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Big challenges for Venezuela's oil dependent economy

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Big challenges for Venezuela's oil dependent economy
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Oil is key for Nicolas Maduro the man who is set to rule Venezuela.

It was literally black gold for Hugo Chavez, bankrolling his socialist dream and paying for hefty government spending that spurring economic growth of 5.6 percent last year in the run-up to Chavez’s election in October, just months before his death.

His successor now faces a raft of economic difficulties in the OPEC member nation that exports 430,000 barrels of crude and products and other oil products to China every day and at home sells subsidised petrol for pennies.

Economists predict Venezuela’s economy will grow this year at two percent or below as the government is forced to slow spending and reduce borrowing due to overstretched state finances.

Chavez’s wave of nationalisations also severely weakened the private sector and business leaders are reluctant to make new investments.

Inflation this year is predicted to at least match last year’s 20 percent level due to a currency devaluation and expanding money supply. Consumer prices rose five percent in the first two months of this year alone.

Maduro’s narrow victory gives him little room for pragmatic measures such as unwinding the Byzantine system of price and currency controls that have created economic distortions.

However, there are few signs that the situation could descend into a full-blown crisis or force Venezuela to default on its debt.