Crypto News: Maduro’s biggest threat

Welcome to the Year of the Elections, Bloomberg's newsletter on the votes that matter to markets, business and policy amid the most fragmented geo-economic landscape in decades.

Four months ago, most Venezuelans had no idea who Edmundo González was. Now, his campaign poses the biggest threat to Nicolás Maduro's plan to win a third presidential term on Sunday after 11 years in power.

The 74-year-old former diplomat was thrust onto the national stage in March after better-known opposition figures were effectively barred from running. He became a proxy to María Corina Machado, the winner of last year's primaries who was rapidly gaining support among Venezuelans until Maduro firmly shut the door on her.

Since then, Machado and her stand-in-candidate have been campaigning against all odds. She says she can't appear on TV or radio stations. Power outages often interrupt her scheduled appearances. The venues she visits are fined or shut down. Those who help her are persecuted, or even imprisoned.

The government has gone as far as drilling gaping potholes into roads to stop her followers from reaching her events.

Maria Corina Machado, Venezuela's opposition leader, greets attendees during a rally in San Cristobal on June 28. Photographer: Ferley Ospina/Bloomberg

The oppressive tactics have only fueled fervor among Machado's supporters, who dream of rebuilding an economy that has suffered one of the deepest recessions in modern history, and eventually reunite families that have been torn apart by the exodus of 7.7 million Venezuelans under Maduro.

Machado's surprising resilience can perhaps be matched only by that of Maduro himself.

The successor of the late Hugo Chavez has withstood crippling US sanctions meant to weaken his government and prevailed over Juan Guaidó, who sought to unseat him after being recognized in 2019 as the legitimate president of Venezuela by the US and dozens of allied nations. More recently, Maduro has even tried to soften his despot image by launching a charm offensive on social media.

What explains Machado's rise is her unique character among establishment politicians — and timing. Fed-up voters are looking for the opposite of Maduro, and she has consistently been that, preaching for years about undoing state controls and privatizing the oil industry. Venezuelans have grown tired of government handouts, and are starting to believe change is within reach.

How far Machado and González can go is ultimately up to Maduro — if the unofficial duo win a majority of votes, he will have to consider the costs of disregarding the election outcome and clinging to power for longer. — Patricia Laya and Nicolle Yapur

Nicolle Yapur, the Andes bureau's markets reporter, writes about the future of Venezuela's battered economy.

Maduro has managed to end hyperinflation and contain price increases at levels not seen in decades. The current figures would have seem unfathomable at the peak of the crisis, when annual inflation reached 130,000%.

But the relative price stability came at a cost.

It was the result of draconian spending cuts, efforts to prop up the exchange rate and an effective dollarization of the economy. The strategy has impoverished many Venezuelans, particularly public servants whose wages haven't increased as much as those from the private sector. Yet, according to different polls, most still point to the high cost of living is their number one concern.

Even now, as Maduro seeks reelection, the government has resisted overspending or printing more money, as is typical during an election year, to avoid messing with the delicate monetary balance. The central bank has spent billions of dollars this year to keep the exchange rate stable. It has been a costly policy that limits economic growth and has many wondering: is it sustainable?

María Elena Vizcaíno, an emerging-markets reporter, writes about what each electoral outcome would mean for bond prices and the outlook for a potential restructuring process.

The outlook for Venezuela's $60 billion stock of bonds is murky, to say the least. They've sat in default for the better part of the last seven years, at times trading for as little as 2 cents on the dollar.

The market has shown signs of life in the past few months as JPMorgan Chase & Co. added back debt from the nation and the state-oil company to its widely followed emerging-market indexes. That's sent government bond prices higher to about 19 cents on the dollar. Maduro's recent move to hire Rothschild & Co. as a debt adviser also improved expectations of a restructuring. Still, most bondholders are in a wait-and-see mode.

Investors only get paid if the US recognizes Maduro as president — should he be declared the winner on Sunday as Wall Street expects — and lift sanctions that forbid a debt restructuring.

Republican candidate Donald Trump engineered most of the penalties against Venezuela during his time at the White House. His return may include harsher restrictions. The Biden administration last year lifted some, including one that kept US investors from buying Venezuelan bonds.

A swift election and a peaceful aftermath may lead the US to recognize Maduro as the legitimate president of the South American nation, and eventually grant sanction relief. The optics are very important, investors say, so they'll watch for allegations of fraud, street demonstrations and the military's response.

On the other hand, an opposition win will likely lead to immediate sanctions relief and quicker economic growth, improving recovery values for investors in the event of a restructuring.

Fabiola Zerpa, the Andes bureau's energy reporter, writes about post-election scenarios for the energy industry.

Venezuela's economic recovery hinges on the speed at which it can boost oil production. Maduro has reiterated a production goal for Petróleos de Venezuela of 1.2 million barrels a day that has been impossible to reach, even during a six- month sanctions reprieve. The expectation is that the country will need longer-term investment to reach those levels, no matter who wins.

Even so, the temporary easing granted a safe passage for foreign newcomers to knock on PDVSA's doors and draft deals, eager to take a piece of Venezuela's vast gas and oil reserves. Oil Minister Pedro Tellechea has said there are more than 20 firms waiting for OFAC licenses to start work in the nation, including India's trading firm Reliance and Colombia's oil operator Ecopetrol.

With Maduro at the helm, production is seen slowly reaching the pre-sanctions level of 1.5 million barrels a day by 2032. The idea is that more limited licenses would trickle in, enabling foreign companies to resume exports to the US, diverting part of the flow heading to China.

While not immediate, a regime change would alter the energy landscape, with sanctions and the endless bureaucracy that follows off the table. Analysts estimate that with the necessary investment, the country could surpass target if the 1.5 million barrels a day in 2025.

How Maduro tamed 130,000% inflation with draconian spending cuts.
Why Machado—who's muzzled and blacklisted—can't be held down.
How Maduro is trying to ditch his despot image.
A network of civilian witnesses plans to observe the election.
Bloomberg Television travels inside Maduro's Venezuela.
How secret talks between the US and Venezuela led to a breakthrough.

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