Democracy Lab

No Exit

For the first time in many years, Venezuela’s presidential election is raising the possibility of an electoral defeat for Hugo Chávez. But if he loses, does that mean he’ll go?

Despite its high crime rate, Venezuela has historically managed to largely avoid the political bloodshed that plagued so many of its neighbors during the twentieth century. But is that about to change? This past Sunday, supporters of President Hugo Chávez confronted a crowd of activists who had gathered in the state of Barinas to celebrate the campaign of Henrique Capriles, the opposition candidate in the approaching presidential election. By day's end two Capriles organizers lay dead, gunned down in broad daylight by angry chavistas. The government says it is investigating, and so far three suspects have been detained.

The killings make for an ominous portent. The Venezuelan opposition, long crippled by internal divisions, has combined forces to mount the first serious challenge to Chávez in recent memory. Capriles has managed to revitalize previously disenchanted supporters while making inroads into the poor and rural populations that have traditionally served as the president's base. The ailing president, meanwhile, has been drawing comparatively smaller crowds, in fewer places, and has seen his once insurmountable margins steadily slip away over the past two months. While the polling data remains contradictory, the fact that one of the country's most respected pollsters is giving Capriles a four-point lead suggests that the opposition finally has at least a chance to unseat the once unassailable president.

All this begs the question: How far might Hugo Chávez be willing to go to defend his revolution?

If Venezuelans can agree on anything, it is that they find it hard to imagine a scenario in which a defeated President Chávez peacefully hands over power. To many, this stems from a sincere belief that the charismatic populist leader, armed with the full resources of the state and still beloved by much of the country, would never actually lose a popular election. Others find it hard to imagine that Chávez, who once famously vowed to defend his revolution with his life, would ever willingly step aside.

He would certainly face little pressure to do so from within his own administration. After so many years in power, the president dominates every branch of government. Even Luisa Estela Morales, the presiding magistrate of the Supreme Court, has publicly proclaimed her belief that the constitutional separation of powers "unacceptably weakens the state."

Venezuelan elections themselves are quite free -- the problem is that they're far from fair. Four of the five magistrates of the Consejo Nacional Electoral (CNE), the electoral authority, are avowed and loyal supporters of the president. Under their watch the institution has habitually turned a blind eye to countless illegalities and abuses on the part of the government: the decorating of state buildings with campaign material, the misappropriation of state funds for campaign use, rampant gerrymandering, misuse of emergency powers to commandeer radio and television signals for campaign messaging, and the de facto disenfranchisement of Venezuelan émigrés (most of them opponents of the regime) through the closing of the Miami Consulate. By contrast, the CNE recently censured Capriles for wearing a hat based on the official flag of the republic.

Thanks to this high degree of institutional control, government electoral shenanigans have typically taken place prior to the vote itself, while the actual voting and tabulation processes have been allowed to proceed largely free of government intervention. By keeping elections comparatively free Chávez has been able to maintain a democratic veneer without much risk to his own power. Still, the combination of his own poor health, the dire state of the national economy, rampant crime, and a tough challenger could well complicate the outcome for the president this time around.

Surprisingly, any attempt at actually faking electoral results is likely to prove a challenge. According to Federico Ortega, an opposition advisor and Harvard-educated economist, the high-tech vote tabulation machines that Venezuela uses in its elections, as well as the reliability of available quick count methods, would make it technically unfeasible for the CNE to conceal an opposition victory outside of a dead-heat differential of maybe 100,000 votes. "Even then," he says, "they would only be able to maintain the charade for a short time."

While not discounting the possibility of a stolen election, Ortega believes that the government would be far more likely to do so by claiming fraud on the part of the opposition and then either disavowing or suspending the elections prior to any public announcement by the CNE itself. Indeed, Chávez himself seems to have already begun preparing his own supporters for just such an eventuality, assuring them that the opposition intends to physically mobilize regardless of the vote's outcome, offering cryptic warnings of chaos or civil war, and hammering home to his supporters all that they might stand to lose without him.

Yon Goicoechea is a prominent opposition leader who rose to national fame at the head of the movement that handed Chavez his first democratic defeat during a 2007 referendum on executive term limits. He recalls that the CNE demurred for eight hours before announcing the results -- a period during which, according to Goicoechea, government officials convened frantic meetings to work out a coherent response, even approaching him and other opposition leaders for "negotiations."

While the government eventually conceded defeat, Goicoechea says that the opposition would not have sat idly by if it hadn't: "We were prepared to call the Venezuelan people to the streets to defend their votes and their democracy." In his view, Capriles, whom he describes as a strong but responsible leader, will almost certainly be willing to do likewise, though "first he would have to know with certainty that we had indeed won."

The opposition's ability to counter fraud will depend on their ability to follow the vote counting process in real time. Once the results have been officially declared, contesting the results becomes much harder.

Therein lies the challenge. While the opposition has done much to secure its access to electoral information during the vote itself, only the CNE itself will be privy to exact vote counts prior to the final announcement -- by which time it may well be too late. This leaves the opposition dependent on more subjective metrics such as exit polling, observer testimonials, quick counts, and the vastly disparate pre-election polling data. International observers have been largely disallowed for the election, outside of a select few who are unlikely to be particularly critical of the regime, or cooperate much with the opposition.

If the opposition does cry foul and Capriles calls his supporters to the streets, it is by no means certain that the great crowds that rallied to support him on the campaign trail will continue to do so if the government suspends constitutional safety guarantees or implements martial law. Then again, the throngs of enthusiastic supporters that rallied around the opposition candidate during the closing of his campaign in Caracas on Sunday served, to some, as evidence that loyalty runs deep among his followers.

The Barinas shootings, as well as a recent clash in the seaside town of Puerto Cabello, underline the potential for violence. Any confrontation between confident chavistas gathering for their traditional post-election celebration outside of the presidential palace, and opposition protesters demanding a reversal, could easily lead to chaos.

Particularly worrisome in this regard are the so-called Bolivarian militias, a heavily armed group of militarized civilians fiercely loyal to the government. The Miami newspaper El Nuevo Herald recently published a document purporting to inform militia members of a post-election "external intervention" planned by the United States in conjunction with "the Venezuelan far right and transnational companies." The plan goes on to stipulate that two thousand armed militiamen should take up posts at sites of strategic importance to defend the government against the opposition.

Given this potential for instability, the powerful Venezuelan military is sure to play a key role in the likely event that the results are contested. It is difficult, however, to forecast precisely how the Venezuelan Armed Forces might behave. Unlike other national institutions such as the CNE or the courts, the VAF is something of a black box. In April 2002, when a peaceful opposition protest was met with gunfire, killing 19 unarmed men and women, the armed forces turned against Chávez, leading to his brief overthrow until loyalists within the army reinstated him in a countercoup.

Since then Chávez has been careful to assert his control over the VAF's top brass, though even they have given conflicting signals. Henry Rangel Silva, a high-ranking general and defense minister, has stated a number of times that the army strongly supports President Chávez's administration and will find it "difficult to accept a change in government." Yet Willmer Barrientos, head of military operations, has made remarks suggesting that the army will maintain its neutrality regardless of the outcome. In any case, it is by no means a given that the armed forces will move against the president without a clear reason to do so.

And then there's the international reaction. Venezuela has already scared off many foreign investors through its controversial nationalizations and its withdrawal from the ICSID convention on investment arbitration, and while such moves probably haven't helped its economy, they have, to a certain degree, cushioned it against potential economic repercussions. The regime's closest international relationships right now are either with client states that rely on its largesse, such as Cuba, Nicaragua, Argentina, Bolivia, and Ecuador, or with authoritarian countries such as Iran, Russia, and Belarus that are unlikely to criticize it.

Former U.S. Ambassador to Venezuela Patrick Duddy recently released a policy paper through the Council on Foreign Relations outlining possible contingencies in the case that Venezuelan elections prove destabilizing. In his view the United State's ability to exert pressure on Venezuela unilaterally is limited by the already frosty relationship between the two countries.

A brazen power grab on the part of Chávez, or even a suspected constitutional violation, could damage Venezuela's relations with Brazil and Colombia, and perhaps also with international organizations such as UNASUR, MERCOSUR or the OAS. But the effects are unlikely to be broad or enduring. Right now, Colombian president Santos is relying on Chávez to help him broker a peace deal with the FARC rebels; while Brazil, having put a great deal of effort into forging a strategic alliance with Chavez, may prove similarly loath to take the lead.

And while the OAS has recently punished Honduras and Paraguay for presumed violations of democratic norms by suspending them from the organization, Chávez has shown himself to be highly resistant to international shaming attempts. The best candidate for exerting pressure might be MERCOSUR, the South American trading bloc that recently admitted Venezuela after a protracted diplomatic struggle, and might be able to threaten it with expulsion.

But even if the opposition fails to dislodge the revolution, there is little doubt that Chávez will emerge from this contest significantly weakened. Even if a legitimate vote count leaves him the victor, the united opposition will have shown itself to be a force to be reckoned with. Despite the staggering advantages enjoyed by the incumbent, that Capriles was able to mount a respectable showing will speak volumes. And Chávez, his health fading, will have to govern with a weakened mandate and state coffers emptied by his own pre-election binge spending. South America's democratic despot may find himself vulnerable even in victory.



Argentina's Deadbeat Mom

Cristina Fernández de Kirchner refuses to pay Argentina's massive debts -- and that's why she has to go.

The fun may soon be over for Cristina Fernández de Kirchner, the president of Argentina with a reputation for reckless populism. Among other antics, she flamboyantly fired the head of the country's Central Bank and expropriated a majority interest in YPF, Argentina's largest oil company. Since 2003, Argentina has dropped from 68th to 158th (behind Burundi and Belarus) in the Index of Economic Freedom, compiled annually by the Heritage Foundation and the Wall Street Journal. Worst of all, Kirchner has spent five years flouting international financial norms -- and getting away with it.

But perhaps not for long. Christine Lagarde, managing director of the International Monetary Fund (IMF), said on Sept. 24 in Washington that if Argentina does not start providing acceptable and accurate economic data, it will face a "red card" -- the signal from a referee that a soccer player is expelled.

A week earlier, the IMF had issued an official warning to Argentina -- in effect, a yellow card -- that if it doesn't shape up by Dec. 17, it will become the first developed country ever to be kicked out of the 188-member organization. The IMF monitors the world economy, makes loans to members in trouble, and provides technical assistance.

"My country is not a soccer team," responded Kirchner at the U.N. General Assembly last week. "It is a sovereign country and, as such, is not going to accept a threat."

We'll see. Clearly, she has a problem. Argentina is the only country out of 42 for which the Economist magazine won't list an inflation figure in its weekly data section. The reason, says a footnote: "Official number not reliable." But the magazine estimates the rate at 25 percent, notes that price controls and the YPF expropriation have discouraged investment, and says that growth, "even by the questionable official numbers," has plunged in a year by 6 percentage points to the lowest rate in Latin America.

Poor policies and phony statistics, however, are nothing new in the world of economics, and certainly not in Argentina, whose citizens have long had to deal with the consequences. The real problem, however, is contagion. Argentina has ignored its debt obligations, and until recently, the rest of the world has reacted blithely to this challenge to the global financial system. Argentina has set a dangerous example for other countries to follow. So far, the mimics have merely been Ecuador, which defaulted in 2008, and little Belize, which, while engaging Argentina's U.S.-based law firm, threatened to pay just 20 cents on the dollar to bondholders (but now seems to be relenting). The danger is that substantial European countries will see the Argentine Way as a model for them too.

Argentina defaulted on about $100 billion in bonds in 2001 -- the largest failure to repay sovereign debt in history -- and gave creditors a take-it-or-leave-it offer of 35 cents on the dollar (traditional settlements are usually in the range of 50 to 60 percent).

While many creditors took its unilateral offer in 2001, others, including several large institutions and 60,000 Italian pensioners, stood fast. In the ensuing years, Argentina has ignored more than 100 court decisions in favor of the creditors. Despite a clear ability to pay its debts, Argentina has also thumbed its nose at awards by the International Center for Settlement of Investment Disputes, the World Bank's arbitration mechanism.

The consequences of this behavior? Not much. Argentina has been shut out of private credit markets, but it's still allowed to borrow billions of dollars from the World Bank and the Inter-American Development Bank (IDB). Even more remarkably, Argentina remains one of only 19 countries honored with inclusion in the G-20, the organization charged since 2008 with addressing the global financial crisis.

The risk is that other countries see how Argentina has acted with impunity and decide to do the same. An article in May by the Guardian's longtime economics editor carried the headline "Greece should follow Argentina's lead" and the subhead "when an economic crisis hits it is often best to go it alone."

There is a simple way, however, to nip contagion in the bud: expel Argentina from the G-20 and the IMF and end the flood of loans coming from international institutions. The United States took the first step along this path in September 2011, when a Treasury Department official announced that "the U.S. will oppose lending to Argentina" at the World Bank and the IDB.

Until recently, the United States was alone, but on Aug. 31, Germany and Spain joined in voting no on a $60 million IDB loan for a development project in Argentina's San Juan province. Spain's opposition was not surprising, given Kirchner's seizure of the shares that the Spanish company Repsol held in YPF. But Germany's vote was a real blow, and it produced a weird, wounded response from the Argentine president: "Still in this world, which has fallen and collapsed, in a world that was shown as ideal, they insist on punishing us because we are the bad example of a country that can build and stand up with no outside tutelage."

Based on discussions with public officials in Europe this summer, I wasn't shocked at all by Germany's action. Germany and the Netherlands, especially, are worried about the threat to Europe posed by broader adoption of the Argentine model, and sources told me off the record that they were ready to do something about it. The fear is that Italy, for example, might simply tell its creditors that it's adding another 20 years to the maturity of the bonds they hold and cutting interest rates to a few percentage points; that could lead international banks into cascading failures.

Opposing small loans is one thing, but a far greater impact would come from kicking Argentina out of the G-20. And, to be clear about it, Argentina really has no business being in this esteemed group of states. With my colleague Alex Brill, a research fellow at the American Enterprise Institute, I recently produced a study, supported by the National Taxpayers Union, that advocated objective criteria for G-20 admission. Under practically any set of metrics -- size, rule of law, interconnectedness of financial institutions -- Argentina falls far, far short of membership.

Up until recently, developed countries have been willing to ignore Argentina's antics, but as the global slowdown continues -- and, in some areas, intensifies -- the irresponsibility and downright clownishness can't be tolerated much longer. In the wake of Germany's no vote, Kirchner put on a brave face. This is "not a step back for Argentina from any of the conquests achieved," she claimed. But it's hard to see what those conquests are; as for steps back, they now seem inevitable.