Earlier this month, Venezuela held municipal elections — the last set of elections that will take place until the end of 2015.

The results came after an extraordinary month in Venezuela, when president Nicolás Maduro obtained an Enabling Law, a decree for extraordinary powers from the Asamblea Nacional (National Assembly), a radical step that gives Maduro fast-track powers to regulate the Venezuelan economy for a year.  At the time, Diosdado Cabello, the president of the National Assembly, said that Maduro asked the National Assembly to ‘pass all the laws necessary to wring the necks of the speculators and the money launderers.’  In an even more radical move earlier that week, Venezuelan forces commandeered top electronics retail chain Daka, forcing price cuts that launched a frenzy of consumer spending at low prices.  Critics called the spectacle the ‘CaDakazo,’ a play on the 1989 Caracazo riots, protests and looting in response to the government’s decision to implement an IMF reform package of significant fiscal adjustments.

Short of a magical rise in the price of oil, Venezuela’s inflation (already around 54% this year), the shortage of basic goods and services (fueled by rise in dependence on imports and a shortage of dollars), and increasingly troubled finances mean that Venezuela’s economy will only worsen over the next two years.  Despite all that Venezuela’s been though in the past 14 years since Chávez first took power, the current economic crisis could get much, much worse.  Maduro’s first year in office has the feel to it of the first 30 minutes of a really chilling horror film — you know you have another 90 minutes of terror ahead of you, and there’s nothing you can do about it.

In light of the massive government-forced handout of retail electronics in November, it’s not surprising that the governing Partido Socialista Unido de Venezuela (PSUV, United Socialist Party of Venezuela) won a greater share of the vote than the umbrella opposition group, the Mesa de la Unidad Democrática (MUD, the Democratic Unity Roundtable).  The actual numbers vary, depending on which third parties you classify as PSUV/Maduro supporters, which you classify as opposition allied with Capriles and the MUD and which are really, truly independent.

But generally speaking, the chavistas won around 48.8% to just 40.8% for the MUD.  Though the opposition dominated Venezuela’s urban centers and it easily retained the mayor’s office in Caracas, it won Barinas (the state capital of Chávez’s home state), Valencia and Barquisimeto.  But it only narrowly held on in  Maracaibo, the second-most populous city, and the national vote tally is much worse than in April, when Capriles very narrowly lost the presidential election to Maduro.  Though Capriles appears to command unity as the leader of the united opposition, there are cracks in the unity — popular opposition figure Leopoldo López has argued for a stronger street presence and a more muscular opposition to Maduro.  López’s party Voluntad Popular (Popular Will) performed especially well in the local elections, and you should expect to see and hear much more from López in 2014 and beyond.

But where does Venezuela go from here?  There are 24 months until the next major Venezuelan elections, the parliamentary vote to determine the composition of the National Assembly.  In a country like Venezuela, where the economy is rapidly disintegrating, that’s quite a long time for the status quo to hold.  Stunts like the ‘CaDakazo’ can only buy Maduro and the PSUV short-term delays — they don’t constitute long-term solutions for Venezuela’s growing economic crisis.

Imagine for a moment that you’re sitting in Miraflores, the Venezuelan presidential palace, and the future that you see is massive hyperinflation, continued shortages and economic decline.  You don’t face the prospect of a recall for three more years, and you wouldn’t face reelection until 2019.  So why worry about Capriles and the MUD?  Wouldn’t you be most worried about internal PSUV threats?  Like Cabello, a crafty operator with plenty of ideological flexibility, who has a separate power base from his perch as the president of the National Assembly.  Perhaps you’d be worried about another young chavista, with the same kind of charisma as Chávez had, rising up to reclaim the ‘true’ mantle of chavismo.  The Venezuelan military currently supports Maduro, but given sufficient time, might they reach a point where the economy (and the accompanying social unrest) becomes so bad that they intervene themselves?  

When Maduro replaced longtime finance minister Jorge Giordani, an instinctive central planner, with the more pragmatic former central bank president Nelson Merentes, there was a brief window when fundamental economic reform seemed like a possibility.  But with local elections looming, Maduro doubled down on state intervention in the economy — Giordani, who remained planning minister, continues to wield more influence over policymaking, and Rafael Ramírez, the longtime energy minister, replaced Merentes as Venezuela’s vice-president for economic matters in October. 

Having essentially won those elections, Maduro has some breathing space to take the kind of steps that could give Venezuela’s economy a chance, though time is running short.  Moody’s already downgraded Venezuelan debt to Caa1 last week — essentially, junk status.

The current problem of shortages are due to the fact that Venezuela is bringing in fewer dollars, which in turn must support rising demand for imports.

That’s partly due to the long-term economic tectonics of a petrostate — in Venezuela (as in Saudi Arabia or Qatar), it’s easier to get your hands on oil wealth than it is to try to generate new wealth.  Over time, that means non-oil industries wither as the country becomes more dependent on oil revenues to finance other goods and services.  But chavismo has made this worse — 14 years of ad hoc expropriations of Venezuelan businesses severely exacerbated the effect.  The long-term solution is to find a way to diversify Venezuela’s economy away from oil, while maximizing the effectiveness of Venezuela’s oil wealth.  When a country with as much oil as Venezuela is importing refined oil products from the United States, there’s clearly a problem with overdependence on imports.

What’s staggering is that Venezuela still reportedly has a trade surplus — so while it still might technically be able to afford its costly import habit, it’s getting harder and harder to feed that habit.  After all, many Venezuelans have other uses for dollars than importing toilet paper for resale.

So what’s a former-bus-driver-turned-president to do?

1. Liberalize the currency market.  

No amount of tinkering with the current foreign currency system administered by Comisión de Administración de Divisas (CADIVI, the Foreign Exchange Administration Commission) nor recent experiments with more informal dollar auctions, such as the Sistema Complementario de Administración de Divisas (SICAD, Complementary System for Foreign Exchange Administration) are going to fix the broken market for US dollars — demand for imports continues to rise and the supply of dollars continues to fall.

But the Venezuelan government is distributing dollars in a way that’s not just ineffective, it’s costing the Venezuelan treasury billions.

CADIVI sells dollars at the official rate of 6.3 bolívares to the dollar and through SICAD, it might even sell dollars at a higher price (though no one knows because the semi-official SICAD rates are secret, a report today in El Universal suggests that the SICAD rate is around 11.3 bolívares).  But that’s still not enough when the street value of a dollar is now upwards of 60 bolívares — that’s double its value since April during the presidential election.  The problem is that much of Venezuela’s foreign currency comes into the country as oil revenues to the Venezuelan government, and the government thereupon has to sell those dollars to Venezuelan importers in order for them to be able to buy staple goods for resale.  But who gets the dollars?  (Here’s one account of how broken the system has become for Venezuelan businesses.)

The CADIVI/SICAD system allows a select few lucky duckies to buy dollars at the official rate.  They can then sell them on the black market to anyone for any reason — to import toilet paper or to go shopping in Miami — for the unofficial market rate.  That’s crazy, and it’s a hidden subsidy (for no good policy reason!) to the lucky duckies who take all the arbitrage gains between the market rate and the official rate.

So why has Maduro held back from devaluing the bolívar? It could make imports much more expensive, but since there’s no real global market for bolívares because of capital controls, Venezuelan businesses are already buying imports in dollars, not in bolívares.

Maduro should skip through all of the intermediate stages of devaluation, eliminate capital controls, begin the process of moving to a floating bolívar exchange rate, scrap CADIVI completely and let market forces allocate dollars to the most economically beneficial uses.  There’s some indication that this might be happening unofficial by allowing Petróleos de Venezuela, S.A., the state oil company, to sell bolívares at a rate that more accurately reflects market prices.

2. Increase gas prices.

For years, Venezuelans have demanded cheap gas as their birthright — and at around 4 or 5 cents per gallon, Venezuelans have by far the least expensive gasoline in the world.  But that comes at a price — in the congested traffic that snarls urban centers like Caracas, the skewed incentives that result in a dirtier environment, and a massively regressive subsidy that’s hardly the smartest way to help Venezuela’s most vulnerable citizens (after all, the poorest Venezuelans don’t have cars).

An increase in the price of gasoline was at the heart of the IMF reform package that Carlos Andrés Pérez tried to implement in 1989 — and it was the likeliest catalyst of the subsequent Caracazo riots.  Since 1989, accordingly, eliminating the gas subsidy has been the third rail of Venezuelan politics, so it’s worth giving Maduro some credit for having the courage to consider it.

Maduro hasn’t said exactly how he’d like to raise gas prices, only that he’d like to do so over a three-year period.  So no one knows whether he’s willing to curb subsidies by any material amount.  But it’s already undermining the opposition’s credibility because Capriles has already opposed the move.  Instead, Capriles has hammered away at the preferential terms with which Venezuela has provided oil to other countries in the region through its PetroCaribe program.  While Capriles may be right that Venezuela’s squandering its treasury with giveaways to Cuba and Nicaragua, giveaways to wealthy Venezuelan motorists aren’t any wiser.

3. Start reinvesting more into PDVSA.  

Since Chávez took full control of PDVSA and the Venezuelan oil industry in 2002 and 2003, output has fallen by up to a third.  That’s largely because Chávez was willing to take so much of the oil revenues from PDVSA and distribute them, often inefficiently, to the masses — short-term gains at the expense of the long-term health of the industry that constitutes over 50% of Venezuelan GDP.

Oil exploration technologies have evolved in the past decade, and Venezuela is reaping none of the international expertise that’s unlocking new mineral sources of energy.  The 2012 Amuay refinery explosion further crippled PDVSA’s ability to sell refined oil products, which is even more damaging now that PDVSA is exploiting the particularly heavy crude oil recently discovered in the Orinoco Belt.

But the refinery disaster itself may have resulted from insufficient investment and maintenance — it’s both a cause and effect of a downward spiral in the productivity of Venezuela’s oil industry.

Among the low-hanging fruit for Maduro to pluck, none hangs as low as an investing in PDVSA’s infrastructure.  Give PDVSA the kind of budget that it needs to develop truly world-class oil extraction and refining capabilities, and don’t be afraid to open PDVSA to the kind of joint venture experimentation with foreign investment to which Brazil and now even Mexico are turning.

4. A Xi-style crackdown on corruption.

Perhaps the most significant effort of Xi Jinping’s first year leading the People’s Republic of China has been a push against corruption — while Xi can’t eliminate all corruption, his tenure is already setting a top-down tone that excess and extravagance are unacceptable at any level of Chinese government and within the Chinese Community Party.

Maduro should do the same in Venezuela.  It’s no secret that a lot of chavistas have become fabulously wealthy over the past 14 years, but rampant bribery and favoritism is hurting the economy and bleeding Venezuelan finances.  Maybe Maduro’s position isn’t strong enough to mount a major effort to reduce corruption.  Corruption, after all, greased the machine that’s kept him in power in 2013, and there could be fairly high political costs for Maduro.  But the gains would be huge — even if Maduro eliminated just one-quarter of the rampant corruption in Venezuela, it would not only save money, but would send an important message to global markets that Maduro’s not a lost cause.

5. Reform the misiones to eliminate waste and inefficiency.

Instead of a goofy plan to institute minimum and maximum profit margins in every sector of the economy, Maduro should use his 12-month emergency powers to review all of the misiones that have been created over the past 14 years to help reduce poverty and to bring better education, health care and social welfare to Venezuelans.  While it’s true that Chávez managed to reduce inequality and poverty as president, the outcomes in Venezuela were not significantly better than in countries like Brazil or Peru, which managed to do so without antagonizing business interests or disrupting the private sector.

Today, there’s a sprawling list of three or four dozen misiones, some of which are duplicative and others of which are simply boondoggles, that constitute a significant chunk of the Venezuelan budget.  While it’s tempting to argue that the misiones amount to a nation-wide vote-buying scheme, and Chávez (and Maduro) are certainly no stranger to providing goodies in election years, many of the misiones have been truly effective.  Mision Barrio Adentro, for example, has improved community health care throughout some of the poorest barrios in the country, and Mision Robinson widely improved Venezuelan literacy rates.

Though the spirit of experimentation that animated the creation of Venezuela’s misiones is admirable, the reality is that they’ve also become a maze of bureaucracy, inefficiency and corruption.  A top-to-bottom review and restructure of the misiones that jettisons the most worthless programs and that strengthens the most effective ones is the most important thing Maduro could do to institutionalize chavismo in Venezuelan governance.  It would also relieve significant pressure on the Venezuelan budget.