Behind Chavez's Defeat in Venezuela

Voters' surprise rejection of the President's constitutional reforms may mean more stability for business and the economy in the oil-rich nation

by Peter Wilson

After nearly 10 years of watching Venezuela move to the left under President Hugo Chavez, Victor Martinez, a 40-year-old pet store owner, finally has reason to cheer. On Dec. 2, voters rejected Chavez's request to change the country's constitution to give him greater powers and allow him to serve as President for life. "We had to reject his proposals," says Martinez, who had worried about his business being taken over. "It was our only option."

The defeat calls into question whether Chavez will be able to deepen his socialist revolution in the oil-rich country. He has been pushing for more government control over the economy, which is suffering from high inflation and shaky business confidence. In June, he forced international oil companies (BusinessWeek.com, 6/26/07), including Chevron (CVX) and BP (BP), to hand majority control of their local operations over to the state-owned Petróleos de Venezuela (PDVSA), a move that prompted ExxonMobil (XOM) and ConocoPhillips (COP) to pull out of the country.

"The election showed the majority in Venezuela doesn't share Chavez's socialist vision," says Oscar Schemel, head of Caracas' Hinterlaces polling agency. "There is growing discontent with Chavez's leadership."

Chavez Says Not a Defeat

People poured into the streets to celebrate the results after Chavez acknowledged the outcome. Voters broke Chavez's string of more than a dozen electoral victories since 1998, rejecting 50.7% to 49.3% dozens of amendments to the 1999 constitution. About 56% of the country's voters participated. Most polls had given opponents of the referendum a slight lead in the days running up to the vote in spite of lavish government spending to pass the proposal.

While accepting the outcome of the voting, Chavez isn't giving up his effort to change the country's government. "This isn't a defeat," he said at a press conference, just minutes after the results were released early on the morning of Dec. 3. "For me, it's another 'for now.'" The expression has an important historical reference in Venezuela. Chavez led a coup attempt in 1992 that failed. After that unsuccessful attempt, Chavez said his efforts had ended "for now" and vowed to continue his struggle—an effort that eventually put him in power.

The constitutional reforms Chavez sought this time would have expanded the presidential term of office to seven years, up from its current six years, while scrapping term limits. Other changes would have ended the autonomy of the central bank and made it easier to seize private property. Another proposal would have overhauled the country's military, giving more power to a civilian reserve created by Chavez. Another would have cut the workweek by 25%.

Still Holds the Power

Tensions in the country could escalate in the days ahead. "Venezuela is going into a period of uncertainty and instability," says Julia Buxton, a professor at the University of Bradford in Britain. "Much will depend on how the opposition reacts to their victory, and if they decide to work with the government." She says the opposition may run into trouble if it interprets this victory as a mandate to push Chavez from office. "The President remains very popular," she says.

The results mean that Chavez will serve through 2012, barring any additional changes. "We will continue constructing socialism but under this constitution," Chavez said at the press conference, holding a copy of the 1999 constitution. Chavez, who was granted powers earlier this year to pass bills by decree, has the right to exercise that power for another 10 months.