MercoPress. South Atlantic News Agency

Bolivarian leader Chavez day-after financial challenges

Venezuelan President Hugo Chavez's overwhelming victory in Sunday's referendum which enables him to run again in 2012, and successively to ensure the mounting of the Bolivarian Socialist revolution, is bound to experience the day-after hang over given the country's economy dependence on oil.

With less oil revenue and financial erosion, Venezuela faces several challenges: a slowing economy, the continent's highest inflation and the need to cut government spending on social programs, the backbone of his popularity. A drop in oil prices of more than 100 per barrel since last year spells the end of five years of booming growth, though few Venezuelan have felt the effects yet, with shopping malls still full and traffic unrelenting in the capital of Caracas. Economists say the necessary policies are precisely the ones Chavez has avoided for years: spending cuts, a devaluation and tighter fiscal policy to combat inflation which has been growing and closed 2008 at 31%. Venezuela relies on the oil industry for 93% of its hard currency income and the current global crisis, borrowing on capital markets would be difficult and exceedingly expensive. Currency devaluation would open opportunities for local industry, strangled by currency controls that lock the Bolivar at an overvalued 2.15 Bolívares per US dollar, but it would also spur inflation, a principal complaint of Chavez's supporters. Instead of devaluing, economists say Chavez could restrict dollars for imports to protect shrinking reserves, though this risks boosting product shortages similar to those that hurt his image among supporters in 2007. But tumbling oil revenues mean Chavez will not be able to prime the pump with government spending, which grew 32% during the first ten months of 2008 versus the previous year, according to the Central Bank. Venezuela's debt and currency, which trades near 6 per dollar on a legal parallel market, have lost ground as the crisis drags on. "His strategy has been to bet on high oil prices and that's not working anymore," said Jose Guerra, an economist and former central bank director critical of the Chavez currency. In the international stage his lack of resources is also expected to limit his Bolivarian revolution preaching, but with the global crisis, all countries can be expected to be more concerned with domestic GDP and employment challenges than curtailing President Chavez presence in hemispheric political affairs.