Venezuela: Preparing For The Post-Chavez Era
Venezuelan President Hugo Chávez’s health is deteriorating, implying that his 14-year rule could come to an end in the not too distant future. Although there are multiple scenarios for what could follow Chávez’s departure, we maintain our view that regardless of the outcome, a quick shift to more orthodox economic policies is unlikely, and that social unrest and political risk will remain elevated over the coming months.
Chávez was diagnosed with cancer in 2011, and although at one point this year he declared himself cancer-free, on December 8, 2012, he announced that he was departing to Cuba for emergency surgery. Before leaving for Cuba, Chávez publicly endorsed new Vice-President Nicolas Maduro as his successor, further reaffirming the delicate state of his health.
Chávez is unable to attend the inauguration of his next presidential term on January 10:
- The president of the National Assembly, currently Diosdado Cabello, would take office and call a presidential election within 30 days.
Chávez attends the presidential inauguration on January 10, but steps down from office within the first four years of the six-year term.
- Vice-President Nicolas Maduro would assume power and call a presidential election within 30 days.
Chávez is able to serve for the first four years of his term, but then leaves office (an extremely unlikely scenario at this point):
- The Vice-President serves the rest of the six-year term.
Markets are growing increasingly optimistic about a shift to more orthodox and business-friendly policies. Indeed, Venezuela’s Global US$ 2027 bond yield has compressed by more than 100 basis points in a matter of days following the news of Chávez’s health. The yield currently stands at a record low of 9.48%.
However, even if a new presidential election is called, there is no guarantee that the opposition would win. The opposition is currently headed by former presidential candidate Henrique Capriles Radonski, who will be running for a state governorship on December 16, 2012, and he would need a decisive victory (something that appears unlikely) in order to garner enough support to challenge the ruling party.
Furthermore, even if we did see an opposition leader elected President, as we have highlighted previously, a meaningful shift to more orthodox policies could take years, given the strong control pro-Chávez officials maintain of virtually all government institutions.