Walter Molano, Guest Columnist

Capriles was offering 'Chavezismo' without Chávez.

The sharp drop in Venezuelan bond prices after last week's presidential elections confirms that investors did not like the news.

At the same time, the thought that people truly believed that Henrique Capriles would win the national election is risible.

Hugo Chávez is the consummate politician, and he plays the democratic game to utter perfection.

In the aftermath of his remarkable victory, there were no accusations of fraud. This was somewhat surprising, given that the opposition lost by more than 10 points. Chávez used all of the resources at his disposal to ensure that as many people would get to the polls.

In a country where 65 per cent of the population subsists at the lowest income strata, it was clear that the masses would vote for the ailing populist. The problem in countries where there are such poor distributions of income is that the most populist candidate will usually win a democratic contest.

This was the reason why Capriles ran on such a populist platform. In addition to railing against crime and corruption, he vowed to create half a million new jobs per annum, totalling six million new positions during the next six years.

In a country of 28 million people, this is more than 20 per cent of the population - which is a very big number.

Capriles' promises

Capriles said he would double the country's oil output, while building 40 new universities and countless schools.

All of this would be done within a context of a moderate economic adjustment.

In other words, Capriles was offering 'Chavezismo' without Chávez. At the same time, Chávez was offering himself. Therefore, the electorate asked itself, why settle for a substitute when they could get the real thing. That was the essence of the Venezuelan leader's message when he railed, "I am the heart of Venezuela".

Soon enough, the population may be forced to look for a substitute - but not yet.

In retrospect, Chávez ran a better campaign than Capriles. While the younger candidate spent his time and resources criss-crossing the country, the old tank commander remained on target, promising to consolidate his Bolivarian Revolution.

He increased government spending 30 per cent y/y, allowing the pace of economic activity to expand five per cent y/y. As a result, the country's immediate welfare improved. Of course, elections should be about the future and not the past.

In that regard, Capriles did a good job. He was able to unify the disparate factions of the opposition and provide the face of a future leader. He provided an image of continuity by promising strong state sponsorship of private-sector activities, an unrelenting focus on oil and generous social programmes. This allows him to be the vision of the future, particularly after Mother Nature takes her due course with Chávez.

In the meantime, investors need to focus on what lies ahead. On a positive note, it is good to see that there was no social unrest following the elections. There were no accusations of impropriety, riots or protests. The two opposing sides acted gracefully. Capriles acknowledged the will of the people, and Chávez extended a welcoming hand. In less than two months, the two sides will square off again. This time it will be to contest the outcome of the gubernatorial and mayoral elections.

Given that Chávez won 22 out of the country's 24 states, then there is a good chance that he will have a similar performance during the regional elections.

However, once the banners and bunting are put away, the government will need to take a close look at how to get out of the fiscal hole it dug during the electoral process.

The government is expected to announce a new economic programme in January, which will provide more insight into the measures Chávez will use to deepen his Bolivarian Revolution.

There are some rumours that he may nationalise the banks in an effort to boost credit and reduce some of his sovereign-debt obligations. Soon afterwards, the government is expected to devalue the bolivar as a means to rebalance the external accounts and improve the country's fiscal situation.

nervousness will rise

Nevertheless, the level of nervousness will rise as we move into the latter half of the year when amortisations begin to increase.

The pace of amortisations will accelerate through the next two years. The problem is that the outlook for energy prices does not look good for the medium to long run.

The fracking revolution in the United States is starting to spread to other parts of the planet, and we may soon witness a collapse in energy prices. The only reason why they remain high is because of the possibility of an Israeli attack on Iran, which could end up closing the Straits of Hormuz.

If it were not for this risk, oil prices would probably be 15-20 per cent lower. In such a scenario, Venezuela would have a difficult time meeting its external obligations and it would have to consider the use of other heterodox or orthodox strategies.

Dr Walter T. Molano is a managing partner and the head of research at BCP Securities LLC. wmolano@bcpsecurities.com