Chavismo Set to Outlive Chavez as Venezuela Braces for Elections

President Hugo Chavez’s absence from Venezuela in a Cuban hospital, now about to reach two months, is prompting his countrymen and investors to contemplate what a post-Chavez era would look like. It may not be much different.

Using the slogan “I am Chavez,” Vice President Nicolas Maduro has consolidated control of the government, giving the annual state of the union speech, announcing the appointment of a new foreign minister, calling on the military to remain loyal and filling in for the president with daily television appearances. At the same time, the opposition has seen its influence wane after losing both the presidential election and most of its governorships in regional voting in December.

For now, Maduro has the backing of the 58-year-old Chavez, who hasn’t been seen or heard from publicly since arriving in Havana Dec. 10 for cancer surgery. Over the coming year, pressure to devalue the currency, tackle 20 percent inflation and boost oil output may open the door to a post-Chavez leadership challenge from inside his movement, said Diego Moya-Ocampos, a political analyst at IHS Global Insight in London.

“There is Chavismo without Chavez and they’re proving it right now,” said Moya-Ocampos, a former top aide in the Attorney General’s office under Chavez in 2000. “If Maduro’s popularity starts to be undermined by economic difficulties, then you might see another Chavista leader emerging saying they can do better than him and that’s where problems can arise.”

Election Victories

Chavez won re-election three times in 14 years by tapping the world’s largest oil reserves to fund social programs that helped cut poverty nearly in half. Under the auspices of his “21st century socialism,” the government nationalized more than 1,000 companies or their assets, froze prices on consumer goods ranging from shampoo to diapers and built alliances with countries including Iran, Belarus and Russia.

Chavez’s deteriorating health has triggered a 38 percent return on Venezuelan bonds in the past year on speculation that a new regime will have to introduce more market-friendly policies. That’s the best performance in emerging markets after the Ivory Coast, according to JPMorgan Chase & Co’s EMBIG index.

The former paratrooper, who suffered hemorrhaging and breathing trouble from a lung infection following Dec. 11 surgery, was healthy enough to dictate an economic plan to boost exports, Maduro said Jan. 26 before flying to a summit in Chile.

Legal Ruling

Maduro, 50, remained as vice president after the Supreme Court ruled Chavez could stay in power even after missing his Jan. 10 inauguration. Before leaving for Cuba, Chavez called on Venezuelans to back Maduro in elections should he have to step down.

While opponents such as Leopoldo Lopez, a Voluntad Popular party leader, say the Supreme Court ruling has created a power vacuum, Chavismo, the movement named after the self-declared socialist, is striving to show his ideology continues.

To slow the fastest official inflation in the Western Hemisphere, the pro-Chavez National Assembly is discussing a bill that will set the price for new and used cars. The state-run consumer watchdog known as Indepabis has also intensified raids of distributors accused of stockpiling goods as it seeks to ease shortages of staple products such as sugar, milk and chicken.

Chavez’s coalition in the National Assembly is just one vote short of the three-fifths majority needed to grant the Venezuelan president powers to pass laws without congressional approval after an opposition deputy switched sides Feb. 5.

Maduro, a former bus driver and union leader who served as foreign minister for six years, is already in campaign mode and is the favorite to win any election, said Luis Vicente Leon, president of Caracas-based polling firm Datanalisis.

Pepper Farms

Since Chavez left, Maduro makes as many as three daily appearances on state television. In recent weeks he has promoted pepper farms in western Venezuela, discussed housing projects with a family at their dinner table and vowed that he’ll continue Chavez’s economic policies.

The opposition “proposed that we begin to privatize public companies,” Maduro said during a visit to a computer assembly factory Jan. 22. “That’s something that’s not going to happen.”

Maduro’s prospects are aided by the fact that Venezuela’s opposition is at its weakest in seven years after suffering back-to-back electoral defeats, said Javier Corrales, an associate professor at Amherst College who wrote a book about Chavez’s government.

Fracturing Support

Even after opposition candidate Henrique Capriles Radonski narrowed Chavez’s margin of victory to 11 percentage points last October from 26 percentage points in 2006, the president’s allies won 20 of 23 governorships in regional elections in December.

Still, Chavismo’s unity may fracture once the founder of the movement is no longer around, said Gregory Weeks, a professor of Latin American politics at the University of North Carolina in Charlotte.

“There’s no indication that Maduro is going to have the same unifying power that Chavez did,” Weeks said in a Jan. 3 phone interview.

Maduro has repeatedly denied speculation of a rivalry with National Assembly President Diosdado Cabello, a former lieutenant who fought alongside Chavez in a failed 1992 coup.

Price Surge

Whoever leads Venezuela will face an economic reckoning. Government spending from oil revenue of $70 billion in the first nine months of 2012 allowed the economy to grow 5.5 percent ahead of the national election. A spending spree that increased 25.5 percent in real terms in the year preceding the Oct. 7 vote may force the government to devalue the currency in order to close a fiscal deficit estimated by Morgan Stanley at 12 percent of gross domestic product.

Inflation in December rose at the fastest pace in almost three years as the government crimped imports, exacerbating shortages of staple goods such as flour, toilet paper and coffee.

Venezuela’s Information Ministry didn’t respond to an e-mail seeking comment about whether the government would be able to maintain unity in the face of difficult economic decisions.

To maintain spending, Venezuela will need to raise investment in the oil industry, which provides 95 percent of the government’s export revenue. Oil output in the country declined 13 percent to 2.7 million barrels per day in 2011 from 1999 when Chavez came to power, according to the BP Statistical Review of World Energy. State-run Petroleos de Venezuela SA, known as PDVSA, hasn’t published operational data beyond 2011.

Off-Budget Funds

Last week the government cut PDVSA’s contributions to an off-budget fund for public spending by $2.9 billion. Central government outlays have declined 7 percent in real terms since Chavez’s election, according to Bank of America Corp.

The mounting economic problems mean Maduro may lose his status as favorite if he doesn’t call elections soon, said Francisco Rodriguez, a Venezuelan economist at Bank of America in New York. The government is unlikely to devalue before any vote and delaying the adjustment until next year will mean the government will have to find other ways of raising about $65 billion.

“The longer they put off calling elections, regardless of whether they devalue, the costlier it’s going to be for them politically and the lower the chances of Maduro winning will be, which right now are very high,” Rodriguez said.

With Chavez’s health and future uncertain, the government may be biding its time while Maduro builds his profile, said Moya-Ocampos.

Power Base

“People seem to be coming to terms with the fact that every day it seems more likely that President Chavez might be unfit to carry out his constitutional duties and that Chavismo will continue with Maduro as its leader,” he said. “The strategy now seems to be for people to get used to seeing Maduro at the center of the political scene, to gain time for him to develop his own power base.”

While Maduro has said Chavez will eventually return to Venezuela, the government has turned to sponsoring religious masses to pray for his recovery. The move is part of an effort to create a myth around Chavez in a similar fashion to how former Argentine first lady Evita Peron, who died of cancer in 1952 at the age of 33, was sanctified in her country, said Ana Teresa Torres, author of “The Inheritance of the Tribe,” a history of Venezuelan military strongmen.

Tapping into public emotion over its sick president, Maduro calls himself Chavez’s son and, choking on tears in a Dec. 10 speech, compared the Venezuelan leader to 19th century liberation heroes Simon Bolivar and Ezequiel Zamora.

“It’s possible that Chavismo will disappear one day but not in the short-term,” Datanalisis’ Leon said.

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