FAREWELL "CHAVISMO"?

Takeaway: Hugo Chavez’s death does not necessarily pave the way for an end to hyper-socialist economic policies in Venezuela.

SUMMARY CONCLUSIONS:

 

  • While the death Hugo Chavez – who had nationalized over 1,000 companies during his presidency – represents an opportunity for Venezuela to become less socialist on the margin, it should be stated that two out of the three highest-probability replacement candidates (Nicolas Maduro and Diosdado Cabello) do not represent a material departure from Chavez’s socialist agenda.
  • To the extent Cabello doesn’t fall in-line with Chavez’s pre-death wish that Maduro succeed him, you could see an intra-party (United Socialist Party or “PSUV”) struggle for power that could split the Chavismo vote and ultimately result in essentially handing Capriles a victory due to his [likely] garnering of the lion’s share of the opposition vote.
  • On the margin, that would be particularly positive for Venezuela’s structural economic growth outlook and its capital markets (less socialism and Big Gov’t Intervention).
  • That said, however, assuming this scenario is not without a great deal of risk; the data supports a continuation of the Chavismo movement’s stranglehold of power in Venezuela. In light of this, we find it very prudent for anyone looking to allocate assets to Venezuelan capital markets on the Chavez death news to simply wait for the results of the upcoming by-election.

 

Obviously the key news out of LatAm over the past 24 hours has been former Venezuelan president Hugo Chavez’s unfortunate death at the relatively-young age of 58. We offer our solemn condolences to his survivors and supporters.

 

Per Foreign Minister Elias Jaua, Vice President Nicolas Maduro is poised to take over as interim president of the country while elections are organized over the next 30 days. Technically speaking, per the Venezuelan Constitution, National Assembly President Diosdado Cabello – who fought alongside Chavez in a 1992 coup – is entitled to the powers of the interim presidency, should he choose to wield them.

 

Chavez’s highest-probability potential successors are listed below with the latest hypothetical poll results from an early-FEB Correo poll:

 

  1. Maduro (50%)
  2. Miranda State Governor Henrique Capriles Radonski (36%)
  3. Cabello/other (14%)
  4. NOTE: Chavez had a 64% approval rating in the same poll

 

While the death Chavez – who had nationalized over 1,000 companies during his presidency – represents an opportunity for Venezuela to become less socialist on the margin, it should be stated that two out of the three highest-probability replacement candidates (Maduro and Cabello) do not represent a material departure from Chavez’s socialist agenda.

 

In fact, assuming Chavez was as close to death as we now know he was, the fact that they still proceeded with the early-FEB bolivar devaluation suggests both Maduro and Cabello are still very much on board with Chavez’s hyper-socialist agenda.

 

FAREWELL "CHAVISMO"? - 1

 

To recap that agenda, Chavez has materially devalued the bolivar four times since imposing currency controls in 2003, shut down more than 50 foreign-exchange brokerages in 2010, nationalized farms and energy companies, imposed price caps on dozens of household consumables, routinely used int’l reserves to finance public expenditures and threatened to jail people who trade [currency] in the black market.

 

Such policies have led to shortages of everything from electricity to basic food staples, directly fueling the world’s third-highest inflation rate (+21.3% in 2012).

 

FAREWELL "CHAVISMO"? - 2

 

Capriles represents Venezuela’s highest probability of moving towards the economic and political “right”; unlike Chavez and the vast majority of his supporters, Capriles is from money – his family founded the local unit of Nabisco Inc. and owns the nation’s largest movie theater chain.

 

Moreover, Capriles represents the strongest opposition-led challenge to the Chavismo movement to-date. Recall that his 10ppt. loss in last year’s presidential election was easily the narrowest defeat of any opposition candidate since Chavez took office back in 1999; the previous minimum margin among Chavez's electoral victories was 16ppts.

 

To the extent Cabello doesn’t fall in-line with Chavez’s pre-death wish that Maduro succeed him, you could see an intra-party (United Socialist Party or “PSUV”) struggle for power that could split the Chavismo vote and ultimately result in essentially handing Capriles a victory due to his [likely] garnering of the lion’s share of the opposition vote.

 

On the margin, that would be particularly positive for Venezuela’s structural economic growth outlook and its capital markets (less socialism and Big Gov’t Intervention).

 

That said, however, assuming this scenario is not without a great deal of risk; the data supports a continuation of the Chavismo movement’s stranglehold of power in Venezuela. In light of this, we find it very prudent for anyone looking to allocate assets to Venezuelan capital markets on the Chavez death news to simply wait for the results of the upcoming by-election.

 

Darius Dale

Senior Analyst


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