Friday, March 8, 2013

Factbox: Key political risks to watch in Venezuela

CARACAS (Reuters) - President Hugo Chavez's death paves the way for elections within weeks that will test whether his brand of "21st Century Socialism" can survive without him at the helm.

THE POST-CHAVEZ ERA

The 58-year-old leader died on Tuesday after a two-year battle with cancer. An election will be called within 30 days, although it remains unclear whether that means it will be held in that period or that the date will be announced.

The vote will pit Chavez's preferred successor, acting President Nicolas Maduro, against 40-year-old opposition leader and Miranda state governor Henrique Capriles.

Capriles, a centrist, lost to Chavez in last year's election but had a good showing with 44 percent of votes.

One recent opinion poll gave Maduro, a 50-year-old former bus driver, a strong lead over Capriles, largely because Maduro received Chavez's blessing. He is also expected to benefit from the outpouring of grief following Chavez's death.

Maduro has pledged to follow Chavez's legacy and is unlikely to make major policy changes.

He will focus on rallying support from a diverse coalition, which ranges from leftist ideologues to business leaders who have contracts with the state, and armed groups known as "colectivos."

Like his colorful predecessor, Maduro has accused foes of plotting to assassinate him and blamed private businesses for damaging Venezuela's economy with hoarding and what he calls "speculative attacks" on the currency.

Hours before Chavez's death, Maduro alleged "imperialist" enemies had infected the president with the cancer that killed him.

But Maduro lacks the charisma that his boss used to forge an intense connection with voters.

A victory by Capriles, who says Venezuela should follow Brazil's center-left model, would be welcome by investors and bring big changes, but he would likely move slowly for fear of generating political instability.

On foreign policy, Capriles wants to cool relations with faraway Chavez-era allies such as Iran and Belarus; stop oil subsidies to political allies, including Cuba; and improve ties with the West, particularly the United States.

What to watch:

- Preparations for a new presidential election

- Maduro making moves to consolidate leftist support

- Opposition's Capriles launches his campaign

ECONOMY

Venezuelans are still absorbing the impact of a 32 percent devaluation of their bolivar currency last month - ordered while Chavez was hospitalized in Cuba - and wondering what austerity measures may be coming.

The devaluation was widely unpopular as many Venezuelans assume it will have a domino effect on already fast-rising prices. There is evidence that some shopkeepers have begun marking up prices due to the devaluation, though the government has promised stern action against speculators.

After high January inflation of 3.3 percent, all eyes will be on consumer prices over the next few months.

The devaluation is providing the OPEC nation's government with more bolivars for each dollar from oil exports, reducing both the fiscal deficit and borrowing needs.

But tight currency controls - the bolivar is now fixed at 6.3 to the dollar - are squeezing private business hard and driving many to a black market where the greenback sells for four times that rate.

There are notable shortages of some imported goods and crushes at shops when certain products arrive. The government blames private businessmen for "hoarding" and the opposition media for exaggerating the issue, while importers point to a lack of access to hard currency.

Officials have said more fiscal measures are on the way as part of a belt-tightening exercise that many economists attribute to state spending ahead of last year's election.

There is speculation that the measures may include a bank tax, higher VAT, or even a rise in gasoline prices - something of a sacred cow in Venezuela since a rise in 1989 triggered riots that killed hundreds.

Despite the government's projections of 6 percent growth this year, compared with 5.6 percent in 2012, most economists believe slower state spending than in 2011 and lower private consumption could trim a couple of percentage points from last year.

What to watch:

- Inflation rate and more fiscal measures

- Shortages of imported goods

- Potential economic slowdown

OIL

Crude oil sales were the financial pillar of Chavez's 14-year rule, and will remain central to the economy. Energy Minister Rafael Ramirez has stressed that the industry and its workers will stay forever loyal to "el Comandante's" ideals.

State oil company PDVSA is one of the world's biggest energy firms and it finances a wide array of social projects from low-income houses to health clinics in slums. But its production and exports have stagnated over the years, despite government promises and ambitious targets for increases.

PDVSA is required to hand over so much revenue to the state that it has neglected investment in older oil fields. It has also been criticized by union officials for poor maintenance and unsafe conditions at many of its facilities.

Last year, an explosion killed more than 40 people at its biggest refinery, Amuay, in one of the deadliest accidents for the global oil industry in the last 15 years. The refinery is still struggling to get back to capacity.

A wave of nationalizations of service companies in 2009 has also hit production, with PDVSA struggling to take on wells and drilling services previously covered by private companies.

In addition, PDVSA was not paid directly for almost half the crude it pumped last year due to preferential deals with foreign allies, putting more pressure on its finances.

The government wants to increase production to more than 4 million barrels per day by 2014, from about 3 million bpd now, by developing the Orinoco extra heavy crude belt.

Some executives in the Orinoco joint-venture projects are concerned, given that output from the area barely rose last year according to non-official data, while infrastructure shortages and delays in payments by PDVSA continue.

Refineries remain plagued by accidents and stoppages.

What to watch:

- More deals to exploit the Orinoco

- Outages at PDVSA's refineries and upgraders

(Writing by Daniel Wallis and Andrew Cawthorne; Editing by Kieran Murray and Stacey Joyce)

Source: http://news.yahoo.com/factbox-key-political-risks-watch-venezuela-110141043--business.html

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