Final Project - Risk Modeling and Assessment

Mercado, & Osuna 1

Andrea Mercado (192676)

Rafael Osuna (189895)

Professor: Dr. Martin A. Negrón

ANLY 515-51- R-2018/Spring - Risk Modeling and Assessment

April 5th, 2018

Risks of Venezuela’s 2018 Presidential Elections

1. Introduction.

Venezuela holds the world’s largest supply of crude oil which once accredited it with the

richest economy in Latin America. However, the nation has been dealing with the worst

economic and political crisis in the last 50 years. Particularly, the crisis hit a new level in 2015

when declining oil prices started to affect the economy of the nation aggravating the existing

social and political issues.

Nowadays, the nation is believed to have the world’s highest inflation with a rate greater

than 2,000% in 2017 and an expected rate of 13,000% in 2018. This hyperinflation is currently

causing the death of thousands of Venezuelans due to crime and the severe lack of food,

medicines, services, among other commodities.

The origins of this crisis can be traced back to the administration of the former president

of Venezuela, Hugo Chavez, who was elected in 1998 and governed between 1999 and 2013

when he died from cancer complications. Just before passing away, Chavez personally advocated

for Nicolas Maduro asking his followers to elect him as his successor. That being said, Nicolas

Maduro was elected president of Venezuela in an unreliable election process in 2013. Since then,

he adopted the most controversial policies in the last 18 years which has caused Venezuela to be

categorized as one of the worst economies and most dangerous places in the world.

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Nicolas Maduro has control over 4 out of 5 of the main Venezuelan institutions. One of

them is the National Electoral Council (Consejo Nacional Electoral in Spanish) which agreed to

call extraordinary presidential elections in May 2018. As a consequence of the election’s settings

the opposition has decided not to participate in the process due to severe evidence of the National

Electoral Council bias in favor of Nicolas Maduro and his party. However, Henry Falcon, one of

the main politicians of the opposition, has decided to run against Maduro without the support of

his party that refuses to be part of the process to avoid legitimizing the current government.

Consequently, the international community has requested observation with no success.

Maduro has extended invitation to international observers such as the UN but there has been an

agreement about it due to the conditions of the process.

In addition, the United States, Canada, Panama, Australia, among other countries have

imposed sanctions to several Venezuela’s officials, including Maduro. The U.S. government in

particularly is conducting multiple investigations, including a case related to money laundering

against Alejandro Andrade, Venezuela’s former National Treasury, who has decided to

collaborate with information. Nonetheless, many national and international stakeholders believe

that economic sanctions are not enough and till this day Venezuelans do not see a solution for

this crisis in the horizon.

That being said, the United States and several Latin American nations are considering the

option of publicizing a humanitarian crisis in Venezuela which would lead to a military

intervention in the country. Such possibility has awakened more doubts about what the future

would look like for the country and its people.

With that in mind, this paper intends to create a model for different scenarios that could

be developed after Venezuela’s elections in May 2018.

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The objective of the model will be to be answer the following research questions:

a. Would the opposition participate in the elections if negotiations lead to the

presence of international observers in the process?

b. Would the opposition participate in the elections if more sanctions are established

against Venezuela’s officials?

c. Would there be a political change in Venezuela if Henry Falcon is elected

President?

d. What are the most important events for a political change to occur in Venezuela?

Lastly, the analysis would also consider the following risks:

a. If the presidential elections don’t have internal observers, then the opposition

wouldn’t participate in the elections minimizing the probability of a political

change in Venezuela.

b. If more sanctions are established against Venezuela’s officials, then the

opposition wouldn’t participate in the elections minimizing the probability of a

political change in Venezuela.

c. If Falcon wins the presidential elections, then Venezuela wouldn’t have a political

change.

2. Variables description.

This paper considers the following nodes (based on events) and nodes probability tables

defined with reasonable and supported assumptions from news articles quoted for each case:

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P[AlejandroAndradeSpeaks] Alejandro Andrade, Venezuela’s former National

Treasure, continues to collaborate with the U.S. government and their investigations about

money laundering in Venezuela.

There is good evidence that Alejandro Andrade will continue revealing important

information for further investigations about the case (El Venezolano News, 2018).

True: .9

P[DEAContinuesInvestigation] The Drug Enforcement Administration moves forward

with their investigations against Venezuela’s officials.

This event is considered to be impacted by Alejandro Andrade’s collaboration

with the U.S. federal investigations about Venezuela. If Andrade doesn’t

collaborate the chances of the DEA’s investigation to continue would be smaller.

(Woody, C. 2016).

P[DEAContinuesInvestigation | AlejandroAndradeSpeaks] = .75

P[DEAContinuesInvestigation |-AlejandroAndradeSpeaks] = .55

P[DrugTraffickingProofs] The Venezuelan Government is accused of being one of the

most important drug cartels in the world.

The events that lead to the accusation of drug traffic against the Venezuelan

Government would depend on the DEA’s investigations. If the DEA continues

their investigations and finds more supporting evidence, the chances of these

accusations would be greater. (Mora, E. 2017).

P[DrugTraffickingProofs | DEAContinuesInvestigation] = .75

P[DrugTraffickingProofs |-DEAContinuesInvestigation] = .2

P[MoneyLaunderingProofs] Discovery of proofs of money laundering in Venezuela.

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This event is related to Andrade’s participation in further investigations about

money laundering in Venezuela. If Andrade’s willing to participate, there will be

greater chances of discovery of more proofs. (U.S. Department of Justice, 2018).

P[MoneyLaunderingProofs | AlejandroAndradeSpeaks] = .95

P[MoneyLaunderingProofs |-AlejandroAndradeSpeaks] = .45

P[InternationalSanctions] International Sanctions imposed to the Venezuelan

government.

If further investigations identify supporting evidence of both drug traffic and

money laundering in Venezuela, there could be greater chances of more countries

issuing more sanctions to Venezuela’s officials. If the discovery of only one kind

of proof occurs the chances of more sanctions would be smaller. (Spetalnick, M.,

Ulmer, A., & Zengerle, P. (2018).

P[InternationalSanctions | DrugTraffickingProofs | MoneyLaunderingProofs] =.95

P[InternationalSanctions | DrugTraffickingProofs |-MoneyLaunderingProofs]=.65

P[InternationalSanctions |-DrugTraffickingProofs | MoneyLaunderingProofs]=.75

P[InternationalSanctions |-DrugTraffickingProofs |-MoneyLaunderingProofs]=.45

P[FavorableNegotiations] Negotiations for transparent Presidential Elections in

Venezuela.

This event is related to the imposition of international sanctions against the

Venezuelan government. If more sanctions are established, there could be higher

chances of favorable negotiations for transparent presidential elections in

Venezuela. (Reuters staff. 2018)

P[FavorableNegotiations | InternationalSanctions] = .8

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P[FavorableNegotiations |-InternationalSanctions] = .25

P[NewNationalElectoralCouncil] Establisment of a new board for the National

Electoral Council.

This event could occur depending on the favorable negotiations about a

transparent process for the elections. If the favorable elections come into place,

there would be greater chances of a new board for the National Electoral

Council. (Orozco, J. 2017).

P[NewNationalElectoralCouncil | FavorableNegotiations] = .75

P[NewNationalElectoralCouncil |-FavorableNegotiations] = .4

P[InternationalObservation] Presence of International Observers in the Presidential

Elections in Venezuela.

This event could depend on the negotiations for a transparent process for the

elections. If the negotiations occur, there would a more suitable scenario and

higher chances of international observers in the elections. (Dobson, P. (2018)).

P[InternationalObservation | FavorableNegotiations] = .85

P[InternationalObservation |-FavorableNegotiations] = .1

P[OppositionParticipates] The opposition decides to participate in the presidential

elections.

This event could be related to both the establishment of a new board for the

National Electoral Council and the participation of international observers. If

only one of these conditions occurs, the chances of the participation of the

opposition would be smaller. (Herrero, A. V., & Semple, K. 2018).

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P[OppositionParticipates | NewNationalElectoralCouncil |

InternationalObservation] =.9

P[OppositionParticipates | NewNationalElectoralCouncil |-

InternationalObservation] =.8

P[OppositionParticipates |-NewNationalElectoralCouncil |

InternationalObservation] =.55

P[OppositionParticipates |-NewNationalElectoralCouncil |-

InternationalObservation] =.1

P[OppositionWins] The opposition wins the presidential elections.

This event would be related to the participation of the opposition in the

presidential election. If the opposition participates in the elections there is a fair

chance that the party will win the election. (Wyss, J. 2018).

P[OppositionWins | OppositionParticipates] = .55

P[OppositionWins | -OppositionParticipates] = 0

P[HenryFalconWins] Henry Falcon wins the presidential elections.

This event could be related to the participation of the opposition. However, even

if that condition is met the chances of this event are very small (Wyss, J. 2017).

P[HenryFalconWins | OppositionParticipates] = .2

P[HenryFalconWins |-OppositionParticipates] = .06

P[PoliticalChange] A political change occurs in Venezuela meaning that a new President is

elected.

This event would be related to the opposition and Falcon winning the elections. If

the opposition wins and Falcon is the elected President, the chances of a political

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change in Venezuela would be smaller than the scenario where another

opposition candidate is elected president. If the opposition doesn’t participate in

the elections, the chances of a political change in Venezuela would be smaller,

and if Falcon wins the elections in that scenario the chances would be even

smaller. (Reuters staff. 2018).

P[PoliticalChange|OppositionWins|HenryFalconWins] = .35

P[PoliticalChange|OppositionWins|-HenryFalconWins] = .8

P[PoliticalChange|-OppositionWins|HenryFalconWins] = .25

P[PoliticalChange|-OppositionWins|-HenryFalconWins] = .05

P[DemocracyReturns] Venezuela recovers democracy as a government system.

This event would be related to the existence of a political change in Venezuela. If

a political change in the country does occur the chances of democracy returning

would be higher. (Charner, F. 2017).

P[DemocracyReturns | PoliticalChange] = .85

P[DemocracyReturns |-PoliticalChange] = .15

3. Directed Acyclic Diagram and Baseline Bayesian Network

The Bayesian Network was defined using the thirteen nodes selected for the paper. All

connections were established based on reasonable and supported assumptions from news articles

(screenshot shown below).

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4. Findings

Model Validation:

In order to validate the model, Netica was used using the “Most Probable Explanation”

function. The output node (DemocracyReturns) was set to “true” and the model will reflect the

most probable explanation to reach the desired outcome (screenshot shown below).

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As shown above, the adjusted model reflects the events as they’re suggested by political

analysts when reviewing the conditions for the presidential elections. This outcome validates that

the model reflects the events in order for Venezuela to recover democracy as a consequence of

the upcoming presidential elections.

5. Findings Analysis

In order to analyze the model, we first started with the analysis of the risks previously

mentioned:

a. Risk 1 Analysis: If the presidential elections don’t have internal observers, then

the opposition wouldn’t participate in the elections minimizing the probability of

a political change in Venezuela (screenshot shown below).

If the presidential elections don’t count with the presence of internal

observers the probability of the opposition participating in the elections is 44%

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and the probability of the opposition winning is 24%. In other words, the current

political situation will remain the same for the next 6 years (2019 - 2025).

On the other hand, if the DemocracyReturns node is changed to 100%

then the InternationalObervation node is updated to 63.5 true which means that

it’s still required for the elections to have international observers to see

democracy returning to Venezuela (screenshot shown below).

b. Risk 2 Analysis: If more sanctions are established against Venezuela’s officials,

then the opposition wouldn’t participate in the elections minimizing the

probability of a political change in Venezuela (screenshot shown below).

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If more sanctions are established against Venezuela’s officials the

probability of the opposition participating in the elections would be 71% and the

probability of a political change would be 32%.

On the other hand, if the DemocracyReturns node is changed to 100%

then the InternationalSanctions node is updated to 78% true which means that

international sanctions play an important role when it comes to democracy

returning to Venezuela (screenshot shown below).

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c. Risk 3 Analysis: If Falcon wins the presidential elections, then Venezuela

wouldn’t have a political change (screenshot shown below).

If Falcon wins the presidential elections the probability of a political

change in Venezuela is 29.8% and the probability of democracy returning is 35%.

This confirms what several news articles and analysts have explained about

Falcon not being able to lead a political change in the country.

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After conducting the risks analysis, we were able to answer the research questions

defined for the study:

a. Would the opposition participate in the elections if negotiations lead to the

presence of international observers in the process?

As shown above, if the elections count with international observers and the

opposition participates in the process, there is a fair probability of 46.6% of

having a democratic government again.

b. Would the opposition participate in the elections if more sanctions are established

against Venezuela’s officials?

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As shown above, if more sanctions are established against Venezuela’s

officials then the probability of the opposition participating in the elections would

be 71% and the probability of democracy returning to Venezuela would be 37%.

c. Would there be a political change in Venezuela if Henry Falcon is elected

President?

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As shown above, Henry Falcon doesn’t represent a political guarantee to

see a democratic transition in Venezuela. Even if the opposition participates in the

elections and Henry Falcon is elected President, there is only a probability of

35.3% of Venezuela recovering democracy.

d. What are the most important events for a political change to occur in Venezuela

after the presidential elections?

With the objective of answering this question a sensitivity analysis was

performed to identify the top variables that affect the target node (Democracy

returns). This analysis shows a political change, the opposition participating and

winning the elections, and the establishment of a new National Electoral Council

are significant events for this model. Below are the results of the sensitivity

analysis.

PoliticalChange 56.2%

OppositionWins 22.7%

OppositionParticipates 7.92%

NewNationalElectoralCoun 2.52%

InternationalObservation 1.04%

FavorableNegotiations 1.02%

InternationalSactions 0.247%

DrugTraffickingProofs 0.0326%

MoneyLaunderingProofs 0.0127%

DEAContinuesInvestigatio 0.0106%

AlejandroAndradeSpeaks 0.00585%

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HenryFalconWins 0.00334%

Consequently, we can assume that in order for Venezuela to recover democracy as its

government system, the presidential elections would have to be defined with the proper

conditions that will enable the opposition party to participate in the process. The most important

condition for this to happen would be the establishment of a new National Electoral Council

which would offer an impartial process that would allow Venezuelans to elect a President who

would effectively lead a political change in the country.

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