Reuters – Analysis – Chavez seeks to contain voter angst over economy

CARACAS (Reuters) – Venezuela’s economy is plagued by shortages, high inflation and crippling currency controls, but a massive spending spree by President Hugo Chavez will likely keep an incipient recovery alive, at least until a 2012 vote.

In the short term, Chavez can paper over underlying problems with subsidies, price controls and ramped-up spending on his flagship health and housing programs for the poor.

But eventually, falling oil production by the OPEC nation combined with mounting debt will make it harder to finance his socialist “revolution,” analysts say, leading to sub-par growth and possibly another painful currency devaluation.

Venezuela has the world’s largest oil reserves, according to OPEC. Yet it was the last in Latin America to pull out of recession, returning to growth in the fourth quarter of 2010.

Perhaps the biggest wrench in the economy is the mind-boggling set of rules limiting the amount of foreign currency businesses can obtain. The result is a dollar drought that hangs like a curse over a country that imports 90 percent of its needs and where basic items like milk and cooking oil are in short supply.

Annual inflation hit 25.1 percent in July, the highest in the region, but may not constrain growth as long as Chavez’ redistribution of oil wealth provides stimulus.

It is all a far cry from the oil boom days of the 1970s when the bolivar was one of Latin America’s strongest currencies, letting middle-class Venezuelans enjoy foreign travel and cheap shopping at plush Miami malls.

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