The crumbling Hugo Chávez power equation

Por Venezuela Real - 3 de Marzo, 2007, 19:29, Categoría: Testimonios

Gustavo Coronel
March 3, 2007

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.

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