Venezuela: increasingly isolated?

The defeat of President Hugo Chavez's constitutional reform proposal in the December 2007 referendum was momentous and the year ahead is likely to be a particularly unpredictable one, as the government and Chavista movement wrestle with the implications of defeat.

Legislative and policy initiatives in 2008 will be ad hoc as the government and National Assembly grapple with implementing a socialist transformation amid mounting social, economic and political constraints.

Chavez remains personally popular, but domestic support for his 21st Century Socialism project has dwindled. The government needs to slow its revolutionary process and respond to the concerns of former supporters. The alternative -- pushing ahead with its project -- risks further alienating its support base. Chavez will be decisive in determining which path will be taken: as yet, it remains unclear which way he will opt to move.

With defeat in the referendum, the government's policy agenda has been thrown into question. Chavez may opt to introduce the 69 proposed reform measures by decree or through the Chavista-dominated National Assembly. Such a course will be protracted, while the introduction of constitutional changes on a measure-by-measure basis will provide a focus for persistent opposition mobilisation.

The macroeconomic picture will remain positive in 2008, with growth of at least 6% expected. However, the need to address contradictions implicit in the government's economic strategy is becoming increasingly urgent. Ad hoc economic policy initiatives and efforts to create socialism at the height of an international oil price boom have led to severe distortions in the economy. Without a radical adjustment in 2008, inflation, production bottlenecks and surging imports will undercut sustainable growth and fuel opposition to the government from popular sectors.

Diminishing foreign direct investment and the slowdown of the international economy present a negative economic environment that will undercut the government's plans for oil and non-oil export development.

Political attention will focus on the figure of the president. For the first time in nine years, Chavez's popularity and influence has been called into question by the December referendum defeat. Amid evidence that his confrontational style is losing traction, he may be forced to reinvent himself if he is not to become further disconnected from his increasingly sophisticated -- and frustrated -- grassroots support base. However, his capacity to reach out beyond his diminishing group of core advisers is open to question. With popular rejection of the planned lifting of presidential term limits, intra-party debates over the succession will gain momentum, though Chavez has five years of his term to run.

As the US presidential election approaches, Venezuela will be forced to define relations with the incoming administration. Despite anti-US sentiment within the government, there will be pressure to reach an understanding with Democratic contenders. These challenges require flexibility and pragmatism that is unlikely to come from Chavez or the highly politicised diplomatic and foreign service team. Venezuela thus runs the risk of becoming increasingly isolated.