CARACAS (Reuters) - Venezuela’s President Hugo Chavez’s allies won a majority in parliament in Sunday elections but his opponents surpassed expectations to win over a third of seats and boost their chances of stopping his re-election in 2012.
The opposition also claimed to have won a slim majority of the popular vote, but that was not confirmed by authorities.
The result is likely to be well received by investors in Venezuela’s high-yielding bonds, although it was not immediately clear whether Chavez will moderate his socialist revolution to try and win back swing voters.
OPPOSITION GAINS MOMENTUM
- Chavez is still Venezuela’s most popular politician, but the opposition can now use its newfound soapbox in parliament to make its case against the socialist leader before the next presidential election in 2012.
- If the opposition’s claim to have won 52 percent of votes nationwide is confirmed, it will be an important symbolic defeat for the president, who draws strength from his popular support. He won 55 percent of the vote in an election last year. “The opposition has a chance to sell the idea that it is stronger, that Chavez is not a majority and that there is a large gulf between the votes and the composition of parliament. This is fertile ground for someone to capitalize on the idea of change and motivate the critics,” said respected pollster Luis Vicente Leon.
- With over a third of the seats, the opposition can in theory block Chavez’s Socialist Party from passing major legislation and from naming top officials to bodies such as the Supreme Court.
- If final result show the Socialist Party wins at least 99 seats, it will have the three-fifths majority constitutionally required to give Chavez fast-track powers to pass legislation by decree. If not, it will be another victory for the opposition, who will have a taste of real power to slow the leftist leader’s overhaul of the state.
- Some fear Chavez, in a legislative corner, could move to limit the power of parliament by devolving some law-making powers to grass-roots community groups. He also has three more months to push through laws before the current parliament ends.
- Although Washington has stayed largely quiet during the election campaign, U.S. officials are bound to be happy at the new parliamentary limitations on Chavez, who is their leading critic in Latin America.
INVESTORS WARY OF POLITICAL VOLATILITY
- Some analysts predict a small rally for Venezuelan bonds following the peaceful election and acceptance of results by both sides. Venezuela’s benchmark 2027 global bond closed at 70.56 on Friday, up 6.73 percent from two weeks ago as the market responded to a peaceful campaign.
- The new parliament is bound to be conflictive and an outside risk exists that Chavez will look to shackle the parliament rather than slow his revolution.
- However, with the widest yield spread in the EMBI+ index, Venezuela’s debt prices already include a big discount for political and policy risk. Prices for the OPEC nation’s bonds tend to move in line with oil prices more than anything else. “The recent underperformance of Venezuelan debt already discounts the high policy/political risks with the resiliency of external risk appetite likely allowing for catch-up gains after surviving the headlines of the event risks of elections,” Siobhan Morden of RBS Securities said in a note last week.
- State oil company PDVSA is due to issue $3 billion of new paper at the beginning of October.
- The government says Venezuela is slowly emerging from a long recession, which also provides an upside for bondholders worried about a possible shortage of dollars if economic woes continue.
Additional reporting by Enrique Andres Pretel; editing by Kieran Murray
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