Bloomberg News

Chavez Opponents Pledge No Shock Therapy If They Gain Power

February 01, 2012

(Updates with analyst comment in 11th paragraph.)

Jan. 19 (Bloomberg) -- Opponents of Venezuelan President Hugo Chavez won’t apply “shock” adjustments to reverse policies such as currency and price controls if they unseat the self-declared socialist in October’s election, according to two advisers for the opposition alliance.

Six candidates competing in an opposition primary next month will sign a 164-page policy platform Jan. 23 committing them to a plan of action should they defeat Chavez. The document, which has not yet been made public, calls for a slow phasing out of currency controls to prevent capital flight and a depreciation of the bolivar, said Ronald Balza, the Democratic Unity Table’s coordinator of economic and oil policy.

An opposition-led government would also honor energy and mining contracts worth billions of dollars that Chavez has signed with nations including China, Russia and Cuba, although the content of those agreements will be studied for their legitimacy, said Balza.

“You won’t see any shock adjustments,” Balza said in an interview at Bloomberg’s office in Caracas on Jan. 16. “Eliminating controls with violent measures won’t resolve the problems. The state is not going to withdraw immediately and let the economy run its course.”

Venezuela’s opposition, after backing a failed coup attempt against Chavez in 2002 and long split by internal divisions, is treading carefully in this year’s campaign by avoiding attacks on the president’s policies that may spook voters from his working-class base.

Avoid Rioting

Marino Gonzalez, who is coordinating the work of more than 400 experts drafting the platform, said the opposition wants to avoid a repeat of 1989, when then-President Carlos Andres Perez relied on advice from the International Monetary Fund to end gas subsidies, raise taxes and devalue the currency. The policies sparked rioting nationwide that left at least 3,000 people dead.

“We’ve had to learn from our mistakes,” Gonzalez, who helped oversee social policies during Perez’s second term, said in an interview in Caracas. “Our task is to implement change gradually and through negotiation.”

One reason for the caution is that Chavez’s party would still maintain control of Congress and many of the nation’s institutions, including the central bank and judiciary, even if he loses his bid for a third term, said Gonzalez.

Popularity Plunge

Chavez, who was re-elected in 2006 with 63 percent of the vote, has seen his approval rating plunge over the past two years as inflation that reached 28 percent in 2011, a currency devaluation and a campaign of expropriations stifle economic growth. After a two-year recession that lasted longer than any in Latin America, the region’s biggest oil exporter grew 4 percent last year, according to central bank estimates.

Support for the president has rebounded in recent months, as Venezuelans sympathize with his battle for cancer, though still hovers at about 50 percent, Luis Vicente Leon, president of Caracas-based pollster Datanalisis, wrote in a column in El Universal newspaper Jan. 15. Support for Chavez may drop again once the opposition chooses a single candidate to rally behind, Leon said.

“This is the first time that the Venezuelan opposition has created a coherent policy platform aimed at providing voters with a real alternative,” said Larry Birns, director of the Washington-based Council on Hemispheric Affairs. “It’s very difficult to really believe that the opposition is going to stay pat and present a united coherent front but if they do this could signify an important moment in Venezuelan democratic electoral experience.”

Currency Controls

Currency controls, one of the key obstacles to private investment, would be maintained under an opposition-led government, said Balza, who also teaches economics at the Universidad Central de Venezuela in Caracas.

The government would also reopen currency trading through a parallel mechanism that Chavez shut down in 2010 after blaming brokerages for speculating on the bolivar and fueling inflation. Over time, that parallel market would take over and the currency would be allowed to float freely, Balza added.

An opposition government will seek to tame inflation by reducing the amount of bolivars circulating in the economy and by ceasing a practice established by Chavez of borrowing international reserves from the central bank to fund public spending, Balza said. The opposition won’t immediately cut public spending, which has been the main driver of growth under Chavez, he said.

The new government would increase revenue by raising crude oil production, he said. This can be done by studying contracts signed under Chavez and canceling agreements if oil companies are not honoring production targets, he said.

A new government would also seek to lower state oil company Petroleos de Venezuela SA’s participation in joint ventures in the heavy crude Orinoco Belt from 60 percent to 51 percent in a bid to free up capital and attract investment, Balza said.

--Editors: Joshua Goodman, Richard Jarvie

To contact the reporters on this story: Charlie Devereux in Caracas at cdevereux3@bloomberg.net; Corina Pons in Caracas at crpons@bloomberg.net

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


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