Caracas Chronicles

As per usual, the Economist has the most perceptive analysis around. Don’t they read the Economist at the NYT?!

Mar 11th 2004 | CARACAS
From The Economist print edition

How does Venezuela’s increasingly authoritarian president get away with it?

EVEN before the election of Hugo Chávez, Venezuela was in trouble. But in the five years since he became president, Mr Chávez has steered his country into the abyss. The economy is disintegrating; the opposition is trying to oust him through a California-style recall referendum; other leaders revile him. Yet Mr Chávez still looks safe in his job. Why?

In part, because of some old-fashioned Latin American strong-arming. The opposition groups allege that around a dozen people have been killed in the last two weeks, during street protests at the scuppering of their referendum campaign. Venezuela’s electoral commission, the CNE, controversially disqualified over 1m signatures on the recall petition; its organisers will imminently decide whether to try to get some of those names reinstated—thus meeting the threshold required to trigger a referendum—or give up altogether. The chances of a referendum actually being held look slim.

The Organisation of American States reports on events in Venezuela.

Another part of the answer is Mr Chávez’s judicious use of electoral bribes. During 2002 and 2003 alone, abetted by strikes and lockouts, his government presided over a drop of at least 18% in GDP. Venezuelans are now living on income levels lower than any since the 1950s. Yet by diverting resources into programmes that benefit his own constituency among the poor, Mr Chávez has retained popularity ratings of between 30% and 40%.

He can afford the bribes because he has oil. After an abortive opposition attempt to force him from office by paralysing the oil industry, Mr Chávez introduced price and exchange controls, which have proved formidable tools for keeping the rebellious private sector in check. In 2003, the average price of a barrel of Venezuelan oil ($25.65) was around 17% higher than the year before. In 2004, it has remained above $27. In theory, the windfall profits that the high prices bring to the state oil corporation, PDVSA, should go into a fund to compensate for the vicissitudes of the oil-price cycle. But Mr Chávez has raided the fund, and now argues that such revenues should pay for economic subsidies.

He has other sources of income, too. His bid to persuade the central bank, the BCV, to hand over $1 billion of its reserves—which Mr Chávez wanted to distribute in the form of agricultural loans—failed. No matter; now PDVSA is to shunt part of its income into government agriculture, housing and “social” programmes, a transfer that may well violate Venezuela’s constitution. Moreover, stringent restrictions on foreign exchange have boosted the BCV’s international reserves from around $13 billion in January of 2003 to over $22 billion now. In conjunction with that growth, a devaluation of the official dollar exchange rate, from 1,600 to 1,920 bolívares, has created notional bolívar “earnings” that Mr Chávez’s government has grabbed.

As well as the loans and subsidies, the cash has been channelled into social programmes of doubtful durability. These should boost the vote for the president in the unlikely event of a recall referendum, and for his candidates in the mayoral and gubernatorial elections due in August. Parliamentary elections are due next year. Despite its experience with the thwarted recall campaign, the opposition is unlikely to boycott them altogether, thus lending the votes a semblance of credibility.

Oiling the revolution

These shenanigans, of course, have a price, and not just in protesters’ lives. On the black market, the bolívar is plummeting. Partly as a result, inflation is the highest in the region: over 27% last year. Internal debt, which most Venezuelan banks have little choice but to keep refinancing, has spiralled. So Mr Chávez’s economic populism is unsustainable; but if he manages to crush the opposition, he won’t have to sustain it. Then, Venezuela’s economy may come to look like look Cuba’s. “It doesn’t matter if we go hungry or barefoot,” Mr Chávez once said, “so long as we preserve the revolution.”

What can the rest of Latin America do about him? If (and probably when) the opposition pulls out of the rigged referendum process, or is finally defeated by the CNE’s machinations, the verdict of international observers will doubtless be harsh. The Organisation of American States (OAS) may debate the imposition of sanctions. The United States would like Brazil to take the lead in punishing Mr Chávez; and Luiz Inácio Lula da Silva, Brazil’s president, is himself increasingly disenchanted with his one-time ally. But even if Lula obliges, the OAS is unlikely to agree on anything much.

Quite apart from the welfare of Venezuelans, George Bush’s administration has plenty of reasons for wanting to see the back of Mr Chávez. He is implacably opposed to the Free-Trade Area of the Americas, and to Plan Colombia, the campaign to defeat guerrillas and drug-trafficking in Venezuela’s neighbour—two of America’s most cherished regional initiatives. And he has created serious instability in a country that accounts for around 13% of American oil imports. This week, he threatened to cut the oil supply to America altogether, should Mr Bush try to dislodge him.

Given his country’s dependence on the dollars that the exports to America bring in, the threat was a little outlandish (and Mr Chávez later toned it down). But, equally, Mr Bush cannot himself afford to ignore the danger of a fuel price hike, especially in an American election year. With his hands on the oil pump, and the recall campaign almost snuffed out, Mr Chávez looks set to hang on indefinitely.