Venezuela's Deepening Crisis Exposes Split in Ruling Party

(Bloomberg) -- Cracks are beginning to show in Venezuela’s ruling party after a ratcheting up of violence surrounding the deadly street demonstrations demanding President Nicolas Maduro’s ouster.

Public Prosecutor Luisa Ortega Diaz, long loyal to Maduro and his late predecessor, Hugo Chavez, has become one of the most strident critics of a crackdown on dissent that has left more than 65 dead and hundreds behind bars. On Thursday, she lambasted the president and decried a “brutal repression” against dissidents. Days before, the defense minister made a rare public plea to stop “atrocities” being carried out by the National Guard.

While Venezuela’s deterioration has been well documented for years, observers say the country has entered a new phase as Maduro asserts his control. Elections have been delayed, rules to rewrite a constitution that usually require a referendum have been ignored and civilians are being brought before military tribunals on charges of betraying the fatherland.

To add to the political and social chaos, the government failed to make a nearly $1 billion loan payment to its ally Russia for previous arms purchases and investors are increasing bets on a default on billions of dollars of debt.

The criticism from within the administration comes at a time when Maduro is particularly fragile, says Alejandro Velasco, a professor of Latin American studies at New York University.

“Domestically and internationally, the government is cornered,” he said. “The government’s base is not just very small, but is dwindling.”

Fissures within the Maduro administration became more apparent Wednesday following the death of a 17-year-old protester in Caracas. The government blamed a homemade explosive device he was allegedly carrying, while the opposition pointed to videos showing National Guard troops shooting tear-gas canisters in his direction. The public prosecutor’s office pledge to investigate but Venezuela’s Vice President took to the airwaves on Thursday, showing what he said was autopsy evidence that backed the claims that his death was self-inflicted.

A day after Defense Minister Vladimir Padrino Lopez called on the National Guard to halt inappropriate behavior toward protesters, videos of security forces hauling a demonstrator off by dragging him through the street on a motorcycle appeared on social media. Earlier this week, videos showed guardsmen robbing civilians of purses, watches and phones in broad daylight in Caracas.

The opposition, a loose alliance of parties, has been trying to unseat the ruling socialist regime since Chavez rose to power almost two decades ago. Government opponents have been emboldened as residents of poor neighborhoods in big cities, typically the backbone of the government’s support, increasingly take to the street amid deepening economic woes. The demonstrations in slums and working-class areas have led to sporadic looting and armed stand-offs that often end with clouds of tear gas and rubber bullets.

With an approval rating hovering at or below 20 percent, Maduro is trying to ride out the latest wave of unrest and low oil prices ahead of scheduled presidential elections next year. Critics are increasingly skeptical the government will allow a free and fair vote after the partisan electoral board already scrapped a recall referendum and pushed back local ballots to the end of the year.

Speaking from the steps of Supreme Court on Thursday, Ortega Diaz slammed a recent push by the embattled president to rewrite the country’s constitution. The effort to convoke a constituent assembly is “destroying Chavez’s legacy” and trampled on basic rights, she said in a webcast before petitioning the court to revoke Maduro’s measure.

To make things worse, the savings accumulated during the oil boom years appear to be nearly dried up. International reserves have tumbled 75 percent from 2008 to $10.5 billion, and the government has had to severely cut back on essential imports of food, medicine and capital goods in order to continue paying its foreign debt. The currency has become nearly worthless in the black market, where it takes more than 6,000 bolivars to buy $1.

The missed payment to Russia, which Venezuela’s ambassador to Moscow said he hopes to resolve through a second restructuring of the loan terms, is the latest sign of financial distress.

Venezuelan debt, which lost 4.9 percent in the past week, already trades near what some expect would be recovery value in the event of default, between 35 cents and 50 cents on the dollar, with yields north of 25 percent. A recent series of deals to sell illiquid securities from the central bank’s balance sheet to Wall Street banks has drawn the ire of the opposition, which is threatening to repudiate the debentures in any future government.

Protesters will gather this afternoon where the 17-year-old boy fell dead. Miguel Pizarro, an opposition lawmaker representing the working-class district of Petare in Caracas who was next to the boy who died, said demonstrators are unbowed. Lawmakers like Pizarro have spent more time marching in the street than at Congress, which has been weakened by the Supreme Court.

“Violence only brings more violence,” he said. “We’ve presented proposals to resolve the situation which have been ignored. No one can convince us that we’re condemned to this reality.”

To contact the reporters on this story: Daniel Cancel in Sao Paulo at dcancel@bloomberg.net, Andrew Rosati in Caracas at arosati3@bloomberg.net.

To contact the editors responsible for this story: Vivianne Rodrigues at vrodrigues3@bloomberg.net, Brendan Walsh