Venezuela elections

The government of President Nicolas Maduro has called for early elections in an attempt to secure re-election, leveraging its control over the electoral authority and the armed forces. Sidelining the democratic opposition is likely to lead to more severe US sanctions that will undermine Venezuela's business environment and further complicate the government's ability to restructure its debt.

• The pro-government National Constituent Assembly (ANC) has announced that presidential elections will take place before 30 April 2018. Presidential elections had previously been expected between October and December 2018
• The government controls the National Electoral Authority, and the announcement of early presidential elections by the ANC will undermine ongoing negotiations over minimum electoral guarantees. Failure to meet the electoral conditions demanded by the opposition is likely to further undermine the country's business environment and jeopardise the government's ability to restructure its debt
• The early presidential elections are unlikely to lead to regime change and will probably secure Maduro's re-election for a further six-year term, which amid food shortages will increase protests and riots. This would erode the president's authority and lead to more severe US sanctions, probably affecting the oil sector

On 23 January 2018, Diosdado Cabello, a member of the pro-government national constituent assembly (ANC) and deputy head of the ruling United Socialist Party of Venezuela (Partido Socialista Unido de Venezuela: PSUV), announced that presidential elections would be held before 30 April; incumbent president Nicolas Maduro subsequently confirmed that he would run as the PSUV's candidate. The announcement from the ANC – which is not recognised internationally – comes during ongoing talks in the Dominican Republic between the opposition Democratic Unity Roundtable (Mesa de la Unidad Democratica: MUD) coalition and the Venezuelan government. Presidential elections had been expected to take place in the last quarter of 2018.

The MUD-government talks have principally focused on securing electoral guarantees for the presidential elections, following three electoral processes in 2016 – elections for membership of the ANC on 30 July, gubernatorial elections on 15 October, and municipal elections on 10 December – during which the MUD and the international community reported serious irregularities.

The opposition's main demands are the presence of international observers for elections and a renewal of the National Electoral Council (CNE)'s membership. Other topics of discussion in the Dominican Republic included opening a humanitarian channel to address ongoing shortages of food and basic goods, the release of political prisoners, and recognition for the opposition-controlled legislature – the National Assembly – which has been sidelined by the ANC. (The ANC's original objective was to enact a new constitution.)

Luis Rondón, the sole opposition member of the CNE's board, said on 23 January that holding early elections would fail to provide the necessary guarantees of transparency, and that more time was needed. Mexico – which together with Chile has served as a mediator during the dialogue in the Dominican Republic – yesterday withdrew its delegation, arguing that holding early elections would undermine the ongoing negotiations; Chile warned that it was evaluating its participation. Luis Almagro, the secretary-general of the Organization of American States (OAS), has branded the Venezuelan government's call for early elections a "farce", while the United States has also criticised Maduro's bid for re-election.

Impact on business and economic environment

The scheduling of early presidential elections without meeting the opposition's electoral conditions is likely to further undermine the country's business environment, and will jeopardise the government's ability to undertake a debt restructuring process. After missing debt payments in 2017, Venezuela is currently in selective default; however, restructuring options are restricted by US sanctions, which prevent the government from issuing new debt through the US financial system and forbid US citizens and companies from engaging in talks with a number of key members of Venezuela's economic team that have been blacklisted by the United States.

However, the US Department of the Treasury had granted considerable leverage to the Venezuelan political opposition by stating that the US government "would consider using licensing authority to allow US persons to deal in new debt with the democratically elected Venezuelan National Assembly"; the opposition had planned to wield this advantage during the negotiations. The parties' failure to reach an agreement in the Dominican Republic therefore makes it increasingly unlikely that Washington will allow the Venezuelan government to restructure debt through the US financial system.

According to local newspaper El Universal, the Venezuelan government must honour debt-servicing commitments of about USD1.2 billion between January–March 2018, and USD5.8 billion in the second half of 2018. The unavailability of foreign currency in the country (USD9 billion as of 22 January 2018) – together with declining oil production and the lack of expectation for any shift in the country's economic policy (policy actions announced to date have concentrated on increased government intervention, auditing of firms, and expropriation threats) – will increase risks for short-term contractual commitments. Non-payment is already a serious concern for all companies that operate in Venezuela, and the government's ability to pay on time will probably further deteriorate: for instance, Halliburton reported on 22 January that it had received a USD385-million charge in the fourth quarter of 2017 for its Venezuela operations, and during the preceding week Schlumberger reported a USD938-million write-down on the company's assets and receivables.

Outlook and implications

The government aims to secure re-election by exploiting a divided opposition and the control that it exercises over the CNE and the armed forces. If the opposition opts to participate, it risks legitimising a process that has already been questioned by the international community. However, if the opposition chooses not to contest the elections, Maduro will be enabled to straightforwardly extend his mandate for a new six-year presidential term – which would provide sufficient time for the ANC to move towards a one-party system like that of Cuba, and to undermine democratic checks and balances.

Divisions within the MUD coalition are therefore likely, with some parties opting to take part in the elections and others opting to defect. Former governor of Lara state Henry Falcon's Progressive Advance (Avanzada Progresista: AP) party, for example, is highly likely to announce his candidacy imminently; former head of the National Assembly Henry Ramos Allup from the Democratic Action (Accion Democratica: AD) party is also likely to run. The two most prominent candidates from the MUD that could challenge Maduro – two-time opposition presidential candidate Henrique Capriles from First Justice (Primero Justicia: PJ) and Leopoldo Lopez from Popular Will (Voluntad Popular: VP) – are respectively barred from running for office and under house arrest. The MUD is also likely to decide in the coming days whether to hold opposition primaries or to decide on a presidential candidate by consensus, which could include proposing an outsider candidate from civil society or business who is not a member of any party.

The government's bid for re-election in a non-credible and non-transparent presidential election, together with efforts to sideline the democratic opposition in the country and strong repression of street protests, is likely to prompt more severe US sanctions. These would most probably affect the oil sector, potentially even including a ban on Venezuelan oil imports to the United States, on US exports of diluent to Venezuela, and of national oil company PDVSA conducting transactions in US dollars.

Two key risk indicators include statements from the international community and the MUD over the legitimacy and validity of scheduling early elections as an indicator of increasing government instability and the erosion of Maduro's authority; and second, statements from the MUD parties against participation in the elections as an indicator of the coalition moving towards a hardline stance, including protests and riots, with the intention of promoting regime change rather than participating in elections.