(Analysis) Venezuela will hold presidential elections on July 28. The new administration’s policies will address the ongoing crisis.
They will also manage substantial oil revenues and determine the future of U.S. economic sanctions.
An opposition victory could boost confidence in Venezuela. This will lead to increased investment and consumption due to better future expectations.
Germán Ríos from IE University predicts a rise in asset values, especially real estate. Financial assets like local stock market shares and Venezuelan debt securities abroad will also increase.
The International Monetary Fund (IMF) projects 4% growth for Venezuela’s economy this year. This surpasses the Latin American average of 2%.
However, these projections are highly uncertain. They stem from a very low base.
Monetary policy will ease the economic transition. The focus will be on an explicit inflation target and exchange rate flexibility.
No restrictions on transnational capital movements will be in place, except those aligned with macroprudential policies for financial stability. Venezuela needs to restore public confidence in Bolívar.
Inflation and Economic Outlook
Inflation remains a significant issue. It is estimated at 78% annually in May by the Venezuelan Finance Observatory (OVF) and 59.2% by the Central Bank (BCV).
Additionally, there is a pronounced currency depreciation. Ríos notes that an immediate positive effect from election expectations is likely.
However, GDP growth, unemployment reduction, and inflation control would take a few months to improve.
Roberto Pérez from the University of Rosario highlights that economic prospects remain complex.
Yet he anticipates significant improvement in growth expectations with an opposition victory. This assumes political stability and legal security for investments.
The potential lifting of economic sanctions on Nicolás Maduro’s administration could boost Venezuela’s foreign trade.
This would reopen its economy to leverage its vast oil reserves. Pérez emphasizes the lengthy negotiation process the new authorities would face internationally.
They need to demonstrate real policy changes favoring democratic reforms and human rights protection.
Suspension of sanctions following an opposition victory should attract foreign investment, especially in the energy sector.
This will kick-start sustained growth and capital accumulation. This mirrors Venezuela’s growth trajectory from 1920 to 1975.
Venezuela’s debt burden stands at approximately $154 billion. This includes global bonds, loans from multilateral organizations, and pending legal judgments.
Bondholders, with $67 billion in commitments, and China are significant creditors.
To overcome the current crisis, academics propose establishing a consistent macroeconomic framework.
Reducing the fiscal deficit, renegotiating external debt, cutting inorganic money issuance, and gradually eliminating exchange controls are key.
They stress the need for pragmatic public policies. The new economic plan should also ease controls and regulations on economic activity.
Key Strategies and Challenges
The primary mission of the new administration will be to organize the public finances. Adopting mechanisms like the fiscal rule ensures medium- and long-term macroeconomic stability.
Recovering public assets and privatizing industries nationalized by bolivarian governments will be crucial.
Pérez advocates for a sovereign wealth fund to transparently manage revenues from non-renewable natural resources.
Attracting foreign investment in hydrocarbons and reducing PDVSA’s role will be vital. Encouraging private sector participation will go along with a stable and transparent tax system.
Maintaining public order, law enforcement, and border defense are other significant challenges. Ensuring essential services like electricity and water supply is also important.
International financial support will be necessary in a scenario without financial sanctions on Venezuelan institutions.
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