07/24/2016 07:11 pm ET Updated Jul 25, 2017

Prospects for a Post-Maduro Venezuela

Over the past several weeks, hundreds of thousands of Venezuelans have crossed the previously closed border with Colombia to purchase the basic necessities they can no longer buy at home , a net result of Venezuela's ongoing economic and political turmoil. What a testament to how desperate life has become for ordinary Venezuelans, who have endured hyper-inflation, high levels of unemployment, a rise in poverty, rampant cronyism and corruption, and severely reduced oil revenues -- even before Nicolas Maduro assumed office in 2013. Since then, it has all become much worse. Is this the beginning of the end for Maduro, or will his police state continue to flog the country's people as he desperately clings to power?

The economy has been, and remains, a disaster. The IMF estimates that Venezuela's inflation rate is running at nearly 700% this year, and is projected to exceed 1,600% next year . The Maduro administration has attempted to address the hyper-inflation by implementing rampant price controls, continuing with Hugo Chavez's policy of widespread nationalizations, and imposing a wide range of tariffs that are projected to have caused GDP to contract by about 10% by the end of 2016 . While Maduro has tried to convince supporters that this is the result of a capitalist conspiracy and economic warfare with the country's political opponents, the ongoing malaise has put Venezuela's political opposition close to obtaining the two-thirds majority necessary to change the constitution so as to push through a referendum aimed at reducing the length of Maduro's remaining term in office .

The security environment matches the economic catastrophe, with a homicide rate the second highest in the world (second only to Honduras) . Pervasive corruption is so entrenched that Transparency International's Corruption Perceptions Index has rated Venezuela 158th out of 167 countries, a notch above Iraq and Libya. Economic freedom is so bad that the Heritage Foundation's Freedom Index - which ranks the degree of economic freedom in a society with social and economic goals -- has downgraded Venezuela every year since Maduro gained power, with Venezuela currently ranked 176th out of 178, just above Cuba and North Korea . The question is, how much will the Venezuelan people endure before creating a new 'revolution' to finally rid themselves of Maduro and the Chavez legacy?

While the international community is hopeful that the opposition will be successful in initiating the referendum vote this year -- whereby Maduro would be replaced by vice president Aristobulo Isturiz -- doing so would be unlikely to yield any substantive or meaningful change. The same was true when Maduro took over from Chavez. Whoever assumes power will need to continue to appease the military; doing so is of course a large part of the problem.

Although opposition parties comprise the majority of the national assembly, they range from Marxist-Leninists to center-right, with little uniting them other than their disapproval of Maduro. Even if they were successful in implementing the referendum this year, it seems unlikely they would fully unite behind an opposition figure such as Henrique Capriles, and his centrist policies. Capriles's narrow electoral loss of 2013 does give some hope that his Democratic Unity Council could be more successful next time around, particularly given how bad the economy has become in the interim.

Among the possible future scenarios for Venezuela are:

1. Even greater authoritarianism by Maduro (for as long as he remains in power) accompanied by modest economic reforms designed to ease the economic crisis while enhancing divisions within the political opposition.
2. A formal military takeover, as the situation becomes more desperate - especially if there is an attempt to overthrow Maduro by force, or if Maduro's own pacification of the military were to falter. A military government would undoubtedly implement a crackdown on opposition to military rule, while attempting to prolong its time in power before scheduling elections.
3. Capriles being catapulted to power. His success in reversing the tide of economic, political and social decline would ultimately be dependent upon his ability to secure large amounts of foreign aid, implementing draconian austerity measures, and a corresponding significant rise in oil prices, which would give the country some breathing room.

Of the three scenarios, the first seems likeliest - at least in the near term - but regardless of who ultimately assumes power post-Maduro, a painful process of economic recovery lay ahead for the Venezuelan people, which will take many years to achieve. Lending from International Financial Institutions inevitably coincides with the implementation of austerity measures, a further reduction in government subsidies, and higher unemployment and inflation -- at least in the short-term, until the situation can be reversed. It is unlikely that China will intervene as a financial white knight. Beijing has already provided more than $125 billion to Venezuela since 2000 (through direct aid or favorable loans) and too much uncertainty will prevail in the longer term for China to justify investing even more, especially while oil prices remain depressed and stagnant.

Former Cuban president Fidel Castro once described a revolution as "a struggle to the death between the future and the past." With "Chavismo" in its 17th year, it is clear that Chavez's brand of populism and socialism is an utter failure. Venezuela is a failed state. What the country really needs is a new revolution. Will its people have the courage to take their destiny into their own hands? Will things get so bad that the military will also say it has finally had enough?

Like so many other resource-risk nations that have suffered from the "oil curse", Venezuela should be a wealthy nation. If enough Venezuelans realize this, can find a way to remove Maduro from power, and replace him with a leader worthy of their aspirations, the country has a future. If not, it is destined to remain a failed state, and a generation will have been lost.

*Daniel Wagner is CEO of Country Risk Solutions and co-author of "Global Risk Agility and Decision Making". Clifford Drake is a recent graduate of the Brandeis International Business School.