Venezuela’s Unripe Presidential Pickings

Venezuelan stocks and bonds shuddered on the challenged squeaker presidential election win of Chavez ally Maduro, whose 1 percent margin belied double-digit opinion survey advantages over opposition candidate Capriles. He took the oath as chief executive but agreed to a recount of disputed ballots which generate a paper trail after automated entry. S&P lowered the sovereign outlook to negative on political risk which could aggravate a long list of economic difficulties including 30 percent inflation, a 10 percent of GDP fiscal deficit and anemic growth lagging neighbors. The successor team has yet to show its hand on currency policy as it experimented with a new auction platform just before the poll but did not reveal the results or future approach, although the rate accepted was widely acknowledged as far below the official 6.3 to the dollar. Cabinet seats were rearranged as the central bank head viewed as not as ideological was appointed Finance Minister replacing staunch socialist Giordano who will remain a top planner. The shift may usher in a return to dollar bond issuance as a bolivar release valve as championed by governor Merentes in his former post. As interim administration head before Chavez’s death Maduro had suspended a windfall oil tax to encourage joint venture partners as state company PDVSA production continues to slump. Multinationals have been reticent with constant royalty changes and with world petroleum prices and US import demand falling, the Orinoco resource belt attraction has atrophied. The longstanding concessional oil “Petrocaribe” program which gave Cuba alone $4 billion annually may be in jeopardy, as the continent reconsiders diplomatic relationships based on 15 years of bilateral doctrine compatibility and largesse. Cuban president Castro has reacted to the ebbing era by selecting a younger deputy and repeating a reform pledge of small business and tourism opening to double the current 2 percent growth rate, even as offshore oil potential has not translated into finds.

Cross-border trade with Colombia should stay strong notwithstanding the outcome of peace negotiations with the rebel FARC up against a November deadline before the start of the next presidential election cycle. Talks failed twice before particularly over the questions of land redistribution and disarmament. The stock market roused slightly with a round of central bank rate cuts but has been a universe laggard on negative manufacturing results. The sovereign was upgraded to BBB on solid growth, inflation and fiscal performance but returning migrants from Spain could pare unemployment progress and oil and mining FDI may not cover as easily the current account gap this year. In the Andes Peru is still the fastest-expanding economy at 5 percent but the exchange there too is stymied by consumer credit and commodity export worries. Dollar reserve requirements were again hiked to fight sol appreciation, and President Humala’s public approval number hovers at 50 percent on maturing local community- resource extraction firm confrontations.