Event

In the legislative elections held on 6 December, the opposition coalition Democratic Unity Roundtable (Mesa de la Unidad Democrática, MUD) secured a convincing win over the ruling United Socialist Party of Venezuela (Partido Socialista Unido de Venezuela, PSUV) of President Nicolas Maduro. With PSUV support at a historic low due to insecurity and economic collapse (plunging oil prices and mismanagement have made that GDP contracted by 10% in 2015 and is expected to fall by 6% in 2016, while inflation reaches around 200%), the MUD significantly secured a two-third majority in the National Assembly. That should in theory allow the MUD to push for meaningful change, among other things by reforming the constitution, approving or repealing legislation, appointing or removing Supreme Court judges and other key officials (thus watering down PSUV control of institutions), and passing votes of no confidence against government ministers.

Impact on country risk

Despite violent incidents in the run-up to the election, the aftermath has been relatively peaceful. No major outbreak of violence (such as the one seen in early 2014) has been observed and opposition legislators were sworn in as scheduled on 5 January. However, other signs have been less encouraging. In particular, the PSUV has not unequivocally accepted defeat. While President Maduro has acknowledged that Venezuela is in “a new phase”, his focus since the election has been to entrench existing policies and curtail the powers of the National Assembly. To this effect, the PSUV has challenged the election of some opposition lawmakers (thus reducing the MUD majority) and even instated a PSUV-dominated ‘National Communal Parliament’ to “function in parallel to the National Assembly”. As for the MUD, a prime concern will be to deal with internal divisions. Indeed, the broad opposition coalition includes pro-market hardliners as well as pragmatic centrists. Whether or not it will succeed in transforming its electoral success into real change will largely depend on its coherence and its ability to strike a conciliatory tone towards the still powerful PSUV. In any case, because neither a significant improvement of the business climate nor a reduction of political risks is in the cards, Credendo Group will not resume cover on Venezuela in the near future.

Analyst: Sebastian Vanderlinden, s.vanderlinden@credendogroup.com