Chávez referendum revives uncertainty
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Chávez referendum revives uncertainty

Supporters among the poor also
claim he has the right to stand for
election again.

Uncertain future: if Hugo Chávez is
removed from power, his party could
still remain in charge.

Hugo Chávez, Venezuela?s unpredictable president, will face a referendum on his six-year rule on August 15 that could oust him from office. The move has unnerved investors, as even though Chávez is sometimes accused of dragging the country towards communism, he uses oil revenues to pay his debts on time. Venezuela has been one of Latin America?s best-performing credits so far this year. Total returns on its debt have contracted by around 1%, compared with a fall across the JPMorgan Emerging Market Bond Index Plus of 4%. Since last month?s referendum announcement, however, Venezuela?s 2027 benchmark bonds have begun to slide in price and the country?s risk spread widened to 615 basis points over US treasuries.

Many analysts expect Chávez to be kicked out of office, creating a power vacuum in the world?s fifth-largest oil exporter. That could mean political violence and general social upheaval, threatening the government?s ability to make its bond payments on time.

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