VENEZUELA
POLITICAL AND ECONOMIC OUTLOOK
EUGENIO MARTINEZ
+58 412 3338207
The electoral conditions of a
possible presidential election Constituent Assembly (ANC) are the issues that lack consensus and that
in 2018 and the recognition
of the ANC thwart agreements
in the Dominican Republic. Although initially the Venezuelan government agreed to a long
An additional rector
representing the opposition
in the CNE is the main
concession of Chavismo
concerning the electoral
issue.
YEAR 2018 | NUMBER 2
RECOGNITION OF THE ANC THWARTS
AGREEMENT
POLITICAL SCENARIO
The negotiation process in the Dominican Republic continues without
showing concrete results. The electoral conditions of a possible
presidential election in 2018, international sanctions against members
of Nicolás Maduro’s cabinet and the recognition of the National
have thwarted an agreement between the parties.
negotiation (Maduro noted that the process could last a year), the
rapid deterioration of the domestic conditions of the country, with
almost 100 looting or looting attempts in the first two weeks of 2018,
and the possibility that the European Union announces sanctions
against Venezuelan officials in the next weeks have changed part of the
Chavismo strategy.
Maduro’s government begins to be subjected to pressure by internal
Chavismo groups that need to regain some international recognition,
while at the same time they need to avoid the appearance of further
individual sanctions. Holding a presidential election without the
minimum conditions and without recognition by the international
community (regardless of the participation of the opposition) would
not help to ease dissent about Chavismo, especially when the candidacy
for Maduro’s re-election continues without receiving (so far) the public
support of the main lobbies within the government.
In the negotiation process in the Dominican Republic, the Chavismo
presented as an offer to allow the opposition to have an additional
main rector in the National Electoral Council (CNE), which would leave
the composition of the body with three rectors openly linked to
President Maduro and two to the opposition. In this proposal the
presidential elections would take place between July and October 2018.
However, Maduro's negotiating team demanded the recognition of the
JANUARY 2018

The rapprochement between
the Un Nuevo Tiempo (UNT)
party and Maduro’s
government suffered a major
setback due to the structure
of the National Assembly's
board of directors
LEONARDO VERA
+58 416 4028406
The Petro was initially
announced as a
cryptocurrency that would
alleviate Venezuela's
financial isolation situation.
There is a series of very fast
institutional progress to
promote its creation: two
executive decrees and the
creation of the Blockchain
Laboratory.
National Constituent Assembly. This requirement has thwarted any
progress in a general agreement. Additionally, it has not been possible
to resolve at the negotiation table what concerns the possible removal
of CNE president Tibisay Lucena from the electoral branch. If Lucena
had to leave office, her role as president of the CNE must be assumed by
Abdón Hernández, a key close to Diosdado Cabello and Francisco
Ameliach, which would reduce the power quotas of Maduro and his
close circle in the electoral entity.
For the Chavismo negotiators, the rest of the electoral demands
presented by the opposition must be resolved in accordance with what
is established in the Organic Law on Electoral Processes (Lopre).
The problems of approaching positions in the Dominican Republic are
reproduced internally. The refusal of the opposition to accept Timoteo
Zambrano as president of the National Assembly caused the
rapprochement between Manuel Rosales and the Un Nuevo Tiempo
party with Maduro’s government to suffer a major setback. On the
other hand, internationally, the attitude of Mexican and Chilean
foreign ministers contrasts with that of the former Spanish President
José Luis Rodríguez Zapatero, who from the opposition point is held
responsible for strengthening the positions of Maduro's negotiators.
THE PETRO: A POORLY DESIGNED AND
MISSUNDERSTOOD DEVELOPING PROJECT
ECONOMIC SCENARIO
In the first week of December, President Nicolás Maduro announced
the creation and launch of an official cryptocurrency named "Petro".
According to Maduro, the cryptocurrency would be backed by
Venezuelan reserves of oil, gas, gold and diamond and would be
conceived, in his words, to "move towards new forms of financing". In
perspective then the Petro supposes the creation of both a means of
payment and of digital investment through cryptographic techniques,
from which the government tries to solve its current situation of
financial isolation and overcome the shortage crisis of currency that is
hitting Venezuela.
Since the first statements of Maduro in early December, the "Petro"
project has been advancing institutionally. That same month he
instructed Minister of University Education, Science and Technology
Hugbel Roa to implement the so-called "Blockchain Observatory", a
center that according to Roa, aims to "strengthen a permanent
2

Within the government there
is a high-profile political
group that has been thinking
seriously about options to
place in digital currencies an
alternative means of
international payment to the
dollar.
However, as it has been
observatory of the behavior of the currency that Venezuela is going to
have, and all cryptocurrencies and cryptoassets that can be held in the
country".
Days later, two executive decrees are published in the Special Official
Gazette (No. 6.346); one establishing some very general conditions
regulating the placement and circulation of the cryptocurrency and
thus creating the Superintendence of Cryptoassets and Related
Venezuelan Activities (Decree 3.196); another, where Citizen Carlos
Vargas is designated as Superintendent. Vargas, a lawyer, comes from
being the representative elected by the Anzoategui State for the
National Constituent Assembly. His closest political affiliation is with
Ricardo Sánchez, and both together with Avelino Álvarez, resigned
their opposition militancy to join the ranks of the Gran Polo Patriótico
party in August 2015.
The government's interest in the new world of cryptocurrencies has
certain backgrounds. In the first week of October 2017, the Central
Bank of Venezuela, through one of the members of its board, Dante
Rivas, had organized the First Intensive Symposium of
Cryptocurrencies with the participation of people involved in the
Onixcoin private project; an initiative already under way for the
creation of a cryptocurrency in Venezuela. In the second week of
October, within the framework of the General Assembly of
Fedeindustria, Ramón Lobo, even in his capacity as Sector Vice
President for the Economy, highlighted that there was a work team
evaluating the incorporation of cryptocurrencies as trade exchange
currencies.
As we have previously pointed out, the connection of Ramón Lobo,
Dante Rivas and Hugbel Roa with the political circle led by Vice-
President Tarek El Aissami is well known, and everything suggests that
within the government there is a high-profile political group that has
been thinking seriously about options to place an alternative means of
international payment to the dollar in digital currencies.
The last progress in this area that deserves to be reported may be the
order publicly made by Nicolás Maduro to issue a total of 100 million
Petros, with a value equal to the price of one oil barrel of the
Venezuelan basket, and in that purpose the decree signed on December
27 declaring field number 1 of the Ayacucho Block of the Orinoco Oil
Belt (FPO) as material support of the national cryptocurrency.
But to what extent is Petro a cryptocurrency? What can be its scope
and its future?
The first thing to indicate is that the idea of an official and government
3
conceived, the Petro has
nothing to do with
cryptocurrencies. These are
mined and produced in a
decentralized and
anonymous way. There are no
official cryptocurrencies yet.
Petro's issuance resembles
the newly-known "initial
currency offers" (ICO) for
start-ups, which constitute
mechanisms to raise
financing in investment
projects in exchange for
"tokens".
The right placed on the
holders of Petro is a natural
resource, of public domain,
not liquid and of uncertain
value. This severely
compromises its chances of
success.
Something more promising is
the government's interest in
legalizing digital mining and
the cryptocurrency business.
But either as a means of
payment or as an investment
instrument, its risks should
be warned.
cryptocurrency seems somewhat unusual in the unregulated world of
digital currencies and assets. By definition, up to now, cryptocurrencies
belong to a world of decentralized, anonymous, and to some extent
subversive digital production. Thus, in a certain sense, an official
cryptocurrency is an "oxymoron". Certainly there are advanced
projects by some central banks and governments in an effort to
understand and take advantage of the "blockchain" technology, but
there is no specific experience yet of official cryptocurrencies.
Decree 3.196 while speaking of the Petro as a cryptocurrency, also
establishes that its issuance and primary distribution will be done
through an auction mechanism or direct allocation conducted by the
Superintendence of Venezuelan Cryptoassets and Venezuelan Related
Activities and based on the number of oil barrels "granted as support
by the national executive". All this under the understanding that the
barrels that support the Petro correspond to oil not produced and
buried in the sub-soil. Consequently, the Petro is digitally issued by an
executive order in a so-called initial currency offer (ICO), and becomes
a financing mechanism for the State and, as explained in decree 3.196,
"a contract for the purchase and sale of oil "not extracted and
belonging to the Venezuelan crude reserves.
As such, then Petro would function as a funding mechanism for the
State that grants a property right over a natural resource whose
realizable value is uncertain. In that sense, it would work in much the
same way as a number of business ventures (starts-ups) that today
issue rights called "tokens" in order to raise capital to develop their
projects and whose price is paid in digital currency.
Superintendent Vargas has said in the media that in effect the Petro
will not be "mined" as it is common in cryptocurrencies. What we
additionally know is that its value is not tied to the confidence that the
blockchain technology gives in a certain way, but rather to the
realizable value of a non-liquid asset, which by law is public domain
and that at the moment can only be extracted in partnership with the
national oil company PDVSA, which is facing serious financial
difficulties, as has even been recognized by its newly appointed
President Manuel Quevedo.
We believe that a different issue is the interest that the government has
shown in the legalization of digital mining and commerce in
cryptocurrencies. Superintendent Vargas has also said publicly that the
government is very close to the legalization of the activity and that it is
even evaluating the implementation of a special economic zone for
large-scale mining.
Enabling foreign trade business and financial operations from
4
 Venezuela with cryptoassets is something that seems perfectly feasible
and certainly it can help alleviate the shortage crisis of foreign
currency. However, the risk that particularly involves the use of
cryptoassets either as a means of payment or as an investment
instrument is something that should be warned.

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