Venezuela: Reforms In Trouble

Populist campaign rhetoric is jeopardizing prospects for free-market reforms and economic recovery as Venezuela's tight presidential race heads toward the Dec. 5 election. Political divisions are running so deep that interim President Ram n Vel squez recently summoned military chiefs, political leaders, and top businessmen to a meeting and had them pledge to honor the election results.

The four-way contest is tight. The winner is likely to eke out only a slim plurality. Such a close vote, observers fear, could trigger violence. A narrow victory--together with the antigovernment mood among voters, who are fed up with corruption and political machinations--may also leave the winner without a mandate to take the tough measures the ailing economy needs.

Running slightly ahead in opinion polls is former President Rafael Caldera, 77, who advocates a strong state role in the economy--contrary to the trend in most of Latin America toward government downsizing. He is making populist appeals such as a pledge to remove the recently imposed value-added tax, which is needed to compensate for falling oil revenues. Although Caldera founded the right- of-center Christian Democratic COPEI Party, this time he's running as an independent with support from an array of small, mostly leftist parties.

COPEI Party standard-bearer Oswaldo Alvarez Paz, a free-market advocate backed by business, is running second in the polls. But Bol var State Governor Andr s Vel zquez, a former labor leader with a spread-the-wealth program, is a strong third, with wide support among Caracas slum-dwellers.

Analysts argue that if Caldera wins, he will have to turn to free-market policies as the only solution to Vene- zuela's ills. But such a reversal could risk voter backlash. If Alvarez Paz wins, he would try to push for free-market reforms. But he could face resistance in a fragmented Congress.

    Before it's here, it's on the Bloomberg Terminal.