Venezuela's Economy After Chavez - Business Insider

All signs point to the fact that Venezuelan President Hugo Chavez is not long for this world. The last reports of his condition say that his cancer treatment isn't going very well and that he's suffering from complications from a severe lung infection.

So it's time to look at what's coming next. After all, Chavez, who has been President of Venezuela since 1999, has already given his second in command, Nicolas Maduro, and his party, the United Socialist Party of Venezuela (PSUV), their marching orders. A special election is to be held 30 days after Inauguration Day in the likely event that Chavez can't make it.

Maduro would then be the PSUV's candidate, and for some reason this making investors optimistic. Check out this assessment of the situation from a recent Morgan Stanley report:

We continue to recommend our long Venezuela vs. Brazil RV trade as investors envisage a more market-friendly policy from the Venezuelan government if M. Chavez were forced to give up power.

And this one Bank of America Merrill Lynch:

We expect a major FX adjustment early next year which, together with the ongoing spending cuts, is likely to significantly improve the country?s fiscal position. A major delay of the adjustment could occur if the government were to significantly postpone calling new elections. In view of yesterday?s results, we think this is unlikely. Either the government takes advantage of its electoral strength, calls elections now and implements the adjustment soon thereafter, or Cha?vez?s health improves enough to allow him to take office and Cha?vez himself implements the adjustment. We thus believe that the risks of a major delay in adjustment are low.

One of the few things that's clear about Venezuela's political system is that most decisions are made behind closed doors. From Venezuela's current political theater though, we can see is that Chavez's party is taking great pains to show unity and stress that it wants to follow Chavez's 30-day directive to the letter.

If there is infighting, though, expect chaos as former bus driver and labor activist Maduro's supporters clash with those of military man Diosdado Cabello, according to ABC's Manuel Rueda.

Chaos, of course, has never been good for markets. Not a great scenario.

There's another option. Maduro could lose the special election to Venezuela's opposition party. As Venezuelan journalist Francisco Toro points out, though, that's highly unlikely as Maduro he will have Chavez's powerful political machine behind him.

From The New Republic:

Venezuela's long suffering liberal opposition looks on this spectacle with some hope and not a little trepidation. In elections barely two months ago, the opposition was thumped by more than 11 points as an ailing Ch?vez, barely able to campaign, nonetheless coasted to a third term. To some, Ch?vez's charisma carried the day. My analysis is less optimistic: That campaign showed the obscene structural advantages a cash-flush petrostate incumbent enjoys in an increasingly autocratic environment where opposition fundraising is badly hobbled by harassment and intimidation against its donors, and all checks on the abuse of official prerogatives for campaign advantage have been hollowed out. While Maduro has none of Ch?vez's charisma or storied emotional bond with the poor, he would undoubtedly inherit that advantage.

So that's the third option ? that these politicians stick to their script, and the people re-elect PSUV. ?

The question becomes, then, in that event would Maduro institute more market friendly policies? Based on his record the answer to that is simple ? no. Maduro has always been a Chavista without wavering, loyal to a fault. Not only that, but if he's elected he will have to build legitimacy for himself (the party's alone may not carry him).

Now how will he do that? Probably not by making the tough decisions that the Venezuelan economy desperately needs, like cutting spending (as the fiscal deficit approaches 20%), cutting the number of public sector jobs, and/or ending oil subsidies for Venezuelans. Those were policies that made Chavez popular. Discontinuing them may not only anger the Venezuelan populace, but also create the perception that Maduro has turned away from their departed leader's philosophy.

Maduro's close relationship with Fidel Castro doesn't help the "opening up the market" theory much either.

That said, there have been reports of overtures to re-open dialogue between Venezuela and the United States. According to El Universal, Maduro had a long phone conversation about life-after-Chavez with Roberta S. Jacobson, the top US State Department official in charge of Latin American affairs, on November 21st.

However, El Universal also points out that that call could just be a way for Maduro to buy time:

Maduro, in turn, may be buying time to consolidate his leadership at home. "A hard-liner who is very close to Cuba's dictatorship, Maduro may have talked to Jacobson to send a message within the polarized Chavista movement that he's in charge, before any internal power struggle in Venezuela breaks out in the open," the sources added.

Either way, one phone call with the United States certainly does not make Maduro a free market capitalist. Besides, Chavez himself constantly walked the line between bombastically proclaiming his hatred for the U.S., and ensuring that his enemy, and biggest oil importer, never brought sanctions down against Venezuela.

Foreign Affairs' Javier Corrales calls that tight-rope routine "conservative anti-imperialism" (h/t Caracas Chronicles), and it looks something like this:

?And that points to a final piece of the Ch?vez legacy. He wants to be remembered as the most anti-American leader the world has seen since Fidel Castro. In reality, Ch?vez broke with Fidel?s approach to the Yankee empire early on. To be sure, Ch?vez has enjoyed provoking the Americans, but only to a certain point, and never so much that the United States brought an embargo down on his head. So he has played his anti-Americanism conservatively: he has sided with the anti-imperialist FARC in Colombia, but has also managed to stay on good terms with the Colombian government. He has cooperated with Iran, but has also maintained good relations with the pro-American Saudis. He avoided nuclear weapons ?

Ch?vez came to understand that his expensive revolution needed the U.S. oil market and that he couldn?t put his access to that market at risk. If he dies soon, he should be remembered as the United States? reliable oil partner ? the ultimate seller.?

So it's complicated.

All that said, does Venezuela sound like a place that ready to get its fiscal house in order to you?

Source: http://www.businessinsider.com/venezuelas-economy-after-chavez-2013-1

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