CARACAS, Venezuela — During his re-election campaign, President Hugo Chavez promised to deepen the "21st century socialism" that has meant an ever-greater state role in the economy. That message won him a surprising 11-percentage point win in what many had thought would be a tight race.

Still, he's set to start a fourth presidential term under challenging economic circumstances. The government's free-spending ways, bankrolling the generous social programs that aided his re-election, may be seriously crimped.

Chavez faces immediate economic time bombs beginning with a rapidly expanding public debt, one of Latin America's highest inflation rates and a weakening currency.

Many economists believe Chavez will have no choice but to devalue the currency, the bolivar, by about half early next year at the latest. That will make the money in people's pockets suddenly worth a lot less and likely drive inflation while putting imported consumer goods out of reach for poorer Venezuelans.

"He's going to have to deal with some very basic, mundane capitalist things, like reducing inflation," which stands at 18 percent, said Eduardo Gamarra, a Latin American studies professor at Florida International University in Miami.

Price controls and government subsidies for basic foodstuffs have eased inflationary pressures but a major devaluation would drive prices higher and could worsen scarcities, economists say.

"Investment in social issues is great, but he needs to do other things as well that are going to make that economy more productive," said Gamarra.

Venezuela's economy grew by 5 percent this year but only because of government spending, primarily on raising salaries for many of the country's at least 2.4 million public employees and paying for thousands of new homes that Chavez is giving away, said Joao Pedro Ribeiro, an economist at Roubini Global Economics in New York.

"We think the outlook for the short term is very bleak," he said, with economic growth at about 2 percent next year and "inflation spiking to 30 percent."

The black market value of the Venezuelan bolivar, whose official value is set by the government, was double the official rate in July. It is now triple the official rate.

At the heart of Chavez's economic challenges is declining productivity in the oil industry, which accounts for 95 percent of exports and funds Chavez's social programs. Governing the country with the world's largest proven oil reserves has so far insulated Chavez from the fallout of his confrontational polices, including a drop in foreign investment.

But economist David Rees of London-based Capital Economics said the government has relatively few dollars left, "having utilized them to fund an import binge ahead of the ballot. That will add to the reduction in imports and increase in shortages."

Some experts say oil production has stagnated due to insufficient investment and management problems in the state-run oil company.

One measure of investor confidence in Venezuela, the price of its bonds, took a hit Monday as they fell 5 percent to 7 percent, said Russell Dallen, a managing partner of the brokerage firm Caracas Capital Markets.

The bonds fell in value after Chavez defeated Henrique Capriles, who won 44 percent of the vote, giving the incumbent his smallest margin of victory ever in a presidential election.

The government has more than tripled its public foreign debt from $24.2 billion when Chavez took office to $88.7 billion in the first quarter of this year. Much of that foreign money has come from China, which has lent Venezuela more than $36 billion in exchange for oil shipments.

Even as he celebrated victory before thousands of jubilant supporters early Monday, Chavez appeared to acknowledge he has let down some Venezuelans. People are upset by a soaring homicide rate, power outages and crumbling infrastructure.

"I pledge to you, I repeat, to every day be a better president than I've been," he said, while also promising greater effectiveness and efficiency from a government whose payroll is bloated by patronage.

The 58-year-old leader has said tests show he is cancer-free, but his illness has forced him to slow his pace and cut back on his frenetic days of late-night speeches and Cabinet meetings. He's endured two rounds of surgery since June 2011 to remove tumors from his pelvic region as well as chemotherapy and radiation treatment.

Venezuela would have to hold a new election if Chavez were forced to step down during the first four years of his term. More health problems would make it even more difficult for Chavez to push ahead with his promised drive to expand the state's role in the economy and provide even more entitlements.

"As long as Chavez remains as the key driver here, there might be far more inertia than change," said Javier Corrales, a U.S. political science professor at Amherst College.

Venezuelans will choose state governors in December, and Chavez is likely to save any devaluation until after that election. Such moves are always hugely unpopular because they erode the value of salaries, which have already been hit hard by inflation in Venezuela.

___

Associated Press writers Jorge Rueda and Vivian Sequera contributed to this report.

___

Ian James on Twitter: http://twitter.com/ianjamesap

Frank Bajak on Twitter: http://twitter.com/ianjamesap

Loading Slideshow...
  • February 4, 1992

    In February 1992, Venezuelan lieutenant colonel Hugo Chávez Frías led a loyal secretive military cell, the Revolutionary Bolivarian Movement, in a coup to overthrow the government of President Carlos Andres Perez. The coup, known as Operation Zamora, failed and Chávez was arrested.

  • March 26, 1994

    In March 1994, Chávez was released from jail by newly elected Venezuelan president Rafael Caldera. In the following years, Chávez traveled across Venezuela and Latin America to talk about his political views and founded a social democratic party, the Fifth Republic Movement, in 1997.

  • December 6, 1998

    In December 1998 Chávez was elected president of Venezuela, supported by the poor and large parts of the middle class. He was inaugurated in February 1999 in Caracas, giving a remarkable speech in which he announced sweeping reforms.

  • Chávez during his inauguration as president in February 1999.

  • As president, Chávez formed close ties with socialist leaders of neighboring countries; Cuba's Fidel Castro and Bolivia's Evo Morales.

  • In 2000, Chávez was reelected for a second term. During the president's second term, Venezuela became one of the world's largest exporters of crude oil. Chávez nationalized much of the oil industry under a state run-company, Petróleos de Venezuela S.A. During his second term, Chávez stepped up criticism of the United States, coming out as a strong opponent of American intervention in the Middle East.

  • January 2001

    In January 2001, a first series of massive demonstrations broke out as thousands protested the government's suggested educational reforms.

  • April 11, 2002

    In April 2002, new large protest take a violent turn. Twenty people were killed and over a hundred were wounded. A group of high-ranking officers launched a coup against the president and Chávez agreed to step down. Yet only days later, newly appointed president Pedro Carmona resigned and Chávez took over control.

  • April 14, 2002

    Chávez addresses the nation after being back in power on April 14, 2002.

  • December 2002

    Hundreds of thousands took to the streets in December 2002, demanding the ouster of the presidents. Venezuela was held in the grip of a two-month long strike that crippled the country's economy.

  • August 14, 2004

    An August 2004-referendum to recall Chávez from power fails.

  • December 2006

    In December 2006, Chávez is reelected for a third term in office, again taking home a landslide victory. "Today, a new era has started, with the expansion of the revolution, of a revolutionary democracy," Chavez supporter crowds.

  • February 19, 2009

    In a 2009-referendum Venezuelans approved an alteration of the constitution, abolishing the two-term limit for public offices. The change clears the path for Chávez to run in the 2012 elections.

  • June 2011

    After traveling to Cuba for treatment, Chávez announced he underwent cancer surgery and would start chemotherapy. The president did not specify which cancer he was fighting.