Chavez Heir Maduro Would Inherit Venezuela Economic Woes

Nicolas Maduro is counting on a wave of sympathy for late Venezuelan President Hugo Chavez to win election on April 14. Should he succeed, he’ll be on his own as he confronts accelerating inflation, shortages of consumer goods and weakening growth.

Throughout the two-week campaign, Maduro has played a video of a Dec. 8 speech by Chavez in which the self-declared socialist asked Venezuelans to vote for his longtime foreign minister should he not survive a cancer operation in Cuba. Maduro, who calls himself “Chavez’s son,” has mentioned his predecessor’s name more than 7,100 times since his March 5 death, according to a website tracking his speeches.

While Maduro, 50, remains the favorite to defeat 40-year-old opposition candidate and former Miranda state Governor Henrique Capriles Radonski, polls show growing discontent with the economy, said Luis Vicente Leon, president of Caracas-based polling firm Datanalisis.

“Maduro is a candidate with a short shelf life and he’s been losing ground,” Leon said in a phone interview from Caracas. For Maduro, the electoral campaign “is the honeymoon. The marriage will be much harder.”

Race Tightens

Maduro’s lead narrowed to 7.2 percent points from 16.5 percent points a week earlier, according to results of a Datanalisis phone poll published by Credit Suisse Group AG today.

Maduro had 44.4 percent against 37.2 percent for Capriles, according to the survey of 1,033 people taken April 4-11. The poll had a margin of error of 3.04 percent. In a separate Datanalisis poll taken last week using different methodology, Maduro had 55 percent while Capriles had 45 percent.

Credit Suisse assigned a 70 percent chance of victory for Maduro, down from 95 percent a week ago.

“We recognize that the recent trends appear to favor Capriles, but we still expect Maduro to win this Sunday’s presidential election,” Credit Suisse analysts Casey Reckman and Di Fu wrote in the note to clients.

Poverty Reduction

During his 14 years in power, Chavez increased state control over the economy by nationalizing more than 1,000 companies or their assets and introducing currency and price controls. He tapped the world’s biggest oil reserves to help cut poverty to 29.5 percent in 2011 from 48.6 percent in 2002, according to the United Nations. Maduro, a former bus driver and union leader who led the National Assembly until 2006, has called the election a choice between capitalism and socialism.

“It’s either them and their capitalism or us, the fatherland and socialism,” he said April 6 on state television.

Chavez won his third re-election last October when he defeated Capriles by 11 percentage points after raising salaries, constructing thousands of homes for poorer families and increasing cheap imports to slow inflation. The spending binge helped the economy grow 5.5 percent in 2012.

A 16.5 percent rise in imports in 2012 led Venezuela to post a current account deficit in the fourth quarter for the first time since 2009.

That forced the government to devalue the bolivar by 32 percent in February as it sought to close a fiscal deficit for the central government and state oil company Petroleos de Venezuela SA of 14.5 percent of gross domestic product in 2012, Bank of America Corp. said in an April 4 note. Even after the devaluation, BofA said it expects a deficit of 9.7 percent this year.

‘Two Devaluations’

The shortage of greenbacks also prompted Maduro to unveil a dollar auction system in March to rein in an unregulated currency market that trades at almost four times the official rate of 6.3 bolivars per dollar. The government didn’t disclose the implied exchange rate from the auction.

“In 100 days, they’ve imposed two devaluations on us,” Capriles said March 20. “What these measures really mean are that prices will continue rising and it will be harder to get hold of products.”

Consumer prices rose 23 percent in February from a year earlier, the fastest pace in 10 months and the highest official rate in the hemisphere. Rising prices are compounded by shortages of products on supermarket shelves. The central bank’s scarcity index, which measures the amount of goods that are out of stock in the market, rose to a record high of 20.4 percent in January.

Oil Investments

The cost of protecting Venezuelan bonds against default for five years increased 28 basis points this year to 673 basis points yesterday, the highest level among major Latin American nations tracked by Bloomberg after Argentina, even as yields on benchmark bonds due in 2027 fell 37 basis points this month.

A new government will also need to find cash to invest in the oil industry. Production at PDVSA fell 3 percent to 3.03 million barrels of oil and natural gas liquids a day in 2012 from a year earlier, Oil Minister Rafael Ramirez said April 7. Venezuela relies on oil revenue for 96 percent of its export revenue.

The larger-than-expected devaluation and dollar shortages could push the economy into recession this year, according to HSBC Holdings Plc. The London-based bank expects Venezuela’s economy to contract 0.6 percent after previously forecasting growth of 0.5 percent, according to a second-quarter note to clients.

‘Serious Issues’

“Maduro has inherited a very difficult situation in terms of the economy,” said Victor Sierra, managing partner and head of sales and trading for emerging market fixed-income at Torino Capital LLC in New York. “They haven’t changed the oil in the car for a while and it’s about to have some serious issues.”

Capriles, whose grandfather founded the local unit of Nabisco Inc., is seeking to mobilize the 6.5 million people who voted for him in October while counting on some of the 8 million who voted for Chavez to stay home. Capriles can win if one-in-four government supporters abstain, his campaign coordinator Carlos Ocariz said in a March 26 interview in Caracas.

Even if he doesn’t win, by narrowing the margin of defeat Capriles would cement his position as de facto leader of the opposition and be well placed if the economy undermines support for Maduro, said Hugo Perez Hernaiz, a sociologist at the Universidad Central de Venezuela in Caracas.

“The opposition could be focusing on closing the distance to one digit and waiting for the disaster to explode,” Perez Hernaiz said in a phone interview from Bilbao, Spain.

‘Inherently Weak’

Maduro could face as much pressure from within his own movement as from the Venezuelan opposition, said Risa Grais-Targow, an analyst at political risk consultancy Eurasia Group Ltd in New York. Coming after Chavez, Maduro will be an “inherently weak” president who won’t be able to push through pragmatic policies as other figures within the movement jostle for power, Grais-Targow said.

“Those dynamics will limit the extent to which he can make any meaningful policy adjustments because he’ll have to prove he’s the true heir to Chavismo,” Grais-Targow said in a phone interview from New York. “There’s been a lot of wishful thinking that he’s going to be more moderate because it’s going to be difficult for him to do anything that’s seen as abandoning the revolution.”

Officials in Maduro’s campaign didn’t respond to a request for comment by Bloomberg News.

‘Already Complex’

A defeat by less than 8 percentage points would give the opposition fuel to build for a strong challenge in the next election, Goldman Sachs & Co analyst Alberto Ramos wrote in a note to clients today.

Whether Maduro chooses to radicalize or soften economic policy will depend on the margin of victory and which faction of Chavismo prevails after the elections, he said.

“The macro-political outlook for Venezuela was admittedly already complex enough and Sunday’s election, rather than offering more clarity going forward, may end up adding another layer of uncertainty,” Ramos wrote.

Maduro said yesterday that as president he would focus on crime, government inefficiency and the economy. An ample margin of victory will give him a mandate to govern, he said.

“If you ask me what I’m going to do, here it is,” Maduro said, pointing at a pamphlet Chavez presented as his government manifesto in October’s election. “I’m going to carry out Hugo Chavez’s legacy.”

Maduro’s Struggle

In a Feb. 16 speech, Maduro vowed to pressure corporations “as comandante Hugo Chavez said we should” as part of the transition to socialism. Capriles said he would raise the minimum wage 47 percent and stop “giving away” the country’s oil, a reference to the Petrocaribe energy program that subsidizes crude to countries in the Caribbean and Central America.

While Maduro has campaigned as a clone of Chavez, he will struggle to mimic his governing style, said Datanalisis’ Leon. Chavez skirted economic issues by charming his followers in five-hour speeches full of jokes and anecdotes. From Maduro they will expect concrete results, Leon said.

“Maduro doesn’t have Chavez’s charisma to surf over problems and ask people to wait,” Leon said. “The memory of Chavez won’t protect Maduro as president.”

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