In tandem, these events dramatized how profoundly destructive decades of misrule have been for the country. After the pseudo-socialist and capricious government of President Hugo Chavez tore up the rule of law and nationalized the country’s energy and manufacturing bases, the obstinate and deeply hated dictatorship of Nicolas Maduro pulverized every one of the country’s economic engines as the price for holding onto power at any cost. The $240 billion external debt is only the biggest liability among those that have been tallied up; the bill being paid by the Venezuelan people for decades has been more painful and morally costly. The enormous carnage of Wednesday’s earthquakes, lain aside the largest human displacement crisis in the history of the Western Hemisphere, are simply incalculable.

What is underneath?

The history of the Chavista regime will not be kind to its tireless defenders in the annals of history. It never came close to being a convincing economic or political model for improving the lives of people in a country as rich as Venezuela once was. Instead, it was a model of systematic destruction of capital, concentration of power in the hands of an ever-shrinking elite, brutality in place of democracy and rank anti-Americanism as a state article of faith that would explain away every failing of the regime.

While some of its proponents and defenders may have been idealists, many were simply glomming onto its anti-American bluster for their own ends or getting some kind of financial incentive from the regime’s coffers. Chavismo built nothing lasting, but it destroyed a lot of the country’s foundations and all of those who enabled, championed and propagandized for it over the years have fallen quite silent for good reason. The painfully visible truth has humiliated those with an ounce of shame left.

Let’s start with the massive external debt that is almost twice as big as expected. Most of it is with investors and commercial providers, all of whom were roundly stiffed by the regime in violation of binding contracts. Private bondholders carry about $100 billion in assorted liabilities while commercial creditors and energy companies carry about half that over and above. Those who have won or are seeking arbitration awards on assets taken by the regime currently carry about $20 billion. All of these amounts are growing with interest and penalties under the binding terms the regime agreed to in order to get its hands on cash, assets or service contracts it then squandered.

The reported intention to bypass the IMF and restructure the private debt on a short timetable has been met with controversy and skepticism. The need to gain the assent of bondholders in what may devolve into a unilateral offer has never been an easy thing to do. Argentina learned that the hard way in the 2000s with its non-IMF restructuring of its massive 2001 sovereign default and holdouts succeeded in torpedoing the efforts to lock them out because international bond contracts are generally a two-way street when issued in trustworthy jurisdictions.

The regime’s anti-American allies in China and Russia, who did more to enable its destructive behavior, are also on the hook for billions in bilateral loans they expect to be repaid. Nobody was spared, it seems. We still don’t have the full picture that the interim government’s financial advisory firm Centerview Partners has uncovered, but the swath of previously unrecorded or unverified liabilities appears to stretch into dozens of billions of dollars. The FT story was the product of Centerview and the regime wanting prepare everyone for the details, given the much larger total.

And $240 billion is a staggering amount of money for a country that is an even worse version of kleptocratic inequality and injustice than what Chavez took over in 1999. The political and military elites have copiously held onto whatever is left of the wealth that was used to leverage this debt. It certainly didn’t go into maintaining a modicum of Venezuela’s infrastructure integrity for the last 27 years. The rubble in the earthquake zone is a testament to that.

Earthquakes are natural disasters but they don’t kill people. Collapsed buildings kill people. The sweeping devastation this week exposed decades of deferred maintenance, unenforced building codes and systemic state neglect that the regime refuses to account for. Venezuela modernized its building safety codes after the last major earthquake in 1967, well before the arrival of Chavismo, but many of its urban high-rises predate those laws and another update in 1982. The regime did nothing to comply. All of those buildings have spent 27 years not having improvements made to their inadequate concrete confinement, weak beam-column joints, and open ground floors used for parking or commerce that easily pancake under lateral shaking.

The very barrios where Chavismo nurtured its political base are a symbol of the extreme danger that the regime never addressed. Throughout its reign, informal barrios lacking basic engineering have swelled in density with conditions only worsening under Maduro. They expanded vertically with low-strength concrete and brittle masonry infill. Many were built on steep, unstable slopes vulnerable to landslide-induced failures.

The power stations at Planta Centro and the El Palito refinery were immediately knocked out on Wednesday. Years of hollowing out the energy grid with no investments or improvements and a lack of redundant backup systems left it in shambles. The power failure has hampered rescue efforts so severely that it is expected that many who could have been easily rescued will end up dying in place.

The most stunning observation has been the comparison of the destruction and death in the 1967 earthquake in the same region with this week’s disaster. While this quake had a magnitude of 7.5, the previous quake was at 6.6 yet its death toll was 300 and the property damage was in the range of $140 million. With the current death toll expected to reach 10,000 or more and the estimated property damage soaring well over $6 billion, the contrast cannot be chalked up to the seismic magnitude alone.

Our take:

The rubble of Chavismo that has fallen upon the Venezuelan people cannot be wholly cleaned up on a slow, bureaucratic timetable requiring consensus, lawsuits, messy debates and petty grudges. It is also not an excuse for some new form of domination to take hold that does little or nothing to rebuild the country fast enough to not prolong an already unbearable suffering.

But the old rules of the various games that govern Venezuela’s future have also fundamentally changed. The United States has long abandoned its policy of benign neglect in Venezuela, and Maduro is now in a U.S prison facing criminal charges. The interim regime is in place because recent wholesale removals of despotic regimes have gone quite badly, more for the people of those countries than anyone else. Yet the twin disasters of the debt profile and the earthquakes are about as dramatic a wake-up call as could be delivered to all the players in Venezuela’s future.

Rebuilding the country’s finances, economy and physical infrastructure was going to be far more costly than expected even before the earthquakes struck. Now there are no illusions. The difficulty in accomplishing it was also going to be far greater than imagined, and now we can all be honest with ourselves about that fact. But that cannot be met with throwing up our hands, nor with being wedded to old notions of how things must be done.

The debt restructuring will be better served by innovative approaches that might ruffle the feathers of the Washington Consensus, but might also end up reaffirming a role that the IMF could play that isn’t conventional. Their willingness to step up over and above the call of duty appears genuine, especially after the earthquake.

The governments of China and Russia, meanwhile, are not expected to agree to any significant write downs of their debts. Such good friends they turned out to be, but I’m not the least surprised. Their interest in Venezuela was at best selfish and at worst a geopolitical drag show of “brotherhood”.

The bondholders in dialogue with the interim government and Centerview have yet to be heard from at scale. How they assess the situation after this week will be a sign of how long or short the wider process will actually be. We shall see if such a massive restructuring can be achieved voluntarily without an audit first coming from the IMF or a similar technical agency outside the remit of the sovereign’s advisors. Nobody should rule it out, especially since a rapid restructuring would be much more helpful to the Venezuelan people than a long one.

The hope of restoring democracy is also riding on how well the country is rebuilt along all these critical lines. The U.S. recovery plan, articulated by Secretary of State Marco Rubio after Maduro’s ouster, is widely viewed as sound and reasonable. Even with the added misery and tasks after the earthquake, that plan is still a decent pathway to economic and political recovery. A lot more has to go right to help it move along, and many disparate players — from dogged regime holdouts to the widening universe of creditors — have to evaluate the full downside, human and otherwise, that each complication may bring.

A Note to Readers:

With U.S. Independence Day coming next weekend, I will be taking some vacation time next week and there will not be an edition published next Friday. I’ll be back at it with a new edition on Friday, July 10. To all my American friends, have a safe and happy 4th of July!

From first leftist to first outsider

The swing from outgoing President Gustavo Petro - the country’s first leftist president - to a conservative populist who has never held public office is an extraordinary ongoing repudiation of Colombia’s political establishment. The fact that today’s turnout was so high only sharpens that repudiation. Today’s victory caps a remarkable accomplishment by an attorney who once represented the chief money launderer of Venezuela’s Chavista regime and launched into politics through a flashy, populist discourse over social media. He will face a fragmented Congress where the leftist coalition of his defeated opponent holds the largest blocks in both houses but not majorities.

Analyzing the results: How Cepeda lost and how Abelardo won

Some curious facts emerge from today’s results:

• Ivan Cepeda ran a terrible campaign in the second round despite Petro’s mobilization of the state to help him. In the final week Cepeda finally caught fire and began to gain momentum with a more appealing message. Several observers on Colombian television tonight reported hearing anonymous sources close to Abelardo confess that if the campaign had gone an extra week they would have lost to Cepeda. But, he didn’t have that extra week.

• In comparison to the first round results, Abelardo gained fewer votes than Cepeda, illustrating how decisive the leftist’s late start might have been to his defeat. Cepeda’s speech to his supporters tonight, where he pledged to accept the certified results, showed a level of political maturity that was absent from his sour harangue on the evening of the first round when he fell short of expectations.

• De la Espriella also had a bit of a bumpy second round campaign, launching his own allegations of vote manipulation by drug gangs and armed terrorist factions he said were allied with Cepeda. By leaning into a rival conspiracy theory rather than pounding away on the critique of the Petro-Cepeda policies around crime, insecurity, violence and the “Total Peace” initiative with terrorist factions, his message lost some of its strength with swing voters.

• All of that said, the map of the results by department showed little to no change from the first round: Cepeda won the outer rim of the country while Abelardo won the heartland. Yet, Abelardo — with his home base in Barranquilla - cut into Cepeda’s base in the coastal region as well as in the capital city of Bogota. The leftist’s margins were not as big as they needed to be there, and many young voters found Abelardo’s rock-show nationalism appealing.

• Abelardo’s victory will also determine the future of the establishment Democratic Center party. It was not only a good night for the populist outsider and his movement, but for the last elected president of the center-right, Ivan Duque. Much of Abelardo’s political firmament, including his running mate Jose Manuel Restrepo, came from Duque’s political operation. The political elevation of duquismo tonight is important. Whether it means a shift away from the Democratic Center to a larger fold of Abelardo’s Defensores de la Patria — much like what happened in Argentina with Patricia Bullrich after President Javier Milei’s victory — it isn’t entirely clear tonight. But with the collapse of Paloma Valencia in the first round, the future of the Democratic Center party is certain to be redefined by these events.

• Petro, true to form, started tweeting conspiracy theories the moment the preliminary results showed Abelardo’s victory becoming clear. He alleged, without a shred of evidence, that Israel somehow had hacked the vote counting software and manipulated the results. Many seasoned experts reacted by explaining in detail how this was pure fantasy on Petro’s part, something that is not even possible with the country’s voting system. It was yet another insane rant after so many before it that sharpened Petro’s image as an isolated, paranoid figure who never understood how to be president or how to lead effectively.

  So much for the first product of Colombia’s repudiation of the establishment. We will see how the second product of it, President-elect Abelardo de la Espriella, takes the baton and runs with it.

What to watch for next

The audit of the ballots began almost immediately tonight, and Petro’s reckless statements are likely to be rubbished further by the certified outcome. It will be a vindication of Colombian democracy and how strong the public’s faith and participation in it remains no matter what politicians say. Cepeda’s pledge to accept the results put aside most concerns about the aftermath of this extraordinary campaign.

Abelardo’s top cabinet picks, much like Petro’s after his 2022 victory, will be critical to watch. If he names a finance minister with little experience or a divisive profile, markets will be disquieted. His anti-elites rhetoric in the campaign helped him overcome the center-right establishment, but will he govern with a sustained hostility for those in that establishment he will need in order to be effective? Strong signals will come from his cabinet picks, but let’s not forget that Petro got strong marks for his first cabinet and then proceeded to fire and alienate most of them in short order. A failed presidency followed and is about to conclude in a few weeks.

The president-elect has no visible political foundation in civil society, nor does his coalition amount to much of a political party. This was a similar feature for Milei’s outsider presidency in 2023, but the Argentine president had served a term in Congress when he took the presidential sash. De la Espriella has no public service experience of any kind, and taking the helm of a large and complex country of 54 million people is an enormous task. The mercurial, personality-driven presidency of Petro was not only a useful foil for Abelardo, but a warning: It doesn’t work, and it usually ends quite badly.

I’m writing this before the president-elect’s victory speech, so it remains to be seen what kind of president he will begin to be tonight. It was an extraordinarily polarized election result, and no country can be effectively led if it remains eternally polarized. But I would argue that the Colombian electorate today did not express a desire for eternal polarization.

While both candidates went hard after the anti-vote, it seems it was a wash given the tiny margin. But both Abelardo and Cepeda (for him, in the final week) also made sincere appeals to the optimism and social aspirations of the Colombian people. They wore very different colors, and had starkly different visions of what those aspirations were, but such a high turnout was not from protest voting. There was a healthy dose of tentative hopefulness as well.

Cepeda should remember this as he is graceful in defeat. But more importantly, Abelardo de la Espriella needs to keep this in mind more urgently. Javier Milei won a huge landslide victory in Argentina in 2023, and overcame a lot of early challenges by keeping faith with the voters who trusted him. Abelardo has no big mandate tonight but he will have the presidency, and the voters who trusted him took a risk. He has to keep faith with their hopes as much as with their fears, or he risks losing the legitimacy he won today.

It is the last presidential race in Latin America until Brazil’s first round vote in early October. I will be publishing a special edition on Sunday after the results are clear to not only give a hot take on what it means but attempt to sum up where we are more broadly amidst the region’s democracies — current and hopefully future — transition into a new political, diplomatic and economic era.

See you back here on Sunday night!

For this reason, the final Peruvian results are likely to be contested, the finger pointing will escalate, and the period of uncertainty could devolve into a political melee that spills outside the bounds of political institutions. Yet, the “anti-vote” phenomenon is creeping into more of the major elections in the region and showing itself in unexpected ways, if not in close results than in the struggle to govern after a victory. This has already happened in Chile this year, is happening in real time in Brazil and Colombia, and may be starting to unfold in Argentina. Unpopular anti-democratic forces in Bolivia, meanwhile, are attempting a sort of five-dimensional chess variety of the phenomenon, causing so much chaos that the elected government somehow gains an anti-vote from an exhausted public.

What is underneath?

Throughout the South American democracies, traditional parties from both sides of the spectrum have been steadily losing the trust of voters for some time now. Loyalty to established parties has vanished from the mainstream of electorates and many parties have managed to limp along thanks to personality cults around individual leaders rather than coherent political projects. Into the vacuum has entered a range of reformers, outsiders or populists seeking to capture that mood. Voters are showing themselves to be motivated at the ballot box more by a desire to keep certain forces out of power rather than enthusiastically backing those they want. Often now, the anti-vote is all that is being served up to them.

In Bolivia, the long-standing dominance of the leftist Movement for Socialism (MAS) imploded last year amidst deep public mistrust, giving moderate conservative Rodrigo Paz an opening to win the presidency. But the chaotic unrest he is now facing, largely at the hands of factions from the former political base of the MAS, demonstrates that the collapse of trust has not yielded to stability when a decisive democratic result is rooted mostly in disaffection with the status quo.

In Colombia, the public flirted with a turn to the left four years ago. Indeed it was a first of its kind, driven largely by disaffection with the long-governing center-right establishment party, the Democratic Center. But President Gustavo Petro is ending his term in office as Colombia’s first leftist president in modern history mostly as a failure. His boisterous style may have helped contrast him from the status quo in 2022, but it didn’t translate into effective governance. Petro failed to achieve most of his promised reforms, spent valuable political capital on erratic obsessions and managed to alienate nearly all of his inner circle. The first round of presidential elections on May 31 produced a massive rightward swing with the victory of conservative outsider Abelardo de la Espriella. He appears on track to defeat Petro’s chosen leftist successor, Ivan Cepeda.

Chile had also elected a novel leftist with former President Gabriel Boric in 2021, coming out of the student protest movement rather than the traditional leftist constellation of parties. Boric cut an fascinating figure at the time - articulate, unconventional, inspiring and full of respect for how to change institutions through democratic action rather than bluster and bullying. But devotion to process didn’t translate into effective governance, either. As I wrote in 2023, Boric got the presidential sash but couldn’t figure out what to do with it because he never understood the art of winning in politics from inside the halls of power, only from the outside. He was almost an anti-president.

And proving the rule, Boric’s conservative successor is feeling the same heat only months into his term. President Jose Antonio Kast was elected in a landslide against Communist Party leader Jeanette Jara — quite a polarized runoff. But to his credit, Kast’s project was not an “anti-Boric” movement but a clear, defined and specific agenda: curtail illegal immigration and crack down on violent crime. He hit two of the voters’ top priorities and scored a 17-point margin of victory. Yet, the strong whiff of the “anti-vote” — i.e. voter anger with the status quo — seems to have powered his rise more than a zeal to deliver on his promises. Right out of the gate, Kast has bungled nearly everything he’s tried to do, giving the impression he was more determined to win than to govern.

Many observers are seeing that the extreme fragmentation following the collapse of establishment coalitions is partly to blame for all of this. It isn’t just that Peru saw over 30 candidates in its first round, or Bolivia’s post-MAS landscape has led to an explosion of localized factions. Across the continent, winning the presidency now depends more on harnessing some aspect of the anti-vote than proposing a new set of ideas. Governing then requires a frantic cobbling-together of fragile coalitions that can’t accomplish much or have no experience or respect for the art of winning while in power.

Our take:

While the Peruvian runoff is the most stark example of how fragmentation and the anti-vote have deepened and prolonged public frustration rather than solving it, uncertainty seems to be overtaking stability as a rule rather than an exception throughout the region. Real problems and real anxieties of South American voters are not being meaningfully addressed as this phenomenon unfolds, even if democracy remains resilient in practice if not in function.

Organized crime has become a macroeconomic force in the region, and the voters are looking for solutions. The politicians are offering lots of ideas but often in tweet or TikTok form rather than in a manageable set of coherent policies. In Peru, illegal gold mining drives violent extortion syndicates. In Brazil, powerful transnational criminal organizations control entire neighborhoods and trade routes, functioning as shadow economies. Across the region, voters are punishing incumbent governments for failing to change this, devolving into a cycle of anti-votes every four or five years.

There is also the seemingly unending problem of economic inequality in the region among countries large and small, rich and poor. With commodities still dominating much of the region’s output, the clash over who benefits from natural resources continues to stall economies. Bolivia’s economic crises directly fueled the political demise of MAS. In Peru and Colombia, rural populations situated near vast mining and energy reserves remain embittered by their lack of financial mobility, keeping the embers of anti-establishment populism burning even as voters flirt with right-wing promises of mano duro crackdowns on crime. Disparity is fueling more fragmentation and giving more room for “anti-vote” prevalence.

There is also cultural and regional fragmentation that give anti-vote candidates a visual identity complete with colors, hats, accented slogans, musical backdrops and often racial tones. Peru is split between coastal Lima and the Andean and Amazonian highlands, similar to Bolivia’s urban/rural divide. Brazil is divided between its wealthier south/southeast and the rural, poorer northeast. Colombia has a variety of urban centers and marginalized peripheral regions, where alternating fears of economic insecurity and rising crime are resulting in a contest between which segment of the country is more ignored. As such, grievance and fear of the other side is increasingly driving who ends up in presidential runoffs, and when this or that segment gains power, inclusion often results more in cronyism rather than change.

This is why the unpopular Lula da Silva won a razor-thin victory in 2022’s presidential election in Brazil against the unpopular President Jair Bolsonaro, and has governed poorly ever since. In turn, Senator Flavio Bolsonaro was the beneficiary of internal machinations on the Brazilian right to dominate the pre-candidate phase of this year’s election, driven by an unyielding determination to regain power for his clan. Should the unpopular Flavio face the unpopular President Lula, it will once again be a showdown of who wins the anti-vote, and we should expect another narrow result. What Lula would do with a fourth term, after doing so little with his third, seems as much an afterthought as what a Flavio presidency would look like beyond clemency for his imprisoned father and heavy doses of political revenge.

This is where we are, where we’ve been or where we seem to be heading throughout the region. There are some bright exceptions and some real hopes behind the few who have broken the pattern and seem genuinely eager to deliver on their promises. But so long as the anti-vote rules the game, there are unlikely to be many real winners.

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