s National Assembly. Maduro claims it is a necessary step to combat Venezuela’s economic problems, which he attributes to an alleged capitalist attack on the socialist government’s policies.
The problems facing Venezuela are deep and depressing: inflation soaring above 50%, shortages of basic supplies such as toilet paper and crippling power outages. The bolivar, recently devalued by 32% and currently trading at 6.3 bolivars to the US dollar, is now going for up to 10 times the exchange rate on the black market. Many analysts blame the current economic hardships on the 14 years of ‘21st Century Socialism’ pushed by Hugo Chavez, Maduro’s infamous predecessor and mentor, who died of cancer in March.
To solve Venezuela’s economic problems, thorough structural reform is required to address regulatory imbalances of the capital account and government splurging. Venezuela also needs to attract more foreign investment and should diversify its economy away from a heavy dependence on oil, which accounts for 94% of exports.
But far from being the champion reformist, Maduro has so far chosen to use his new powers to further spread his predecessor’s socialist ideals. One of his recent actions was a direct attack on Venezuela’s retailers, whom he accused of overpricing their goods by up to 1000%. With the help of military personnel, Maduro ordered a cut in prices for goods including electronics, which attracted a stampede of consumers seeking to benefit from the discounts. Maduro is also calling for caps on businesses’ profit margins, increased control over foreign currency and potentially even a further devaluation of the bolivar.
While applauded by Venezuela’s lower classes, the price controls risk closing down many businesses and further scaring away foreign investment. However, that support is something that Maduro needs desperately for his party to do well in the mayoral elections on December 8th. Lacking Chavez’s charisma, and faced with persistent economic problems, Maduro needs flashy solutions to outperform the strong opposition led by Henrique Capriles.
Capriles, who lost the presidential election in April by a very slim margin, has maintained an outspoken and critical offensive directed at the current leader. He blames the economy on Maduro’s corruption and claims that the Enabling Act is merely a front for Maduro to gain control over the opposition. Indeed, only a few days after gaining his new powers, Maduro arrested one of Capriles’ assistants, claiming he (and others) had plans to initiate violent uprisings meant to curb support for the government.
Undeniably, Maduro’s actions do little to alleviate economic worries or ease political tensions, and it is hard to imagine things getting better anytime soon. Attacking the private sector and harassing the opposition are obvious attempts by Maduro to consolidate his power and begin creating a legacy of his own. Chavez left a spot that is difficult to fill, and Maduro may be further tempted to use politically pleasing yet economically disastrous measures to win over the people.
With a strong opposition and slower revenue from oil exports, it is natural for Maduro to feel threatened. But perhaps with his newfound powers and any reasonable success in December’s elections, Maduro will feel comfortable enough to consider more sound economic decisions, which would help attract support from other demographics. Considering his recent unruly behavior, however, there is little reason to expect this. We will likely have to watch the economy continue to disintegrate, while hoping the political tension does not turn violent.
