Pro-Chavez supporters claimed that the reform would strengthen a popular
revolution and provide Venezuelans with more rights. On the
flip side, opponents saw the reform as a major step away from democracy
and towards an authoritarian state.

By Sherene Harryram

Research analyst

What could possibly be the downfall of an economy basking in some of the world’s most profitable natural resources? One word. Politics.

Probably, given this dynamic duo, one of the first things that come to anyone’s mind is the ever uncertain Venezuelan economy.

Venezuela’s leftist president, Hugo Chavez, took office in 1999 promising political and economic reforms to give the poor a greater share of the sovereign’s oil wealth. Given his December 3 referendum defeat in his bid to implement “21st-century socialism” and govern the country until thy kingdom come, clearly he has yet to convince 51 per cent of the people in Venezuela.

For those who are not familiar with Venezuela’s politics, here’s a quick snapshot.

The country has faced a spate of dictatorships from as far back as the 1870s with tenures lasting from a mere eight months (ironically, this was under the first democratically elected president in 1947: Romulo Gallegos) to a consecutive 27-year term.

During this period, the economy faced several coup attempts, highly volatile oil prices, significant debt and an ailing banking sector. Despite this, democratically elected governments have put the Venezuelan economy on a relatively more stable footing since the 1960s.

Under the current Chavez administration, following his initial appointment in 1999, an assembly was formed to rewrite the country’s constitution. This propelled the beginning of a new wave of “democracy” in the economy. Despite massive protests from labour unions and business organisations against Chavez’s new policies, lavish social spending programmes boosted the President’s popularity among the lower class leading to re-elected terms in 2000 and 2006.

In early 2007, the government continued on its quest of becoming a socialist state by nationalising major energy and telecommunications companies, closing the main opposition’s television station whilst putting forward a reform to abolish presidential term limits to the national assembly.

Pro-Chavez supporters claimed that the reform would strengthen a popular revolution and provide Venezuelans with more rights. On the flip side, opponents saw the reform as a major step away from democracy and towards an authoritarian state. Despite this, on a fundamental front, inflationary pressures surged, price controls implemented made basic foods frequently unobtainable while violent crime became rampant but yet, the popular President was still expected to emerge victorious.

Following weeks of public protests and campaigning against the new constitution put forward by Chavez, the government’s opposition finally tasted an unexpected 51 per cent to 49 per cent victory. The proposed 69 amendments to the constitution (part of which the President himself inspired) included abolition of presidential term limits and the removal of the central bank’s autonomy.

In reality, this would provide Chavez with new power to build his socialist revolution and remain president for life.

Also included in this package were a few widely supported changes of a reduced work day to six hours and offering pension to street vendors and housewives.

This milestone marked the government’s first ever defeat since coming into power in 1999 and has now left the people of Venezuela and the rest of the world wondering what’s in store for the sovereign termed by many as “Chavez’s Venezuela.”

So what exactly does this defeat mean?

For pro-Chavez supporters, no substantial change as their favoured President clearly stated: “I will not withdraw even one comma of this proposal, this proposal is still alive. For me, this is not defeat.”

For the opposition: “He’s now on the downside of the curve. For the first time it is possible to envisage life after Chavez.”

Legally, Chavez is unable to stand again for the presidency. His term ends in early 2013, and his defeat has put a damper on his countless reform proposals including efforts to form a regional block of allies and states. For now, he still controls virtually all the country’s institutions and has an excessive amount of oil wealth at his disposal for the next nine months.

Global investors can certainly attest to Venezuela’s risk being directly linked to the volatility surrounding the sovereign’s politics.

With this recent development, there is no surety that the economy’s uncertain outlook would diminish but it certainly bodes well for the economy in the long term. The results clearly signal that something fundamental has changed in the sovereign.

The President no longer commands the majority of voters as a new revitalised opposition—inclusive of prior Chavez supporters who have lost confidence in their leader—are committed to democracy. Venezuela is still far from reaching its once stable outlook but overall, this is good news for the development of the country and the wider Latin American region.

Anyone beg to differ?

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