UPDATE 1-Venezuela reshuffles cabinet, backs away from economic shake-up

Wed Sep 3, 2014 4:31pm EDT

(Adds opposition statement, paragraph 7)

By Alexandra Ulmer

CARACAS, Sept 3 (Reuters) - President Nicolas Maduro has reshuffled his cabinet in a bid to boost his popularity but shows no sign of revamping Venezuela's troubled economy, meaning prospects of gasoline price hikes and a unification of Byzantine currency controls have dimmed.

Caught between trying to preserve predecessor Hugo Chavez's socialist legacy and fixing the economy, Maduro on Tuesday night pushed Rafael Ramirez from his twin posts as oil minister and boss of state oil company PDVSA, ending the official's decade-long grip on the country's energy industry.

Ramirez, also moved from a third post of vice-president for the economy, had been advocating reforms such as one official foreign currency rate instead of the current three and an increase in the price of the world's cheapest gasoline. He was named foreign minister.

Maduro promoted PDVSA's exploration and production chief, Eulogio Del Pino, to the company's top job and tapped Asdrubal Chavez, cousin of late leader Chavez, to lead the oil ministry.

After weeks of government officials talking of a major "shakeup," critics and some economists said the shuffle shows that Maduro, whose popularity has been slipping, is not willing to shoulder the political cost of undoing the Chavez-era model.

Though popular social welfare projects from Chavez's 14-year rule are still in place, the economy is teetering on recession and annual inflation has risen to over 60 percent. A lack of U.S. dollars due to strict currency controls has led to shortages of basic goods ranging from powdered milk to soap.

"The rotation of ministers without a change in the economic and social model is surely going to worsen the signs of the crisis," the opposition Democratic Unity coalition said. "The statist, inefficient model is the main cause of the penuries Venezuelans are suffering today."

In a show of market disapproval of the reshuffle, Venezuelan bonds fell on Wednesday with the benchmark 2027 off 1.55 percent to bid at 75.44 in afternoon trade.

"Politicizing even more key sectors of the economy is likely to lead to further deterioration which, despite the support of the Chavez family, will potentially undermine political stability in the medium term for Maduro," IHS Latin America analyst Diego Moya-Ocampos said in a note to clients.

CHANGES IN PDVSA?

Some oil sector players, however, were cautiously optimistic that respected energy industry veteran Del Pino might have enough technical know-how to revamp PDVSA, which is in charge of the world's largest oil reserves.

Del Pino is known as a technically savvy manager who also helped turn PDVSA into the financial engine of Chavez's self-styled revolution until he died of cancer in 2013.

"Del Pino's technical credentials are about as good as it gets" in PDVSA, said Ben Ramsey, an analyst with J.P. Morgan.

But the Stanford-educated geophysicist was formerly in charge of production and exploration, two challenges at PDVSA, which has seen output stagnate in the past six years and is struggling to get projects off the ground.

Though possibly more able than Ramirez to focus on technicalities than politics, Del Pino was unable to boost output in his previous job and will still have to tread carefully if he tries to overhaul PDVSA, the backbone of the Venezuelan economy.

The company earns about 95 percent of the country's foreign revenues and funds everything from clinics to anti-poverty programs.

At a time of sporadic social protests over shortages and inflation, it will be tricky to cut down on the lavish spending analysts blame for PDVSA's financial shortfalls.

"There will be lingering doubts about (Del Pino's) political abilities to confront the vested interests that have impeded the company from dedicating sufficient resources and energy to increasing production," Ramsey said.

Maduro gave finance minister and army general Rodolfo Marco, who participated in a failed 1992 coup alongside Chavez, the vacant post of economy vice-president. Though he has been making some overtures to the private sector, Marco is something of an unknown quantity for the markets. (Reporting by Alexandra Ulmer, additional reporting by Eyanir Chinea in Caracas and Marianna Parraga in Houston; Editing by Andrew Cawthorne and Kieran Murray)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.