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Saturday's
Lagniappe
The
crumbling Hugo Chávez power equation
By Gustavo Coronel
Hugo Chavez's power equation is based upon two main components:
resources and strategy. The resource side of the equation has
been based in oil income. For the last five years this income
has been of the order of US$175 billion, a good portion of which
has been utilized by Chavez to build a global alliance against
what he calls "the empire," the U.S.
The
strategy component has been largely provided by three main advisers:
Luis Miquilena, his early mentor, who convinced him to run for
president and was the brain behind the manipulations of 1999
and 2000 that actually converted a democratic Venezuela into
an authoritarian state; Jose Vicente Rangel, his main political
operator, who kept the Venezuelan opposition essentially fragmented;
and Fidel Castro, who has guided him along the path to convert
Venezuela into a socialist state and to transform the obscure
Hugo Chavez of the 1990's into the current leader of the Socialist-Communist
camp in Latin America.
For
about five years this equation worked well, with both components
on the rise. Since his electoral victory in December 2006 Chavez
has gone into a ruling mode beyond simple strategic action,
into the realms of what some authors such as James Jasper ("Getting
your Way," The University of Chicago Press, 2006) call
"instrumental action." Whereas strategic action in
politics is the ability to persuade or the ability to manipulate
others to do what you want, instrumental action is the imposition
of your will by sheer brute force, treating people like if they
were cattle. The style of Hugo Chavez has started to look closer
to that of Kim Jong Il or Robert Mugabe than to Alvaro Uribe's
or Lula da Silva's.
To
the casual, superficial observer of the Venezuelan situation,
it would seem that Hugo Chavez is now reaching the peak of his
power. The monetary resource base at his disposal has allowed
him to buy the loyalty of much of the Venezuelan military top
brass, practically all of the top members of the Venezuelan
top bureaucracy and the cooperation of an important group of
local bankers and industrialists. It has also allowed him to
shower about US$8 billion on the heads of Latin American leaders
such as Morales, Correa, Ortega and Kirchner and promise money
or projects to many countries in the Caribbean and South America.
It has made it possible for him to buy or think of buying some
US$10 billion in weapons from Russia and other countries. It
has also allowed him the means to engage in a domestic policy
of handouts that has given many poor Venezuelans the sensation
that he is the man who will end their problems when, in fact,
he is only adding to their problems by reinforcing their dependence
on a paternalistic state that might not be able to dispense
this money forever.
In
parallel to his resource-based advantages his political strategies
had been, until recently, extremely successful, as dictated
by mentors Miquilena, Rangel and Castro. He had been able to
project himself as a global defender of the poor. He had been
able to support Morales initial political triumphs in Bolivia
and contribute to Correa and Ortega's electoral victories in
Ecuador and Nicaragua. All in all he looked unstoppable.
In
the last year, however, his power equation has been weakening
significantly. This is becoming evident, not only inside Venezuela
but also abroad. Two factors account for this: one, the increasing
financial disarray of his regime that is leading to a rapid
deterioration of the Venezuelan social situation, and, the other,
the loss of his three main strategic coaches. Miquilena has
split away from him, he fired Rangel last January and Castro
has been ailing during the last seven months, no longer being
able to properly supervise his pupil.
A
financial mess
The financial problems leading to a rapid deterioration of social
conditions in Venezuela are the result of the massive and uncontrolled
spending of Hugo Chavez, combined with a drop in the prices
of oil in the world markets. Even with the oil at the prices
of early 2006 Hugo Chavez had been establishing financial commitments
that were exceeding his income. His objective of leading a global
crusade against the U.S. had proven to be extremely costly.
He is said to have spent one billion dollars in trying, unsuccessfully,
to gain a seat in the United Nations Security Council. However,
what he was attempting to do by means of his money he destroyed
with his mouth, when he gave a speech against president Bush
at the U.N. that amused delegates in public while convincing
them in private that he was a vulgar and unreliable clown. He
has already spent US$6 billion and is planning to spend another
US$4 billion in weapons, in order to protect his authoritarian
regime from a U.S. "invasion." He is taking over the
control of the telecommunications company, the electricity company
and the oil activity being done by foreign companies in the
Orinoco area nd this will cost him about US$10 billion. He has
given or committed over US$15 billion to Latin American and
Caribbean countries, in an effort to gain their loyalty in his
fight against the U.S. In an effort to keep the poor happy,
he is diverting important funds, up to US$15 billion, from the
Venezuelan Oil Company and from the Venezuelan Central Bank
international reserves, to pump into massive schemes of handouts
for the Venezuelan poor, a strategy that is creating a nation
of beggars but is not solving the deep seated, structural problems
of poverty and ignorance in the population. As he does this,
the state oil company is receiving inadequate investments and
is losing its capacity to produce more oil. As a result the
company is bound to provide less money to the regime in the
future. In parallel, due to his handouts inside and outside
Venezuela, he is establishing a framework of increasing social
expectations in Venezuela and political expectations in the
hemisphere that no government can fulfill in the longer term.
At
this moment there are serious food shortages in Venezuela as
he has increased government control over production and established
unrealistic prices for foodstuffs. Inflation in the food sector
is running at 36% for the year. At the same time, unemployment
and inflation rates are the largest in Latin America. In the
hemispheric scene, the Caribbean states are starting to feel
that Chavez is mostly talk, as he is lagging in his promises
to supply them with cheap oil while Latin presidents, Kirchner,
Morales and Ortega, impatiently get in line to ask the rewards
for their political "loyalty."
The
results are inevitable. The 2007 Venezuelan budget shows a pronounced
fiscal deficit, the same as last year’s. This gap can
only be closed through new national debt. Accordingly, Petroleos
de Venezuela, the Venezuelan state-owned oil company is currently
in the market for a jumbo loan of some US$8 billion. Chavez
is forcing the oil company to become the borrower for the money
that he needs. Populist governments once did this to Pemex,
the Mexican company, leading to its financial collapse.
As
strategy falters there is less money and more mistakes are made
As Chavez makes faulty strategic decisions and as they have
negative economic and social results he is under increasing
pressure to keep making flawed strategic choices. This is becoming
a vicious circle, leading to further deterioration of his power
equation. As inflation and food shortages increase, as oil production
declines, as his sources of income become less abundant, he
feels obliged to take drastic, unpopular measures such as increasing
the price of gasoline, a measure conceptually correct but taken
as an emergency step to increase income. He is also issuing
bonds that can be bought by Venezuelans in Bolivar's at the
official rate of exchange and sold later to dollar investors,
thus obtaining dollars that can be used to buy Bolivar’s
back in Venezuela, at the black market rate. This is a mechanism
designed to diminish the excessive liquidity which is currently
fueling inflation, but one that allows only those who have money
(not the Venezuelan poor, who are simple witnesses to this orgy)
to buy dollars and, eventually, to make an obscene profit in
the Bolivar black market, where the dollar buys more than twice
the amount of Bolivar's. By trying to control not only political
institutions but also the industrial and services sectors, he
is spending immense amounts of money and is acquiring a very
heavy burden of managerial responsibility, something that he
clearly does not possess.
A
fragile outlook
Unnecessary nationalizations, alignment with Iran (there is
an unprecedented joint event in Washington, D.C., next Wednesday
March 14, where the Iranian and the Venezuelan Ambassadors will
appear together), a military alliance between Iran and Venezuela
with the possibility of Argentina supplying nuclear expertise
and equipment to Iran; acquisition of Russian submarines; the
buying of coca from Bolivia; the request for constitutional
changes leading to Chavez's unlimited re-election as president;
his ruling by decree for the next 18 months, rendering the legislative
power useless; the fiscal problems; the collapse of the food
supply; the explosive increase of imports; the growing impatience
of Chavez's political clients such as the Caribbean states and
the Venezuelan poor; internal rumblings in the Venezuelan military;
the paralysis of industrial activity; the highest inflation
and unemployment rates in Latin America; the proliferation of
popular protests all over the country, all of these factors
speak of an increasingly weak Hugo Chavez power equation.
It
is not improbable, therefore, that a change of regime in Venezuela
could take place in the not too distant future.
Gustavo Coronel
is a 28 years oil industry veteran, a member of the first board
of directors (1975-1979) of Petroleos de Venezuela (PDVSA),
author of several books. At the present Coronel is Petroleumworld
associate editor and advisor on the opinion and editorial content
of Petroleumworld. Petroleumworld not necessarily share these
views.
