The Chavez Challenge
Venezuela's Leader Is a Regional Nuisance

CARACAS---It’s Sunday in Venezuela, which means it’s time for President Hugo Chávez to go on radio and television to “dialogue” with his people. Dialogue is actually not the right word; except for this week’s special guests (Cuban dictator Fidel Castro by telephone from Havana, and later, Cuba’s health minister), Chávez does all the talking--endlessly, tediously, often jumping from topic to topic in no apparent order. This time it’s a full eight hours. The subjects include the evils of capitalism and “neo-liberalism,” the unspecified contribution Cuba can make to solving Venezuela’s energy problems, the nefarious George W. Bush, the dangers of a free-trade agreement with the United States (“a grinding stone to crush peoples”), the vast wave of support that Venezuela and its president now supposedly enjoy throughout the hemisphere and even the world...

Welcome to South America’s newest revolution, if that indeed is what is going on here. To the casual visitor who knew Venezuela before Chávez’s first election in 1998 it’s difficult at first to see what’s so new and different. Despite the increasingly incendiary rhetoric issuing from government sources, almost everything seems remarkably unchanged. The Venezuelan capital is still the same, sprawling, overdeveloped city it always was--part Los Angeles, part Third World slum--plagued by too many cars trying to squeeze into excessively narrow streets. The hotel lounges are full of foreign businessmen in deep conclave with their Venezuelan counterparts. The restaurants are heavily booked. The malls are stocked with foreign imports. The newspapers carry ads for vacations in Miami and Europe, as well as for luxury cars. The only important news--today, as always--is the price of oil. Good news, too, since it’s inching up to $60 a barrel, with reasonable hope of rising yet further. It’s only when one looks beneath the surface that one can perceive that something very sinister is afoot.

To say that Venezuela is all about oil is an understatement. For nearly a century the black gold has underpinned every regime here, military and civilian, good and bad. Venezuelans know this: Surveys show, in fact, that an overwhelming number think their country is the richest in the world. This claim seems remarkably inconsistent with widespread poverty, malnutrition, and substandard housing on one hand, and all the luxury high-rises and elegant villas on the other, but that is precisely the point. As one mulatto woman, the hostess of my hotel dining room, explained to me on the eve of Chávez’s first election, “We have everything. The only reason we are poor is that the politicians have robbed us.” She had it half right; the politicians did stuff their pockets during the boom years. But the real problem was oil prices. After spiking in 1972 and 1979, they collapsed in 1982. During the good years there was plenty of jam to go around; then, for nearly two decades, depressed prices deprived successive governments of much of the resources--subsidized bus fares, cheap gasoline prices, and other amenities--with which to buy painless social peace. The economic slump, juxtaposed against a rising population and growing unemployment, was bound to take its toll. The great beneficiary turned out to be a once-unknown lieutenant colonel who convinced the underprivileged masses that the simple act of electing him would turn oil prices around and bring back the good times.

Not surprisingly, this didn’t happen--at least not immediately. In fact, during Chávez’s first three years in office oil prices averaged slightly more than $20 a barrel. Failure to deliver the goods overnight caused support for the leader to slip precipitously; by some reckonings, by early 2001 as much as 60 percent of the population had turned against the president. A militant opposition took to the streets and public disenchantment peaked in April 2002 when Chávez barely survived a bungled military coup involving elements of the business community and the labor movement. In December, a general strike produced widespread economic chaos but failed to force Chávez’s resignation. Since 9/11, however, oil prices have turned sharply northward, pushing Chávez well into the clear. The latest surveys now show him with as much as a 70 percent approval rating.

This year alone Venezuela will receive $36 billion from its oil exports. Government accounting since Chávez took power has become something of a murky science, but it is known that of this amount the president has helped himself to $5 billion for his “discretionary budget.” He has further, unlawful plans to raid the Central Bank treasury for another $5 billion, apparently for his social projects. Another $3 billion is earmarked for a new chain of government supermarkets selling foodstuffs to the public at greatly reduced prices. In addition, Chávez announced a 50 to 60 percent increase in the pay of military personnel, which might well peg the salary of a noncommissioned officer higher than that of a university-trained professional. Another $2 billion is being appropriated to buy military hardware from Russia, ostensibly to secure Venezuela’s troubled frontier with Colombia, and also to equip a huge “reserve” force.

A Familiar Setup

In some ways the Chávez regime represents nothing new at all in Venezuela or indeed for the region as a whole--it is merely an exaggerated version of the classical Latin American populist regime, one that rewards loyal followers and buys off potential opponents through the promiscuous use of government funds. But unlike its predecessors elsewhere, this regime survives not by borrowing heavily from abroad, or expropriating foreign investors’ assets, or printing money (or all three), but by earning hard dollars from the export of oil by the state oil company, PDVSA. Nor is Chávez himself a unique phenomenon in Latin America--he merely represents the latest incarnation of the phenomenon pioneered by the late Argentine strongman Juan Perón in the 1940s: the authoritarian by popular consent. Chávez, we should recall, has been elected twice, was reaffirmed in a referendum last year, and is a sure bet for reelection next year. While in theory Venezuela is a constitutional democracy, in practice Chávez has packed the courts, converted the armed forces into a private constabulary, and disobeyed his own new constitution which, on paper at least, established a limited system of checks and balances. Where the rules cannot be bent, the government often reverts to low-grade thuggery and intimidation.

Chávez resembles Perón in another important respect: He regards his country as too small a stage for the role he is called upon to play. His plan is to become the leader of Latin America, perhaps even of the entire Third World. Thus Venezuelans are not to be the only beneficiaries of his largesse. A new regional alliance, Petrocaribe, has been established to buy influence among Venezuela’s Caribbean and Central American neighbors by selling them oil at a deep discount (delivery free of charge). There are plans for something still bigger: a South American energy company, Petrosur, servicing Argentina, Brazil, Ecuador, and Peru. He is promising to build a $1 billion oil refinery for Uruguay and a fleet of 40 oil tankers for Brazil (price tag: $2 billion). Chávez also has plans for his own network (Telesur) to take his “Bolivarian” message to the far corners of the earth.

No doubt some of Chávez’s plans are delusionary, but the regime has introduced a new element into the equation, namely, the presence of Castro’s Cuba in places high and low. In exchange for 80,000 to 90,000 barrels of oil a day--much of which the Cuban dictator resells on the world market for desperately needed hard currency--Havana has dispatched thousands of doctors, dentists, teachers, and sports trainers, as well as police, security personnel, and intelligence experts.

Meanwhile, Cuban medical personnel are assigned to Chávez’s “missions,” which fan out across the country to provide services--most of them mediocre and second-rate, to be sure, but in many cases brought to people whom no previous government thought it worth bothering with. These benefits offer little hope of real improvement over the longer term. As one Catholic priest from Spain, who has worked in Caracas’s slums, recently told the British press, they are no substitute for a thoroughgoing reform of the health-delivery system. “What we have now in the end is a waste of time and resources . . . I expect a collapse in less than six years.” The statistical result is already in: The poverty level in Venezuela since Chávez took office has increased from 44 to 54 percent.

Venezuela as Chávez imagines it to be can be glimpsed on state television. There viewers are treated to a parade of images familiar to anyone who has ever attended a radical film festival in the United States--toothless hags and decrepit pensioners uttering effusive thanks to Señor Presidente, interviews with schoolteachers, excerpts from concerts by well-scrubbed children’s choirs. When the president takes to the air he lectures his people endlessly on the virtues of the Castro regime and also the supposed value of its contribution to his country’s development--so vehemently, in fact, as to suggest that there might be considerable private grumbling about his billion-dollar oil giveaway to Cuba.

The Opposition

Historically, Venezuela has been controlled by two large centrist-populist parties, one of social-democratic orientation (Acción Democrática, or AD), and one styling itself “social Christian” (COPEI). Both today languish in deep discredit, partly deservedly, for over time they built a wasteful and inefficient economic and social system shot through with corruption and jobbery. Even so, if oil prices had remained where they were in 1979, it’s safe to say nobody would ever have heard of Hugo Chávez. As it is, he can credibly claim that the only alternative to his regime are the bad old days, an era that at this point is still quite vivid in the memory of most Venezuelans.

“The old parties are dying,” one Venezuelan friend of many years’ standing assured me. Another disagreed: “They aren’t dying; they’re dead already.” While Chávez is promising Venezuelans effortless prosperity and an unearned international importance, the opposition has no vision of its own to offer--merely a return to the day before the strongman’s first election. Worse, all the opposition forces--not just AD and COPEI, but the smaller groups that have evolved to replace them--are hopelessly divided and confused.

The only really serious opposition in the country these days is the privately owned media. Not surprisingly, to counteract their influence Chávez has been toying with a new media law. Instead of imposing outright censorship--which might call down the wrath of the international media establishment--the new legislation has the quiet potential to make these enterprises financially unrewarding. At present, given Chávez’s popularity, such extreme measures seem unnecessary. In any case, the media cannot overthrow Chávez or--so long as oil prices remain high--even dent his popularity.

Evidently the real source of Chávez’s power is not the weakness of his opposition--striking as that may be--but his virtually unlimited access to the accounts of the state oil company. But these may not always be the windfall they are at present. Aside from the distinct possibility that oil prices will decline at some point, the government’s management of its basic resource leaves much to be desired. Since the general strike there has been a massive purge of the company’s upper management, as well as the dismissal of some 18,000 engineers, exploration personnel, and financial specialists. The effects are already being felt. In 2004 PDVSA produced roughly 2.65 million barrels per day, which was well below the 3.3 million anticipated by the government. Just to keep the operation going requires a minimum investment each year of $3 billion; over the last three years the figure has reached barely $2 billion. As one foreign oil-company executive told Le Figaro (July 12), “Chávez believes it’s enough to put a soldier behind each oil well to assure production, but with oil it’s not like that.” This is particularly true for Venezuelan crude, which is exceptionally heavy and imposes intensive maintenance routines on the machinery. Meanwhile, PDVSA’s share of production is declining vis-à-vis that of the multinationals that set up shop in the 1990s. Chávez’s solution is to change the royalty arrangements agreed to a decade ago, a move to which the companies have no choice but to submit--for the moment. Over the middle and longer term the government may succeed in discouraging new investment and thus drastically reduce the size of the golden egg.

What to Do

Is Venezuela on its way to becoming another Cuba? In spite of superficial similarities and even Chávez’s stated intentions, the answer is: probably not. The country is simply too informal, too disorganized, too corrupt--and too vulnerable to foreign, particularly U.S., cultural influences--to be easily pushed into a totalitarian template. Chávez has not even bothered building a political party of his own; the ranks of his regime are drawn from an undifferentiated mass of pocket-lining military officers, opportunists, and leftist ideologues. Nor is there a clear blueprint for where the president intends to take the country. Priorities change without warning, for instance, so that no cabinet minister dares miss the president’s Sunday broadcasts: He may not find out what next week’s agenda will be.

To be sure, none of this is cause for celebration. Chávez has plenty of money to throw around, and its effects have already been felt in nearby countries like Bolivia, where Venezuelan-funded NGOs and “indigenous” organizations recently brought down a constitutional government. “Anti-imperialist” books and magazines of a type formerly financed by Soviet embassies are suddenly reappearing in other Latin American countries. And security experts around the hemisphere are worrying aloud that some of the weaponry Chávez is buying will end up in the hands of Colombia’s FARC guerrillas or Chiapas in Mexico. Such concerns provoked secretary of state Condoleezza Rice’s South American trip this past April, intended to isolate Chávez diplomatically from his neighbors. Because the Venezuelan president uses the ballot box so successfully there is a movement afoot, presumably sponsored by our own State Department, to compel the Organization of American States to define more precisely what might represent a departure from democratic practices above and beyond the actual act of electing officials.

But it is difficult to see how such efforts can succeed. A country that supplies oil to half the hemisphere, including the United States (which relies on Chávez’s country for as much as 15 percent of its imports), cannot be, by definition, isolated. By providing cheap oil to his hard-pressed Caribbean neighbors, Chávez is now assured of support from the largest bloc of votes at the OAS. Even if this were not so, our long experience with Castro should have taught us by now that the Latins can be expected to hide under tables any time a difficult political decision shows up on the agenda. We can draw some consolation, however, from the fact that Chávez, unlike his Cuban mentor in his great days, enjoys virtually no popular support in the region, even among the Left--many of whose leaders privately refer to the Venezuelan president as a clown. If the clown feels like mindlessly lobbing cash in their direction, the Latins seem to be saying, they’d be crazy not to take it. And who can blame them? But judging by our more than half a century’s experience in these matters, you can’t buy friends. A policy that holds out more hope for us over the longer term is the effort by our National Endowment for Democracy to help nurture the Venezuelan civic organizations attempting to rebuild the country’s shattered democratic political culture. But this cannot be accomplished overnight and certainly not wholly from the outside.

Is the United States vulnerable to a shutoff of Venezuelan oil? Chávez has lately threatened such a measure, particularly if he is the subject of an assassination plot, an invasion, or another coup attempt. In fact, he would find it extremely difficult to carry out such a threat. For one thing, Venezuelan industry is heavily oriented toward the United States and it would take at least two years to redirect it. During that time Chávez would run out of the ready cash on which he is so heavily dependent for power and popularity. Even China, which lately has become a major customer, could not absorb such a large quantity of oil immediately, and in any case, at this point Beijing lacks the ability to refine Venezuelan crude. An oil boycott of the U.S. by Chávez would simply induce other suppliers to step in and replace him in our huge and profitable market.

The United States would therefore be well advised to take a low profile on Chávez and treat his regime as an unpleasant fever that will eventually pass, which it surely will when either oil prices decline or the Venezuelan oil industry begins to fully register the effects of politicization. Most likely, both will happen. To be sure, this may take some years, perhaps even decades. The country will have wasted perhaps the equivalent of five or ten Marshall Plans and have nothing whatever to show for it at the end of the day. Venezuela will not become a better educated, more productive, more socially integrated society no matter how many billions Chávez throws at it. Moreover--again, borrowing a page from Perón’s Argentina--when the great man finally does go he will leave behind him a deeply divided society and the prospect of semi-permanent political instability.

To be sure, this is a huge misfortune for Venezuela but merely a moderate inconvenience for the United States. In any case, we cannot save the country from its unwisdom and it would cost us more than it would be worth even to try. Indeed, by seeing Chávez in his proper dimension and treating him as a purely folkloric phenomenon we will go a long way toward denying him the prestige and influence he so desperately seeks. We can afford to wait until the curtain falls--inevitably and ingloriously--on Latin America’s latest opéra bouffe.

Mark Falcoff is Resident Scholar Emeritus at AEI.

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