MARKET participants are increasingly turning their attention to the potential for a regime change in Venezuela, as shortages of basic goods and a prolonged slump in oil prices have turned up the heat on President Nicolas Maduro.

    As the authorities scramble to find additional resources to plug a widening external gap ahead of hefty debt redemptions this year, some have started to call into question Maduro’s ability to remain in power.

    “There has been so much focus on the cashflow analysis and default risk and perhaps insufficient focus on political risk,” Siobhan Morden, head of Latin America strategy at Jefferies, wrote in a note to clients. “We cannot assume that the Maduro administration can politically survive through a protracted period of acute stagflation and widespread shortages.”

    With oil prices expected to remain near multi-year lows — Goldman Sachs lowered its three-month forecast for Brent crude to US$42 a barrel from US$80 Monday — financial pressures on the recession-hit country are mounting.

    Moody’s, which last week downgraded the sovereign by two notches to Caa3, said it expected Venezuela’s current account balance to swing to a deficit of 2 percent of GDP in 2015 — the country’s first yearly deficit since 1998.

    In the bear-case scenario of oil prices averaging US$53 a barrel in 2015, analysts at Morgan Stanley estimate Venezuela will face a funding gap of about US$36 billion this year — a far cry from the US$20 billion to US$25 billion range most analysts were discussing just a month ago.

    Piecemeal attempts at tackling the country’s economic crisis have so far done little to improve market confidence. Even Maduro’s announcement earlier in January of US$20 billion worth of new financing agreements with China was played down as ineffective by many observers.

    “People expected Venezuela to implement economic reforms and policy changes, but what we have seen is a political vacuum,” said Paolo Valle, a senior portfolio manager at Manulife Asset Management.

    “Any deal (involving China) is going to have clauses and restrictions and the money is not likely to be paid up front,” said Valle, whose firm is “severely underweight” Venezuelan debt.

    Widespread discontent has already led to scattered confrontations between police and protesters, while Maduro’s approval ratings declined to 22 percent in December — a historic low for so-called Chavismo.

    Most analysts believe a default by the sovereign is not likely before at least the fourth quarter — when the country faces its largest debt payments this year. Yet many have highlighted the potential consequences of increased social unrest before then.(SD-Agencies)