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Chavez’ Temporary Victory

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Despite his referendum win, Hugo Chavez will likely be ousted by popular vote in 2012, experts predict.

BY CHRONICLE STAFF

He won Sunday's referendum allowing him to run for re-election, but Venezuela's president Hugo Chavez won't necessarily win that re-election, experts say.

"With the economy worsening, oil prices low and social discontent rising, support for Chavez, even among many of his own hard core followers, is likely to falter," U.K.-based risk consultancy Exclusive Analysis says in a commentary today. "We anticipate a marked increase in street protests and growing anger with the government. Under this scenario, in particular if oil prices fail to recover in the next two years, the ousting of Chavez by popular vote in 2012 appears increasingly likely. "

The sharp drop in oil prices is also likely to mollify Chavez's nationalist agenda as he will have less money to acquire assets for the state, it adds.  

Chavez won the Feb.15 referendum with 54 percent in favor of allowing him to run for re-election despite ruling Venezuela for ten years already.

U.S.-based IHS Global Insight predicts that Chavez now will move ahead with a long-anticipated devaluation of the Bolivar and tax increases to compensate for the falling oil revenues. "Some painful decisions, such as devaluation of the currency, could take place almost immediately as the president moves swiftly to capitalize on solid support," it analyst Marion Barbel predicts. "Other unpopular reforms, such as tax increases to shore up the revenue base, could [also] soon materialize."

The Chavez victory is unlikely to have major commercial implications for foreign investors, Exclusive Analysis argues. "He has already completed the nationalization of major sectors of the Venezuelan economy, such as energy, power generation, telecommunications, steel and cement production. He is in the process of taking over mining."

Chavez was able to pursue the nationalization of firms in these industries, and in most cases compensate their former owners, because oil prices were at a record high, but that is no longer the case, the consultancy points out.

"Low oil prices, economic stagnation, increasing unemployment and difficulties for the government to fund the generous subsidies that the poor now consider as their rights, are likely to fuel social discontent," Exclusive Analysis warns.

The government's challenge is that its budget is based on international oil prices of $60 per barrel rather than the $37 it fetches today. Meanwhile, inflation continues to remain at high levels of 30 percent annually, the highest in Latin America and the second-highest worldwide after Zimbabwe, according to Latin Business Chronicle data. At the same time, there is growing food shortage and less access to U.S. dollars.

"As the crisis bites, street protests are likely to escalate, not only by the opposition, but more worryingly for the government by its own supporters," Exclusive Analysis says. "They will demand that the authorities honor their commitment to public spending on an array of policies ranging from education to job schemes to food subsidies and housing."

Already thousands of contract oil workers are threatening a national strike as the fall in oil prices has forced PDVSA to cancel several exploration projects, it adds.

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