Venezuelean elections

News - 5/18/2018

The coming presidential election in Venezuela won’t be recognized by the international community given the context of major leading opposition candidates being banned and an electoral system heavily distorted in favor of the regime. Analysis by Jean-Jacques Durand, fund manager, Edmond de Rothschild Asset Management

The main “opposition” candidate willing to participate, Henri Falcon is an ex-military officer and ex-chavista. He only managed to rally a small part of the opposition, the main coalition having decided to boycott the elections. As a result the participation rate is expected to be very low compared to previous occasions. However one important fact is that about half of the population still has a positive view of the late Hugo Chavez and the chavismo movement as a political ideology.
Given this context, Henri Falcon’s advance in the polls might not be sufficient to prevent a victory by Nicolas Maduro which is now seen as the expected outcome.

Hence we see two major ways forward:

  1. Henri Falcon manages to win the election after negotiating with key chavistas in and outside of the military who have been sidelined or persecuted by Nicolas Maduro over the last few months. They could exploit the remaining popular support for the image of Hugo Chavez and isolate Maduro who has distanced himself from his legacy. Through a transition government, this could be their best option to safeguard their person and assets and avoid another round of international sanctions targeting them if the current regime was to survive and get more isolated (many top Venezuelan officials have family and assets abroad).
  2. Nicolas Maduro and his close circle manage to stay in power and “steal” the election after having concentrated all powers. In this case the key to future evolutions will be the oil production decline. The pace of the decline has been accelerating among a lack of investment and a serious brain drain at all echelons of the national oil company PDVSA. This drain has accelerated after the nomination of military leaders with no oil experience at the helm in order to buy support for Nicolas Maduro. Adding to that, some creditors (although no bondholders yet) have started to seize some of PDVSA’s offshore assets putting even more pressure on the production and export capacity. With no more resources to buy support and pay the military (wide scale resignations and desertions have already been reported) coupled with more international sanctions, the days of the regime would be counted.

In a nutshell, we are still convinced that there is a very high probability of major economic and political changes in the not so distant future.