CHICAGO--(BUSINESS WIRE)--The unexpectedly close election outcome in Venezuela's presidential race has created a more dynamic and uncertain political situation, which could influence the new government's approach to economic policy and its ability to govern effectively, according to Fitch.
President-elect Nicolas Maduro's failure to capture a clear electoral mandate could complicate the task of making policy adjustments to rebalance the Venezuelan economy. This could slow progress toward the reduction of fiscal and external vulnerabilities that could undermine growth and erode sovereign creditworthiness.
Although the Electoral National Council (CNE) has already declared Maduro the winner, the opposition has not acknowledged the election outcome and has demanded a recount due to the tight margin (1.8%) and alleged irregularities. Tensions have risen, as opposition and pro-government groups have staged demonstrations, and clashed in some instances, reflecting the high level of political polarization present in Venezuela.
We remain focused on the new government's willingness to implement policy adjustments reining in macroeconomic distortions that lead to reduced fiscal and external vulnerabilities. While the governing United Socialist Party of Venezuela's (PSUV) near monopoly of state institutions could make it difficult for the opposition to mount a serious challenge to government proposals, political and policy uncertainty has not been dispelled, as the new president will likely have to balance the need to consolidate his political position while addressing economic policy challenges.
The Maduro government's capacity to rationalize fiscal policy in the context of a possibly short honeymoon period will be critical in reducing the rapid pace of government debt buildup. We also believe that the government's efforts to reform the foreign exchange system could reduce the need for government debt issuance in the domestic market for exchange rate policy purposes. Nevertheless, transparency and efficiency improvements in the allocation of FX to the private sector will likely be necessary to reduce inflationary pressures, ease shortages, and reduce constraints to growth.
Venezuela's 'B+' IDR with Negative Outlook incorporates the country's weak institutional framework and the potential for social and political unrest. In spite of rising tensions and the high level of political polarization, we consider the risk of social and political unrest leading to disruption in oil-derived revenues to be limited. Nevertheless, increased governability risks that undermine the potential for policy adjustments could weigh on Venezuela's creditworthiness.
The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
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