Chavez Election Victory Signals Accelerated Socialist Revolution
Venezuelan President Hugo Chavez’s re-election and multiple cancer scares give the self-declared socialist momentum to accelerate state intervention in the economy after 14 years in power.
Chavez, who won 55 percent of the vote in yesterday’s election, has nationalized more than 1,000 companies or their assets since taking office in 1999. With voters giving the former paratrooper another six-year term, he’ll probably push policies, such as currency controls and takeovers, that have driven away investors, according to analysts at Goldman Sachs Group Inc., the Eurasia Group and Bank of America Corp.
“The key uncertainty at this stage is not about the direction but the speed,” said Alberto Ramos, senior Latin America economist at Goldman Sachs in New York. “Chavez hinted in his campaign that he wants to make the revolution and its policies irreversible. His health is an issue of concern so he could accelerate the pace to entrench his policies.”
Chavez, 58, solidified his support by tapping the world’s biggest oil reserves to subsidize food, provide low-cost housing and expand health care among the poor. He also made a habit of seizing companies, including the local units of Exxon Mobil Corp. (XOM) and Banco Santander SA (SAN), as part of his so-called 21st century socialist revolution.
The bolivar fell 2.3 percent to a record 12.58 per dollar in the unregulated market today following Chavez’s victory. Yields on Petroleo de Venezuela SA’s dollar bonds due 2017 rose 55 basis points to 11.73 percent, Stuttgart Stock Exchange prices show. The IBC stock index tumbled 13 percent, with about $130,000 in shares changing hands, after rallying 31 percent last week.
“We see a risk of further radicalization,” wrote Eurasia Group analysts Risa Grais-Targow and Daniel Kerner in a report today. “Chavez will begin his new mandate in a very strong political position.”
Chavez bested former Miranda state Governor Henrique Capriles Radonski by 11 percentage points in yesterday’s race after some pre-election polls had showed the race tied. Capriles had tried to woo voters frustrated with rising prices and the highest homicide rate in the region.
“It was a perfect battle all the way down the line,” Chavez, told thousands of supporters from a balcony at the presidential palace near midnight. “I congratulate from my heart the more than 8 million Venezuelans who voted for Chavez. More than 8 million compatriots who voted for the revolution, who voted for socialism.”
The president was helped in his bid by a recovering economy that grew 5.4 percent in the second quarter. Still, the economic challenges facing Chavez remain immense. While inflation slowed for nine straight months to 18.1 percent in August, it’s still the highest annual rate of 102 economies tracked by Bloomberg after Belarus and Iran.
A push to deepen socialist policies will further erode Venezuela’s creditworthiness, Boris Segura, a strategist at Nomura Securities International Inc., wrote in a report to investors today. Debt issued by the government is rated B+ by Standard & Poor’s, or four levels below investment grade.
A pre-election spending surge of 30 percent in the first half of the year has fueled speculation the government will have to devalue the bolivar from its fixed rate of 4.3 per dollar.
“He’s inevitably going to have to devalue and it’s going to be immediately,” said Kathryn Rooney Vera, an emerging- markets analyst at Bulltick Capital Markets in Miami. “He has to do it even just for government financing reasons.”
Rooney Vera forecast the bolivar will tumble from the fixed official rate of 4.3 bolivars per U.S. dollar to at least 7 per dollar.
Chavez, who has undergone three surgeries in Cuba related to an undisclosed form of cancer, briefly prayed for his health in a 30-minute speech last night though made no mention of the succession issue or whether he’d change his policies in his third six-year term, which starts Jan. 10.
Leaders from around Latin America congratulated Chavez as campaign posters were ripped down in Caracas and life returned to normal following an all-night celebration punctuated with fireworks across the capital. The U.S. State Department praised the high, peaceful turnout of the election, while calling on Chavez to reach out to his rivals.
“The views of the more than 6 million people who voted for the opposition should be taken into account going forward,” William Ostick, a spokesman for the State Department, said in an e-mailed statement.
Chavez has challenged U.S. policy in Latin America by courting closer ties with China and Iran, as well as providing as much as $7 billion in subsidized oil and other assistance to allies, about three times more than the U.S. spends on aid in region.
With his re-election secured, attention will now shift to who would succeed Chavez if he gets too sick to remain in office, said former Brazilian Foreign Minister Luiz Felipe Lampreia.
“The succession race will begin almost immediately,” said Lampreia, who oversaw ties with Venezuela when Chavez took office in 1999. “It could create a problem of instability in the government because it’s not clear who his preferred successor is.”
If he becomes too ill to serve during the first four years of his term, Vice President Elias Jaua would assume the presidency for 30 days while elections are held. If Chavez is unable serve the final two years, the vice president can finish out the term.
While Diosdado Cabello, the national assembly president who fought alongside Chavez in a 1992 army rebellion, and Foreign Minister Nicolas Maduro are potential replacements, Chavez has dismissed the need for a succession plan since he claims to be free of cancer.
“Chavez is an icon,” said Lampreia. “As long as he’s alive, most people will vote for him.”
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