Venezuela’s Economic Recovery Hinges on Political Agreement
For more than a decade, Venezuela’s economy has been in freefall, marked by misguided policies and the damaging effects of international sanctions. With the recent capture of Nicolás Maduro and the easing of sanctions, a fragile opportunity for recovery has emerged. While an economic rebound is likely, driven by increased oil revenues, sustained and equitable growth will require a level of political stability currently lacking in the nation.
The U.S. Has allowed Venezuela to resume oil sales, and initial reports indicate a positive impact. Approximately $500 million from these sales has already been channeled to Venezuelan importers, easing pressure on the foreign exchange market and stabilizing the country’s currency. Analysts predict double-digit economic growth this year, potentially the strongest performance in over two decades.
However, the current government, led by interim president Delcy Rodríguez, lacks electoral legitimacy. Rodríguez ascended to power not through a democratic process, but as a result of U.S. Military intervention and her prior position as Maduro’s vice president. Her unpopularity constrains her ability to implement meaningful economic reforms, particularly within the crucial oil sector.
Restoring Venezuela’s oil production to pre-2016 levels—around three million barrels per day—would require approximately $10 billion in annual investment. While this figure is economically achievable, investors are hesitant without a credible guarantee of policy stability and contract enforcement beyond Rodríguez’s tenure. A recent law offering incentives to foreign oil companies, including lower royalty rates and international arbitration, is viewed with skepticism, as its protections could be easily overturned by a future government.
The lack of political credibility also complicates efforts to restructure Venezuela’s $145 billion in external debt. While Rodríguez is attempting to negotiate a restructuring, a change in government could lead a new administration to question the legality of any agreements reached, echoing the actions of opposition leader Juan Guaidó in 2018, who disavowed certain financial obligations while claiming the presidency.
Taming Venezuela’s decades-long battle with hyperinflation presents another significant challenge. Deep-seated distrust in the bolivar, coupled with a history of broken government promises, makes it difficult to implement effective monetary policies. Attempts to stabilize prices through measures like controlling the money supply or raising interest rates risk triggering recession, while selling dollars could lead to a run on the currency and further devaluation.
The United States’ role also presents complexities. While the removal of Maduro has opened new possibilities, the Trump administration’s emphasis on security concerns and control over Venezuela’s oil resources raises concerns that the U.S. May seek to maintain a subservient relationship with Caracas, hindering genuine political liberalization.
The current arrangement, where oil revenues are deposited in accounts managed by U.S. Officials, raises further questions about potential misuse of funds. Concerns have already been raised regarding contracts awarded to firms with ties to the Trump administration.
A sustainable recovery requires a broad-based political agreement between the government and the opposition. This includes establishing an oversight board to manage oil revenues, legal reforms developed through inclusive negotiations, and a commitment to rebuilding institutions and upholding the rule of law.
Reforms must also address the politicization of the civil service, ensuring that public resources are allocated based on need rather than political affiliation. Restoring the capacity of the state to enforce rules, protect property rights, and deliver essential public services is also crucial.
International support, through financial assistance from institutions like the IMF and World Bank, can play a vital role in supporting reconstruction and facilitating the return of skilled Venezuelans. The U.S. Can contribute by relinquishing some control over Venezuela’s oil revenues and fostering a process of democratization.
Venezuela’s recovery hinges on the willingness of all political factions to prioritize the country’s future over partisan interests. A shared commitment to building a stable, inclusive, and democratic society is essential for attracting investment, restoring economic prosperity, and ensuring a brighter future for the Venezuelan people.
