Barclays and the respected Venezuelan pollster, Consultores 21, predicted a small but significant victory for the opponent to Venezuela’s President Hugo Chávez. Both were wrong. At the end of a long night of counting votes, Henrique Capriles, the leader of the opposing coalition, Mesa de la Unidad (MUD) conceded defeat. Whether the president’s victory lay in the voter roll, the electoral machine or the count, Capriles acknowledged Chávez’s victory and moved on to future electoral battles. The debate over the fairness of the election will continue, but a more significant debate is what happens next: How might Chávez govern and for how long?
Chávez faces some structural challenges: Inflation at 25%, stagnant oil production, weak job creation, capital flight, distortive price controls and rising debt must be addressed urgently. The need for fiscal transparency contradicts Chávez’s preference for treating public assets as a political slush fund. Strengthening the independence of the Central Bank collides with the centralization of power in the president’s hands. The national oil company, PDVSA, needs a major corporate revamping, but with a doubling of employees from 2 million to 4 million since 2004, it is being used as an employment agency rather than a for-profit business.
Venezuela also faces some economic challenges. A devaluation of the official Venezuelan currency, the bolivar, is likely with continued currency control measures. Economists predict devaluation of the official rate in January 2013 from 4.3 bolivars to 6.2 bolivars per U.S. dollar. The result will be a serious hike in inflation based on the importation of approximately 75 percent of Venezuelan consumer goods. This will affect the debt-to-GDP ratio which is estimated to reach 52 percent by December 2012, more than doubling the 23 percent rate in 2008. The rating agencies predict a weakening in Venezuela’s B+ credit rating, with Fitch announcing a review for potential downgrade. This will increase the cost of debt repayments, except the fixed 6 percent interest on its $42.5 billion due to the Chinese Development Bank and Para-state enterprises. Bank of America Merrill Lynch anticipates a 3.5 percent reduction in Venezuelan growth next year.
What could Chávez do to strengthen the Venezuelan economy? He could reduce social spending – free government housing, cash stipends for the elderly and pregnant women -- that are calculated at 5 percent of GDP. However, reductions, let alone termination, would undermine his credibility. He could focus on rebuilding the domestic energy sector to avoid rolling blackouts via investment in critical repairs and domestic infrastructure. He could reduce the sale of energy at subsidized prices to his allies in the Bolivarian Alliance, a.k.a ALBA. Chávez could also end his criticism of the private sector and follow Raul Castro’s lead in encouraging small business and the creation of wage-paying jobs.
A renewed mandate might encourage Chávez to engage further with the government of Iran. The presence of Hezbollah and members of Iran’s Revolutionary Guard in Venezuela is public knowledge. Beyond, enabling Iran to circumvent the UN Security Council’s sanction regime, the presence of technical assistants in state security, intelligence, and energy matters has enabled Tehran to play a peripheral, but influential role in Chávez government. To carry out their work, these advisers acquire Venezuelan identify cards and passports. With these and a revised name, Iranian advisers can seek to circumvent the Department of Homeland Security’s terrorist-suspect data base.
In domestic political terms, Chávez reelection could allow him to be magnanimous and forgive the 6.1 million people, including some government workers, who voted for the opposition. Alternatively, he could retaliate against teachers and others who made their opinions known. He could ignore the critical media, including social media. Or, he could consolidate his authority by further curbs on publishers, independent bloggers and journalists.
This fourth presidential term was made possible due, in part, to the sheer determination of an extraordinary fellow with rare charisma and influence. Assiduously he has sought the loyalty of his vice president, the military high command, central bankers, high court justices and a majority of the legislators. Chávez is emperor and this election victory must be attributed to him and those around him. But the emperor is sick and few believe that he can survive his six-year mandate. Despite the naming of a vice-president, there is no clear successor.
Should Chávez become incapacitated in the next four years, the constitution requires another presidential election. Meantime, elections for governor will be held on December 16 and elections for mayor in April 2013. The constitutional and democratic system provides for several more elections that will test voters’ desire for continuity or change. In October 2012, many voters may have been intimidated into voting for Chávez. In the near future, those same voters will have greater freedom to recognize a sickened emperor and vote their own mind. This election was Chávez's last hurrah!