Bloomberg News

Venezuela Cancels Summit as Chavez Health Questions Escalate

June 30, 2011

(Adds comments by opposition leader Ramon Guillermo Aveledo in 21st paragraph, updates bond prices.)

June 30 (Bloomberg) -- The Venezuelan government, citing Hugo Chavez’s health problems, canceled a July 5-6 regional summit just hours after broadcasting images of an apparently fit president in Havana, a move that raised fresh questions about the gravity of the socialist leader’s ailments.

Chavez was due to host the summit of the Community of Latin American and Caribbean States, or CELAC, a hemispheric bloc that excludes the U.S. and Canada. Chavez is undergoing a “very strict medical treatment” following an operation to remove a pelvic abscess that prevented him from attending, the Foreign Ministry said in a statement.

“President Chavez wasn’t going to cancel such an important event if his health wasn’t worse,” said Luis Vicente Leon, director of Caracas-based polling firm Datanalisis. “This information amplifies the worries that already exist about the president’s health and without a doubt will generate a significant increase in the rumors.”

Chavez has made Latin American integration -- which he sees as countering the “imperialist” influence of the U.S. in the region -- a centerpiece of his foreign policy, said Michael Shifter, president of the Washington-based Inter-American Dialogue, a public policy center on Western Hemisphere affairs.

He would have found the opportunity to host the summit “irresistible,” Shifter said.

Surgery June 10

Chavez, 56, underwent surgery June 10 in Cuba as he completed the final leg of a regional tour that also included Brazil and Ecuador.

The former paratrooper, who hadn’t spoken in public since June 12, appeared in a video broadcast yesterday on state television alongside Fidel Castro, Cuba’s ex-president, in what the Caracas government said was evidence of a satisfactory recovery.

Chavez will address the nation on television from Cuba this afternoon, Maracaibo-based newspaper Panorama said on its website, citing government officials they didn’t identify. The speech may occur at 6 p.m. local time, Panorama reported.

In the video yesterday, Chavez spoke animatedly while standing and reading headlines from Cuban newspapers and then sat in a rocking chair, chatting with Castro about his military career and about former Chilean President Salvador Allende.

‘Bring Calm’

“These images should bring calm to the Venezuelan people about the president’s health,” Information Minister Andres Izarra said after still images of the meeting were shown on June 28. “Images speak more than a thousand words.”

The yield on Venezuela’s benchmark 9.25 percent dollar securities due in 2027 has fallen 68 basis points, or 0.68 percentage points, to 13.07 percent, since closing June 10 at 13.75 percent, according to JPMorgan Chase & Co.

The price rose 1.0 cents on the dollar to 74.50 cents at 3:25 p.m. in New York trading today.

The cost of protecting Venezuelan debt against non-payment for five years with credit-default swaps fell 41 basis points to 976 today, the lowest since May 3, 2010, according to data compiled by CMA in London. The country’s credit-default swaps have plunged 235 basis points since June 20.

Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.

The Foreign Ministry didn’t say whether Chavez will return for the 200th anniversary of the country’s independence from Spain, also on July 5.

Public Celebrations

Chavez, who frequently invokes Simon Bolivar in speeches and talks of fulfilling the South American liberator’s dream of uniting the continent as one state, has used the bicentenary celebrations as a rallying cry to stoke nationalist sentiment ahead of elections next year. He renamed a chain of supermarkets expropriated last year from Saint-Etienne, France-based Casino Guichard Perrachon the “Bicentenary Hypermarket.”

Should Chavez fail to attend the public celebrations, his hold on power will appear even more fragile, said Christopher Sabatini, senior director of policy at the Council of the Americas, a New York-based international business organization focusing on the Western Hemisphere.

“Showing up at the celebrations will only lessen the blow if this has all been a ploy and he appears in full vigor,” Sabatini said in an e-mail. “If not, the inherent weakness of the Bolivarian project and of Chavez as a human has been made painfully obvious.”

Seclusion, Opposition

Aside from a June 12 telephone interview on the Telesur network and messages on his Twitter account on June 25, Chavez, who has occupied Venezuelan airwaves during his 12 years in power with speeches that have stretched as long as six hours, had been silent since June 10.

The president’s post-surgical seclusion and lack of information about his health have raised questions about whether he should be running South America’s largest oil producer from Havana.

Ramon Guillermo Aveledo, executive secretary of the opposition Democratic Unity Table alliance, called on Vice President Elias Jaua today to replace Chavez until he recovers, according to a statement.

Aveledo said the opposition will continue with its plans to remove Chavez through the ballot box next year. The fact that there are rumors circulating that Chavez’s health may be worse than he is letting on is the fault of the government for providing sparse information, he said.

‘Lack of Transparency’

“There is a lack of transparency through a lack of democratic spirit in the government in relation to information about the president’s health,” Aveledo said, according to the statement.

A full-blown political crisis could ensue if Chavez’s opponents decide to force the government’s hand by staging marches and demonstrations that could provoke a violent reaction from the government, Sabatini said.

Chavez’s extended convalescence is providing an already bolstered opposition with “even more of an edge” in presidential elections scheduled for next year, RBS Securities Inc. debt strategists Siobhan Morden and Felipe Hernandez wrote in a note to clients today.

“We do not believe that the sympathy votes from illness would be an effective campaign tactic, but rather risk losing voters who appeal to his strong-man image,” the report said.

An opposition win in elections next year would cause Venezuela’s borrowing costs to drop 500 basis points, or 5 percentage points, Morden and Hernandez said.

Another theory that has been circulating in Caracas is that Chavez has been allowing speculation to brew that his condition is worse than it is before making a triumphant return on July 5.

“With this news I think we can safely rule out that this is a Chavez ploy,” Inter-American Dialogue’s Shifter said in an e-mailed response to questions. “He may not be on his deathbed, but he’s got a serious health problem.”

--With assistance from Carla Simoes in Sao Paulo and Bill Faries in Buenos Aires. Editors: Richard Jarvie, Harry Maurer

To contact the reporters on this story: Daniel Cancel in Caracas at dcancel@bloomberg.net; Charlie Devereux in Caracas at cdevereux3@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net


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