Venezuela's Maduro to raise pressure on business after local vote

By Brian Ellsworth

CARACAS (Reuters) - Venezuelan President Nicolas Maduro pledged to deepen his "economic offensive" to force businesses to cut prices after his ruling Socialist Party won the most votes in weekend municipal elections.

With three-quarters of the 337 mayoral races counted by Monday morning, the Socialists and their allies had 49 percent of votes, compared to 43 percent for the opposition coalition and its partners.

That result derailed efforts by Maduro's critics to turn the vote into a show of disapproval for his government and the legacy of late socialist leader Hugo Chavez.

The president's candidates benefited from a populist crackdown in November to force merchants to slash prices of goods such as TVs, car parts and home hardware.

"This week we are going to deepen the economic offensive to help the working class and protect the middle class," a triumphant Maduro told supporters in a rally after the results were announced late on Sunday night.

"This week it's going to be the housing and food sectors. We're going in with guns blazing, keep an eye out."

Maduro's personal approval rating jumped sharply after he instituted the economic measures, which won over consumers weary of the country's 54 percent annual inflation. Maduro blames the rising prices on an "economic war" he says is financed by political adversaries.

The initial steps focused on home appliances and later extended to controls on rent of commercial buildings such as shopping malls, to try to lower prices.

Sunday's election was the biggest political test for Maduro since he narrowly won a presidential election in April following Chavez's death from cancer. He called the results a tribute to the late leader whose 14-year rule polarized the OPEC nation.

"Here it is, commander, the gift of your people ... the gift of loyalty and love," he told a crowd, whose mostly bored expressions broke into joyful chanting at the mention of Chavez's name.

DEVALUATION COMING?

The results may help Maduro to enact unpopular economic measures such as a currency devaluation that Wall Street investors call necessary to close the government's fiscal gap and reduce capital flight.

But extending the price cuts may worsen product shortages and reduce the productivity of a private sector already battered by years of nationalizations.

Nor does the majority in the local polls help him address the structural imbalances of a state-driven economy struggling with slowing growth, the highest inflation in the Americas and embarrassing shortages of goods such as toilet paper.

Critics say he needs to scrap exchange controls and lift restrictions on private businesses.

Economists were left guessing Maduro's next move.

"This might strengthen the radicals who pushed for the tightening of price controls that appears to have provided Maduro with the needed electoral boost," Bank of America analyst Franciso Rodriguez said.

"On the other hand, it gives the government sufficient room to devalue now that the elections are behind."

The Socialist Party had been widely expected to win a majority of the total number of seats because the distribution of voters makes it dominant in rural, sparsely populated constituencies.

But opposition leader Henrique Capriles had previously said the opposition would win a majority of votes. The results showed the continuing division over Chavez's legacy, he said.

"Nobody should feel defeated, we have a country that is divided and we want Venezuela to be united," a disappointed-looking Capriles said in a late-night news conference.

"This country does not have a single owner."

OPPOSITION'S URBAN GAINS

The Socialist Party's majority overshadowed opposition gains in crucial areas such as the industrial city of Valencia, where the party's mayor was recently arrested on corruption charges.

The opposition also won in Barinas, capital of the late Chavez's home state that has for years been dominated by his family - even though Maduro had decreed December 8 a day of "Loyalty and Love" to the former president.

The opposition is also expected to increase the total number of mayors' seats it controls.

Even a better overall vote showing for the opposition, though, would have been largely symbolic.

The next polls are for a new parliament in late 2015, and opponents will have to wait until 2016 if they want to try to remove Maduro via a recall referendum halfway through his term.

"We're not giving up, we're going to keep on fighting," said one opposition supporter and bank manager Oskeiling Lopez.

Despite an unexpectedly strong showing in the April presidential vote, Capriles has struggled since then to influence national politics. Some anti-government activists are pressing for more action, such as street protests.

"This is further evidence that President Nicolas Maduro and Chavismo have more staying power than some observers believe," the Eurasia group political consultancy said of Sunday's vote.

"These mixed results are unlikely to fundamentally change political dynamics, and policy will remain highly interventionist as challenging macroeconomic dynamics keep the government on the defensive."

(Reporting by Brian Ellsworth; Editing by Daniel Wallis, Andrew Cawthorne and Eric Beech)