With less than a week to go until the regional elections, many investors are expecting President Hugo Chavez to suffer a major defeat. Unfortunately, they will be disappointed. The nationalization of the RCN television network led to a decline in the president’s support. Food shortages, due to the use of price controls, and the constant tirades against world leaders only made matters worse. The disillusion with the Chavez Administration manifested itself in the rejection of the national referendum at the end of last year. The initiative sought to amend 33 constitutional articles—including the abolition of presidential term limits. The rejection of the referendum was the first electoral defeat for the Venezuelan president, and he vowed to relaunch his initiative. However, given the recent collapse in oil prices, many people thought that Chavez’s days were numbered. Unfortunately, a close look at the polling data suggests that he will win a majority of the states and municipalities, but this does not mean that he will sweep the electorate.

Venezuela will select 22 out of the 23 state governors, along with 328 mayors and 233 state legislators. All of the states will be in play, except for Amazonas. Chavez’s allies are expected to win 11 states. Of the remaining governorships, three will definitely go to the opposition, two will go to dissidents who fell out with Chavez, and the remainder will be in play. Chavez will lose trophy states, such as Zulia, which is the center of the oil industry, Carabobo, which is the industrial heartland, and Sucre. He will also lose one of poorest municipalities in Venezuela. The loss of Zulia and Carabobo may not be surprising, given Chavez’s adversarial relationship with PDVSA and private industry, but the loss of the municipality of Sucre will be a major defeat—given his socialist and redistributionist policies. The other undecided states make up the rest of the so-called electoral corridor, which constitutes the northern fringe of the country that represents the majority of the voting population. Therefore, Chavez may win a majority of the states, but he has not repaired his relationship with the electorate. Still, the results may provide him with the impetus needed to relaunch his constitutional referendum.

Although Chavez is characterized as a dictator, the Venezuelan President constantly uses the ballot box as a way to reaffirm his political agenda. National polls give him high marks. His approval rate is 62%, but 54% of the electorate also said that they did not trust him. This is a very strange situation, but it explains why the electoral will not endorse his candidates during the regional elections. At the same time, Venezuela’s penchant for socialism is fading. Pollsters find strong support for an interventionist state, but there is a resurgence of the capitalist spirit. A recent survey found that 84% of the respondents rejected using Cuba as the economic model for Venezuela. At the same time, 82.7% responded that the state should respect private property, up from 66% in March 2006. Last of all, 67% of the respondents said that they would rather work at their own firm, while 16% said that they would prefer to labor in a collective enterprise. Like most people around the world, Venezuelans prefer the opportunities of capitalism along with the benefits of socialism—which basically sums up President Chavez’s economic program.

Chavez may claim victory on the morning of November 24th, the day after the elections, but Venezuela has tough times ahead. The collapse in oil prices is sapping the country’s resources. With an average oil price of $60 per barrel, the government is expected to post a fiscal shortfall of $3 billion. It has ample reserves to meet its financing needs. However, at some point in time, it will be forced to devalue the currency. The official exchange rate is 2.15 and the black market rate is slightly over 5. A devaluation of the bolivar to 3.20 would rebalance the fiscal accounts, but it would also fuel further inflationary pressures--which would have an adverse impact on Chavez’s electoral agenda. Unfortunately, further declines in oil prices will force the government to act. All in all, things are never what they seem in Venezuela. Chavez will declare victory next week, but he will probably lose his most important trophies. Venezuelans may like Chavez, but they don’t trust him. The electorate prefers a socialist state, but the spirit of capitalism is strong. The Venezuelan president constantly rails against the market, but he always pays his debts on time. Last of all, Chavez may be around for a long time, but he always uses the ballot box to reaffirm his authority.