One of the major events taking place right now in the Western Hemisphere is the death of Venezuelan President Hugo Chávez and the subsequent transition to a new leader. The leader died March 5th due to complications from cancer that he had been battling the past few years. His death left behind a bitterly divided nation on the brink of a political crisis, with doubts of the economic future of his socialist revolution.
Mr. Chávez has changed Venezuela since coming to power in 1999 by empowering millions of poor people with his social initiatives. Many believe that Venezuelans are better off now, as every citizen now has a more equal slice of the economic pie due to his socialist government programs (the country now has the fairest income distribution in Latin America). The problem is that the economy has not been growing very fast; progress has lagged behind neighboring countries such as Brazil and Columbia. Further hindering economic growth has been a lack of diversification, meaning that oil is still a huge proportion of economic output. Oil accounts for 90% of the country’s foreign currency inflows, and considering that the price of oil has risen roughly 10 times since Chávez was first elected, it is hard not to think that he could have done more to benefit the economy.
The coming weeks are going to be extremely important in shaping the economic future of the country, as who will be the new leader of Venezula’s government is still a bit cloudy. Current Vice President Nicolas Maduro was appointed by Chávez to take control, but the constitution states that a new election must be held within 30 days. This itself is a controversy, due to clashing interpretations of the constitution. Maduro’s political stances are very similar to Chávez’s, not surprising given the appointment by the late President. Mr. Maduro lacks Chávez’s charisma and military background, however it appears that the government formed by Chávez will continue past his grave.
Only time will tell how the economy will respond to the leadership change. The Venezuelan economy grew at a healthy 5% in 2012, but some analysts are forecasting the country to fall into recession this year because of uncertainty. The economic growth and stability of the 4th largest South American economy will have a ripple effect on many other regions. Do you think that the leadership change will benefit the Venezuelan economy or cause a slowdown in growth?