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Venezuela's recent presidential election campaign exposed deep political rifts in a country where President Hugo Chavez had grown accustomed to landslide victories. Although the opposition movement failed to strike a decisive blow to his hold on power in the October vote, nearly half the electorate embraced its narrative of a country in deep trouble. Economic mismanagement by the Chavez administration has brought growing criminal violence, inflation and a lack of food security, leading many to question the wisdom of his leftist ‘chavismo' movement.

A newly formed coalition representing approximately 30 opposition parties, the Mesa de la Unidad Democratica, mounted the most concerted effort to unseat Chavez since he took office in 1999. Led by Henrique Capriles, the energetic governor of Miranda state, the opposition made important strides, narrowing Chavez's lead from 26 percentage points in 2006 to 11 in the 7 October poll, claiming 44% of the vote versus Chavez's 55%.

During his election campaign, Capriles targeted popular concerns over the economy and discontent with the chavista movement, focusing on government mismanagement, corruption and inflation. An explosion at the largest oil refinery in the country in August, which left 41 people dead, gave Capriles further ammunition with which to castigate the government. He also promised to place limits on shipments of cheap oil destined for allied leftist governments such as Cuba, and to improve government efficiency while preserving many social programmes.

After the vote, he dismissed complaints that electoral fraud had taken place in favour of Chavez and announced that he would run again for the governorship of Miranda state in regional elections on 16 December. His decision suggested that he and the wider opposition coalition are waiting for internal divisions within the government and popular discontent over its policies to become more pronounced in the coming months and years.

Economic mismanagement

The key goal of Chavez's reign has been to lift Venezuela's masses out of poverty. Since 2003, up to 20 million Venezuelans are thought to have benefited from his misiones - a series of tightly controlled social programmes that seek to provide goods and services to the poor, from health and education, to kitchenware and flat-screen televisions (most of them are made in China and sold to Venezuela through bilateral agreements).

After decades of negligence by previous governments, Venezuela's poor are unquestionably better off under Chavez. The country is now considered the 'least unequal' in Latin America, with urban poverty falling from 48% to 28% since he came to power. However, high public spending, which was increased in the run-up to the elections, has led to spiralling public debt, and it is the poor who are most likely to feel the impact.

Even though Venezuela possesses the second-largest oil reserves in the world, and despite global oil prices exceeding $100 per barrel, revenue from the state-owned oil company PDVSA has not been sufficient to balance the government's books. A large amount of government spending goes through off-budget mechanisms such as a national development fund known as 'Fonden', which is in charge of most state investment. These mechanisms make it difficult to measure the size of the hole in Venezuela's public accounts. Bank of America Merrill Lynch estimated in 2011 that the total public deficit would almost double from 4.2% in 2011 to 8% of GDP in 2012; a July 2012 report by Barclays suggested the deficit would rise from 12.9% of GDP to 19.5% this year.

A series of laws has been passed to accommodate for this increase in public spending beyond the official budget. PDVSA has also been transferring large amounts of its income to Fonden and issuing debt in domestic markets to balance its budget. Meanwhile, transfers of dollars directly to social projects have depleted foreign-exchange reserves, which have fallen by 40% since January 2009 and hit a five-year low during 2012.

Most local and foreign economists agree that the situation is unsustainable, and that Caracas will be forced to curb spending if it is to meet its interest payments.

Meanwhile, inflation has become a severe problem. Though price-control measures brought it down to 11.5% during the first nine months of 2012 (compared to 26.1% in 2011, more than three times the South American average of 7.8%), during the 12 months from September 2011 prices grew by 19.98%, and the government's own inflation target for the year climbed to 22%, one of the highest in the world.