September 22, 2010 / 3:12 PM / in 8 years

Venezuela parliament vote to test Chavez

CARACAS (Reuters) - Venezuela’s opposition is certain to make gains in parliamentary elections on Sunday but probably not enough to wrest legislative control from President Hugo Chavez in the 12th year of his socialist “revolution.”

People walk past a mural depicting Venezuelan President Hugo Chavez in Caracas September 22, 2010. REUTERS/Jorge Silva

By Venezuela’s past volatile standards, campaigning for the 165-seat National Assembly elections has been peaceful, though there are fears of unrest if either side rejects the results.

The energetic Chavez — who has replaced Cuba’s Fidel Castro as Latin America’s biggest annoyance for Washington — has been criss-crossing Venezuela to drum up support for his candidates in a vote that is a precursor to the 2012 presidential race.

“The battle goes beyond September 26. Its final objective is 2012, where we will again win the presidency,” Chavez, 56, told supporters during one of his many daily speeches and rallies.

A big victory for Chavez would probably mean a deepening and acceleration of his socialist overhaul of South America’s top oil exporter.

But he could also respond to a weak showing on Sunday by driving quick reforms through the National Assembly before new legislators take office. Bondholders are wary of sudden policy moves after the vote.

Chavez’s popularity is hovering in the 40-50 percent range, according to most polls and analysts. That is well below his highs of previous years, but probably enough to ensure his ruling Socialist Party keeps a majority in parliament.

The Socialists are a couple of percentage points ahead of a newly-united opposition umbrella group, Democratic Unity, polls show. That, combined with changes to voting rules and the electoral map that favour the government, means Chavez’s party enters the vote as favourite.

OPPOSITION GUARANTEED ADVANCES

Opposition parties are, however, guaranteed significant gains because they boycotted the last parliamentary vote in 2005.

Democratic Unity candidates believe voter discontent with Chavez’s authoritarian style, one of the world’s worst murder rates outside a war zone, a second year of recession and untamed inflation give them a real shot at winning a majority.

“The people have fallen out of love with Chavez. We’re coming back!” said Berta Morales, a veteran activist with Democratic Action, one of the parties in the opposition group.

The opposition may run Chavez close on the overall popular vote, giving it a symbolic boost ahead of 2012, although analysts believe his allies will keep control of the legislature.

“Chavez’s party will surely maintain a comfortable majority in the National Assembly given the electoral system is skewed in its favour,” said Eurasia analyst Daniel Kerner.

On the streets, there is more grumbling than in the past from Chavez supporters, but they remain grateful for a plethora of government initiatives in poor areas, ranging from subsidized food outlets to free clinics run by Cuban doctors.

“He has transformed Venezuela in a way nobody ever did in the past,” said Elizabeth Ascaneo, in a lively debate with neighbours in a poor area of Guarenas town outside Caracas.

“I don’t deny he has a lot more work to do. So our task is to get the votes out on Sunday to enable him to carry on working for us,” she added, minutes before the president came by on an open-topped vehicle during a campaign caravan.

The critical point is whether Chavez’s party can hold on to a two-thirds majority needed to pass major legislation. In the past, after election wins, Chavez has used the political capital to step up the pace of nationalizations and socialist reforms.

“In the scenario that Chavez wins, again, a majority in the parliament, it is expected that he is to radicalize and deepen his socialist revolution towards a more Cuba-like model,” wrote IHS Global Insight analyst Diego Moya-Ocampos.

High on Chavez’s agenda are further reforms to local government, to take power from central bodies and put it in hands of grass-roots structures largely loyal to him. There may be further government takeovers, too, in the food and financial sectors.

Wall Street analysts are divided on the vote’s impact on Venezuelan bonds. Some say opposition gains could boost prices by pointing to a beginning of the end for Chavez, while others say that could spell instability and would weigh on bonds.

Benefiting from the tranquil nature of the election campaign, Venezuela’s benchmark 2027 global bond has risen steadily in recent days, to 70.813 on Wednesday, from 66.131 two weeks ago.

Due to perceived underlying risk, though, Venezuela’s yield spread over U.S. Treasuries remains the widest among nations listed on the benchmark J P Morgan’s Emerging Markets Bond Index Plus (EMBI+).

Additional reporting by Daniel Wallis, editing by Kieran Murray

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