By Herbert Lash
NEW YORK (Reuters) - The populist governments of Argentina and Venezuela, already hammered by high inflation, face revenue shortfalls that will force them to cut spending or let their currencies devalue, a political risk consultant said on Tuesday.
The unpopular policy measures that loom in both countries do not threaten to destabilize either President Cristina Fernandez in Argentina or Hugo Chavez in Venezuela, both of whom enjoy considerable public support, said Chris Garman, director and practice head for Latin America at Eurasia Group.
But mounting macroeconomic imbalances in Argentina and Venezuela, which have the highest economic growth rates in Latin America but also the highest regional rates of inflation, could erode the popularity of Chavez and Fernandez, he said.
Soaring world oil and grain prices have boosted government revenues and have masked growing dislocations in their economies, including widespread food shortages in Venezuela, he said.
Both countries are also vulnerable to declining revenue streams as oil output slows in Venezuela and Argentina runs into opposition to its efforts to boost taxes on agricultural production.
"Venezuela and Argentina are the two countries that may face the greatest challenges in the next year or year and a half," Garman told the Reuters Latin America Investment Summit in New York.
The economic imbalances that are building in the two countries and rising inflation -- above 20 percent in Venezuela and about that in Argentina, according to unofficial estimates -- will cause some tough choices ahead, he said.
High raw material export prices have helped prime public spending, which has fueled inflation and caused both governments in Argentina and Venezuela to try to tamp rising consumer prices through price controls. Continued...
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