Chavez Heir Maduro Sworn in as Vote Dispute Roils Investors

Nicolas Maduro was sworn in as Venezuela’s president after a week in which rising tensions with the opposition over the disputed April 14 vote undermined investor confidence in how the government will manage the world’s largest oil reserves.

Maduro, 50, accepted the yellow, blue and red presidential sash from Maria Gabriela Chavez, the daughter of late President Hugo Chavez, after taking the oath of office at a ceremony in Caracas. Maduro’s inauguration speech was briefly interrupted when a man ran up to the podium at the National Assembly building and grabbed the microphone away from him.

“To those who voted against me, I am the president for the coming years,” Maduro said in his speech. “I was trained by comandante Hugo Chavez.”

In the five days since the National Electoral Council named Chavez’s political heir the winner of the April 14 vote, Maduro has threatened Spanish energy company Repsol SA and accused opposition leader Henrique Capriles Radonski of inciting a coup. Political clashes left eight people dead, the government said.

“It’s the worst possible scenario for the industry: a whole new level of volatility,” Carlos Bellorin, an oil analyst at research company IHS, said by phone from London. “I don’t see any oil company committing a lot of resources to Venezuela right now.”

Narrow Win

Maduro’s victory margin, the narrowest in 45 years, gives him little room for maneuver to address accelerating inflation, sparse supermarket shelves and slowing growth, said Cynthia Arnson, Latin American program director at the Wilson International Center for Scholars. Venezuelan bonds rose for a third day in a row after falling the most in 15 years as investor concerns that violence would spiral out of control subsided and the electoral commission announced it would complete an electronic audit of the 15 million votes cast.

Tensions in the country began to ease after Capriles, 40, called off a planned rally in Caracas April 17 after the reports of protester deaths and a speech by Maduro in which he vowed to use a “firm hand” against the opposition. Maduro, who won 50.8 percent of the vote to Capriles’s 49 percent, had said he held Capriles personally responsible for the deaths. Capriles also said he accepted the electoral council’s decision to complete the audit of votes.


“This is a fight for the truth,” Capriles said. “I’m certain that sooner rather than later, the truth will emerge. The truth will not only emerge, but the truth will have consequences.”

The country’s benchmark dollar bonds due in 2027 rose 1.1 cents on the dollar to 97.09 cents. The yield fell 15 basis points to 9.63 percent.

Brazilian President Dilma Rousseff, Argentina President Cristina Fernandez de Kirchner and Iranian President Mahmoud Ahmadinejad were among the guests at today’s ceremony.

The 12-member Union of South American Nations in a statement today urged all parties in Venezuela to respect the voting results and congratulated Maduro for his election. The group also gave support to the full audit of the votes.

Maduro, who served as Chavez’s foreign minister, told the U.S. to take its “eyes off Venezuela” after Secretary of State John Kerry said his government supports a recount and wouldn’t send an envoy to the inauguration.

Falling Output

Maduro will confront declining investment in the oil industry that has affected production. Output at state-owned Petroleos de Venezuela SA 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 for 96 percent of export revenue.

Falling production is compounded by declining prices. Brent oil for June settlement fell to $97.69 a barrel on April 17, the lowest close since July 2. For every $10 drop in the price of oil, PDVSA loses about $9 billion in revenue, according to calculations by Jorge Piedrahita, CEO of New York-based brokerage Torino Capital LLC.

Standard & Poor’s today cut its outlook on Venezuela to negative from stable, citing “greater political uncertainty that threatens to weaken the implementation of economic policies and possibly undermine governability.”

Under Chavez, companies ranging from Repsol to Chevron Corp. shook off expropriations, windfall profit taxes and infrastructure delays to stay in the country.

Repsol Threat

Those looking for a new dawn may be disappointed. In his first speech as president-elect, Maduro told Madrid-based Repsol to be careful of its oil investments after Spain’s Foreign Ministry suggested a recount was needed.

“And how is Repsol doing? They should ask themselves in Spain,” Maduro said April 15. “We hope they rectify in time, if not we will take exemplary actions.”

The following day, Maduro said Spanish companies were welcome to invest in the country.

Kristian Rix, a Repsol spokesman in Madrid, declined to comment when contacted by Bloomberg. Chevron looks forward to helping Venezuela develop its natural resources, Kurt Glaubitz, a company spokesman in San Ramon, California, said in an e-mailed response to questions.

Venezuela’s oil policy will not change under Maduro, Ramirez told reporters in Caracas yesterday.

Maduro’s rhetoric won’t be backed up by action, said Francisco Rodriguez, an economist at Bank of America Corp., who sees the small margin of victory as a constraint on Maduro’s capacity to become more radical.

“In the end we will see a more moderate government emerge from this,” Rodriguez said in a phone interview from New York. International oil companies “are safer now than if Maduro had won by 15 points.”

25% Inflation

While the opposition questions his legitimacy, Maduro also faces a raft of economic challenges left behind by Chavez, whose spending led to a 2012 fiscal deficit for the central government and PDVSA of 14.5 percent of gross domestic product, according to BofA. Even after the government devalued the currency by 32 percent to 6.3 bolivars per dollar in February, BofA said it expects a deficit of 9.7 percent this year.

Inflation in Venezuela accelerated to 25 percent in March, the fastest in the region. 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 in January. Venezuela experiences sporadic shortages of products such as milk, sugar, chicken and toilet paper.


The cost of insuring Venezuela’s debt against default for five years has climbed 99 basis points this week to 788, or $812,000. The cost fell 27 basis points today.

Maduro will face as much pressure from within his own ranks as from the opposition, said Eric Farnsworth, vice president at the Council of the Americas in Washington. National Assembly President Diosdado Cabello’s comment on Twitter that the margin of victory called for self-criticism is a “pretty sharp shot across the bow,” Farnsworth said.

While a presidential term lasts six years, the opposition is likely to seek a recall vote before then, said Arnson.

“Maduro is going to take office with close to half the population believing that he’s not the legitimate president of the country,” Arnson said in a phone interview from Washington. “That is really going to create severe governability challenges.”