Magazine article Business Credit

International Insight: Hot Spots-Venezuela

Magazine article Business Credit

International Insight: Hot Spots-Venezuela

Article excerpt

Hot Spots--Venezuela

With the July 31 elections, President Hugo Chavez completed the primarily political Stage One of his "Bolivarian revolution." Predictably, he won the balloting with ease, garnering an impressive 59 percent of the vote more than when he was first elected in December 1998. His Fifth Republic Movement (MVR) gained enough seats in the single-chamber congress to pass, with the support of allies, enabling legislation that will allow Mr. Chavez to approve laws by decree, without having to bargain for support from the opposition.

There is one source of potential trouble that the President should not lose sight of while he maps out his future. Discontent in the armed forces has become palpable - not so much among lower-ranking troops, who generally like his class-war rhetoric-but among senior officers, of whom many are irritated by Mr. Chavez's efforts to politicize the military Disgruntlement is particularly strong in the navy, the air force and the national guard. But a military putsch deposing him will be improbable so long as his popularity remains strong. And for the time being, Venezuelans, particularly the 80 percent who are poor, are overwhelmingly on his side.

The new constitution substantially expands the powers of the federal government, especially the executive branch. It also eliminates a ban on Presidents running for two consecutive terms, while extending the length of each term to six years from five. Mr. Chavez made it clear in his acceptance address from the People's that he is already planning to run for a second term, hoping to be Venezuela's Chief Executive when the country marks the bicentennial of its independence in 2011.

With the political struggle over, however, Pres. Chavez will now have to turn his attention to the ailing economy, As he does so, he will not be able to hide the fact that beyond prof ligate outlays from the public till, he has no coherent plan to offer. Most of his populist nostrums appear to be based on the assumption that oil prices can be kept permanently high, a dangerous belief that eventually will come to haunt him. In his first post-election speech, he mostly bragged about his 18month-old administration's track record, emphasizing, especially, that unemployment had dropped from a peak of 16.1percent last September to 13.8 percent in May and that inflation had slowed to a 14-year low of 15.9 percent in July. He insisted that real GDP grew by between 2 percent and 3 percent per annum in the second quarter, following a gain of just 0.3 percent in January-March, which would indicate an incipient rebound from last year's deep recession.

It should be kept in mind, though, that the picture would be starkly different, were it not for the benefits Venezuela is deriving from still sky-high oil prices.The non-oil business community unsure what to expect next from the erratically moving government, is not investing in productive facilities that could provide a more solid and reliable base for an economic recovery. Investors want an acceleration and intensification of the privatization program.They need a competitive exchange rate for the bolivar and clear signals that fiscal and monetary lassitude will not spin out of control. …

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