SAO PAULO – Tens of thousands of Brazilians again flooded the streets of the country’s biggest city to raise a collective cry against a longstanding lament – people are weighed down by high taxes and high pricesCARACAS, Venezuela – During his re-election campaign, President Hugo Chavez promised to deepen the “21st century socialism” that has meant an ever-greater state role in the economy. That message won him a surprising 11-percentage point win in what many had thought would be a tight race.
Still, he’s set to start a fourth presidential term under challenging economic circumstances. The government’s free-spending ways, bankrolling the generous social programs that aided his re-election, may be seriously crimped.
Chavez faces immediate economic time bombs beginning with a rapidly expanding public debt, one of Latin America’s highest inflation rates and a weakening currency.
Many economists believe Chavez will have no choice but to devalue the currency, the bolivar, by about half early next year at the latest. That will make the money in people’s pockets suddenly worth a lot less and likely drive inflation while putting imported consumer goods out of reach for poorer Venezuelans.
“He’s going to have to deal with some very basic, mundane capitalist things, like reducing inflation,” which stands at 18 percent, said Eduardo Gamarra, a Latin American studies professor at Florida International University in Miami.
Price controls and government subsidies for basic foodstuffs have eased inflationary pressures, but a major devaluation would drive prices higher and could worsen scarcities, economists say.
