Venezuela is not the triumph Donald Trump claims, but it’s improving

“Freedom, freedom, freedom,” runs the chant in a packed hall in Ocumare del Tuy, a town outside Caracas, the capital of Venezuela. Hundreds of supporters of María Corina Machado, an opposition leader and winner of the Nobel peace prize, are in jubilant form. A few months ago such a gathering was unimaginable. The organisers, now singing lustily, were in prison or in hiding. Nicolás Maduro, Venezuela’s strongman of 12 years, had cracked down on dissent. No one would have dared come, let alone string up balloons. Then on January 3rd American special forces seized Mr Maduro in a dramatic raid. “We are no longer afraid,” exults Juan Díaz, who is attending the event, “We are full of joy and eager to keep fighting.” Far away in Washington, Ms Machado fervently agrees. “Venezuela will be free soon,” she assures The Economist.

Donald Trump is also exultant. “Venezuela has worked out so incredibly,” he recently gushed. His optimism is more about business than politics. Big oil companies, he confidently predicted in January, would soon be investing billions and reaping handsome profits as a result. Ms Machado foresees prosperity, too: “Huge opportunities for all will flourish.”

Yet since Mr Maduro’s abduction, his deputy, Delcy Rodríguez, has been running the country—with Mr Trump’s blessing, as long as she follows his instructions. Marco Rubio, America’s secretary of state, has repeatedly insisted that elections are coming, but has not said when. Despite Mr Trump’s talk of big investments in the oil industry, there is little sign of them yet. Venezuela has endured 27 years of chavismo, originally a populist form of socialism that gradually evolved into a repressive kleptocracy. This regime, named after its founder, Hugo Chávez, has wrecked the economy and prompted around a quarter of the population, some 8m people, to seek a better life abroad. Although repression has eased since January and hopes for the economy abound, the way forward is far murkier than either the opposition or Mr Trump suggest.

The excitement about Venezuela can sound breathless. Rodrigo Naranjo of VIPCapital, a Venezuelan investment bank, says an American investor recently told him, “It’s like we found out that Atlantis has come out of the ocean.” At the plush Caracas Country Club the mood by the sparkling pool is bullish. Almost overnight the value of private companies has jumped by about 20%, says Mr Naranjo. “Venezuela is going to surprise on the upside,” says Charles Myers of Signum Global Advisors, an American advisory firm which recently took 55 investors to Caracas. Ms Rodríguez is making investor-friendly reforms at “light speed”, he says.

The hype is getting ahead of the reality. The only firms that are actually making any investments are Venezuelan ones girding to face new competitors, a local businessman says. Most big multinationals, in contrast, worry still about chavismo’s record of gouging foreign investors. In between are Latin American conglomerates, as well as some oil and gas firms. This group, which is lining up contracts but has not yet signed them, wants to be sure they will be able to operate unhindered and repatriate profits.

Oil, gas and mining generate the most interest. The regime, at Mr Trump’s behest, has adopted laws liberalising investment in all three since January. Shell, a big oil company, has signed preliminary agreements to develop gas fields. Chevron, a rival, this week handed some offshore oil and gas fields to the state oil company, PDVSA, in exchange for a bigger share in projects tapping Venezuela’s vast reserves of heavy (tarry) oil. All told, there are perhaps 20 instances, mostly in commodities, of foreign investors making offers to the government regarding specific assets, says a corporate lawyer. For now, however, no money has been committed.

Mr Trump cares above all about oil. Venezuela boasts the world’s largest reserves (albeit mainly of less valuable tarry oil) and produced almost 4m barrels a day (b/d) in the late 1970s. Last year, however, output was only about 1m b/d. All crude must still be produced as a partner or contractor of PDVSA. Existing producers could raise production by the end of the year to perhaps 1.3m b/d. After that it gets tougher. The country’s oil infrastructure is dilapidated and bedevilled by power cuts. To reach 3m b/d will require a whopping $183bn in investment, reckons Rystad, an energy consultancy.

There are big obstacles in the way of such a flood of money. The first is simply getting paid. Five oil majors that together account for about a third of Venezuela’s output have an exemption from American sanctions that allows them to sell the oil they pump and take their slice of the profits before passing the rest of the cash to the US Treasury. The revenue from most other firms’ sales, including PDVSA’s, goes straight to the US Treasury. It then supervises all disbursements, each of which involves a thicket of paperwork and compliance checks. Even when PDVSA gets hold of any money in this way, it still needs to pay its contractors, suppliers and joint-venture partners promptly, something it has often failed to do.

The resulting delays are so punishing that some firms have reportedly stopped pumping, although the United States lifted most sanctions on Venezuela’s central bank on April 14th, which should eliminate some red tape. Meanwhile, the only companies that are increasing production, says an energy executive in Caracas, are those in possession of one of the magic exemptions. But applications for new ones appear to be moving as slowly as the money itself.

Another problem affects all oil companies. The recent reforms set a range of rates of royalties and taxes for energy projects. The lower end of the range would make investment in Venezuela competitive, but the higher end would not, warns Mike Wirth, Chevron’s CEO. Worse, the government has not explained when lower rates would apply. Sorting out new terms for the 70-odd firms already operating in Venezuela will take much longer than the 180 days the new law prescribes. Few firms will make new investments until they know how much tax they will pay.

In addition to all this, many foreign investors are deeply sceptical about the government’s commitment to the rule of law. Oil majors such as ExxonMobil have had assets in Venezuela confiscated multiple times over the years. Local courts provided no protection. International arbitration was unavailable or ignored. On April 16th Repsol, a Spanish oil firm, announced a deal with the government to expand its operations in Venezuela that includes a guaranteed payment mechanism—a possible means to assuage such concerns.

Without more investment, most Venezuelans will see little improvement in the economy. “Inflation is eating us alive,” complains a teacher. In February it hit 618%, the highest rate in the world. The exchange rate is a daily headache. “The dollar hasn’t stopped rising,” complains Carlos, who runs a tiny shop in Petare, a slum in Caracas. “We don’t have any stability.”

The rising prices stem from the government’s habit of getting the central bank to print money to cover its costs. Last year a third of government spending was financed in this way, estimates Síntesis Financiera, an economic consultancy in Caracas. Rising government revenue from increased oil production and the higher oil price should reduce the problem a little, although by no means eliminate it.

Any influx of dollars should also reduce the pressure on the local currency, the bolívar, and shrink the gap between the official exchange rate and the market one. That appears to be happening: over the past six weeks the depreciation of the bolívar has slowed (see chart). Asdrúbal Oliveros, a Venezuelan economist, expects inflation to fall to about 150% later this year. It is testimony to chavismo’s dire record that such an outcome would count as good news.

The economy, which has shrivelled by 70% since 2013, has so much spare capacity that a spurt of growth is possible. Oil dollars, growing confidence and an increase in credit could do a lot. Mr Oliveros thinks GDP may grow by 12% this year, up from perhaps 2.4% last year. “Rule of law is crucial in the medium term,” argues a businessman, “but we could double the size of the economy with the rule of law we have.”

The outlook for politics is equally ambiguous. Mr Trump cares about oil, not elections. He has praised Ms Rodríguez as a “terrific person” who is “doing a great job”. American diplomats in Caracas “are not at all focused on democracy”, sighs a Western diplomat.

Although Ms Rodríguez has sacked some ogres and brought a few technocrats into her cabinet, about half of its members are holdovers from Mr Maduro. The new minister of defence has a blood-soaked record as a former head of the intelligence services. Some 480 political prisoners remain in jail. At a candlelit vigil outside El Helicoide, a notorious prison, desperate families hold photos of their loved ones and chant, “Justicia, justicia y libertad.”

The government has passed an amnesty law, but it requires people to seek relief from the same judicial system that convicted them in the first place. It also explicitly excludes those who have encouraged foreign countries to use force against Venezuela, a clause apparently targeted at Ms Machado and her allies. The regime has used amnesties in the past as window-dressing before at some point arresting the same people. “I have been given three amnesties,” sighs Américo De Grazia, a former member of the National Assembly who has benefited from the new law.

Some prominent political figures have been denied amnesty. Perkins Rocha, Ms Machado’s lawyer, was released in February after nearly 18 months in prison but remains under house arrest. Two policemen camp outside his flat night and day, napping and watching YouTube. They pound on the door, demanding to take a photograph of Mr Rocha to send to their superiors—a ritual repeated every three hours.

The regime bats away talk of political liberalisation, saying the focus for now should be the economy. “The big error [of the past] has been to go to an electoral process without a political agreement,” says Ana María Sanjuán, the new minister of higher education. What is needed is a consensus that covers “the economic, social and political”, she insists. Only then should elections be held. It sounds like a formula for limitless procrastination.

Nonetheless, some 700 political prisoners have been released. That is unprecedented in 27 years for the sheer number, for not being part of an explicit deal and because there have not been many new arrests, notes Alfredo Romero of Foro Penal, a legal watchdog.

What is more, the regime is tolerating political demonstrations and marches. In January and February there were over 1,200 protests. “We’re determined not to leave the streets,” says Yriana Aular, a retired teacher on a march in Caracas.

Admittedly, the regime instigated a counter-march to thwart the one Ms Aular had joined. Garrulous MCs speaking through giant loudspeakers egged on thousands of state employees who had been bused in to attend. The participants sported uniforms of every conceivable government agency, from the telecoms regulator to the Venezuelan Paralympic Committee. “We were obliged to come. I don’t know what it is about,” explains Lilian, a teacher. But for all the heavy-handedness, it remains a far cry from the mass arrests or dispersal by vigilantes on motorbikes that ended most protests before January.

The government, which appears to have both accommodating and hard-line factions, seems to be contemplating steps to defuse demands for a political opening. One idea is to allow the opposition to participate in government in some form. Enrique Márquez, a former presidential candidate and political prisoner who in February appeared in Washington at Mr Trump’s state-of-the-union speech, says a government of national unity “would be very interesting”, under certain conditions. Ms Sanjuán says the government would like some opposition figures to join the cabinet, but rules out full power-sharing.

Figures within the regime talk about elections as if they will happen eventually, presumably under American pressure. “The vision of the president has not at any point been to refuse an electoral process,” says Ms Sanjuán. Stalin González, an opposition MP, thinks the government is trying to buy time for the economy to improve somewhat. It will then administer a populist spending splurge and hope to squeak home, he predicts.

Ms Rodríguez is already promising to raise the minimum wage, despite the government’s dire fiscal position. It helps that even Ms Machado concedes that the necessary overhaul of voter rolls, the electoral authority and the election laws would take nine months. Other opposition politicians think even longer is needed.

Tellingly, Jorge Rodríguez, the president’s brother and head of the National Assembly, has floated the idea of immunity from prosecution as a means to encourage the regime to allow elections to go ahead. The mistake in past negotiations with the opposition, he claimed to El País, a Spanish newspaper, has been not “specifying the guarantees we’ll have following a specific event, whether social, political, economic or electoral”. Ms Sanjuán cites Adam Przeworski, a political scientist, to argue, “You cannot go to elections if you have a huge amount to lose.”

Ms Machado, who has been sceptical about an amnesty for Venezuela’s oppressors, seems to be coming round. She still emphasises justice, but says, “We reject revenge…We need to move ahead into a process in which there are guarantees and some compromises will be made.”

It would be hard to craft a deal that both sides would trust, however. Mr González argues the regime’s leaders will relinquish power only to people it does not see as a threat to their freedom. He does not think that Ms Machado fits the bill. “She is a red line for the regime,” agrees a Western diplomat. Many in the elite purr about Mr Márquez as a third way between Ms Machado and Ms Rodríguez, even though he won less than 1% of the vote in the presidential election of 2024. (The opposition has produced evidence that the election was won easily by an ally of Ms Machado after she was banned from standing, but that the regime simply doctored the results in favour of Mr Maduro.)

Ms Machado irritably rejects such talk. “Let’s have the business people, or the diplomatic community, or the regime choose who should be the president of Venezuela,” she says sarcastically. “So much for democracy.” Those who call for her to make way for an opposition figure more palatable to the regime are ignoring past failures of this strategy and really just “fear the end of privilege”, she argues. “In the end, they don’t fear me, they fear the people.”

Ms Machado wants to return to Venezuela and put the regime on the spot. Mr Trump, nervous that this might sow chaos or otherwise show up an intervention he has crowed about so often, has urged her to delay. But she seems reluctant to wait much longer. When she goes, she will go openly, she says. At an event in mid-March in Santiago, the capital of Chile, some 17,000 Venezuelans turned out to cheer for her. Her arrival in Caracas could generate enormous crowds, presenting the regime with an unenviable choice: repress her supporters, in the full glare of the media, or allow a dramatic, public demonstration of its own unpopularity and impotence.

We need to show the world that “postponing an election is actually very risky in terms of social calm”, Ms Machado argues. When asked what she can do to hasten elections, she replies, “I believe the voice of the people should be heard peacefully, civically and strongly.” The implication is that she is prepared to ratchet up the pressure on the regime from the streets.

At a meeting of Ms Machado’s party in La Vega, a poor barrio of Caracas, participants are not interested in debating how the regime should be persuaded to make way or how long it will be before a credible election can be held. There is simply a deep conviction among the party’s grass-root supporters that this must be—has to be—the moment that the regime at last falls. “Yes we can,” shouts a woman in the audience out of the blue. The cry is greeted with cheers. “It’s now or never!” ■