Venezuela: Chavez's death triggers new elections
March 15, 2013
On 5 March, President Hugo Chavez passed away after having received medical treatment for an undisclosed type of cancer for over a year. The economic legacy of "el Comandante" is controversial. During the 14 years of his mandate, nominal GDP in USD terms increased almost fourfold, benefitting from soaring oil prices - which jumped from USD 16.3 per barrel in 1999 to USD 103.4 per barrel in 2012 - but also reflecting rampant inflation and a fixed exchange rate regime. Although the Chavez administration managed to bring inflation below the levels recorded in the late 1990's, Venezuela's current inflation levels are still among the highest in the world, well above most of its regional peers. Against this backdrop, the Chavez administration was forced to devaluate the bolivar five times during his government.
On 8 March, Nicolas Maduro - whom Chavez chose as his successor - was sworn in as Venezuela's acting President. The appointment came under heavy criticism as, according to the constitution, the interim post should have been taken by Diosdado Cabello, head of the National Assembly. The day after Maduro was sworn in as president, the National Electoral Council (CNE) called for a presidential election on 14 April, in which Maduro will face Henrique Capriles, leader of the opposition. According to recent polls, Maduro is the clear favourite, with an advantage of between 15% and 20% of the votes.
The next cabinet will inherit an economy that faces serious challenges. In recent years, the country has significantly increased its dependency on oil revenues, while the combination of high inflation with a fixed exchange rate regime has eroded a large part of the country's competitiveness. In addition, the massive social programs implemented by the government ahead of the presidential election have caused a surge in Venezuela's fiscal deficit. Against this backdrop, LatinFocus Consensus Forecast panellists anticipate that the government will be forced to implement a fiscal consolidation process this year and next to bring back public finances to sustainable levels, resulting in a fiscal deficit of 4.4% of GDP in 2013 and 4.6% of GDP in 2014, which is well below the expected 7.2% of GDP recorded in 2012. In addition, panellists foresee another devaluation of the bolivar next year, and expect it to reach VEF 7.40 per USD.