Chavez and his referendum

By: Yuti Cortez - AFP - Venezuelan's approval of a constitutional referendum eliminating term limits for elected officials Feb. 15 will give Venezuelan President Hugo Chavez additional room to maneuver. With harsh economic realities looming, however, Chavez's honeymoon is destined to be relatively short.AnalysisVenezuelans approved a constitutional referendum to eliminate term limits for elected officials Feb. 15 in a move that will surely give a boost to Venezuelan President Hugo Chavez. The measure passed with over 54 percent of Venezuelans in favor of the measure, and will allow Chavez to run for re-election in 2012. The passage of the constitutional amendment is an enormous boon to Chavez, whose popularity has come under fire and whose grip on the economy is slipping. The passage of the referendum was by no means certain, with polls leading up to voting day showing wildly skewed results. Indeed, with Venezuelan voters having rejected a similar measure in December 2007, this is a significant upswing in the popularity and support for Chavez. And Chavez will interpret this as an unequivocal renewal of his mandate to carry out his Bolivarian socialist policies. His win ensures that rivalries within his United Socialist Party of Venezuela (PSUV) will not plague his administration for the time being, and sets Chavez up as his own successor for the next term beginning in 2013.The referendum may also have dealt a serious blow to the opposition parties, although it is possible that they will use this defeat as a rallying cry against Chavez. The fact is that while Venezuelan students led a substantial opposition effort ahead of the referendum, the opposition parties did not play a major role. Chavez has marginalized many opposition politicians, even those already in office, such as Caracas Mayor Antonio Ledezma, who has been barred from entering mayoral facilities by armed civilians who support Chavez. Whether because of internal issues or as a result of Chavez’s actions, the opposition parties have been unable to unite under one effective banner, and this latest boost to Chavez could make it even more difficult for them to do so. There is no smooth sailing for Chavez, however; his task now is to lead the country through trying times, with an eye on remaining popular enough to win the 2012 election. With the sharp decline in the price of oil in the wake of the U.S. financial crisis, the oil-based economy is set to see a vicious decline in prosperity. Chavez has completely postponed dealing with the problem, as November 2008 state and municipal elections and then this referendum required that he maintain a high level of government spending in order to secure popular support. Now, with government coffers extremely strained, the administration will have to face a number of hard questions. Assuming the price of oil stays low (Venezuelan heavy, sour crude is averaging under $40 per barrel), the government budget (predicated on an expected oil price of $60 per barrel) will have to sustain deep cuts. There are a number of things that the government can do to trim costs and raise income, including cutting international grant programs like Petrocaribe, or raising the sales tax at home. However, if oil prices remain low, the government will inevitably have to consider reducing social spending, which could include cutting anything from gasoline subsidies to pharmaceutical subsidies. Many speculate that the government will be forced to devalue the Venezuelan currency in order to deal with the budget shortfalls. This seems increasingly possible, given the Venezuela's rapidly diminishing cash reserves the government's decision to reallocate $12 billion to social spending from the central bank has left the central bank with just $30 billion in reserves. However, if the government goes through with a devaluation, there will be a certain spike in inflation since Venezuela is a net importer of everything from machinery to vehicles to consumer products to food. An inflationary spike will be painful for Venezuelan consumers who experienced the highest inflation in Latin America during 2008 at over 30 percent, and it will be politically costly for Chavez. How Chavez chooses to act will ultimately depend on how he expects oil prices to go. If he expects prices to rise in the near term, he might choose to postpone harsh measures on hopes that he can bridge the fiscal gap using savings without having to resort to austerity measures. However, if Chavez expects prices to ultimately stay low, he might decide to impose austerity measures relatively quickly so as to get through the painful part, with time to spare before the 2012 election.With the elimination of his term limits, Chavez will have to balance the harsh economic realities that face his country with the political necessities of his administration. Heavily reliant on social spending for his popularity, Chavez cannot afford the austerity measures that Venezuela's economic situation would seem to call for. But the passage of the referendum gives Chavez room to maneuver as he seeks to balance these needs.mf