Bottom line -- Venezuela: All politics is loco

Venezuelan President Hugo Chavez reportedly exploded in an early February meeting with aides, barking insults and threats after hearing that privately commissioned polls show he is falling behind in a referendum he needs to continue running for future terms as president, according to a reliable source.

The polls, discussed during the weekend of Feb. 6, reportedly showed public sentiment on the referendum -- which would overturn federal term limits on Venezuela's presidency -- have slipped from a support level of around 55 percent in late 2008, to less than 49 percent in February. This is not the trend Chavez wants to see.

Apparently, in between a reported series of growled threats to their jobs and personal safety, Chavez's team got the message.

In the final days before a Feb. 15 vote, he's pulling out all the stops. Chavez's government has imposed a quasi-blackout on coverage of opposition political figures in the government-dominated media. Officials have sent armed vigilante groups that support him, Venezuela's brown shirts, into the streets and opposition offices to make it clear -- as if it wasn't already -- that Chavez wants to win.

The question for investors is, not only is the referendum likely to pass or fail, but what happens as a result?

Chavez defeat

Chavez is likely but not certain to lose an honest vote. Public polls show the margin close, as do Chavez's own samplings. The government's last ditch effort could turn votes, but insofar as it seems self-serving, could also turn them in the other direction.

The referendum also contains what Chavez thinks are sweeteners, such as a six-hour workday and expanded social spending. In referenda votes across different countries, however, such brazenness often backfires.

Officials could simply cheat in the counting, but in today's environment, this could turn Chavez's regime into a Cuba-style pariah state. For all the accusations hurled at him, it's not clear this is how Chavez wants to rule. "I admire Fidel, but I want to be a successful Fidel," he reportedly confided to one supporter in early 2008 -- just after losing a vote on a similar referendum in 2007.

In the final weeks and days, moreover, public opinion on referenda nearly always turns to the negative side. When in doubt, voters are naturally conservative, and likely to vote for the status quo.

On the other hand, an opposition victory for term limits does not foreclose Chavez from other options. It does not prevent Chavez from attempting to continue his rule through a proxy, as in Vladimir Putin's Russia. Or from trying again, on a referendum vote, in the coming years.

Any of these results is doubtful, setting off a power struggle, interestingly, through non-democratic means. And therefore, bearish.

Chavez victory

By conventional wisdom, a Chavez victory, whether authentic or attained by cheating, would inflict another disaster on Venezuela -- raising the prospect he would consolidate his regime and become what one critic calls "an oil-rich Castro."

Yet, insofar as a Chavez win in the referendum would force the opposition to confront him head on, it might, in the long term, be more bullish.

Latin dictators can be defeated, as the Ortegas showed in Nicaragua decades ago, and the unwinding of the ruling party's soft dictatorship demonstrated in Mexico over the last generation. But they are not defeated, as the major opposition parties learned in Mexico, until a viable opposition forms -- one that, in particular, offers a competing vision, as against mere anti-Chavezism, however understandable anti-Chavezism is as a sentiment.

The opposition has shown some signs of figuring this out. Opposition parties gained ground against Chavez's allies last fall in Maracaibo, the country's second largest city, and, importantly, in the poorest areas of Caracas -- Chavez's base. The global economic downturn has deprived his regime of oil revenues needed to fund his ambitious transfer payment programs, and made his aggressively anti-U.S. foreign policy seem like a costly extravagance.

Paradoxically, however, the opposition's resistance to the referendum on term limits makes it seem doubtful of its own seriousness as a governing alternative. In boxing, if you want to be the champ, you have to beat the champ, which means you have to fight the champ. Great challengers in boxing do not shrink from facing off with the man who wears the title belt; they relish it. Can you picture Muhammed Ali, demanding term limits?

Bottom Line: Win-lose, lose-lose

Ironically, then, the voting Sunday, and certainly in Venezuelan elections in the future, may tell us a lot more about the opposition than they do about Chavez. If the opposition gets its act together, and provides a meaningful alternative, they can beat Chavez in an election, and don't need the crutch of term limits to turn him out. If they don't, they can win the battle on Feb. 15, and still lose the war.

The real bullish sign for investors would be if the referendum passes, and if its approval is seen as fair -- allowing Chavez to run again. If that were followed by a viable opposition campaign, straight up, Contra versus Chavez -- a democratic-market alternative against velvet socialism and a quasi-one-party-state -- there would be some hope.

Indeed, if, in turn, Mr. Chavez were to accept the results, Ortega-like, and rather than fighting to retain power, fight to regain it under the discipline of democracy, Venezuela's fragile democracy would be restored.

That's a lot of ifs, though. And all at a time when the economic fundamentals of global oil glut and deflation, paradoxically, work partially in Chavez's favor -- making his emphasis on redistribution seem palatable and even necessary. Insofar as the referendum allows voters to vent their frustration with conditions, it may well be defeated -- but that is a very different thing than defeating Chavez-ism.

The more likely result, alas, is for some form of power struggle after an opposition win on the referendum, or a perceived victory for Chavez by cheating. Even an opposition win leaves Chavez plenty of time to try again between now and the country's next presidential election, in 2012.

And if the referendum passes, it will still leave the opposition without a viable candidate, leader, and, most important, policy alternative, for some time.

Bottom Line liked the fundamentals in Venezuela from 2002 to 2005 -- a good investment, though it was helped along substantially by a tide of rising oil prices, key to Venezuela's economy. (See, "Oil's Well that Ends Well," December 18, 2002, and "Wouldn't be prudent," April 7, 2005.)

The situation will turn bullish when a Venezuelan Newt Gingrich or Jack Kemp emerges -- a politician who can rally the opposition to a joint manifesto, or at least program, for change.

For now, things look grim under the win-lose, lose-lose political scenarios that are the most likely for the next 18 months. Throw in the global oil glut, and the possibility of Chavez attempting to consolidate his rule extra-democratically in the next two years, and one comes to the conclusion that for Venezuela, all politics is loco. Still short.

(Fossedal is a former investment manager and author, and has been a UPI commentator since 2002. He is the author of numerous books on financial and political history, including "Direct Democracy in Switzerland," "Our Finest Hour," and "The Democratic Imperative.")

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