Bloomberg News

Venezuelan Primary Turnout May Augur Chavez’s Biggest Test

February 13, 2012

(Updates with government comments on voter turnout in 18th paragraph.)

Feb. 13 (Bloomberg) -- President Hugo Chavez may face his toughest challenge in 13 years of power after Venezuelans turned out in large numbers to give a landslide victory to Henrique Capriles Radonski in an opposition primary.

The 39-year-old Miranda state governor won 64 percent of the vote in yesterday’s primary, compared with 30 percent for Zulia state Governor Pablo Perez, according to a statement by the opposition alliance. About 3 million votes were cast in the election.

Capriles has pledged stability and conciliation in the polarized country should he defeat Chavez in the Oct. 7 vote by maintaining social programs and only gradually unwinding state control over the economy. That may enable him to capture votes from among the poor who make up more than half of the electorate and represent Chavez’s bedrock support.

“President Chavez will face in October perhaps the most serious challenge to his hitherto solid grip on power, the economy, and the country overall,” Alberto Ramos, senior economist at Goldman Sachs Group Inc. in New York, said in a note to clients. “The opposition seems more organized, unified, energized, and driven to unseat President Chavez than at any other time in the recent past.”

Venezuelan bonds rallied on expectations that the large turnout and margin of victory could give Capriles the momentum to unseat Chavez.

The yield on Venezuela’s benchmark 9.25 percent bonds due in 2027 fell 30 basis points, or 0.30 percentage points, to 11.80 percent at 3:36 p.m. in New York, according to data compiled by Bloomberg. The bond’s price rose 1.75 cents to 82 cents on the dollar, the highest since April 2010.

Non Confrontation

“Capriles’ strategy has been to not confront or threaten President Chavez and his socialism directly in an effort to recover some of the undecided voters and to capture some disgruntled Chavez supporters,” said Carlos Romero, a political analyst at the Universidad Central de Venezuela in Caracas. “The policy has been to reach out to the undecided.”

Capriles frequently refers to how he has set up more than 70 free health clinics in poor neighborhoods of Miranda and financed a subsidized food program for low-income families as proof of how he’ll continue a more efficient version of Chavez’s social programs.

Economic Platform

The grandson of a Polish Jew who fled Nazi persecution and founded the local unit of East Hanover, New Jersey-based Nabisco Inc., Capriles says he favors former Brazilian President Luiz Inacio Lula da Silva’s mix of market-friendly economic policies combined with income redistribution.

While pledging to unwind some of Chavez’s economic policies that have fueled an inflation rate of 26 percent, the highest of 78 countries tracked by Bloomberg, and left the economy dependent on oil-financed fiscal spending, Capriles said the process will be gradual to ensure a soft landing.

Should he defeat Chavez, currency controls would be maintained temporarily to avoid a slump in the value of the bolivar, while heavily subsidized gasoline prices wouldn’t be raised.

Voter turnout exceeded the 2 million Capriles predicted last week. That turnout and the margin of victory will give him momentum as he begins his campaign against Chavez, said Jose Vicente Carrasquero, a political analyst at the Universidad Central de Venezuela.

‘Popular Support’

“The strength of the victory by Capriles will mean that the rest of the opposition parties will now see him as a leader who has popular support,” Carrasquero said in a phone interview. “It could also draw in people indifferent to politics and even some disgruntled Chavez supporters.”

The government cast doubt on the result, saying it was questionable whether so many people could vote within the time frame.

“We’re not mathematicians but it does generate suspicion,” Diosdado Cabello, president of the National Assembly, said today in comments carried on state television.

Capriles denied any irregularities, while John Magdaleno, a political analyst at the Simon Bolivar University in Caracas, said the government was trying to undermine the success of the election for the opposition.

“The government wants to start a PR battle in order to diminish the impact of what happened in the primary,” Magdaleno said.

‘21st Century Socialism’

Under his “21st century socialism,” Chavez has expropriated more than 1,000 companies and assets and imposed price controls on hundreds of products, leading to shortages of staples such as milk.

Capriles has made efforts to distance himself from Chavez’s style of leadership, saying he would impose presidential term limits of two four-year periods after Chavez changed the constitution to remove them.

Capriles has also promised a more proactive form of government and criticized Chavez’s penchant for televised speeches that last as long as 9 1/2 hours.

Still, Chavez can point to an economy that is picking up after contracting in 2009 and 2010. Record revenue for state- owned Petroleos de Venezuela SA of $128 billion in 2011, after crude prices rose 40 percent to an average of $101.06 a barrel from the year earlier, allowed for a surge in public spending that helped gross domestic product grow 4 percent.

Cinema Owners

Capriles, whose relatives own Suramericana de Espectaculos SA, or Cinex, the country’s largest cinema chain by number of theaters, has tried to avoid Chavez’s taunt that the opposition represent the old elite renown for corruption and cronyism. At age 26 he was elected president of the chamber of deputies and vice president of congress, the youngest Venezuelan in history to hold those positions.

After two terms as mayor of Baruta, a predominantly middle class municipality in south eastern Caracas, he defeated longtime Chavez ally and former vice president Diosdado Cabello to win the governorship of Miranda, the second most populous state in Venezuela.

Like Chavez, who was imprisoned for his role in a failed attempt to overthrow the government of Carlos Andres Perez in 1992, Capriles spent four months in jail on charges of leading a mob that attacked the Cuban embassy during a failed coup against Chavez in 2002.

‘Flagrant Violation’

Capriles said he was trying to calm demonstrators by acting as an intermediary. His case was thrown out for lack of evidence and reopened four times by lower court justices. It remains open. The Caracas-based Venezuelan Program for Education-Action in Human Rights, or PROVEA, said his case is a “flagrant violation of the right to a speedy trial.”

Nationally, Chavez is leading voter preferences with 47.3 percent of support, compared with 44.9 percent for the opposition candidate, according to a December poll by Caracas- based Consultores 21, published by Barclays Capital in a note to clients. The report did not specify dates or a margin of error for the survey.

--With assistance from Daniel Cancel and Jose Orozco in Caracas. Editors: Philip Sanders, Richard Jarvie

To contact the reporter on this story: 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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