Alexandra Beech, a Venezuela analyst of many years, has her doubts about president Hugo Chavez and the successes of his Bolivarian Revolution. But she is emphatically sure of one thing: ÒThere will be no return to the past _ ever.
The majority of underprivileged Venezuelans feel empowered as never before, she says; and by and large, they support their president. When taking the pulse of the eight-year-old Chavez regime _ in which the politics of poverty are the measure of its domestic policy triumphs _ this fact is crucial.
Yet, according to the Universidad Catolica Andres Bello, which conducts extensive research on income distribution, poverty indicators have been effectively static for much of the last decade, hovering between 20.5% in 1998 and a high of 24.1% in 2003, and falling back to 20.4% in 2004.
So the public approval ratings of the former Lt Col Chavez _ officer turned coup plotter and now virtually undisputed leader of the fifth largest oil producing country in the world _ are not in any obvious way the result of distributing largesse. There are aspects of the appeal of “Chavismo”, it seems, that are hard to grasp, and which go beyond government price controls, free health care, literacy training and handouts disguised as scholarships to attend neighbourhood misiones.
PUBLIC SPENDING
Not that there hasnÕt been a phenomenal increase in public spending. Though no one has charted its rise with precision, one economist did a rough estimate and came up with a figure of about $4 billion a year. In a country of 25 million, thatÕs in the region of $1,600 for every man, woman and child.
The scene is set for more treasury payouts: presidential elections are scheduled for December, and even though Chavez does not yet face any viable opposition, public expenditure is expected to jump. Efrain Velazquez, an economist with consulting firm Azpurua, Garcia- Palacios & Velazquez and head of the National Economic Council, an advisory body to the executive branch, forecasts that public outlays will reach an all-time high, perhaps as much as 38% of GDP _ well above the previous oil boom record of 34.7% of GDP in 1983.
According to Velazquez, oil revenues plus higher tax revenues have lent the government a comfortable margin, without even taking into account available borrowing in the liquid domestic market.
POLICY QUESTIONS
The governmentÕs policy mix _ public expenditure stimulus, an accommodating monetary stance and a stable exchange rate, in the context of foreign currency and price controls _ has worked so far, Velazquez and others assert. Yet vital questions remain about the sustainability of VenezuelaÕs political and economic assumptions.
The first, and most obvious, is energy prices. Robert Bottome, publisher of VenEconomy, argues that the countryÕs accounts cannot be balanced with current prices at US$60 a barrel for exports.
‘If prices stabilize weÕll be in bad shape,” he says, pointing out that a price plateau would cause imbalance because public spending is so high and continues to rise.
Political pressure is mounting for greater public spending of the windfall income. This, says Bottome, could exacerbate the struggle over resources _ especially in the absence of tangible benefits throughout the population.
Oil is key to understanding Venezuela _ past, present and future. Wall Street ignored the particulars of domestic politics for decades, referring instead to a country it saw as a pure “oil play” _ no
more, no less. The same still applies to the politics. Yet while oil production accounted for 30% of GDP in the 1970s, dropping to 15% in the 1990s, it is now only 13%.
“On a structural basis, the economy is weaker now than it was over a decade ago, concludes Velazquez. Exploration in energy is much lower since PDVSA, the state owned energy company, lacks the prowess it once had. Moreover, the private sector is smaller, less independent and more subject to capricious government intervention and therefore less willing to invest. As a result, the economy is more dependent on oil, but without a long-term strategy.
PRIVATE ASSET DEMOLITION
Nelson Ortiz, president of the Caracas Stock Exchange, believes the collapse of Venezuela’s private sector is the country’s most profound pitfall. “The private-sector collapse was far greater than
Venezuela’s economic decline,” he says.
The market value of the private sector has plummeted; fewer large domestic firms remain; and thousands have closed down. While making it clear that the process of private asset destruction cannot be laid solely at the feet of Chavez, Ortiz, in his article ‘Entrepreneurs: profits without powerÓ, draws attention to its magnitude: for instance, in the precipitous fall in market capitalization of the Caracas Stock Exchange _ which plummeted from $13 billion in 1991 to less than $3 billion 12 years later. As a result of its economic weakness and political isolation, he says, ÒThe outlook for recovery of the private sector in the short and medium term is bleak.
The critical questions revolve around the weaknesses of the Chavez-led regime. Mounting tension between the US and Venezuela might aggravate the weaknesses, according to Susan Kaufman Purcell, director of the Center for Hemispheric Policy at the University of Miami.
While the nature of the security threat enezuela may pose to the US is unclear, “If [Chavez] does draw Iran into a closer relationship, that will be a serious red flag,” she says. “The US doesn’t have many options. At this point, it’s a standoff, and it’s probably too late for quiet diplomacy,” says Riordan Roett, director of Western Hemisphere affairs at Johns Hopkins University.
Another possible stumbling block lies closer to home. There are increasing reports that ÒchavismoÓ is taking on a life of its own, and could, ironically, even turn on itself. With their new sense of entitlement to decent government, thanks to ChavezÕ leadership, some neighbourhood groups are in the business of Òthrowing out the bumsÓ _ Chavez appointments included.
As Beech remarks, the opposition needs to pay attention to what Chavez is doing right, as it may be his own undoing.