Venezuela

Venezuela’s President Hugo Chavez and Bolivia’s President Evo Morales are closely linked, and many fear they represent a new trend away from democracy, open markets, and the United States in Latin America. Overlooked are substantial differences between these two countries  and from their Latin American neighbors. What Venezuela and Bolivia do share is the weakness of their political institutions which results in large part from their history with democracy. Democracy emerged in Venezuela in the late 1950s and Bolivia in the early 1980s after elites joined together to form a "pact" that established the rules for the new governments. These pacts brought stable democracy to both countries no easy feat in Latin America. But, these agreements left many policy issues particularly economic issues permanently off the agenda. They also encouraged the development of cartel-like political parties, more interested in staying in power than truly representing their own populations. These dynamics excluded large percentages of the population in both countries from politics. In the face of economic turmoil, these poorer populations searched for someone to represent their interests and found outsider candidates Hugo Chavez and Evo Morales. Their elections ended the cozy arrangements between the traditional political parties  and challenged the rules of the political game. But here is where the outcomes in each country diverge. Due to Venezuela’s oil wealth, Chavez has vast resources to satisfy his heterogeneous political base - creating new schools, health care clinics, affordable housing, and food subsidies. Morales, in contrast, does not have the public resources to provide so abundantly for his supporters. Instead, divisions within his own coalition are emerging, questioning his ability to balance campaign promises with the country’s economic realities. Politically, Chavez has successfully consolidated power retaining control now over the judiciary, the public bureaucracies, and the Congress. In Bolivia, we see a political standoff between the Morales’ political coalition and his opposition. The opposition including the traditional political parties - retains control of several governorships, and for the last six months has stymied any substantive debate within the Constituent Assembly. These political divisions are now leading to social unrest and violence. In short, the battle between these two sides has yet to be won. These separate outcomes in Venezuela and Bolivia are both worrisome for democracy. But since they result from domestic factors, their spread throughout Latin America is unlikely. It shows that to counter these trends, however, we need to pay more attention domestic institutions, and less to the grandstanding of particular political leaders.

On Monday January 8th, two days before his inauguration to a third term, Hugo Chavez announced that he would deepen his socialist or Bolivarian revolution by nationalizing companies that are deemed to be strategic to the national interest. Specifically, he singled out the telephone company CANTV and the Caracas utility company, EDC. Since both are at least partially owned by U.S. companies (Verizon and AES respectively), this shocked not only Venezuela’s domestic financial markets but also Wall Street. Chavez’s ability to carry out these nationalizations rests on the confluence of political and economic power he holds. In recent years he consolidated political power in Venezuela by undermining the independence of the judiciary, the national electoral council, the bureaucracy, and he gained complete control of the Congress. On the economic side, high oil prices provide Chavez the resources to compensate the private owners of these or even other companies in Venezuela. Venezuela now holds over $50 billion dollars in international reserves, providing a war chest for not only his social programs but for expenditures like nationalizations. What is important to understand is that it is unlikely his efforts will spread to other Latin American nations. Most of the recently elected leaders in Latin America (there have been twelve elections in as many months) are turning toward free markets, not away from them. Leftist leaders in countries such as Chile, Brazil, Uruguay, and even Argentina are opening their markets while also instituting broader social protections, including social security, health care, and assistance programs. Even those leaders who may be more ideologically inclined toward state intervention in the economy, such as the presidents of Bolivia and Nicaragua, don’t have the luxury of strong oil revenues. So large-scale nationalizations are unlikely outside of Venezuela. In many ways this is an isolated, anachronistic turn to socialism, ironically buoyed by global capital markets and the increasing demand for oil due to globalization. Finally, some commentators are pointing to the Iranian President Ahmadinejad’s visit to Venezuela (his second in five months) as a threat to U.S. interests. These meetings, and strategic agreements signed at them, are less important than many fear. While there are several reasons why the United States should worry about its relationship with Iran, the alliance with Chavez will not seriously influence these foreign relations. We should keep or foreign policy strategies and decisions toward each country separate, as their shared anti-Americanism shouldn’t negate their vast differences. For more thoughts on Chavez’s announcements, please check out my interview with Mike McKee from Bloomberg earlier this week about this development: Bloomberg interview

Over the last eighteen months Presidential elections occurred in twelve Latin American countries. While Hugo Chavez and his anti-American tirades grab most of the headlines, these elections actually show the rise of a new Left in Latin America. In contrast to Chavez’s more socialist populism, these new leaders promise to balance market-friendly economics with broader social policies and protections. These new governments have already shown their commitment to free markets. In less than a year, Chile’s President Michelle Bachelet has signed free trade agreements with China, New Zealand, and Singapore, and is negotiating new accords with both Japan and Australia. Alan Garcia of Peru appointed a well-known private banker as Finance minister and vocally supports free trade agreements with the United States, Canada, and many Asian countries. Brazil’s Luiz Ignacio Lula da Silva was re-elected based on his conservative first term economic policies. Tabare Vazquez of Uruguay also continued the orthodox economic choices of the previous government, attracting both Finnish and Spanish foreign investment for Uruguay’s cellulose industry. Even the more rhetorically radical leaders are governing or likely to govern near a pragmatic center. During his first year in office, Bolivian President Evo Morales drew back from his more populist campaign appeals. He cancelled the nationalization of the mining industry, and is now negotiating gas contracts with foreign companies. While peppering campaign speeches with anti-American quips, Nicaragua’s Daniel Ortega left the Sandinista’s economic ideology behind. During his first weeks in office he has already started courting domestic and foreign investment, promising to uphold contracts and maintain open markets. Rafael Correa’s of Ecuador began moderating his promises in the final weeks of the presidential campaign, and even reached out to U.S. ambassador, Linda Jewel. In fact, only Venezuela’s Hugo Chavez, supported by oil revenues - represents a firm holdover from the political past. Yet while rejecting old-style socialism, Latin American voters did turn left. The winning candidates all reached out to the large portions of the population that have not benefited from economic reforms. They promised to improve the social welfare of ordinary citizens. Now in office, they are pushing forward to create jobs, eliminate hunger, and provide better access to education, social security and health care. This shift Left reflects the real needs of Latin America’s populations. While Latin America’s economies have grown in recent years, these benefits have not trickled down. Some 25% of the population still lives in poverty. The difference between the haves and have nots stubbornly remains one of the most pronounced in the world. More positively, this political turn reflects the spread of democracy. As more open and inclusive governments take root, politicians are responding to voter demands. The winning electoral campaigns focused not just on overall economic growth but also on increasing economic opportunities, particularly for the poor. These newly elected leaders now will try to soften the rough edges of globalization while continuing to compete in international markets. This is a difficult balancing act for any leader, and many will not meet the challenge. But as Leftists, they have an opportunity to build a social consensus behind the long-term investments necessary for real change in these countries. To that end, this new Left represents the best chance for strengthening the economies and the democracies of Latin America.

In a recent world tour—stops included Belarus, Russia, and Iran—Venezuelan President Hugo Chavez attempted to expand his influence beyond Latin America and capitalize on the leverage afforded by his oil riches.

This publication is now archived. PART 1: Origins of Chavez’s RuleThis section will look at the biography of Hugo Chavez and assess the factors that brought him into Venezuelan politics and led to the emergence of his radical anti-American vision. It will seek to chart the various influences on Chavez’s politics.1.1 Chavez and the 1960s revolutionary leftThis will begin by examining the revolutionary movement that emerged in the wake of the Cuban revolution and its critique of the democratic settlement negotiated in the wake of the overthrow of the Perez Jimenez dictatorship in 1958. By the time that Chavez had joined the army in 1971—as a 17 year-old officer cadet—the guerrilla movement that had been defeated in a fierce counter-insurgency campaign. However, surviving former guerrilla leaders—of which the most well known is Douglas Bravo—continued to campaign for radical alternatives to the established order. A centre-piece of their thinking of groups such as the Venezuelan Revolutionary Party (PRV) was that left-wing forces should work with nationalist sectors within the armed forces in order to build a revolutionary military-civilian alliance.1.2 Chavez and the Venezuelan armyThis idea built on the fact that Venezuela’s army—like that of Peru and other Andean countries but unlike those of Chile and Argentina, for example—drew its officer recruits from the lower middle class, rather than from the upper class. As a result, young officers such as Chavez were more open to left-wing ideas, such as those that in the late 1960s and early 1970s led the Peruvian and some other armed forces (Panama, Honduras, etc.) to seize power in military coups in order to introduce left-wing policies, including land reform and nationalization of the banks and energy sector. 1.3 Simon BolivarAnother influence on Chavez came from a separate direction. More than any other country in Latin America Venezuela has kept alive the memory of Simon Bolivar, the 19th century revolutionary who led the sub-continent’s independence struggle against Spain. Bolivar was born in Caracas and many of his closest associates were Venezuelan. During the 19th century Venezuela was wracked by civil wars that destroyed the landed aristocracy and severed any link between the original post independence elite and the military governments of the 20th century. Nevertheless, Bolivar continued to be an important reference point and "founding myth" for Venezuelan institutions, especially its armed forces, helping to bind them together in spite of political instability. At school in the 1950s and 1960s, Chavez like other Venezuelan children would have studied the country’s history and learned of Bolivar’s exploits against the Spaniards. At military college the same lessons would have been reinforced. 1.4 The critique of PuntofijismoThese three diffuse influences—the new pro-Cuban left, the military left and Bolivarian nationalism—combined in Chavez and Chavismo. For Chavez to put this nationalist Bolivarian project into effect however he would first have to overthrow the two-party corporative system of government established by the 1958 agreement at Punto Fijo. North American and European political scientists in the 1970s and 1980s praised this model as epitomizing a healthy democratic trend within a region where until the early 1980s at least most countries were governed by military dictatorships. But Chavez and his supporters viewed the system as socially exclusive and corrupt. For example, welfare benefits were concentrated among well-organized urban workers affiliated to the social democrat Democratic Action (AD)-controlled Confederación de Trabajadores de Venezuela (CTV). The two parties had privileged access to state resources. Rural migrants who had arrived in large cities during the 1950s, 1960s and 1970s, accounting for the growth of sprawling shanty-towns or ranchos, especially around the western edges of Caracas, were largely excluded from this system. 1.5 Venezuela’s political crisis of the late 1980sBy the late 1980s, the decline in oil prices was beginning to put Venezuelan society under increasing strain. Starved of revenue from royalties and tax, the government had less money to spend on social welfare. Strains in the system established in 1958 became apparent. Governments led by both parties—the AD and Christian democrat COPEI—wrested with the seemingly inevitable prospect of fiscal adjustment. Proposed cuts in subsidies on domestic petrol and diesel prices resulted in massive rioting and the deaths of several dozen people in Caracas in February 1989. These events, known in Venezuela as the Caracazo, or the big one in Caracas, highlight the extent and degree of social tension there. 1.6 The 1992 coupBy then in his late 30s and a lieutenant colonel in the paratroop regiment, Hugo Chavez was by then a dedicated left-wing activist, working with left-wing groups outside the armed forces and conspiring within the institution to win support for a coup d’etat. The Caracazo confirmed that the punto fijo system or partidocracia was entering into crisis. In these conditions Chavez and his fellow conspirators launched a military coup in February 1992. The action was unsuccessful although Chavez came to national prominence as a result of a short speech made shortly following his arrest. In prison between 1992 and 1994 he continued to develop his ideas, working with Jorge Giordani, a University of Sussex educated developmental economist on a Masters’ thesis. In prison he also met Luis Miquilena, a veteran democratic left-wing activist who advised Chavez to abandon golpismo and pursue his political ambitions through the electoral process. 1.7 Political fragmentation in the 1990s During the 1990s Venezuela’s economy continued to bear the burden of low oil prices. Support for its two main political parties declined at elections in 1994, so much so that Raphael Caldera, the COPEI leader, won the presidential elections of that year at the head of an alliance that included the far-left Causa R. Amid a general disenchantment with politics, underpinned by sharp declines in electoral turn-out, Chavez found the population increasingly receptive to his critique of the two-party model and its associated corruption. During 1996 and 1997 his support in opinion polls gradually increased and although only about 35 percent of the registered electorate turned out to vote in the December 1998 presidential contest, Chavez scored a comfortable majority and took power, pledging to eliminate corruption and clean-up politics through constitutional reform. PART 2: Chavez in power2.1 Constitutional reform and the concentration of powerThis section will look at Chavez’s record in office, detailing the constitutional changes of the period between 1998 and 2001; the confrontation and defeat of the opposition between 2002 and 2004; and the subsequent radicalization of economic and social policy and the growth of Chavez’s influence within Latin America and the Caribbean.Although Chavez won executive power in 1998, opposition parties preserved a significant power within the two-chamber congress and within the judiciary and other independent institutions. In addition, seven years ago, Chavez’s influence within the armed forces and within the state-owned oil company—Petroleos de Venezuela (PDVSA)—remained limited. In his initial three years in power, Chavez used a series of referendums and elections to win popular backing for constitutional reforms. At the same time, however, these reforms allowed him to strengthen his control over these same institutions. In particular, by 2001 the government was backtracking on initially well-intentioned reforms, resorting to mechanisms that undermined judicial independence. Although early reforms had been introduced in order to make government more transparent and increase popular participation in decision-making, the result in many cases was to make government more opaque and unaccountable. The legislature’s control over government finances became weaker, so much so that early this year the text of one bill was not even presented to deputies.This process of concentration of power has been clearest in the case of two institutions in particular: the judiciary and the central electoral council. In both organizations the government has made appointments that consolidate its own political control. On the council government nominees outnumber the opposition by four to one (both the constitution and electoral law stipulate that the council should be independent). Judicial independence has been undermined in several ways. In 1998 the provisional status of 60 percent of judges undermined their job security and subjected them to political influence. By 2005, however, even more judges (80 percent of the total) did not enjoy full job security, leaving them vulnerable to political influence and interference. In 2004 the size of the supreme-court was increased from 20 to 32 precisely in order to allow Chavista domination. Supreme court judges are supposed to be independent but take no care to hide their political bias. For example, in January this year the president of the supreme court described himself as "a revolutionary" whose job "was to implement revolutionary justice." Organizations such as the Human Rights Watch and the Andean Commission of Jurists have criticized these changes. 2.2 The 2002 coupChavez has taken control of two other important institutions: the armed forces and PDVSA, using political crises in order to do so. The first of these—the military coup of April 2002—was a pivotal moment in Venezuela’s recent political history. It occurred in a context of growing political mobilization by the opposition in protest at a raft of social and economic legislation introduced towards the end of 2001 (and not put into effect until 2005). Protests in April 2002 led to a gun-battle in Caracas between government and opposition supporters and the deaths of more than a dozen people. In these circumstances military leaders refused to act on orders by Chavez to repress demonstrators and subsequently on the evening of April 11 asked the president to leave office. However a small right-wing group off military leaders then took control, closing the assembly. In these confused circumstances, the military high command then asked Chavez back to power late on April 13.The coup was significant for two reasons. First, in the wake of the coup Mr. Chavez began to purge political opponents in the armed forces and gradually cemented his control over the institution. Second, the coup contributed to deterioration in relations between the United States and Chavez. This is because the United States is widely seen to have botched its diplomatic response to the events. Although the United States signed an OAS motion condemning the coup on Saturday 13 April, earlier U.S. officials made public statements welcoming the changeover. This gave rise to the impression that the United States had been involved in plotting the action. A U.S. congressional investigation found that the local embassy had played no role but the administration has never been able to completely dispel the impression that it was involved. 2.3 The 2002-2003 general strikeHaving failed to oust Chavez through a military coup, the opposition opted in late 2002 to force the president out of office by a general strike. Strikers led by managers and technicians at PDVSA virtually closed down oil production for two months. Venezuela was able to survive by dint of support from unskilled workers at the company, technical assistance from Iran, China and other producers and emergency oil supplies from the newly elected government of Luis Inacio Lula da Silva of Brazil. Output gradually increased early in the first two months of 2003 and in March the government sacked 18,000 strikers and took back control of the company. 2.4 The 2004 referendum These new events—the coup and the strike—set the stage for a new phase in the political process. On the one hand the Organization of American States (OAS) and the so-called group of friends (Brazil, Chile, Mexico, Portugal, Spain, and the United States) sought to persuade the government and the opposition to channel political conflict through democratic channels. This pressure eventually culminated in Chavez agreeing to opposition pressure for a recall referendum, a facility introduced as part of the 1999 constitution that was eventually held in August 2004. On the other hand, Chavez and his supporters renewed efforts to build political support at the grass roots, focusing efforts in the poorer urban areas where there had been spontaneous demonstrations in the president’s favor during the coup and general strike. A key part of this endeavor was the decision to create a set of social programs, known as misiones. These programs—financed with the proceeds of oil exports and staffed by thousands of Cuban doctors, teachers, paramedics and sport instructors—were launched late in 2003 and were expanded at some pace. Barrio Adentro, which provided free primary health care for the poor, proved to be particularly popular and helped bolster the president’s opinion poll ratings ahead of the referendum. In the run-up to the referendum the government quickly nationalized more than a million Colombian immigrants, almost certainly in order to secure additional votes. Chavez won the referendum by 59.25 percent (5,800,629 votes) to 40.74 percent (3,989,008votes). Although opposition leaders alleged that the government had organized an elaborate fraud, these assertions have never been fully proven. International observers from the OAS and the Carter Center ruled that the referendum victory had been won fairly. PART 3: Radicalization of the Regime3.1 Economic measuresChavez’s victory in the referendum was followed in November 2004 by an even more decisive triumph in state elections, government candidates securing control of 21 of the 23 governorship posts. Towards the end of 2004, the government moved to secure its control over the judiciary, reforming the basic law of the supreme court in such a way as to allow the appointment of a sizeable majority of pro-government judges. Early in 2005, the government began to implement radical economic measures. "Unproductive" agricultural land was appropriated; takeovers have been running at the rate of roughly one per week since the beginning of this year. The government has begun to renegotiate oil contracts imposing tougher terms and higher royalties and scrapping the association contracts signed with a number of oil majors in the 1990s in favor of more restrictive joint-ventures dominated by PDVSA. The state has increased its control over the banking sector. Interest rates caps were imposed in 2004. This year the central bank has issued guidelines stipulating how much credit can be allocated to each sector of the economy. The government has also appointed directors of its own to sit on the boards of private banks. 3.2 Oil power in Latin AmericaAt the same time, Mr. Chavez has become much more aggressive in expanding his influence in Latin America and the Caribbean. Here a crucial factor has been the gradual rise in the oil price. Since securing control of PDVSA after the 2003 strike, Chavez has had direct control over the oil revenues. The operations of PDVSA have become progressively opaque (the company has not presented its accounts since 2002) and increasing amounts of money directed towards social and other projects. As the oil price has increased the amounts of these discretional funds has risen sharply. In addition, Chavez has taken direct control of swelling international reserves and used them to build influence abroad. This year, Venezuela has bought several hundred million dollars of Argentine bonds and offered similar financial support to Ecuador. The government provides cheap oil to Cuba—in return for medical and other services—and to several other countries, including Jamaica and some smaller Caribbean islands. Venezuela has also begun to finance an expensive medical program staffed by Cuban doctors offering free eye care to hundreds of thousands of poor people from Latin America and the Caribbean. It has also begun this year to finance a television station Telesur, designed to offer an anti-American news perspective in Latin America. Additionally, since the beginning of the year Chavez has announced his intention to diversify markets for Venezuelan oil and broaden the range of foreign investors involved in the hydrocarbons sector. The United States currently obtains between 13 and 15 percent of its oil from Venezuela and three U.S. majors—Chevron Texaco, Exxon and Conoco Philips—hold investments in the country, mainly in the Orinoco heavy oil belt. Venezuela’s dependence on the market is more acute, however, with roughly 50 percent of exports destined for the U.S. market. In December 2004 Chavez began selling oil to China and has invited mainly state-owned companies from Russia, Iran, China and India to invest in the sector. 3.3 Anti-AmericanismThis diversification of energy has been accompanied by an increasingly belligerent anti-American rhetoric. Chavez talks about building a Bolivarian axis in Latin America, linking Venezuela to Cuba, Argentina, and Brazil, and explicitly talks in terms of containing U.S. influence in the region. He has repeatedly warned about possible U.S. aggression up to and including a direct invasion of Venezuela itself and begun to make military preparations in order to defend against this threat. Earlier this year Chavez announced the acquisition from Russia of 100,000 Kalashnikov rifles, for example. A military reserve or militia of approximately 20,000, under Chavez’s direct control, has been established, which the president would like to become two million-strong force in the near future. 3.4 ColombiaChavez’s links with Colombia’s left-wing guerrilla movement, the Revolutionary Armed Forces of Colombia (FARC), has been a particular cause for concern in Washington. Officially Venezuela does not cooperate with the FARC but by the same token it refuses to co-operate with the Colombian armed forces in counter-insurgency operations. Although the FARC share Chavez’s revolutionary Bolivarian ideology political cooperation between the Fifth Republic Movement (MVR) in Venezuela and the FARC has been limited. The FARC do not form part of the Chavista umbrella movement for Latin America—the Bolivarian Congress. Membership of this group is limited to those organizations pursuing political power through electoral means rather than through arms. In so far as Chavez did cooperate with the FARC, informally these connections have become weaker in the last two years. Indeed, there is some evidence that Fidel Castro has used his sway over Chavez to persuade him to distance himself from the FARC, on the grounds that this would unnecessarily increase instability and might even jeopardize Cuba’s access to Venezuelan oil. Earlier this year, Venezuela and Colombia clashed diplomatically over the kidnapping in Caracas of Rodrigo Granda, a FARC leader, Castro played a part in forging a solution to the dispute. 3.5 A new oil dependency Much of what Chavez has done both domestically and internationally has depended on the availability of abundant oil revenues. It would have been possible neither to finance domestic social programs nor the extensive relationship with Cuba without the windfall from oil. In other words were to Chavez to face the kind of conditions in the oil market that Venezuela experienced for much of the 1980s and 1990s he would be unable to be so politically ambitious. In fact, it is likely that even a modest fall in the oil price towards levels quite typical during the early part of the present decade would increase Venezuela’s economic problems quite significantly. Here it is important to point out that despite is oil wealth Venezuela’s government has in the last two years been borrowing heavily inside the country in order to finance a fiscal deficit that in 2004 reached about 3 percent of GDP. Outside the oil sector private investment has virtually dried up. Public investment has been inadequate and roads, bridges, ports and other infrastructure are deteriorating. Nevertheless it seems likely that international economic conditions will remain favourable to Venezuela for at least the next two to three years. If the oil price remains at anything like present levels it is highly likely that Chavez will win assembly elections in December, increasing his legislative majority, and be in a strong position to win next year’s presidential elections. If he were to do so Chavez would be in power until at least 2012 and would probably seek to continue in government indefinitely. Richard Lapper is the Financial Times’ Latin American editor and is authoring a Council Center for Preventive Action Special Report on Venezuela.

This publication is now archived. What recent developments have upset U.S.-Venezuelan relations?Venezuelan President Hugo Chavez made headlines at the November Summit of the Americas by helping to undermine a U.S.-backed "Free Trade Zone of the Americas." Chavez—the self-styled enemy of "American imperialism"—used the summit as a platform to push his populist socialist agenda, speaking for two hours before 25,000 protesters at a "counter summit" on fighting poverty and U.S.-style capitalism. Though few expected a free trade deal to be reached at the Summit of the Americas, the meeting was a "great barometer" of the already strained U.S.-Venezuelan relationship, says Julia Sweig, the Council’s Nelson and David Rockefeller senior fellow for Latin American Studies. The United States is overly focused on trade in South America, she says, and Chavez was able to "step into a political vacuum the U.S. has left by virtue of having such a myopic agenda for the hemisphere." Who is Hugo Chavez?Chavez, a former army colonel, led a failed 1992 coup against the government of then-President Carlos Andres Peréz. Chavez came back to win the 1998 presidential elections on a platform promising anti-corruption measures, social and political reform. He subsequently introduced a new constitution that enabled him to call and win another election in June 2000. Chavez now enjoys a strong majority in parliament, but has had to beat back a number of attempts to remove him from office. In December 2001, Chavez introduced new laws—including land and oil industry reforms—that led to a widespread uprising against his government. He was ousted from power five months later by a group of discontented senior military officers. Although the United States condemned the takeover, Washington appeared quick to welcome the transitional government. When Chavez returned to the presidency two days later, he believed the United States provided covert support for the coup and continues to allege Washington is planning for his ouster. In May 2003, the opposition instigated a referendum to remove Chavez from power for failing to improve Venezuela’s worsening economy and fulfilling promises of democratic reform. Chavez won the referendum with an unassailable 58 percent majority in August 2004 and the opposition was left severely weakened and fragmented, increasing Chavez’s reelection chances at the end of 2006. Chavez, who governs with a combination of nationalist and populist policies that make up his "Bolivarian revolution," inherited a country wracked by corruption and poverty. The two main political parties that had ruled Venezuela from 1958 were accused of squandering the country’s vast oil wealth. But his "revolutionary" social policies, ostensibly designed to bridge the huge gap between the country’s rich and poor, have done little to relieve Venezuela’s economic and social woes, experts say. Despite the country’s oil wealth—Venezuela enjoyed 16 percent GDP growth in 2004 because of high oil prices—75 percent of Venezuelans are poor and 40 percent live in extreme poverty. Many experts say these numbers will likely increase if current political and economic trends continue. Chavez’s refusal to consider diversifying Venezuela’s economy, which is almost completely dependent upon oil, and his decision not to reinvest oil revenues in infrastructure improvements, risks repeating the errors of past Venezuelan leaders, the Economist argues. How strained are U.S.-Venezuelan relations?Experts say U.S.-Venezuela relations prior to Chavez’s rise were relatively smooth. But since becoming Venezuela’s leader, Chavez has made a practice of challenging Washington’s policies, and is critical of what he sees as U.S. interference in Venezuela’s domestic politics. In the last two years, experts say, Chavez has upped his criticisms, calling President Bush "Mr. Danger" and blaming the United States for a myriad of plots against Venezuela, including assassination attempts, a campaign to sabotage Venezuela’s oil production, and plans to invade his country. Chavez also has made a point of standing side-by-side with Cuba’s aging communist leader, Fidel Castro. Washington, in turn, has been more openly critical of the Venezuelan leader than ever before, sending U.S.-Venezuelan relations into a tailspin. What challenges does Venezuela pose?To many in the United States, Chavez’s rhetoric and strong-arm tactics in domestic politics pose a serious threat. Bush administration officials view him as a destabilizing force in the region and accuse him of using Venezuela’s oil windfall to gain friends and influence abroad, especially in Latin America. One way Chavez has managed to grab his neighbors’ attention is through the creation of Telesur, a new regional television channel that gets 70 percent of its funding from Caracas, leading many critics to say the channel serves only as a propaganda tool for Chavez. News reports allege he has also supported radical movements from Nicaragua to Bolivia, including Colombia’s FARC terrorists. However, the Economist points out that many of the parties Chavez is accused of helping, such as Nicaragua’s Sandinistas, are legal political parties. Chavez also raised U.S. eyebrows when he signaled his desire to redirect some of his oil exports away from the United States to China, announced his intention to import nuclear power technology from Argentina, and made a decision to seek aircraft and other military supplies from Russia. Chavez’s critics also condemn Caracas for crushing democracy in his country. In November 17 testimony before the House International Relations Committee, newly appointed Assistant Secretary of State for Latin America Thomas Shannon said Chavez was "subverting democratic institutions by using them to restrict the rights of those who disagree with [him], slowly undermining economic freedoms, and rejecting the opportunities of globalization." Since winning the 2004 referendum, Chavez has led a crackdown on democratic freedoms—systematically removing all the checks on his power, undermining property rights, and placing curbs and controls on private businesses. Local elections in October 2004 left his allies in control of twenty of Venezuela’s twenty-three states, plus the capital, Caracas. How dangerous are Chavez’s threats?Experts say that while Chavez is an annoyance, he is not as serious a threat as critics claim. Most of Washington’s retorts to Chavez’s insults are part of what Sweig calls an ongoing "rhetorical tit for tat" between Caracas and the White House. Many experts say the U.S. government has, over the years, preferred to discount Chavez’s harangues and focus on American business interests and investments in Venezuela. Caracas is one of the top four suppliers of foreign oil to the United States. About 50 percent of Venezuela’s oil exports go to the United States—10 percent of all American oil imports—and many of Venezuela’s refineries, which serve international oil companies like Chevron Texaco, Exxon, and Conoco Philips, produce gas especially for American markets and U.S. environmental regulations. Further linking the two countries, in the 1990s, Petroleos de Venezuela, S.A., Venezuela’s national oil company, purchased Houston-based CITGO, one of the world’s leading oil refiners. Many analysts also warn against depicting Chavez as the hemispheric "nightmare" detractors in the United States claim him to be. Venezuela is certainly engaged in intensive international diplomacy aimed at reducing U.S. influence in the region, and oil has bestowed on Caracas some political leverage. But a recent Zogby poll of six Central and South American countries finds that only 29 percent of those polled rank Chavez as the most popular leader in the region, ranking far below Chile’s Ricardo Lagos, Spain’s Rodriguez Zapatero, Brazil’s Luiz Inacio Lula da Silva—known as Lula—Mexico’s Vicente Fox, Argentina’s Nestor Kirchner, and Colombia’s Alvaro Uribe. Latin America might love to see Chavez sticking the "diplomatic finger in America’s eye," says Sweig, but "there is a difference between diplomatic regional leadership and mercantile diplomacy, and I don’t see the latter translating into the former."

Julia Sweig, the Council on Foreign Relations’ deputy director of Latin America Studies, says that strikes and demonstrations against Venezuelan President Hugo Chavez could continue for months and even worsen. Although President Hugo Chavez’s popularity is at only 30 percent, Sweig says that unless the fractious opposition can unite behind one candidate, Chavez may well win the next election – whenever that occurs. The Bush administration would like early elections by next month, but Sweig says that August may be a more realistic goal. Sweig, author of the new book Inside the Cuban Revolution, was interviewed on January 8, 2003, by Bernard Gwertzman, consulting editor for cfr.org. Other Interviews Q. What’s the situation like in Venezuela? A. It’s extraordinarily chaotic and fluid. The strikes have now been going on for over a month, but they really have been coming in fits and starts for more than a year. They have been very dramatic in the last month because of the strikers’ ability to shut down the oil industry. No one is talking about an imminent resolution. Q. What’s causing the constant eruption of street demonstrations? Is there a terrible dictator in charge? Are people seeking a change in government? And how does oil figure into all this? A. I don’t think Hugo Chavez can be described accurately as a “terrible dictator.” He’s a democratically elected head of state, who, in 1992, launched a coup from his paratrooper barracks. It failed, but he became a national political figure overnight for his efforts against a government widely considered corrupt. He was sent to jail, then emerged in the mid-1990s with a new political party explicitly opposed to establishment parties. Since taking power he has governed in a very clumsy and, some would argue, undemocratic, in-your-face, authoritarian way. When he was elected the first time, in 1998, he pulled in 56 percent of the vote, and in 2000, he won with 59 percent. Q. And the previous political parties, which had dominated Venezuelan politics, more or less evaporated after the 1998 election? A. They did evaporate, and they have yet to reorganize and resurface. The opposition today is a very diverse amalgam that spans from Marxist on the one hand to Chamber of Commerce types on the other. It includes the traditional labor federation, which has played a very large role, as well as the management and workers in the oil industry. Q. Let’s focus on the oil industry. What caused the strike that began last month? A. I have to go back a bit to the April 2002 brief coup. The oil industry was very important in the coup. The oil workers joined a strike that led to a one-day overthrow of Chavez by the military. The workers’ principal beef was that Chavez had put his own cronies into the governing structure and the top leadership of the state oil company, Petroleos de Venezuela [PDVSA]. The Chavez appointees were associated with leftist ideologies and were not people who had cut their teeth on what is described as a meritocracy within PDVSA. But public protests demanded Chavez’ return and the military allowed him to return as president. Underlying this conflict and PDVSA’s involvement in opposition to Chavez is a debate that has been taking place in Venezuela— and I suspect in other oil-producing countries— about the role of the state in managing oil revenues and exploration and investment. For a time in the early 1990s, you had people running PDVSA who wanted a policy of “opening” the Venezuelan oil industry, which had been nationalized in the early 1970s. They no longer wanted Venezuela to adhere to OPEC [Organization of the Petroleum Exporting Countries] production quotas. The argument of the market advocates was “let a thousand flowers bloom.” They said open up the industry, not only to foreign investment, but to Venezuelan capital and individual investment, which would reduce the role of the Venezuelan state in controlling the market and industry. That argument is pitted against the people around Chavez, who believe that Venezuela should be a member in good standing of OPEC that should gain market share, not through production but by keeping prices up through production quotas. It’s an oil industry debate, now taking place in Venezuela, but it has become highly symbolic of who controls oil revenue. And it is very, very politicized. Venezuela, of course, is a major oil producer, and is the third largest exporter to the United States. Q. Chavez and his supporters want the state to continue to control the oil industry? A. That is correct. They say that in any joint venture, there should be a 51-49 split. They do not want Venezuelan private capital to have the right to invest in Venezuelan oil and they want to keep majority control in the hands of the Venezuela state. Like many presidents before him, Chavez has called PDVSA a “state within a state,” arguing it is a bloated, inefficient bureaucracy controlled by the nation’s elite. Chavez, unlike past presidents, however, is willing to risk applying his ideological focus to PDVSA by using the spoils for social programs. This is anathema to PDVSA management as they have their own interests, contrasting ideology, and pride in being one of the most prestigious state-run, but autonomous oil companies in the world. The debate is whether making PDVSA an arm of the state’s social program coffers would undermine the efficiency and profitability of the company. Q. How did this affect the current efforts to unseat Chavez? A. When Chavez was reinstalled after the April coup, he pulled his cronies out of PDVSA. He brought the head of OPEC, who is a Venezuelan, back to run PDVSA, and attempted to make peace in the oil sector. But he failed. He failed less for oil-specific reasons than for the generalized polarized climate that he allowed to develop and which the opposition fomented as well. When the PDVSA workers got directly involved in the strike again in December, there was a mobilization in front of the PDVSA offices. Chavez’s troops fired tear gas and wounded a few PDVSA employees. That particular moment unleashed the pent-up anger at Chavez and produced what you see today— a general strike that threatens Venezuela’s existence as a reliable oil-producing nation for the first time ever. Q. Describe the opposition. Who are they? A. It is a vague opposition, known as the Democratic Coordinator. There are three principal institutions. One is PDVSA and there are two others. One is Carlos Ortega, who is the president of the Confederation of Venezuelan Workers (CTV). He is the labor "boss." I use that word specifically because he is from the old guard of the labor aristocracy. Ortega has been associated with lots of old style politics of patronage and corruption. He has been central to the strikes because of his ability to put people on the streets. Chavez had tried to put his own people at the head of the CTV, but that backfired immensely and Ortega has vowed to fight to the end until either he or Chavez is knocked out. And the Venezuelan Chamber of Commerce is involved. It was the president of the Chamber who was the figurehead of the coup in April; its new president is now a major leader of the opposition. The opposition also includes individuals from the national assembly who have created their own political parties. For example, Primera Justicia is one example of a new party that emerged in the last year and a half. It is the opposition as a whole that is a broad, amorphous coalition with no single leader. There is an enormous amount of fighting within the opposition. I think the moderates in both the Chavez government and the opposition have a hard time controlling their extremists. That’s why the potential for violence is so strong. Q. Can an election be held in August? A. Yes. Under the Venezuela constitution, a referendum on the presidency can be held in August, and Chavez says he will stand for reelection. Q. But the opposition wants him out now? A. Yes. They want something to happen in February. You can call it a non-binding referendum, which is permitted under the new constitution, but the opposition wants it changed to a binding referendum— in effect a new election. Q. What has the Bush administration said? A. The administration got stung badly by its apparent association with and support for the coup in April. After April, it took a low profile. It has attempted to let the Venezuelan actors on the scene play this out, while trying to signal it does not support coups and wants a constitutional, peaceful electoral solution. Now, though, because of the war in Iraq and its timing, and the potential for great humanitarian toll in Venezuela, Bush administration officials have stepped up their statements a bit. And while they are supporting the OAS’ [the Organization of American States] mediation [to try to resolve the crisis], they have said very clearly they want early elections, and they don’t mean August. They are backing the proposal that some kind of electoral event take place in February, and they want the referendum to become, in essence, a presidential election, just as the opposition does. A pro-government representative has drafted a constitutional amendment in the national assembly [that would allow elections to take place earlier than August]. The United States wants the national assembly to vote on the constitutional amendment, the Supreme Court to authorize its constitutionality, and an election to take place in less than a month. This seems like a very tall order. I think, this is due, in part, to the possibility of war with Iraq. Q. You mean if there is a war in Iraq, there is concern about oil supplies? A. Yes. Venezuela is the third largest exporter of oil to the United States. Also, I think that neither the opposition nor the government can contain the peaceful protests between now and August, and if this drags on too long it will explode and explode violently. Q. What are the odds of the crisis being resolved peacefully? A. It is hard to imagine a peaceful resolution, as the polarization is stark and neither the government nor the opposition seems ready to agree to a timetable for elections. The best option, and the one most likely to yield a fair and manageable outcome, is a recall referendum in August of this year. But the opposition is dead set against waiting. My sense is that a low level of violence could continue until August as long as the Venezuelan military stays out of the streets. If provocations from any side get out of control, the conflict could rapidly escalate into a very violent scenario. Q. If there was an election in February, who would win? A. It is hard to tell. Perhaps, if a governor of a state which is in central Caracas, Enrique Mendoza, runs he could win. He is from the old political system but nevertheless well regarded. Chavez’s popularity has gone down to about 30 percent. But that is higher than other presidents in Latin America. Chavez also could win if the opposition fails to get united behind one candidate. Q. Who still supports Chavez? A. Chavez’ 30 percent support of the population represents the poorest and the working poor, who for 40 years felt cut out of the political system in Venezuela. And the interesting thing is that Chavez has not really delivered much in the way of concrete economic or social benefits to the poor. But instead, Chavez has delivered a sense of empowerment. He has given them a voice and is viewed by them as one of them. Q. Is his popularity in part based on race? A. Chavez is not of white European descent. He is mestizo. But I would not stress the racial element. If you look at the crowds protesting him, they are of all colors and backgrounds. His backers are the most disadvantaged, along with a whole cadre of trained leftist cadres, who are intellectuals, labor lawyers, union activists, even former guerrillas. You could rattle off a much longer laundry list of those who oppose him. Q. Has the OAS meditation been effective? A. I think the mediation of [OAS Secretary-General] Cesar Gaviria has prevented violence from erupting in full force. He has been in Caracas for the last two months. He has not gotten the government and the opposition to agree to anything. But I think if he leaves the country and no one else more senior replaces him, the whole thing will blow up. He needs support from other states. There have been muted statements at best from the region. Besides the new president of Brazil, [Luis Ignacio] Lula [da Sliva], and Fidel Castro, no one is particularly fond of Chavez, but he was democratically elected.