Hugo Chavez died after having suffered from cancer for almost two years, and left behind a country that is torn between supporters and opponents of his proclaimed “21st century socialism” or “Chavismo”. The divide will play a huge role during the new presidential elections, which are scheduled for 14 April. The two candidates who will stand in the election are Nicolas Maduro, vice- president under Chavez and now interim president, and Henrique Capriles, the candidate of the unified opposition party MUD (Democratic Unity Roundtable). However, bearing in mind the two recent electoral defeats of the MUD, and a population still mourning over Chavez’s death, a Capriles win looks unlikely. The main threats to the popularity of the ruling PSUV - apart from insecurity - are related to goods shortages as well as high inflation. Insufficient supply of USD at the official rate has caused market shortages and an elevated black market rate (reported at 22.5 bolivars). To  combat the situation, the government devaluated the official exchange rate  in February to 6.3 bolivars per USD and abolished the “SITME”, a parallel system to the “CADIVI”. In March, the government introduced a new complementary exchange rate control system known as “SICAD”. Under the system, dollars are auctioned to private sector importers, after which the purchased currency is directly transferred to the suppliers abroad in an effort to cut off the black market. A first auction for 200 million USD was launched on 25 March, the modalities including a minimum price equal to the official rate of 6.3 VEF/USD, a minimum purchased amount of 30,000 USD and a maximum amount of 2 million USD per importer. It remains unclear how frequent the auctions will take place, but authorities have stated that the “CADIVI” system would continue to provide 90% of the market’s USD needs. However, despite the new complementary system, fears of USD shortages remain as the government has budgeted for only 41 billion USD to be supplied through both exchange rate systems combined, while last year it allocated nearly 56 billion USD for import purposes.

Impact on country risk

In the run-up to the presidential elections, clashes between pro- and anti-government protesters are likely and there have already been incidents in the capital. Whether or not these electoral tensions will escalate and turn violent will depend largely on how close the presidential race turns out to be as well as on how the police responds to possible protests. So clearly, political uncertainty remains high in Venezuela. However, as this was already incorporated in ONDD’s political risk assessment, there is no need for further downward adjustment. As for systemic commercial risk, Venezuela is currently in ONDD’s highest risk category.

Analyst: Sebastian Vanderlinden, s.vanderlinden@credendogroup.com