Venezuela sovereign bonds crashed on Friday as a result of soaring political tensions after the annulment of the country's legislature by its high court on Wednesday, a move that ignited protests, invoked international condemnation and prompted the opposition to call for a military response to what it deemed a "coup." One day after our report on the latest attempt by Maduro to seize unilateral control of the government and to isolate the opposition, the political situation turned "explosive" on Friday when Venezuela's powerful attorney general Luisa Ortega broke ranks with President Nicolas Maduro's government after the Supreme Court annulled congress, a rare show of internal dissent as protests and international condemnation grew.
As a reminder, the pro-Maduro Supreme Court on Wednesday said it was assuming the legislature's functions because it was in "contempt" of the law. The opposition promptly slammed the decision as a "coup" against an elected body.
Luisa Ortega, appointed attorney general in 2007 and a staunch ally of the Socialists who have ruled for the last 18 years, made an unexpected ideological U-turn and rebuked the Supreme Court's controversial move to take over the opposition-led National Assembly's functions.
In a speech before reporters, Ortega said Wednesday’s ruling against the congress “violates the constitutional order.” She was speaking at a scheduled briefing on the state of her office. "It's my obligation to express my great concern to the country." Ortega added that she was speaking in the name of her office’s 10,000 workers and 3,000 prosecutors. “We call for reflection, so that you take democratic paths that respect the constitution” and “guarantee peace,” she said, receiving a standing ovation
At that moments, state television immediately cut off transmission of her talk but other private media outlets continued to carry her remarks, which were quickly picked up by social media.
While various prominent political figures have leveled criticism after leaving the government, it is extremely rare for a senior Venezuelan official to criticize Maduro in this manner.
One person who has known Ortega for years said it was not the first time she had expressed dissent within government, though never so publicly.
"Luisa has suffered a lot of threats from all sides for her principled actions," the person said quoted by Reuters, asking not to be named for fear of reprisals.
Ortega had carefully toed Maduro’s line for years, jailing his opponents on trumped-up charges and declining to prosecute cases of endemic corruption the WSJ added. In recent months, however, she had distanced herself from the government, issuing release orders for detained opposition activists and meeting secretly with opposition leaders. Ortega’s speech could trigger even more defections within Venezuela’s sprawling bureaucracy and armed forces, said retired Maj. Gen. Cliver Alcalá, a top confidant of Mr. Chávez who broke ranks with Mr. Maduro last year the WSJ added.
The military and bureaucrats have up to now maintained a show of iron unity in the face of the spiraling economic and political crisis, however in the most troubling development since the start of Venezuela's crisis, the army may soon turn against Maduro, effectively leading to a presidential coup.
“The Armed Forces are part of Venezuelan society and as such have an obligations to put themselves in defense of the constitution,” Gen. Alcalá said. The opposition alliance has lauded Ms. Ortega’s speech and called Venezuelans to a campaign of civil disobedience to prevent what they call the country’s slide into dictatorship. The opposition plans to march in Caracas Saturday.
Meanwhile, throughout Friday, pockets of protesters blocked roads, unfurled banners and chanted slogans against Maduro's unpopular government. In Caracas, several dozen students marched to the Supreme Court, but were pushed back by soldiers with riot shields.
Some protesters also briefly blocked highways in the capital, holding banners reading: "No To Dictatorship."
Police moved them on, and several were detained, according to a local human rights group. "We have to demand our rights, in the streets, without fear," said opposition lawmaker Miguel Pizarro, who led a knot of demonstrators into a subway train. In volatile western Tachira state, several dozen demonstrators tore up copies of court sentences in front of local judicial buildings.
In addition to domestic condemnation, foreign leaders took the opportunity to slam Maduro's move. Germany accused Venezuela's president of holding the country's population as "hostages" in his battle with parliament.
German government spokesman Steffen Seibert on Friday urged the country to "return to democratic principles and the separation of powers."
He told reporters in Berlin that "it is intolerable how President Maduro is making the population of his country hostages to his own power ambitions," AFP reported.
In Spain, Prime Minister Mariano Rajoy tweeted that "if the division of powers is broken, then democracy is broken." Rajoy expressed support "for freedom, for democracy and the rule of law in Venezuela."
While some government critics were skeptical of Ortega's criticism, speculating her comments may have been a show to feign separation of powers and give the government an excuse to tweak the controversial decision, the market disagreed and in response to the political situation which appeared on the verge of collapse, the price on Venezuela's 9.25% bonds of September 2027 fell by more than 3.5 cents to around 46.4 cents on the dollar, the yield surging to 23%, the highest since last August. It was the largest one-day rise in yield since October.
Longer-dated bonds plunged even more: the more illiquid 7% of March 2038s were bid at 40 cents on the dollar, down from 42.6 cents on Thursday. Their yield rose to 18.22% from 17.17%.
It is unclear how much downside Venezuela's sovereign debt has should the already explosive political situation escalate further, leading to the ouster of Maduro. And perhaps an even more relevant question is what wil happens to the price of crude should this more dire scenario play out.