Trump’s smart sanctions can lead Venezuela back to democracy

On Friday, Treasury Secretary Steven Mnuchin announced that President Trump signed an executive order imposing powerful new sanctions on Venezuela, where President Nicolás Maduro has eroded democracy and consolidated dictatorial rule. Now, the Trump administration should use the sanctions as leverage to try to restore democracy in Caracas by launching a diplomatic campaign to line up international support for the sanctions and to make clear that sanctions relief will come only after Venezuela restores its democratic institutions.

The new U.S. sanctions focus on one of Venezuela’s biggest economic vulnerabilities: its outstanding debts. Venezuela and its state-owned oil company, PDVSA, owe international investors more than $100 billion, including an estimated $60 billion in debts that were either issued in the United States or subject to U.S. law. The new sanctions will prevent Venezuela from borrowing more from international capital markets and will also prevent Venezuela from refinancing the billions of dollars of existing debts that are coming due later this year, meaning that Maduro’s government faces a growing financial crisis this fall.

{mosads}The new sanctions also target Venezuela’s biggest money earner, its oil profits. But rather than trying to prevent Venezuela from exporting oil, which could roil international energy markets and hike gas prices in the U.S., the sanctions simply prevent PDVSA’s U.S. energy company, CITGO, from sending profits back to Venezuela. CITGO can still sell gas to American drivers and it can keep its profits in the U.S., but CITGO’s profits will not longer be able to finance PDVSA and Maduro’s government. This is a smart approach.

The new measures represent a major increase in U.S. sanctions on Venezuela’s government. Previous U.S. sanctions had targeted Maduro’s personal assets and the personal assets of several of his close associates inside the U.S., but had not put significant economic pressure on the government as a whole or on Maduro’s assets in Venezuela. The new sanctions change that. As a result, Maduro and his henchmen will soon face painful decisions about how to slash the government spending they rely on to prop up their regime.

For the Trump administration, the next task is diplomacy. Trump, Mnuchin and Secretary of State Rex Tillerson need to ensure that other countries, like China and Russia, do not step in to provide Maduro with financing he can no longer get in America. Even more importantly, the administration needs to signal to Caracas that Venezuela can avoid the fiscal collapse the sanctions will likely cause, but only if Venezuela restores its democratic institutions.

The Trump administration has hinted at this approach. In a statement accompanying the new sanctions, the Treasury Department indicated that the U.S. government would consider lifting the ban on debt if Venezuela’s democratically-elected National Assembly, which Maduro dissolved earlier this year, was reconstituted and approved Venezuela again issuing international debt.

But in the coming weeks the Trump administration needs to press this point to foreign allies, to the private sector, and to the public and leaders in Venezuela. All parties need to understand that relief from the sanctions is possible, but only if Venezuela reverses its slide to dictatorship. It is this potential for sanctions relief, and for avoiding economic catastrophe, that is most likely to convince Maduro to reverse course, or to convince the allies Maduro depends on to depose him and to restore democracy.

The last several years have been a tragedy in Venezuela, where, as a result of Maduro has gone from a nation that was once among Latin America’s most democratic and prosperous to one that has growing food lines, shortages of basic goods and rising authoritarianism. The new U.S. sanctions were a smart, tough tool to begin pushing back on these trends. For Washington, and for our allies in the region, the task now turns to the diplomacy that can turn economic pressure into political change in Caracas.

Peter Harrell is an adjunct senior fellow at the Center for a New American Security. He previously served as deputy assistant secretary for counter threat finance and sanctions at the U.S. Department of State during the Obama administration.

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