By Louise Egan
CARACAS – Venezuela’s economy is plagued by shortages, high inflation and crippling currency controls, but a massive spending spree by President Hugo Chavez will likely keep an incipient recovery alive, at least until a 2012 vote.
Polls show support for the charismatic leftist leader has edged up since he announced in June he had cancer. But unless he can generate as much sympathy for his economic stewardship, his re-election bid could be at risk.
In the short term, Chavez can paper over underlying problems with subsidies, price controls and ramped-up spending on his flagship health and housing programs for the poor.
But eventually, falling oil production by the OPEC nation combined with mounting debt will make it harder to finance his socialist “revolution,” analysts say, leading to sub-par growth and possibly another painful currency devaluation.
“We expect Venezuelan growth to lag behind the rest of Latin America over the coming years,” said David Rees, emerging markets economist at Capital Economics in London.
“Of course Chavez, current health concerns aside, will try to pump the economy ahead of next year’s presidential election with strong government spending.”
Venezuela has the world’s largest oil reserves, according to OPEC. Yet it was the last in Latin America to pull out of recession, returning to growth in the fourth quarter of 2010.
The recovery advanced at a healthy clip in the first half of this year and is on track for 4.5 percent annual growth, the U.N.’s regional economic body ECLAC predicts.
High oil prices and public spending are powering the expansion. Since taking office in 1999, Chavez has nationalized large swaths of the economy, scaring off foreign investors and slowing domestic manufacturing, farm and even oil production as companies are reluctant to bet on new projects.
The 57-year-old former soldier’s illness has slowed him, but he has made an effort to show he remains in charge, displaying his characteristic flair during regular phone calls to state television programs. He has undergone two chemotherapy sessions in Cuba as Fidel Castro’s guest and says he is recovering well.
Oil prices may continue to work in Chavez’s favour, rallying since a sharp sell-off last week over the U.S. and European debt crises and fears of another global downturn.
“Even if we see a Lehmann-style sell-off like we saw in 2008 … as long as oil stays above $70 (42.69 pounds) a barrel, they’re in pretty good shape,” said Russ Dallen, head of Caracas Capital Markets.
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