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NEWS & COMMENTARY 2008 SPEAKERS 2007 2006 2005

Tuesday, December 05, 2006

Chávez victorious


The Venezuelan president, Hugo Chávez, has achieved another landslide electoral victory and a strong mandate for his third term of office. With electoral authorities giving the incumbent an overwhelming majority of the votes, his nearest rival, Manuel Rosales, conceded defeat on the evening of December 3rd and discounted the possibility of an opposition challenge to the result. The president will undoubtedly view his victory as a renewed mandate to push ahead with his programme of state interventionism, financed by windfall oil revenue. However, the political and economic climate is likely to become more difficult in Mr Chávez's next six-year term, as declining fiscal revenue forces tough policy choices, underscores the problems of corruption and mismanagement, and brings divisions within the government to the fore.

With 85% of the votes counted, the national electoral council (CNE) showed Mr Chávez with 61.6% of the ballots, against 38.1% for Mr Rosales. The president actually managed to increase his share of the vote since the failed August recall referendum, when his support was 59% of those who voted (compared with 40.6% who voted for revocation of Mr Chávez’s term).

The reported abstention rate of 26.4% was also much lower than the average rate of 40% registered in the past three presidential elections. In part this reflects the government's highly effective campaign to mobilise and register potential voters, particularly in the low-income areas that form the support base for Mr Chávez. Among this demographic group (which comprises the majority of the Venezuelan population), Mr Chávez remains extremely popular, thanks to a huge increase in social spending programmes directed at the poor during his time in office.

A revitalised opposition?

Mr Rosales, the popular governor of oil-rich Zulia state, led an effective campaign, despite falling short of winning. He succeeded in unifying a fractured opposition around his candidacy and in discrediting some of the more extremist elements within its ranks. He also garnished a respectable share of the votes in the face of a powerful pro-Chávez government and electoral machine. He has thus set the foundation for a new, more viable alternative to Mr Chávez’s political and economic model, should the opposition remain united. As he returns to his post in Zulia, he has promised to continue to lead an active political resistance movement.

The opposition will have many issues to rally around. Among these are the Chávez administration’s costly petrodiplomacy and financial assistance to other leftist governments in Latin America, key issues raised in Mr Rosales’s campaign. And although Mr Chávez gets high personal popularity ratings and good grades for his government’s health and education programmes, as well as his food and other subsidies to the poor, his administration’s performance on issues such as crime, housing, unemployment and corruption has been rated poorly by a majority of the electorate.

In the aftermath of the election, Mr Rosales’s political skills—honed during a 27-year trajectory in politics—will be critical to sustaining the opposition. If he can show leadership in dealing with the inevitable dissent and potential splits within opposition ranks, a more stable anti-Chávez alternative could begin to coalesce. It would be led by, among others, his own fledgling party, Un Nuevo Tiempo, and the centre-right Primero Justicia.

Even then, however, the opposition will face tough challenges. Most importantly, lack of representation in the National Assembly (following the opposition’s boycott of legislative elections in December 2005) and sweeping defeats in local and state elections in recent years mean that the opposition will have no direct influence on policy in the next few years.

Challenges for Chávez too

The size of Mr Chávez’s victory—by a margin of more than 20 percentage points—over Mr Rosales could embolden the president to further increase his power. Besides his total control of the legislature, he has a firm grip on the judiciary, the armed forces, the state oil company and other institutions.

Threats to governability could emerge, however, from the ideological and strategic differences among factions of the heterogeneous pro-Chávez movement. This could produce frequent policy reversals, fuel the chronically high rate of ministerial turnover and create splits within the ruling alliance that could undermine stability.

Indeed, Mr Chávez’s heterodox, and largely improvised, programme of “twenty-first-century socialism” has relatively little hard-core ideological support even among his own followers, and the prospect of greater radicalisation of policy (including more threats to private property, such as land grabs and possible nationalisation of utilities) could result in fractures in his support base. Announcements of his intention to create a single revolutionary party and to remove constitutional limits on presidential re-election have already brought murmurs of discontent among pro-Chávez politicians from smaller parties who are reluctant to give up their own power bases or—in some cases—renounce their own future presidential ambitions.

Further, the administration will have to strive now to improve security, provide productive employment, solve the massive housing deficit and punish rampant government malfeasance. If not, protests could increase, and with them the prospects for repression.

Policy trends

The main economic policy question ahead is to what extent, if any, the current expansionary and interventionist policies will be adjusted in coming years to take account of the expected drop in oil prices from their mid-2006 peaks. The Economist Intelligence Unit believes that the government will not be under pressure in the near term to change tack, based on our forecast for still-firm oil prices, along with the build-up of a substantial stock of public-sector financial assets during the current oil windfall.

Assuming that the average oil price in 2007 is similar to 2006, the overall orientation of economic policy is likely to remain much the same. Fiscal policy will continue to be loose, although government spending growth will probably decelerate. The official exchange rate will be maintained at Bs2,150:US$1. There will be no major tightening in monetary policy. And the present controls on prices, foreign-exchange transactions and bank interest rates will stay in place. Economic growth will decelerate but remain robust; it will decline from a projected 10.6% this year to 5.6% in 2007.

However, in an environment of stable rather than rising oil prices, the country’s fiscal and balance-of-payments vulnerabilities will become progressively more apparent. Inflation, running at around 16.5% per year in both 2006 and 2007, will also have to be addressed. By 2008, the authorities will be faced with a deteriorating economic environment and a number of difficult policy decisions. Pressures for change, involving either an improvement in conditions for business to encourage private investment or a push for more radical state intervention, will grow. At the moment, the signs are that the government will take the latter path.

No US warming

Meanwhile, there was no improvement in the tense relations between the US and Venezuela in the run-up to the election. In fact, Mr Chávez continued to use references to the US “devil” as his main tool to rally nationalist sentiment and support for his re-election bid. However, despite poor diplomatic relations, frequently hostile rhetoric on both sides and Venezuela’s pursuit of new markets for oil trade and investment, oil supply to the US is not likely to be affected during a new Chávez term . Venezuela will continue to be an important source of crude for the US market. For the moment at least, Venezuela has few other viable markets for its petroleum exports, and the public finances will continue to rely heavily on oil income.

Moreover, President George Bush’s increasing political troubles, and the assumption of control of Congress by the Democrats following the midterm elections in the US, will make it harder for the Venezuelan government to justify a continued radical posture vis-à-vis Washington. However, it does not herald a warming of bilateral relations.

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