CARACAS President Hugo Chavez crashed to an unprecedented defeat on Monday as Venezuelans voted down his bid to run for re-election indefinitely and accelerate his socialist revolution in the major U.S. oil supplier.
Despite an oil-financed, state-backed campaign, Chavez narrowly failed to muster enough support for a constitutional reform package that would have scrapped term limits on his rule and given him broad new powers
The U.S. government, opposition groups and investors cheered a defeat that curbs for now his plan to control foreign currency reserves, erode private property rights and enshrine socialism as a state priority in the constitution.
The country's currency and debt prices had both fallen sharply in recent weeks on fears that a victory for the anti-U.S. leader would both increase tensions in Venezuela and lead him to intensify his assault on "evil" capitalism.
In a sign investors perceived lower risk in the OPEC nation, debt prices jumped, helped by Chavez's concession speech that was unusually conciliatory.
The president, who remains popular and powerful, might have to pause in seeking to fulfill his ambition of ruling for life atop a Cuba-inspired socialist state.
But he was not giving up on his plan.
"I will not withdraw even one comma of this proposal, this proposal is still alive," he said.
"For me, this is not a defeat."
The former paratrooper led a failed coup in 1992 and came to power via the ballot box seven years later.
Election officials said the "No" camp won with about 51 percent of the vote against the reform package, while Chavez scored around 49 percent support.
"He should now get real. He has to get his head out of the clouds, come back down to earth because he was losing the plot a little," said Carmen, a woman selling newspapers at a roadside kiosk who asked her full name not be divulged.
Controlling Congress, Chavez could resurrect moves to reduce the workday to six hours and give pensions to street vendors and housewives, moves especially attractive to the majority poor who form the base of his support.
Student protests spearheaded an opposition campaign with rights and business groups, opposition parties, the Roman Catholic Church all lined up against him. They accused him of pushing the constitutional reforms to set up a dictatorship.
"We are in a process of reconfiguring the opposition," opposition leader Teodoro Petkoff said. "Chavez's big strength has been to not tire of weakening his adversary. But his adversaries are beginning to rise up despite their weakness."
The U.S. government has branded Chavez a menace to democracy in Latin America and welcomed his defeat.
"We felt that this referendum was a referendum to make Chavez president-for-life, and that's not ever a welcome development in a country that wants to be a democracy," Nicholas Burns, the U.S. undersecretary of state for political affairs, told reporters in Singapore.
One of Venezuela's leading opposition newspapers, El Nacional, dubbed the result the "First Victory" on Monday.
"Apart from shelving a package of undesirable reforms indefinitely, the defeat should revitalize the opposition," Gianfranco Bertozzi of Lehman Brothers said.
But opposition groups still have to overcome divisions that Chavez, a former paratrooper, had exploited to win all previous national votes since he swept to power in a 1998 election.
"President Chavez lost an important battle but hardly the war," Alberto Ramos of Goldman Sachs warned investors in a research note from New York.
(For more on Venezuela's referendum, click here)