Venezuelan President Hugo Chavez will refrain from devaluing the country's currency in the run-up to general elections in October, even though a depreciation would help boost funding for social programs popular with voters, analysts say.

Venezuela's bolivar currency remains overvalued, despite being devalued twice during 2010, local and Wall Street economists say. Devaluations are a painful move since they boost the cost of imported goods, on which Venezuela is highly dependent, notably food.

A new devaluation would hit the pockets of Venezuelans already saddled with one of the highest inflation rates in the world: 26.9 percent during the 12 months through October.

But it would boost the spending power of a government that mostly receives payment for its main export -- nearly 2.5 million barrels of crude oil a day -- in hard currency.

Chavez has already ramped up pre-electoral spending on his signature social projects, like a massive house-building program to upgrade lodgings for millions of impoverished shantytown dwellers, long a bastion of his support.

With a devaluation, each dollar of hard currency revenue translates into move bolivars for government revenue.

But as the president faces his toughest election yet, seeking to prolong his 13-year rule while recovering from cancer, he is expected to delay the devaluation despite what is perceived by analysts as a growing budget deficit.

The cost of a devaluation is very high in terms of greater inflation and economic contraction, Nomura strategist Boris Segura told Reuters. Next year's (budget) deficit will be significant, but the government has methods of financing without resorting to a devaluation.

Without a devaluation, Segura says Venezuela's central government budget deficit would zoom to 11.5 percent of gross domestic product in 2012 -- a level substantially higher than the 9 percent of GDP that crisis-ridden Greece sees for its budget deficit this year, without a bond swap to ease its debt burden.

Nomura estimates Venezuela's budget deficit at 5.4 percent in 2011 and says it was 3.4 percent in 2010.

The government has not offered projections on fiscal deficits. Outwardly, Chavez's economic team says there are no plans in the cards for a devaluation.

But behind closed doors, some members of his economic team have been pushing for an early devaluation, arguing that voters' pain would have dissipated before the October 7 vote, according to a source familiar with the internal discussions.

But that proposal has so far been rejected by senior finance officials, the source says.

The last devaluation, at the end of 2010, eliminated the strongest exchange rate of 2.6 bolivars per dollar of a complex, multitiered exchange system. That left two official rates: 4.3 and the central bank's SITME rate of around 5.3.

One option that has been on the cards for the authorities all year is to weaken the SITME rate, in what some economists have said would effectively be a stealth devaluation.

While oil stays above $90, they are going to maintain the rate at 4.3. But SITME is different. There's no political cost there, said local analyst Asdrubal Oliveros of Ecoanalitica.


Oliveros said the currency's free-floating real value should be around 7.5 bolivars per greenback.

SITME accounts for roughly a quarter of the foreign exchange bought legally by local businesses and individuals, about $30 million (19.3 million pounds) to $40 million a day. Economists calculate the SITME rate could be raised to about 7 bolivars per dollar, based on the inflation forecast of 27 percent for this year.

The government recently approved several resolutions that relate to SITME's operations and will come into effect next year, including a more detailed registration and record-keeping program for participants.

That leads local analysts to believe the exchange will become a more important tool in its monetary policy armory.

Nomura expects public spending to expand by about 25 percent in 2012 , front loaded in the first half of the year.

Barclays Capital estimates that Venezuela will have almost $79 billion to spend next year, including reserves, cash and investment portfolios held by the public sector.

The OPEC nation is also expected to continue issuing international debt, although this will be increasingly costly due to the high coupons that will have to be paid to ensure the placement of their notes.

The government and its state oil company, PDVSA, have issued more than $17 billion in dollar-denominated bonds so far this year, with coupons of between 9 and 12 percent.

Venezuela's opposition knows it will have to contend with higher government spending, the formidable electoral machinery of Chavez's ruling Socialist Party, and the administration's tight control of state media during the campaigns.

Despite that, they see next year's ballot as their best chance yet to win power. Their top contenders will contest a primary vote in February to pick a unity candidate.

If that person triumphs in the presidential poll, they will soon face the same economic problems Chavez is tackling now.

What we are talking about here is delaying a devaluation, because after the election it is going to happen, regardless of who wins, said Oliveros.

(Writing by Daniel Wallis, editing by W Simon )