the government in Venezuela during the 70s and 80s was of about US$12bn per year, which
represents US$60bn for an electoral period (of 5 years in this case). Seen in relative terms, for
an average value of international reserves for the same period of US$10bn, current revenues
represented six times the value of the average stock. When evaluating the electoral value of this
amount of revenues the same has to be adjusted, for instance by deducting the service of
external debt (e.g., US$3bn per year) and when used to finance expenditure aspects such as
the fixed cost of the bureaucracy should be considered.
Finally, in this game the probability of a take-over is negatively related to the stock of reserves.
The rationale for this assumption can be presented in two steps. First by pointing out the link
between reserves and recession and second by noting the causality between recession and
abstention. The line of argument is as follows: a low level of reserves would call for an
adjustment programme to be implemented in the coming administration; or, another possibility is
that the lower the amount of reserves the greater the chance of a currency crisis, which is
generally followed by a recession. Again Venezuela offers examples of both situations. In 1989
a drastic adjustment programme was introduced by the new administration after the depletion of
international reserves as the result of electoral-driven policies of the previous incumbent. As an
illustration of the latter, in 1983 a massive capital flight forced the government to devalue and
implement contractionary measures, which cost the incumbent party its re-election.
Once the country enters in a recession a period of popular discontent is expected which can be
expressed as a decline in the support for the established parties and/or in an increase in the
abstention rate. This situation can boost the dictator’s incentive to intervene, either if he is
concerned about the popular clamour or because he associates it with a low level of civil
support for the system in case of a take-over. Additionally, a situation of high abstention can
also create the conditions for the arrival of new parties with electoral chances. Both final
consequences of the drop in reserves can be modelled as an increase in the political discount
factor. To complete the definition of the game, the players’ strategies and payoff functions have
to be specified. This is next.