Barring more delays, Venezuelan President Nicolás Maduro is expected to unveil his plan late Wednesday for rescuing the flailing economy, which features skyrocketing inflation, a recession and shortages that have sparked massive shopping lines.
The announcement comes as tensions are rising in the socialist nation, which has been hit by falling crude prices even as it sits on the world’s largest reserves.
Analysts say the president needs to slash the budget and modify — or even scrap — a byzantine three-tiered exchange rate system that has been gutted by corruption and caused painful distortions in the economy.
But it’s also clear that Maduro is reluctant to prescribe bitter medicine at a time when his approval ratings are in the slumps and the ruling PSUV party is headed toward congressional elections later this year.
Opposition parties are revving up for a fight, calling on followers to greet Maduro’s speech to the National Assembly with the clanging of pots followed by a weekend march.
Felipe Mujica, the head of the dissident MAS socialist party, said he doubts that Maduro has the mettle to announce any meaningful reforms. For months the president has hinted that he may raise gasoline prices (the world’s cheapest) or fix the exchange rate system, which would imply an unpopular devaluation, only to back down.
Instead, Maduro has blamed the woes on “economic warfare” waged by the United States and his political foes.
“He needs to tell us what the country’s illness is, so we have a starting point for finding a remedy,” Mujica said. “But I think any solution has to start with dialogue and integrating the private sector into the conversation.”
The administration has been caught flatfooted by falling crude prices, which hit $39 a barrel this week versus $98 in 2013. The crash sent Maduro on a two-week trip to China, Iran, Saudi Arabia, Qatar, Algeria, Russia and Portugal to raise funds and try to form a common front against falling prices.
Oil producers largely ignored Maduro’s pleas to slash output. And despite claims that he came home with more than $20 billion in fresh financing from China and a line of credit from Qatar, details have been sparse.
Moody’s Investor Services, which recently downgraded Venezuela’s debt, estimates the country has about a $40 billion external funding gap that it needs to cover. Even if the entire $20 billion China commitment was in cash and up front — highly unlikely — it only covers half the funding hole, said Moody’s Venezuela analyst Jaime Reusche.
The government and state-run PDVSA oil company have $10.6 billion in principal and interest obligations this year alone, he said.
That may force the country to eat through its dwindling reserves, continue slashing imports, cut its crowd-pleasing social programs or face a default.
“They seem to be stuck between a rock and a hard place,” he said. And if Maduro steers clear of forceful measures “it will only prolong the economic malaise.”
Falling crude prices “have removed the veil from the entire economic model,” he said, estimating that Venezuela’s oil basket needs to be over $85 a barrel to be sustainable.
Maduro seems reluctant to be the bearer of bad news. He’s delayed announcing reforms for weeks and claims his trip abroad was “a success for our plans for an economic rebirth in Venezuela.”
Mujica still isn’t convinced a cogent plan will be announced Wednesday.
Despite claims to the contrary, the administration mismanaged money during the oil boom of recent years, he said.
“Now that we’re facing lean years, we realize that none of that money was saved or invested,” he added. “Maduro is up to his neck in water.”