Re-elected Chavez faces likely economic reckoning

Associated Press Modified: October 8, 2012 at 8:47 pm •  Published: October 8, 2012
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Some experts say oil production has stagnated due to insufficient investment and management problems in the state-run oil company.

One measure of investor confidence in Venezuela, the price of its bonds, took a hit Monday as they fell 5 percent to 7 percent, said Russell Dallen, a managing partner of the brokerage firm Caracas Capital Markets.

The bonds fell in value after Chavez defeated Henrique Capriles, who won 44 percent of the vote, giving the incumbent his smallest margin of victory ever in a presidential election.

The government has more than tripled its public foreign debt from $24.2 billion when Chavez took office to $88.7 billion in the first quarter of this year. Much of that foreign money has come from China, which has lent Venezuela more than $36 billion in exchange for oil shipments.

Even as he celebrated victory before thousands of jubilant supporters early Monday, Chavez appeared to acknowledge he has let down some Venezuelans. People are upset by a soaring homicide rate, power outages and crumbling infrastructure.

"I pledge to you, I repeat, to every day be a better president than I've been," he said, while also promising greater effectiveness and efficiency from a government whose payroll is bloated by patronage.

The 58-year-old leader has said tests show he is cancer-free, but his illness has forced him to slow his pace and cut back on his frenetic days of late-night speeches and Cabinet meetings. He's endured two rounds of surgery since June 2011 to remove tumors from his pelvic region as well as chemotherapy and radiation treatment.

Venezuela would have to hold a new election if Chavez were forced to step down during the first four years of his term. More health problems would make it even more difficult for Chavez to push ahead with his promised drive to expand the state's role in the economy and provide even more entitlements.

"As long as Chavez remains as the key driver here, there might be far more inertia than change," said Javier Corrales, a U.S. political science professor at Amherst College.

Venezuelans will choose state governors in December, and Chavez is likely to save any devaluation until after that election. Such moves are always hugely unpopular because they erode the value of salaries, which have already been hit hard by inflation in Venezuela.

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Associated Press writers Jorge Rueda and Vivian Sequera contributed to this report.

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Ian James on Twitter: http://twitter.com/ianjamesap

Frank Bajak on Twitter: http://twitter.com/ianjamesap



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