With Chavez sidelined, Venezuela's economy in limbo

Ramon Sahmkow
Posters depicting Venezuelan bolivares currency notes in Caracas on August 17, 2012
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Posters depicting Venezuelan bolivares currency notes in Caracas last August. Ailing Venezuela President Hugo Chavez's absence has left on indefinite hold major economic issues, including a long-awaited currency devaluation, in the top oil exporter, analysts said Wednesday.

Ailing Venezuela President Hugo Chavez's absence has left on indefinite hold major economic issues, including a long-awaited currency devaluation, in the top oil exporter, analysts said Wednesday.

"What we are seeing is paralysis on economic decisions" on the government's part, said economist Orlando Ochoa, a professor at Universidad Catolica Andres Bello.

"The decisions (that affect) the consumer economy and investment have just been put off until all of this is cleared up," added Efrain Velasquez, head of the National Economic Council, which reports to the executive branch.

Venezuela is in uncharted political waters. Chavez, who was just re-elected in October, is in hospital in Havana with complications from his latest cancer operation. The surgery was December 11, and the government has not said when he might be back.

Chavez, 58, has been in power since 1999 and has become the figurehead of the anti-US Latin American left, particularly since the 2006 retirement of his political mentor, Cuban leader Fidel Castro.

The Venezuelan president now has post-operative pulmonary insufficiency, and has not appeared in public since he announced a month ago that his cancer -- first diagnosed in 2011, and which he said he had beaten -- was, in fact, back.

His handpicked successor, Vice President Nicolas Maduro, has taken the reins of government, with economic and administrative duties assigned by the president even though technically Maduro has not been made interim president.

The Supreme Court on Wednesday decided Chavez can be sworn in for his new term when he has recovered, since he will be unable to do so this week as had been scheduled.

That clears Maduro and the Chavez cabinet to remain on the job.

But it is not clear if the current legal situation empowers Maduro to confront issues in the highly state-led economy like increasing the national budget; expropriating assets; or devaluing the currency, the bolivar, which trades at 4.30 to the dollar.

According to Ochoa, press reports indicated Chavez had ordered economic measures, including an increase in the price of gasoline -- which is subsidized and the cheapest in the world at $0.04 a liter -- before he left for Cuba.

And this week, the government stepped up its activity and called meetings with business leaders trying to improve distribution of some goods that recently faced shortages.

But the opposition charges the government is basically doing nothing on this front, and on international markets, Venezuelan and PDVSA bonds continued to lose value this week amid the deepening political uncertainty.

Ecoanalitica chief Asdrubal Oliveros said markets were concerned about perceptions of the legitimacy of government decisions made after January 10, when Chavez was to have been sworn in again.

Meanwhile, Venezuelans had been widely optimistic about a devaluation of the bolivar early in 2013. The measure could have helped ease currency market pressure and would have come amid a massive public deficit -- 16 percent of GNP -- and state debt topping $150 billion (almost 50 percent of GNP), according to data used by Ecoanalitica.

Now, Venezuelans are even more uncertain.

The government has had a lock on the exchange rate for almost a decade. Tensions are such that it is illegal to publish the black market dollar/bolivar exchange rate.

On the positive side, Venezuela's hard currency reserves were up and finished the year at $29.891 billion, while oil exports earned $69.789 billion on firm crude prices, the Central Bank reported.

Ochoa says that the Central Bank knows full well there is a need to devalue, but crashes into resistance from the Finance Ministry. Devaluing would fuel inflation, and that is hard to swallow in a country where it already hit 26 percent last year.

And Chavez's absence, needless to say, leaves a massive void in Venezuela's executive branch, from which the state runs key industries such as oil, steel and cement.

Nevertheless, Simon Escalona, a lawmaker with Chavez's socialist ruling party, insisted the government was anything but inactive on the economy.

Maduro "is going to carry out continuity" of Chavez's socialist goals, and is not interested in devaluing, Escalona said.

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