January 23, 2019 / 9:40 PM / 6 months ago

Breakingviews - Venezuela’s Maduro caught in pincer movement

Opposition supporters take part in a rally against Venezuelan President Nicolas Maduro's government and to commemorate the 61st anniversary of the end of the dictatorship of Marcos Perez Jimenez in Caracas, Venezuela January 23, 2019. REUTERS/Carlos Garcia Rawlins

NEW YORK (Reuters Breakingviews) - Venezuela’s inept socialist leader Nicolás Maduro is caught in a pincer movement largely of his own making. Street protesters are demanding his ouster and opposition leader Juan Guaidó has declared himself interim president. The self-inflicted wound of cratering oil output, though, is what will get him in the end.

Maduro began a new six-year term earlier this month following an election last year that was boycotted by the opposition and condemned as deeply flawed by the United States, the European Union and many Latin American neighbors. Since Maduro took over from his late mentor Hugo Chavez in 2013, GDP has halved, malnutrition has soared and millions of Venezuelans have fled the country. Inflation could hit 10 million percent this year, reckons the International Monetary Fund. Most of the blame for the economic debacle lies with the statist incompetence of Maduro’s government.

A key part of the horror show has been state oil company PDVSA. After years of being treated as a tool of social policy, starved of basic investment in maintenance and managed by ideological loyalists rather than oil professionals, the source of virtually all Venezuela’s foreign-exchange earnings is in deep trouble. A Reuters survey of crude production by members of the Organization of the Petroleum Exporting Countries put Venezuela’s output at 1.2 million barrels per day in December, down from 1.8 million a year earlier.

As dollar inflows fall, Maduro will find it harder to route funds to key backers, especially the military and security forces, which put down a small attack on a Caracas military outpost by anti-Maduro National Guard members on Monday. Without their support, he could be gone very quickly. Guaidó has called for free elections if that happens.

A standoff may ensue. But the financial pressures will only get worse. Venezuelan bonds rallied on Wednesday as the United States and other regional governments backed Guaidó.

Once Maduro goes, his successor will have to reckon with rebuilding the economy. That could cost up to $20 billion a year, Venezuelan economist Francisco Rodriguez estimated last year. As tough as that sounds, it’ll be easier if Maduro’s disastrous energy policies follow him out the door.

Breakingviews

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