Source: Adapted from International Monetary Fund data (April 2017)
F1: ECONOMIC SITUATION IN VENEZUELA
2009 2010 2011 2012 2013 2014 2015 2016
Real GDP growth (% change)
02009 2010 2011 2012 2013 2014 2015 2016
Inflation rate (% change)
Venezuela: progressively worse, but hanging on
PRESIDENT MADURO BATTLING TO KEEP PDVSA AND ITS OIL EXPORTS AFLOAT
ADAM SIEMINSKI AND ANDREW J. STANLEY, CSIS, WASHINGTON, DC
THE ECONOMIC situation in Venezuela has been rapidly deteriorating for over three years now, and Venezuela appears to be
in a worse situation than ever before, as President Nicolas Maduro
seems unable to avert social collapse, while battling to keep
Petróleos de Venezuela SA (PDVSA) and its oil exports afloat. It
is reported that inflation hit 800% at the end of 2016 and that the
economy contracted by a staggering 19% on average in 2016.
Shortages in food and basic medicine are now facts of life for
Despite the severity of the crisis and economic hardship,
Maduro’s socialist government has maintained its grip on power.
Maduro has successfully thwarted several political attempts to
remove him from power, and as the military has assumed a greater
role in his cabinet and in the economy, his position appears to
be protected from efforts to forcibly depose him. In fact, several
recent moves by the Maduro government appear to have solidified
his grasp of power.
One such move came at the end of March when Venezuela’s
Supreme Court ruled to assume the constitutionally assigned
powers of the opposition-dominated National Assembly. Following
the outbreak of protests, widespread condemnation from abroad,
and calls for the decision to be revised, the Supreme Court retracted
several provisions of its decision. This served to reverse the ruling
to completely nullify the National Assembly. However, one of the
provisions that remains intact has neutralized the constitutional
power of the assembly to approve PDVSA contracts of “national
public interest” with foreign companies. This move coincided
with PDVSA’s maturing debt obligations, which the cash-strapped
national oil company (NOC) was struggling to meet.
While PDVSA successfully made $2.6 billion of bond repayments
on April 12, a further $3.5 billion is due in October and November.
The market appears to doubt that these payments will be met,
with the probability of default continuing to rise. However, Ven-
ezuela has avoided default in precarious situations before.
The government is now looking to tap new sources of capital
from abroad to meet PDVSA’s maturing debt obligations. The
Supreme Court’s recent move against Congress appears to have
come in response to the National Assembly’s objection to a deal
brokered with Rosneft, which increased Rosneft’s stake in the
Petromonagas crude-processing joint venture to 40%. Two other
deals with the Russian oil major are rumored to be on the books
in 2017, including a relinquishment of 10% of PDVSA’s Petropiar
project in the Orinoco Belt to Rosneft. The government’s move
to partially de-nationalize several of PDVSA’s assets to save the
NOC and the country from default appears to go against the
prevailing government ideology. However, having used up all its
lines of credit, there are few options left.
The National Assembly, which was overhauled by several
opposing parties in December 2015, contends that any deals
brokered without assembly approval will not be recognized. This
marks a turning point for Congress, which until now has remained
fractured with over 12 different parties accounting for the seats
in the House. The unified response by the National Assembly
EDITOR’S NOTE: This article was originally included in the
Center for Strategic & International Studies’ Commentary
series ( cs.is/2nt8Zup). CSIS is a bipartisan, nonprofit organi-
zation that seeks to advance global security and prosperity
by providing strategic insights and policy solutions to deci-
sion-makers. The article is reprinted here with permission.