The election pits interim President Nicolas Maduro against Miranda state Gov. Henrique Capriles Radonski. Maduro is Chavez's hand-picked successor. He has tried to imitate Chavez over the course of the election in hopes of picking up the former president's votes. His opponent, Capriles, is an outsider to the chavista elite, and although he is supported by Venezuela's right wing, he has adopted a moderate, Chavez-inspired political stance. Both men have promised wage hikes of 40 percent or higher and to expand and improve social welfare, including health care and housing programs.
As in any election, the specifics of how they intend to deliver on these promises are sparse. When it comes to Capriles, the general strategy is simple enough to determine: He will attempt to bring in foreign investment to assuage a range of economic ills without unnecessarily upsetting the country's political and social balance. Maduro's plan, however, is less predictable/more ambiguous/etc. He can deepen current policies along chavista lines, and risk worsening Venezuela's economic decline over the long term, in the name of maintaining immediate public support. His alternative is to bring in foreign investment, but he has less credibility than Chavez and no previous experience as an elected official. He also risks the support of his base if he is perceived to be changing course.
Economic Problems
Detangling the webs of mutual support and political commitments in Venezuela is difficult, and Venezuela's next president will have to move carefully.
First, there is the household consumer, whose daily quality of life is affected by currency shortages, which exacerbate food scarcity and inflation. Political paralysis in the wake of Chavez's hospitalization in December 2012 worsened already prevalent currency and food scarcities. When the government devalued the Venezuelan bolivar in early February, it immediately made imported goods more expensive. Annualized official inflation from the first quarter of the year indicates that inflation is already set to reach 25 percent, an increase of 5 percent from the previous year — but it will be probably be higher. There are a number of options to partially address these issues, including higher subsidization, infrastructure investment to reduce costs and the provision of significantly larger amounts of foreign exchange to facilitate the country's consumer imports.
But those options would require the government to have significantly more resources. As long as borrowing off international markets remains a costly option, the primary source of hard currency is the country's state-owned energy company, Petroleos de Venezuela (better known by its Spanish acronym, PDVSA). However, years of relying heavily on PDVSA's revenues have reduced the company's efficiency and ability to contribute to government spending. Independent estimates indicate that because of its own financial problems, PDVSA may be able to contribute only 60 percent of the royalties and taxes to the government that were originally anticipated for 2013. PDVSA's expenditure commitments may be even larger in light of the discussed wage raises, since the three-year oil workers' contract will be renegotiated after the elections.
Difficult Choices Ahead
These growing demands make all politically possible reductions of expenditures inevitable after the elections. Venezuela has essentially been continuously campaigning since the beginning of 2012, when the opposition was preparing to challenge Chavez. As a result, difficult economic choices have been postponed long past what was economically prudent. Indeed, a 45 percent rise in 2012 government spending associated with the election cycle likely worsened the situation substantially. The new government will thus face some politically difficult issues, including raising the price of gasoline, whether to make further changes to the currency exchange structure and whether to raise taxes.
All of these choices carry political costs. Chavez — and Maduro, as his designated successor — drew his support from Venezuela's poor, and there are deep ideological roots to much of what characterizes the system that Chavez established. Chavez used ideology to unite but also to build up alternate and mutually competing poles of support. These include the Bolivarian militia, which has become a largely ceremonial and symbolic force.
Much more dynamic and potentially destabilizing are the ideologically motivated, well-armed, neighborhood-based organizations known as "colectivos." There are several colectivos in Caracas whose support for Chavez has frequently manifested in graffiti and statements to the media threatening violence if the chavista commitment to a socialist system were to change. These groups, such as the Tupamaros and La Piedrita, have been associated with past acts of political violence, particularly vigilantism. The potential for these groups to engage in targeted violence within Caracas, where they are headquartered, must be a serious consideration for any Venezuelan president. Now that Chavez is dead, these armed left-wing groups are unpredictable, particularly when combined with widespread public uncertainty about the direction of government.
Maduro has the advantage going into the elections. A combination of abstentions within the pro-Chavez demographic and a late surge in popularity among undecided voters could push Capriles to the fore, but it remains unlikely. Whoever the winner is, he will be up against the realities of managing a country that has been politically stagnant for more than a year, and one where the leader must weigh the possibility of unrest carefully against economic necessity.
