Girish Gupta

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Venezuela Enjoys Calm After Chávez's "Rapid Recovery" From Cancer, but Reprieve Only Temporary
Jul. 13, 2011

Published by Minyanville

Venezuela is beginning to calm after a whirlwind month for its government, as President Hugo Chávez announced that he was suffering from cancer following weeks of uncharacteristic silence. That silence fueled huge speculation on his ability to govern. And now, with the cat out of the bag, that speculation is looking forward to presidential elections next year.

Chávez’s return to health appears miraculous, if not somewhat stage-managed. The government in Venezuela has insisted that the Comandante has enjoyed a “rapid recovery” from the operation which removed a cancerous tumor, and is in an “optimal scenario” as he begins the next phase of recovery.

However, Venezuelan government statements are often to be taken with a grain of salt -- be they about oil production from Petróleos de Venezuela (PDVSA) or on the president’s health. Many contradictory and confused statements were offered last month during Chávez’s convalescence from his ministers who were clearly out of the loop on facts.

In returning, Chávez will be keen to reassert power after talk of infighting in his own party as well as following elder brother Adán’s public offerings in fiery language that would have made even Hugo blush. Adán is considered even more radical than his brother, with Hugo jokingly calling him the “Marxist in the family.”

Chávez’s illness implies the illness of Chavismo -- the political revolution that has swept Venezuela for more than a decade. There is no obvious successor to Chávez in his own party, and the opposition in Venezuela is divided to say the least.

“Chavismo is not a political party; it is more a political movement. As such, it is a loose collection of multiple factions, which at times have conflicting interests,” said Boris Segura of New York investment bank Nomura in a note to clients. Segura also cites a poll which puts de facto opposition leader Henrique Capriles Radonski at the top of a table of politicians’ popularity in Venezuela -- at 55% compared to Chávez’s 45%.

Over the next year, many in Venezuela will be keen to see the demise of Chávez and the problems they claim his government has brought. Figures such as Capriles Rodonski, already in the limelight, will have to unite the opposition before February’s primaries as it struggles to gain momentum.

Market Impact

Bond prices rallied in the days following Chávez’s announcement of his cancer, as investors hoped for regime change following next year’s elections. The biggest issuer of dollar-denominated bonds in Venezuela is state oil firm PDVSA. The company has paid $2.45 billion for its 2011 bond as it reaches maturity, reducing the company’s total debt to $29.5 billion.

Finance minister Jorge Giordani has said that the interest rates demanded by investors for Venezuelan securities are too high. Chávez signed a bill this week to expand the debt ceiling by $10.5 billion in 2011, having sold $3 billion of bonds that are due in 2022.

“This will give additional impulse to the economic growth we’ve already experienced this year,” Giordani told state television, reports Bloomberg. “If you take your foot off the pedal the car stalls. We’re not going to pay those rates they make us pay.”

Chávez also announced that $2 billion would be paid into the China-Venezuela strategic development fund, adding to China’s $4 billion input. Payment into the fund will be made in oil, pushing up exports to the Asian giant from 400,000 barrels per day to 1m over the next two years.

With huge fuel subsidies, many investors worry that Venezuelan authorities are simply giving fuel away both domestically -- where gas is the cheapest in the world -- or abroad to friendly nations such as China and Cuba.

Speaking at his presidential palace at Miraflores, Chávez said, “It is not true what the opposition says, that we are just giving oil to China, no. This is at the market price,” adding that there was no need for input from bodies such as the IMF.

However, inflation in Venezuela is up to 23.6% in the 12 months to June, thanks to a 2.5% price rise that month which pushes the figure up from 22.8% in the year to May. The rate is Latin America’s highest and thought by many analysts to only be out of the realms of hyperinflation thanks only to the country’s huge oil reserves.

Prices in 2010 rose 27.2% and the government is looking to curb inflation to between 23% and 25% by the end of 2011. Many analysts feel that this is unlikely to happen.




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© Girish Gupta