Venezuela reforms at risk from transition

March 7, 2013 at 4:51 PM   |   0 comments

CARACAS, Venezuela, March 7 (UPI) -- Venezuela's economic reforms program is at risk of becoming more lopsided than it is at present as national attention rivets on mourning departed President Hugo Chavez and anticipating the outcome of his succession by Vice President Nicolas Maduro.

A key question yet to be answered by Maduro is whether he will continue all or some of the economic measures that won Chavez high approval ratings among the country's poor but earned him disdain of the business and industry elites.

Maduro's stopgap presidency is being questioned by critics both within a Chavez loyalist camp in the government and the opposition. Both maintain that Chavez, who died Tuesday after 14 years in power, should have been succeeded in a caretaker position by National Assembly President Diosdado Cabello.

Maduro aides insist his takeover is constitutional. A vote in four weeks will decide Venezuela's future leader but Maduro is widely seen likely to be formalized as president.

The government's immediate task is controlling 20 percent inflation and halting the slide of national currency. Venezuela has faced recession for three years, despite a patchy recovery last year -- unusual for a country rich in oil.

A series of ill-conceived nationalizations of key industries are blamed for slowing economic growth. Critics say they hope Maduro will move away from impulsive policymaking, a hallmark of Chavez's rule that is seen as one of the causes of economic chaos.

Maduro took one of his first daring steps, a 32 percent devaluation of the bolivar, in February while Chavez was in his sickbed.

A more daring response is needed from Maduro or whoever takes the presidential mantle as the government grapples with the financial bill for a series of subsidies that helped ease income disparity in Venezuela and earn Chavez popularity among the masses. In the meantime, national growth has slowed and cronyism has thwarted accountability for policy failures seen behind the slowdown.

Chavez escaped criticism for his economic policies because global oil prices continued to rise during his rule, the revenue covering more than 90 percent of the state sector's cash requirements. On top of that, Chavez borrowed liberally against future oil exports, a legacy that Maduro faces in his caretaker role but is unlikely to address before the election.

Venezuela's multibillion-dollar defense purchases from Russia, a wide-ranging defense and security cooperation with Iran and other cash-intensive economic and political ventures with Chavez's ideological co-marchers are also up for review.

Maduro or his successor can revise Venezuela's financial commitments abroad but cutbacks in domestic programs requiring huge cash injections will be a problem.

Chavez committed the state to a multibillion-dollar program of providing 3 million low-cost homes by 2018. Any reversal of that pledge will spell trouble for a successor aiming to remain popular with Venezuela's poor and lower-middle-class families.

A 30 percent rise in government spending before Chavez secured re-election last year will be hard to sustain. Major economic analysts, including Merrill Lynch and Morgan Stanley have predicted up to 12 percent shortfalls in Venezuela's earnings.

The World Bank predicted a reversal in the country's fortunes this year -- from more than 5 percent in 2012 -- itself a recovery from previous shrinkage rather than real growth -- to 1.8 percent in 2013.

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