Venezuela’s National Assembly Uses the Nuclear Option

Last week, Henry Ramos, the President of Venezuela’s opposition-dominated National Assembly, did something that has gone relatively unnoticed around the world – and it is something important that YOU NEED TO KNOW.
Ramos used the nuclear option – and no, I am not talking about the decision over which of the 3 main constitutional strategies the opposition would pursue to try to legally remove Venezuela President Nicolas Maduro from office.
Faced with a Supreme Court (TSJ) and Executive Branch that are over-ruling every move they make and basically making them irrelevant (including even limiting getting this message out through the government’s media hegemony that dominates TV, radio and newspapers), Ramos had to take to twitter to warn international investors and counterparties that that any international financial agreement that Maduro signed without National Assembly approval would be null and void.
Warning to foreign creditors: contracts in the national interest signed by the Chavista government without approval by the National Assembly will be null and void.”
That tweet was followed by one from National Assembly opposition Deputy Jose Guerra, a Central University of Venezuela Professor who chairs the Assembly’s Finance Committee, seconding the strategy:
“I second what was said by Henry Ramos Allup: credits planned by Merentes [Central Bank President] and Del Pino [PDVSA head and Minister of Oil and Mining] will be null if not approved by the National Assembly.  You are warned.”
Those who follow our Reports will remember that after the opposition won the December 6th parliamentary elections, we correctly advised that Maduro’s government would pursue the three-pronged strategy to neutralize the National Assembly that they have indeed followed.  Here is the relevant part of our report from December 9th:
9 December 2015
 
“It’s the ‘economic war,’ stupid.”  In simple terms, that’s the Bizarro World version of Clinton strategist James Carville’s slogan that sums up Venezuela President Nicolas Maduro’s reasoning for his government’s loss in Venezuela’s December 6th congressional elections. Instead of owning the economic disaster of crashing GDP, massive shortages, unparalleled currency devaluation and hyperinflation caused by 15 years of unrealistic communist policies and promising to right the sinking ship in his Monday madrigal concession speech, Maduro blamed oligarchs and outside forces for the economy’s — and thus his — dismal performance.
 
Worse, in a telling statement, Maduro went on to argue that: “In Venezuela the opposition has not won. For now, a counter-revolution that is at our doorstep has won.” Then he insisted that what the country needed was more radicalization — not less — and promised to deliver it.  “The struggle for the construction of socialism is just beginning,” he declared, and went on to say he would double down on his disastrous economic policy.
 
Sadly, despite the opposition’s overwhelming victory in Sunday’s congressional elections, things will remain bad in Venezuela and will likely worsen as political infighting and retrenchment increase.  Here is why.
 
WHAT COMES NEXT?
 
What will the Venezuela government do now?
 
Maduro has called for a week of discussion in his party.  He has called a special meeting for all the organizations that make up the GPP – the umbrella group of those who support the revolution.  Tuesday night Maduro announced that he was firing his whole cabinet.
 
Next Wednesday, Maduro will gather with all 900 of the government political party PSUV delegates to evaluate the situation, make plans and create proposals.
 
  1. The Communal Powers
 
More importantly, for Saturday, Maduro called a meeting of the presidential councils of popular power.  These “Communes” have been largely ignored by the opposition and the vast majority of the councils are heavily Chavista.  Venezuela passed the Organic Law of the Communes in December 2010, and the Ministry of Communes claims that there are over 40,000 community councils, with over 1000 communes.  Maduro increased the 2015 budget of the Ministry of Communes by 62% in preparation for their increasing importance in his strategy. In the Chavez-Maduro version of the communes, residents unite in a number of community councils with the object of self-governance through a communal parliament – a parallel structure to the existing municipal, state and national structures financed from the executive branch.  This is part of what the government labels its grass-roots “participatory democracy” that Maduro could turn to in order to get around the opposition-dominated National Assembly. 
 
The government has followed the cut, isolate and neuter strategy before.  When Opposition leader Antonio Ledezma defeated the Chavistas for the important and symbolic Caracas mayor position in 2008, the Chavista dominated National Assembly created a new “Capital District,” took away all the mayor’s power, money and responsibilities, and gave it to a new Chavez-appointed Caracas governor.  Ledezma was subsequently arrested on trumped up charges of participating in an “American plot to overthrow the government,” jailed and is currently still under house arrest after undergoing medical treatment.
 
  1. The Supreme Court
 
This is possibly the most important and primary tool in the Chavista arsenal to maintain power and, like the communes, the signs point to the work that the government has been doing to prepare for Maduro’s reliance on the Supreme Justice Tribunal (TSJ).  In October, the government persuaded 13 judges of the TSJ to take early retirement.  Some of the judges were of questionable loyalty and many were set to have their terms expire in 2016, which would have allowed the new opposition-controlled National Assembly to appoint them, so having them resign now allows Maduro to replace them with loyalists.
 
National Assembly President Diosdado Cabello – who participated with Chavez in the coup in 1992 – said Tuesday that the National Assembly would be appointing those 13 new TSJ judges before the end of the year (likely over the Christmas holidays, which is what they also did last year).  The government will, thus, rely on its fully-packed Supreme Court with its powerful 7 member Constitutional chamber to overturn, neutralize or block any movements from the incoming opposition-dominated National Assembly.  Since 2004 (after Chavez packed it with another 12 loyal justices after his original 20 appointed justices dared to rule against him), the Supreme Court has never ruled against the government.  And it only takes 4 justices of the Constitutional chamber to rule an action or law unconstitutional — in other words, 4 Chavista justices can defeat the whole of the elected National Assembly.
 
 
  1.  Rule-by-Decree Authority
 
The outgoing National Assembly will probably also pass a decree giving Maduro the power to make and pass laws without the National Assembly, a Rule-by-Decree authority called Ley Habilitante (Enabling Law).  Not only has Maduro been given this authority for most of his term in office, Chavez even did it in advance of the 2010 National Assembly elections which saw the opposition gain a substantial number of seats, though not a majority.  When, of course, the new opposition-dominated National Assembly tries to revoke this Rule-by-Decree authority with its supermajority, the matter will likely end up in the Supreme Court (see #2).
 
In short, we have a recipe for impasse and any needed economic reforms will likely take a backseat to the power struggles.  It is possible, of course, that some government officials and judges may see the writing on the wall and begin to negotiate about joining with the opposition to save their skins, jobs or just stay out of jail, but cornered rats do not as a general rule behave rationally.”
And sadly, so far this is what has happened and will continue to happen, with the Supreme Court even giving standing to “Commune” heads and even using the Commune law to limit the National Assembly (here, for example: https://www.scribd.com/doc/299469581/Venezuela-TSJ-Enforcing-Economic-Emergency-Decree-11-February-2016  or here, for the latest affront to the separation of powers: https://www.scribd.com/doc/301818932/Venezuela-TSJ-Decision-Limiting-National-Assembly-Powers-2016 )
Going for the nuclear option of disavowing the repayment of any new international investment or bond is the one thing that Ramos and the National Assembly could do to halt Maduro – it cuts off badly needed funds that the government needs to survive.  Indeed, there are several investments and bond issuance deals in the works, including for settling an expropriation debt with Gold Reserve, LLC, and continued financing of the development of that Brisas and Cristinas gold mines, and even a deal in the works to exchange unsecured PDVSA supplier debt for newly issued collateralized PDVSA bonds.
Ecuador’s President Rafael Correa used a similar rationale to disavow $3.2 billion in Ecuador bonds 10 years ago.  Investors would be wise to pay attention.

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