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Venezuela: Legislative
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Economics Emerging Markets Latin America Venezuela
Research Analysts
How big could the opposition win?
Alberto J. Rojas
52 55 5283 8975
Legislative elections will be held on Sunday, 6 December and may be the
alberto.rojas@credit-suisse.com greatest electoral test that Chavismo has ever faced. The outcome could set
a new tone for Venezuelas political environment.
Casey Reckman
212 325 5570 The degree of presidential approval has historically been a good proxy for
casey.reckman@credit-suisse.com voter support for the ruling PSUV party. President Nicolas Maduros approval
rating was 22.9% in October according to Datanalisis. Other surveys suggest
that his popularity could be closer to 20%. Triple-digit inflation and acute basic
goods shortages are cited among the countrys biggest problems, as is
rampant crime.
Still, popular voting results do not translate one-to-one to the composition of
the unicameral National Assembly. This is due to the complicated manner by
which legislators are selected as well as gerrymandering. We estimate that
the opposition MUD coalition would require nearly 54% of the popular vote in
order to secure a simple majority in the National Assembly. Our model
suggests that it would need at least 59% of the popular vote in order to
capture the two-thirds majority that would allow it to pursue more meaningful
institutional changes.
We think that the opposition could win two-thirds of the National Assembly's
seats. Polls place it over 30 percentage points ahead of the ruling party in
terms of voting intentions, which could be enough to overcome the structural
factors that benefit Chavismo, in our view. A victory of this magnitude could
give the opposition momentum to push for political change, although it lacks a
clear policy agenda and its efforts may be frustrated by other Chavista-
dominated institutions. Such a big loss could also drive serious questions
about President Maduros leadership and fuel cracks within Chavismo.
We are not convinced that the opposition winning a simple majority would
trigger significant changes in Venezuela. Many of the powers associated with
a simple majority could be thwarted by the executive and judicial branches, in
our view. Furthermore, Chavismo could ironically see this outcome as
something of a victory given its poor prospects. We also note our concerns
that possible perception of a large-scale electoral fraud, which could occur if
the PSUV retains the majority, could lead to political and social instability as
well as a potential interruption in debt service.
We are not optimistic that economic policy will be adjusted in any scenario.
Substantive modifications are unlikely in a more confrontational political
climate, in our view. Moreover, both Chavismo and the opposition could be
reluctant to take responsibility for enacting unpopular measures, especially
with a potential presidential recall referendum looming in 2016. Thus, we still
see significant risk of a credit event as soon as the fourth quarter of 2016.
DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES AND
ANALYST CERTIFICATIONS.
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30 November 2015
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divisions within Chavismo, as evidenced
by the rise of the leftist "Red Tide
movement and a growing proportion of
Source: CNE, Datanalisis, Credit Suisse
opinion survey respondents who say that
they prefer change from a source besides Chavismo or the MUD.
In this context, President Maduros approval rating stood at 22.9% in October according to
a Datanalisis poll. Other surveys have shown his support as low as 20%. This is the
weakest backing for a Chavismo president ahead of a national election since it came to
power in 1998.
The level of presidential approval has historically been a good proxy for the ruling partys
electoral support. In fact, these two metrics have never differed by more than four
percentage points since Chavismo began participating in national elections (Exhibit 1).
This could be related to Venezuelas very polarized and president-driven political setting,
in our view. Chavismo could obtain somewhere between just 18.9% and 26.9% of the
popular vote if this relationship holds up on 6 December. In fact, the October Datanalisis
survey showed the MUD opposition coalition with 63.2% of popular voting intentions
versus 28.2% for Chavismo.
1 This opposition tally includes the around 3% of votes received by Patria Para Todos (PPT), which had split from Chavismo at the
time. Many of the PPT's most prominent leaders have since left the party, reducing its importance.
50 50 Opposition
Chavismo
40
100
30
49
20
10
0 48
Chavismo Opposition
Source: CNE, Credit Suisse Source: CNE, National Assembly, Credit Suisse
These disproportionate results are partly due to electoral rules. A total of 54 lawmakers will
be chosen by "list" and 113 will be selected by "circuit in this election. The winning list
lawmakers will be determined according to the D'hondt method. All states will elect two
lawmakers by list except Carabobo, Miranda and Zulia. Those three states are each
allocated three list seats due to their larger populations. Another three list lawmakers will
be elected to represent indigenous communities. Meanwhile, the remaining National
Assembly members will be elected by "circuit" in 87 constituencies. 2 Each circuit is
comprised of a group of counties. The number of seats afforded to each circuit is
determined by population size. Venezuelan voters will cast as many votes as their circuit
has seats, plus one for their preferred list.
This list methodology can lead to overrepresentation of rural areas with smaller
populations, which is where Chavismo has historically been strongest. The boundaries of
the circuits, which are drawn by the Chavista-dominated CNE, may also enhance rural
voters influence. In fact, according to official figures, 61.9% of Venezuelas population
resides in the seven most populous states and the Capital District.3 However, only 47.9%
of National Assembly seats are allocated to these areas between the lists and the circuits.
2 Please see Appendix 1 for an example of how this works in Monagas state.
3 Venezuela's most populous states are Anzotegui, Aragua, Bolvar, Carabobo, Lara, Miranda and Zulia.
We compute our thresholds by taking the results of the 2010 legislative election and
adding a constant (c) to opposition support in every legislative race. Under a polarized
scenario, the net effect of c is twice its value since Chavismo loses one percentage point
for every one the opposition gains. This helps explain why the opposition would not need a
larger incremental share of the popular vote to ascend from a simple majority to three-
fifths and two-thirds in our analysis.
Of course the victory margin could vary in magnitude across different electoral districts.
For instance, there are 17 circuits where the difference in the popular vote for Chavismo
and the opposition was below 10% in 2010. Twenty-one seats will be in play in those
particular districts this time around, four seats more than the opposition would need to
increase its share of the National Assembly to a simple majority.
Voter turnout could also be an important factor in these elections. Historical data suggest
that lower participation seems to benefit the PSUV more than the opposition. However,
recent polls indicate that a larger share of Chavistas than opposition voters say that they
could abstain this time around. Datanalisis figures point to 65%-70% turnout on 6
December, which is similar to the 66% participation rate recorded in 2010.
Post-election scenarios
Below we discuss four possible outcomes and their implications for Venezuelas political
and economic outlook.
4 The referendum process can begin once President Maduro has completed the first half of his term. There is debate about whether
his term technically began on 10 December 2013, which is when President Hugo Chavez would have been sworn in if he had not
been ill, or on 19 April 2016, following Maduro's victory in a special presidential election. We tend to assume that the CNE and
TSJ would favor the later date.
5 Please see appendix 2 for more details on how the government could obstruct these changes.
6 Please see appendix 3 for more details on the constituent assembly process.
7 The soonest Venezuela and/or PDVSA could default would be the fourth quarter of 2016, according to our estimates.
8 UNASUR's observation mission will share its findings with the CNE, but they will not be published.
9 President Maduro's approval rating was at 46.8% on February 2014, according to Datanalisis.
10 Please see Appendix 4 for a list of military-affiliated governors and cabinet members.
Chavismo
Chavismo
Opposition
Opposition
Chavismo
Chavismo
Opposition
Opposition
TSJ Justices
TSJ Justices can be removed with the approval of two-thirds of the National Assembly.
However, this process must be initiated by the Citizens power branch of the Venezuelan
government as per Constitutional Article 265. The Citizens' power is comprised of the
People's Ombudsman, the Attorney General and the Comptroller General. This could
represent another impediment as these government-appointed officials have also tended
to back Chavismo and could be unwilling to cite the justices for misconduct.
Citizens' power
Constitutional Article 279 says that members of the Citizens' power can be removed by
an unspecified majority in the National Assembly. Once again, we assume it is two-thirds.
However, the TSJ would also need to endorse this. This gives the Citizens' power
authorities and the TSJ justices incentives to support each others survival.
US ECONOMICS
James Sweeney
Head of US Economics Xiao Cui Zoltan Pozsar Dana Saporta
+1 212 538 4648 +1 212 538 2511 +1 212 538 3779 +1 212 538 3163
james.sweeney@credit-suisse.com xiao.cui@credit-suisse.com zoltan.pozsar@credit-suisse.com dana.saporta@credit-suisse.com
BRAZIL ECONOMICS
Nilson Teixeira
Head of Brazil Economics Daniel Lavarda Iana Ferrao Leonardo Fonseca Paulo Coutinho
+55 11 3701 6288 +55 11 3701 6352 +55 11 3701 6345 +55 11 3701 6348 +55 11 3701-6353
nilson.teixeira@credit-suisse.com daniel.lavarda@credit-suisse.co iana.ferrao@credit-suisse.com leonardo.fonseca@credit-suisse.com paulo.coutinho@credit-suisse.com
EUROPEAN ECONOMICS
Neville Hill
Head of European Economics Christel Aranda-Hassel Giovanni Zanni Sonali Punhani Mirco Bulega
+44 20 7888 1334 +44 20 7888 1383 +44 20 7888 6827 +44 20 7883 4297 +44 20 7883 9315
neville.hill@credit-suisse.com christel.aranda-hassel@credit-suisse.com giovanni.zanni@credit-suisse.com sonali.punhani@credit-suisse.com mirco.bulega@credit-suisse.com
Peter Foley
+44 20 7883 4349
peter.foley@credit-suisse.com