Editor's Note: Michael Penfold is Associate Professor at the Institute for Higher Administrative Studies in Caracas and co-author of Dragon in the Tropics: Hugo Chavez and the Political Economy of Revolution in Venezuela.
By Michael Penfold, Foreign Affairs
In October, Venezuelans will head to the polls for the fourth presidential vote since Hugo Chávez took power in 1999. With the announcement earlier this week by Leopoldo Lopez that he is ending his candidacy and throwing his support to Henrique Capriles Radonski, the young and charismatic governor whom many expect to be Chávez's main contender, the opposition is gradually consolidating its power. It is slowly becoming a more serious challenge to the regime in Caracas, which remains electorally competitive itself.
The stakes are higher than at any point in the last decade, for both the government and the opposition. A Chávez defeat would signal the end of a leftist revolution that has radically transformed Venezuela and, some argue, Latin America in the twenty-first century. A Chávez victory, however, would inflict a fatal blow to a renewed opposition that has struggled, and now seems to be succeeding, to gain some traction in a socially polarized country.
To be sure, Chávez will not give up easily. He has framed the election as a confrontation that leaves no room for political negotiation. Although the president enjoys robust popular support, he faces three obstacles besides Capriles Radonski: dysfunction in the economy, a weak administration that is unable to cope with high crime rates, and his alleged battle with cancer.
For now, high oil prices serve as an ongoing life raft for Chávez, and a massive expansion of public expenditures has spurred growth in domestic consumption. Meanwhile, Caracas has doubled down on its control of the economy, tightening regulations, exacting price controls, and expropriating businesses. Previously, Chávez used such controls as finely tuned instruments for preempting the politically charged private sector. But now he has taken direct control of major national and foreign businesses to advance his agenda.
In the past few years, Chávez targeted Sidor, the giant steelworks company owned by Techint, a huge Italian and Argentinian steel conglomerate; EDC, a local subsidiary of the Virginia-based AES Corporation and the major electric company for metropolitan Caracas; Casino, a French retailer; CANTV, the national telecommunications company controlled by Verizon; and large foreign oil companies such as Conoco and Exxon Mobil. Beyond formal protests from business organizations and international arbitrators, however, the government's seizure of these companies has been met with a shrug from Venezuelans because the oil boom has continued to finance high private consumption.
Still, Caracas' finances are unsustainable. External debt has increased 160 percent in the last five years. Most of the outlay was to pay for a growing public sector and large social programs. As it stands, the state-owned petroleum company PDVSA and the state-owned financial institutions BANDES and FONDEN issue most of the debt. But they cannot do so forever, and, in the medium term, their activities are giving them outsized economic and political power. Meanwhile, China has handed Venezuela a $30 billion line of credit, which is guaranteed by Venezuelan promises of discounted oil in the future - a workable fix for now but one that stands to benefit Beijing more than Caracas in the long term.
As Chávez continues to spend, Venezuela's inflation remains the highest in Latin America. Chávez's social policies, then, are counterproductive: higher prices, due to inflation, diminish the impact of such programs as the misiones, which directly transfer resources to low-income groups in urban and rural areas to help alleviate poverty. With money worth less and less, these handouts are may no longer be enough to appease the poor. In addition, clientelism, corruption, and weak administration have eroded their trust in the government further.
Withering rule of law is taking its toll on Venezuelan society as well. Judges lack autonomy - they run the risk of being jailed for making decisions that are inconsistent with Chavismo's revolutionary aims. In a notable case from 2009, a Caracas judge, María Lourdes Afiuni Mora, was arrested on charges of corruption after she ordered the conditional release on bail of a former crony banker accused of bribery. The case gained the attention of international human rights groups and left-wing intellectuals, including Noam Chomsky, who appealed to Chávez personally to free Afiuni. She was released from prison in 2011 but remains under house arrest. Narcotrafficking-related violence is also up. The country's per capita murder rate is one of the top five in the world. Violent crimes rarely come to court and a sense of impunity pervades the country; accordingly, quality of life has suffered across every income sector.
All this leaves Venezuelans with a mixed view of their president. Chávez's approval rating remains high, at around 55 percent, but that is far below its historic peak. His commitment to the discourse of social inclusion and reducing poverty has certainly won him a base of loyal support, especially among the poor. Still, he will not be able to coast on that support to an easy victory. Polls continue to show that Venezuelans are deeply divided over him and his statist project.
And the formerly impotent opposition has made several advances in the past few years. In the last legislative elections, held in 2010, for example, the plethora of opposition parties banded together under the Unified Democratic Platform (MUD). By doing so, they managed to win the popular vote by a slim margin. (Sudden changes in the electoral system - engineered by the Chávez-controlled National Assembly - meant that they were unable to transform the votes into a proportional number of seats.) But their victory signaled a new political force nonetheless. Anti-Chávez factions currently hold the governorship of the most populous urban states, which in turn hold the largest share of the country's votes.
Capriles Radonski and the opposition today are building on what has been a painful learning process. After Chávez first took power, opposition parties were generally unable to win popular backing because voters considered them to be little more than throwbacks to Venezuela's failed past. As in many South American countries, decades of corruption and malfeasance discredited traditional parties, and simply put, after so much graft, mismanagement, and scandal, the people were fed up. So the early 2000s became a kind of lost political decade in Venezuela. In 2002, business groups, labor unions, NGOs, and traditional parties attempted an unsuccessful coup against Chávez. In 2003, these same groups held a relatively impotent oil strike. Then, in 2005, all anti-Chávez parties boycotted legislative elections, which battered their international credibility and image still further.
By 2006, an array of parties decided to rebuild themselves. First, they came together under the leadership of the emerging First Justice and A New Time Movement (UNT). Adding the support of some withering traditional parties, including Democratic Action, the opposition finally created MUD in 2010. In preparation for this year's election, MUD even agreed to hold a primary that included four televised debates. With Lopez now out, Capriles Radonski, from First Justice, is expected to win the primary against Pablo Pérez (UNT), take charge of MUD, and lead a nine-month crusade against Chávez.
If he does win the primary, Capriles Radonski's most valuable quality is that no one can accuse him of belonging to Venezuela's political past. At 39, he is younger than Chávez. A lawyer by training, he built his political career within new regional parties. He has a track record of supporting social programs that are widely popular among their constituencies. Moreover, he has avoided explicitly criticizing Chávez's ideological agenda. He understands that competing directly against Chávez's popular social agenda is an unwinnable fight. So instead, he relies on credibly delivering political reconciliation, fighting crime, and promoting a more effective and less politicized perspective of social programs.
His strategy has already paid off in urban areas - no surprise, given that he was the governor of one of the largest and most urbanized Venezuelan states. But as he stands up to Chávez in the coming months, he faces a host of challenges. First, for all the support he enjoys in the cities, the opposition is almost nonexistent in rural states. If Chávez is able to win back some support in large cities, by doubling down on social programs there, for example, and if the opposition fails to penetrate rural states, MUD's electoral effort will be doomed.
Chávez seems ready to meet all of his own challenges with his oil-fueled spending machine. During the 2004 recall referendum, Chávez relied on vintage populism - and it worked. It is no shocker, then, that the central government's public expenditures expanded more than 15 percent in real terms last year. Beyond handouts, Chávez has promised to overhaul the country's labor laws to increase social benefits, particularly pension provisions. These efforts will cost billions of dollars and mostly benefit public-sector employees, a group that is growing at a faster pace than private-sector employees. From a fiscal perspective, these policies are onerous, but in the short term they could show a significant electoral return.
There is a wild card, too: During the last few months, Chávez has been battling cancer. Having been treated in Cuba, he claims to be cured, but that remains uncertain. Should his health deteriorate, a medical crisis could quickly become a leadership crisis. After all, one of Chavismo's strategic objectives has always been to downplay any notion that Chávez's leadership has an expiration date. In turn, his public relations people have tried to make him ever-present. Recordings of his voice regularly interrupt public television talk shows. And his communications team uses Twitter to broadcast decisions and commentary to two million followers.
Earlier this month, Chávez stood in the National Assembly and sustained a fiery address for more than nine hours, dispelling claims that he is on death's doorstep.
For someone sitting in Caracas, then, Chávez appears to be in control. The president's team even tries to project that image internationally. Last December, Venezuela hosted the first summit of the Community of Latin American and Caribbean States, a political gathering that several left-leaning countries would see rival the Organization of American States.
Incumbents in Latin America rarely lose reelection bids. In the last three decades, there have been only two: Daniel Ortega in Nicaragua and Hipólito Mejía in the Dominican Republic. And Venezuela is the only presidential country in the region with no term limits for its leader. If Chávez wins in October, a vast majority of the opposition's political capital will be dashed; in many ways, it will be back to square one.
Should Chávez lose, however, Venezuela will be on the cusp of a long political transition. Loyalists would still control the Venezuelan National Assembly and Supreme Court. MUD would have to hold its radicals and moderates together as it also confronts Chávez's long-entrenched political machine. Chief among those stacked institutions: Venezuela's military, which would require delicate handling in the event of an opposition victory.
It took more than a decade, but this year there will be a real battle for power in Caracas. Once it is over, whichever party wins - either Chavismo or the opposition - will have to face the consequences of the dysfunctional economy and the people's lost confidence in public institutions.
The views expressed in this article are solely those of Michael Penfold.