The Future of Hugo Chavez's Petro-Diplomacy
About This Event

Oil wealth has been central to the domestic and regional policies of Venezuelan president Hugo Chavez. His allies in the hemisphere often receive generous promises of assistance, and his internal programs depend heavily on the earnings of the state oil company, Petroleos de Venezuela. Now, with a precipitous drop in Listen to Audio

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oil prices, declining petroleum output, and a growing opposition to his February 15 referendum--which would allow the president to seek indefinite reelection--Chavez's Venezuela faces a dramatically different fiscal and political situation.

Please join us as a panel of distinguished experts discusses the future of the Venezuelan political economy and what it means for the new U.S. administration's policy toward the region.

9:45 a.m.
Gustavo Coronel, Petroleumworld
Osmel Manzano, Universidad Católica Andrés Bello
Event Summary

Falling Oil Prices, Upcoming Referendum May Seal the Fate of Hugo Chavez's Venezuela

WASHINGTON, FEBRUARY 12, 2009--"There is nothing innovative in the experiment that is Venezuela," Alberto Ramos, a senior economist in the emerging markets economic research group at Goldman Sachs, said at an AEI event on February 11. For President Hugo Chavez, high oil prices have bankrolled his "socialist experiment" and unique brand of petrodiplomacy. But since its peak at over $140 per barrel in mid-2008, the price of oil has precipitously declined, and serious economic and political obstacles have emerged for the populist leader.

Ramos noted that Venezuela is "developing Dutch disease symptoms," under which dependency on natural resource revenues results in declines in other sectors of the economy. Chavez is essentially running a "macro-Ponzi scheme," he said. High oil prices have masked these weaknesses, but a 70 percent drop in the price of oil dramatically reduces the leverage he holds at home and abroad.

Gustavo Coronel of Petroleumworld outlined how Venezuela has used its resource wealth to pursue political goals. Chavez consolidated power domestically through social welfare programs like Misiones and has distributed almost $35 billion in aid to "ideologically aligned countries" like Bolivia, Nicaragua, and Ecuador. But now, with less oil revenue, Chavez will have to reduce imports (65-70 percent of Venezuelan food is imported), cut handouts to his allies abroad, and reduce the military spending that has allowed him to rail against the United States. Coronel noted that "while Venezuela looks strong from a distance, you have to be in Venezuela to see how hectic life is becoming. Food shortages, large-scale blackouts, and high crime are all commonplace."

AEI visiting fellow Roger F. Noriega warned that Venezuela is "moving beyond authoritarian populism down the path to classic dictatorship, in which Hugo Chavez may no longer have to pretend to win elections or to be personally popular" in order to achieve his goals. Once he achieves this power, lower oil prices may do little to deter him. But Venezuelans have another chance to "reclaim their democracy" on Sunday, February 15, when a constitutional referendum will decide whether Chavez can seek indefinite reelection. Regardless of the referendum results, however, Noriega noted that Chavez has "has forged an intensely ideological, combative, and intolerant regime, brandishing polarizing rhetoric to divide and incite social classes and mobilizing the tools of the state to suppress and persecute his opponents."


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Speaker biographies

Gustavo Coronel is an associate editor at Petroleumworld and a consultant on the geopolitics of energy and Latin America. He was a founding member of the board of directors of Petróleos de Venezuela. A petroleum industry veteran of thirty-two years, Mr. Coronel has experience working with Royal Dutch/Shell and Phillips Petroleum and was the head of the hydrocarbons projects division at the Inter-American Development Bank from 1955 to 1987. He was the founder and president of Agrupación Pro Calidad de Vida, a nongovernmental organization engaged in civic work in Latin American countries (1999-2000), and he was also the Venezuelan representative of Transparency International (1995-2000). He has written several articles on Venezuelan politics and oil.

Philip I. Levy studies international trade and development at AEI. Before joining AEI, he handled international economic issues as a member of the secretary of state's policy planning staff (2005-2006), was a senior economist for trade on the President's Council of Economic Advisers (2003-2005), and was a faculty member in Yale University's department of economics (1994-2003). An economist by training, he has experience in many international trade and development policy issues, including free trade agreements, trade with China, antidumping policy, welfare effects of globalization, U.S. foreign assistance policy, and economic development policy.

Roger F. Noriega is a visiting fellow at AEI, coordinating the Institute's program on Western Hemisphere issues. Twice appointed by President George W. Bush (and confirmed by the U.S. Senate) and with a ten-year career on Capitol Hill, Ambassador Noriega's breadth of experience offers strategic vision and practical insight on the Americas. As assistant secretary of state for Western Hemisphere affairs, he managed a three-thousand-person team of professionals in Washington, D.C., and fifty diplomatic posts to design and implement political and economic strategies in Canada, Latin America, and the Caribbean. As U.S. permanent representative to the Organization of American States (OAS), Ambassador Noriega coordinated complex and sensitive multilateral diplomacy in a thirty-four-member international organization to bolster OAS efforts to promote trade, fight illicit drugs, and defend democracy. Ambassador Noriega has held various other positions, including senior policy adviser with the U.S. mission to the OAS; many program management and public affairs positions with the U.S. Agency for International Development and the U.S. Department of State; press secretary and foreign policy adviser for former representative Robert Whittaker (R-Kans.); and research assistant for the secretary of state of Kansas.

Alberto M. Ramos is a senior economist in the emerging markets economic research group at Goldman Sachs, where he is responsible for macroeconomic coverage for several Latin American economies, including Venezuela. Prior to joining the firm, Mr. Ramos worked as a senior economist at the International Monetary Fund (IMF) for six years. He has written extensively on the issues of fiscal sustainability and structural reforms in Latin America. His written work has been published in the Journal of Applied Economics, IMF working papers, and "Issues in Financial Regulation" of the Federal Reserve Bank of Chicago, among others.

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