Venezuelan President Hugo Chávez has arrogated to his office an extraordinary amount of power. He insists he did so to fight corruption and remake his country’s economy and social fabric. Critics want to know: Is he a democrat or despot at heart?
By Deepak Gopinath
December 2000
Institutional Investor Magazine
Every Sunday Venezuelans can tune in to a popular national call-in radio show, ¡Aló Presidente! For upwards of four hours, President Hugo Chávez holds court , indulging in personal reminiscences, lambasting perceived enemies, announcing news of government appointments and occasionally critiquing movies. A recent recommendation: Manuela Sáenz, Liberator of the Liberator, a saga about the mistress of Simón Bolívar, the famed revolutionary.
During one show in late October, listeners were treated to something special. Chávez was joined at the mike by Cuban strongman Fidel Castro, in town for a five-day visit during which he played baseball with Chávez, praised him as a fellow soldier in the war against oppression and bagged a deal to get subsidized oil for Cuba.
The big surprise came when Castro, in the midst of their jovial love fest, decided to offer some governing tips to his host, who enjoys rushing about the country attending personally to every problem that comes to his attention. “Chávez cannot be the mayor to all Venezuelans,” admonished Castro. “He needs cadres also, to back him up in this battle that he is fighting.”
Chávez offered up a tepid defense. “I don,t enjoy drowning in bureaucracy or being in the office every day,” he replied.
If you are wondering what kind of leader takes advice on how to run his country from the the aging Bad Boy of the Western World, the last dinosaur of the Cold War, you are not alone. Nearly two years into his administration, the democratically elected Chávez remains an enigma to his own people and to his counterparts in foreign capitals.
He talks like a populist revolutionary and seems to take every opportunity to thumb his nose at the U.S. An avowed democrat, he led a bloody, unsuccessful coup against the government in 1992. That effort earned him two years in prison, where he plotted the campaign that won him the presidency in 1998. Once installed in Miraflores Palace, Chávez promptly set about eradicating the country’s political institutions and consolidating power in his own office. He dismantled Venezuela’s congress and judiciary and pushed through a new constitution, which, among other things, extended the presidential term to six years from five and allowed consecutive terms. Chávez secured “enabling” powers that let him write new laws without so much as a rubber stamp from Congress.
Yet Chávez has also taken steps to end the corruption that, along with oil, has lubricated Venezuelan politics and economics for half a century.
A champion of social justice and increased domestic spending, he has shown greater fiscal prudence than more conservative predecessors. A fierce critic of the neoliberal dogmas of open markets, he has pushed through the liberalization programs that he inherited. And he has the confidence , or the naiveté , to allow himself to be criticized on public radio.
Chávez has succeeded in restoring a sense of pride among many Venezuelans, bringing his country back onto center stage as a driving force in OPEC’s effort to control world oil prices. He openly aspires to a leadership role in Latin America. But his brand of authoritarian control is out of favor, with one country after another in the region moving in the direction of increased political freedom , whether in Chile, where Socialist Ricardo Lagos took office in 1999, or in Mexico, where conservative Vicente Fox was sworn in this month, ending 71 years of one-party rule. Even Peru’s democrat-turned-autocrat Alberto Fujimori has left office, with new elections scheduled for April.
Complex and contradictory, a charismatic figure with a common touch, Hugo Chávez, like many controversial figures, strikes different people in radically different ways. To the millions of slum dwellers in Caracas, he is a hero and savior. To Venezuela,s entrenched elite, he is a palurdo, a lower-class wannabe upsetting the old order. To nervous observers overseas, he is a fatigue-clad throwback, sans Cohiba, to a discredited era of empty revolutionary cant.
As Colombian novelist Gabriel García Márquez wrote after an encounter with Chávez last year: “I was overwhelmed by the feeling that I had just been traveling with two opposing men. One to whom the caprices of fate had given an opportunity to save his country. The other an illusionist, who could pass into the history books as just another despot.”
Close colleagues say the president is simply misunderstood, though they understand the confusion. “Chávez is a very strong leader, very demanding and not easy to work for,” says Planning Minister and friend Jorge Giordani. “But he listens a lot. There is an external image of Chávez that doesn,t correspond to the internal.”
Ask Chávez why he provokes such conflicting responses and he replies with a conviction that can border on the messianic, as he portrays himself as merely the instrument of inevitable historical change. “It’s not because I have done anything personally, but because at this moment of our small history, the forces of transformation are centered in me,” Chávez told Institutional Investor in a wide-ranging interview last month in Caracas (see below).
More concretely, he believes his critics simply do not understand his country’s history , or the political and economic context of modern Venezuela. In short, he insists, what passed for democracy in Venezuela before was a sham , with economic and political power concentrated in a small elite. “Some say I am pursuing a dictatorial model in Venezuela. Some say I am concentrating power,” he acknowledges. “The reality is that we are leaving behind a tyranny, a system that concentrated power in a few hands, that was disguised with a mask of democracy.”
To reach what he calls true participatory democracy requires, in the interim, the tough reform measures he has taken to root out institutionalized corruption and injustice. But even in the best-case scenario, his critics contend, it’s a dangerous plan to pave the road to freedom with the stones of autocracy.
Chávez came to power in February 1999 promising to remake Venezuela’s oil-driven economy from the ground up and to position Caracas at the center of a politically vigorous and cohesive Latin America. To fulfill his promises, he outlined an ambitious five-part program. Most broadly, he envisions a “Bolivarian democracy” , named for the Caracas-born Bolívar, who liberated Venezuela, Bolivia, Colombia, Ecuador and Peru from Spanish rule early in the 19th century. Chávez’s goal is to wipe out every trace of the incestuous system created with the 1958 Pact of Punto Fijo, whereby Venezuela’s two major political parties essentially agreed to take turns running the country, while a small, white elite controlled its major institutions.
In addition, he proposes to create a diversified, “humanist” economy. And he wants to invest heavily in education, health and security to improve the living standards of the 80 percent of Venezuelans who live in poverty. He also has an ambitious plan to repopulate the center and south of the country through job creation, reversing the migration to the northern cities. Last, on the international front, Chávez says he will unify Latin America’s leaders and form a new sphere of influence to counterbalance the U.S.
Venezuelans have heard much of this before, of course. During the oil boom of the 1970s, then-president Carlos Andrés Pérez also promised to modernize the country and use oil wealth to raise living standards for all. But the well-worn rhetoric plays well with the poor, among whom Chávez commands fierce loyalty, not least because of his humble origins. “When they look at Chávez on television, they see themselves,” says Luis Dávila, chief financial officer of state-owned oil giant Petróleos de Venezuela, or PDVSA.
“Chávez is the best president we have ever had,” says Godofredo Pérez, a part-time hotel employee in Caracas. “He has come from below; he is with the people.”
Moreover, things have improved, at least on the margins, under Chávez, who took office at a dire time. The economy was still reeling in the aftermath of Asia’s financial crisis, which had helped drive the price of oil down to $8 a barrel. After shrinking by 7.2 percent in 1999, the economy is forecast to grow by about 3 percent this year. Inflation, which was 30 percent in 1998, is down to 15 percent. As the economy has strengthened, the fiscally cautious Chávez has opened the oil spigot: In September he announced an ambitious plan to spend $2.1 billion, or the equivalent of 6.4 percent of the 2001 budget, on new schools, roads and hospitals
But Venezuela remains a mess. Even with oil prices above $30 a barrel, the country must grapple with huge economic and social problems. In terms of wealth distribution, it’s the world’s third-least-equitable country, after South Africa and Brazil. Four fifths of the population live miserably, most of them in crowded shantytowns, or ranchos, in and around Caracas and other coastal cities.
With unemployment at 13 percent, the poor depend on the underground economy, which provides more than 40 percent of the country’s jobs, for survival. The main shopping street in Caracas is packed with sidewalk vendors selling everything from books to brassieres. Young children weave through the crowds begging or hawking balloons and trinkets. The wealthy, meanwhile, live in compounds surrounded by electrified fences and razor wire and patrolled by security guards. Every Monday the newspapers report the number of people , often in triple digits , murdered over the weekend, mostly victims of gang wars. Women don,t drive alone at night.
Negative real interest rates on deposits encourage better-off Venezuelans to keep their money overseas; many of the middle class maintain bank accounts in Miami. Local banks, worried about political stability and an overvalued currency, are stingy with credit. Labor productivity is falling in both the oil and nonoil sectors of the economy, and the nonoil sector is actually shrinking.
Though the economy is growing again, capital flight is expected to exceed last year’s $4 billion. Spreads on Venezuela’s sovereign debt are second among emerging markets only to Ecuador’s , and Ecuador defaulted on its external debt last year. Last December Standard & Poor’s downgraded Venezuela from single B+ to B.
Foreign investors are frustrated , and frightened , that the political part of Venezuela’s revolution, which was to have ended months ago, shows no signs of winding down. Indeed, Chávez seems obsessed with tightening his grip on government. He has called seven special elections and referendums, dissolving the old Congress and creating a new constitution that beefs up executive powers. He has appointed military men to important positions, including the minister of the Interior and Justice and the president of PDVSA and its U.S. refining subsidiary, Citgo.
Most recently, his new Congress approved yet another referendum, for December 3, to decide whether the country’s union leaders should be suspended while elections for new ones are organized. Although the unions have for years been seen as corrupt facilitators for whatever party happens to be in power, the move is seen by some as proof of Chávez’s compulsion to destroy institutions instead of reforming them. (The attorney general last month asked the Supreme Court to suspend the referendum because it violates eight articles of Venezuela’s constitution.)
The president’s brand of foreign policy continues to raise eyebrows. Besides his chummy, in-your-face relationship with Castro, friendly visits to Libya,s Muammar Qaddafi and Iraq’s Saddam Hussein as part of a tour of OPEC states last year infuriated Washington. Now he is declining to act the good soldier in the U.S. antidrug program Plan Colombia. Like Brazilian President Fernando Henrique Cardoso, he opposes the plan, which he frets could destabilize the Venezuelan-Colombian border and create refugee problems.
At home Chávez remains hugely popular among the poor; his approval rating, according to a poll by Consultores 21, is at 69 percent, up 10 percentage points since the end of June. And he has achieved this despite some notable failures: A full year after catastrophic floods in December 1999 killed 30,000 people , mostly urban shantytown dwellers , and left thousands more homeless, the government has provided permanent housing for only 7,000 of the 20,000 families it relocated.
But he has alienated Venezuelans at other levels of society. In the wake of Castro’s October visit, thousands of middle-class workers and teachers took to the streets of Caracas demanding overdue pension payments and wage increases. Why should Cuba get cheap oil while Venezuelans go hungry, they wanted to know. And why is Chávez cozying up to Cuba when Venezuela needs countries like the U.S. far more?
Some in the military resent being put to work as menial laborers and social workers as part of Chávez,s antipoverty program, Plan Bolívar 2000. Meanwhile, the middle and upper classes can,t relate to a president who, they believe, looks and speaks like an uneducated, uncultured member of the lower orders. Worse, they see clear dictatorial tendencies in Chávez.
“Chávez has to fight to not be pulled down by his own authoritarianism,” says Teodoro Petkoff, a leftist and former minister of Planning who as editor of the popular Tal Cual afternoon newspaper is one of the president’s most influential critics. “It’s like Dr. Jekyll and Mr. Hyde, Robespierre and Danton, the Bolsheviks and the Mensheviks.”
Chávez’s humble origins may explain in part why people react to him so viscerally. He really is a man of the people, from his poor background to the darkness of his skin. Hugo Chávez Frías was born in 1954 to schoolteachers in the largely agricultural southwestern state of Barinas and inherited a sense of class justice. One of his heroes, his paternal great-great-grandfather, Colonel Pedro Pérez Pérez, was a soldier-revolutionary in Ezequiel Zamora,s mid-19th-century war against the local landed elite. A devout Catholic and talented athlete, Chávez as a youth aspired, like his pal Castro, to pitch in the U.S. major leagues. He attended the top baseball training program, Criollitos de Venezuela, but gave up his dream and enrolled in the military academy at 17, where he played first base on the baseball team.
At the academy in Caracas, Chávez studied political science and history. After graduation in 1975 he was sent back to Barinas to join a counterinsurgency battalion charged with suppressing the few remaining holdouts of the widespread guerrilla war of the 1960s. The sight of young peasant recruits killing young peasant guerrillas disgusted him, he says. Just 23, Chávez formed a movement of his own, the Ejército de Liberacíon del Pueblo de Venezuela. It didn,t have much of a manifesto (“Our aim was to prepare for any eventuality,” Chávez told García Márquez years later in front of a microphone), and nothing came of it. But in 1982 Chávez formed the Movimiento Bolivariano Revolucionario 200, a political group within the army, planting the seeds for his coup attempt ten years later.
Venezuela was ripe for unrest for many reasons, but among them was the country’s complicated relationship with oil, which has been a blessing and a curse ever since the first gusher near Lake Maracaibo in 1922 led to intensive commercial development. Oil underpins the country’s economy; today every dollar increase in the world price of oil adds $1 billion to government revenues annually. But this oil wealth has not cured social and economic woes. Rather, it has exacerbated long-standing injustices, institutionalized corruption and created unrealistic expectations. The 1973 oil crisis transformed an impoverished agricultural economy into an ostensibly wealthy member of OPEC, radically altering the country’s self-perception. Venezuela became the world’s No. 1 consumer of Scotch whiskey (it is No. 5 today) and the biggest consumer of pasta after Italy. Modern highways were built, and Venezuelans flocked from the impoverished interior to oil-producing regions around Maracaibo and the cities on the Caribbean coast.
Many Venezuelans came to believe that if they were not rich themselves, corruption was to blame. Politicians exploited this belief, promising, like magicians, to spread the wealth. The head magician during the 1970s was charismatic president Carlos Andrés Pérez, who nationalized the oil industry in 1975. After a fashion, he and his successors did spread the wealth. The unions got their cut, and the government channeled generous subsidies to the universities to keep leftist intellectuals employed and content. The people enjoyed cut-rate gas and an overvalued exchange rate that helped subsidize imports.
But when oil prices collapsed in the 1980s, Venezuelans woke up from their dream to a country suffering from crime, increasing poverty, unemployment, corruption and a growing underground economy, all fertile ground for unrest.
Pérez was reelected in 1988 on a populist platform, but once in power he signed a $4.5 billion loan agreement with the International Monetary Fund. Complying with IMF conditions, he immediately implemented a deeply unpopular austerity program , including a hike in the price of gasoline.
That sparked a popular insurrection in Caracas in February 1989, the so-called Caracazo. The army killed hundreds of looters and rioters. Chávez himself was not called out , he was confined to his barracks with German measles. But several of his comrades died in the confrontation, and the incident still looms in his consciousness as a tragic example of Venezuela,s dysfunctionality.
The Caracazo served also to strengthen the resolve of Chávez and his fellow conspirators to launch a coup to topple Pérez and what they viewed as the corrupt army high command. But they had to bide their time until they had authority to muster their own troops. Their moment came in 1991, when Pérez gave Chávez his first command , a parachute battalion based near Caracas.
The coup began on February 3, 1992, with a successful takeover of the army barracks at Maracay, home of Chávez’s battalion. Co-conspirators made similar strikes in other cities and actually occupied Valencia. Early the next morning, Chávez traveled with his troops to Caracas, setting up temporary headquarters in the Museo Histórico Militar. The plan was to capture Pérez at Miraflores Palace. But the attempt failed when Chávez’s troops were beaten back. Casualties were relatively light: 14 soldiers died and about 130 soldiers and civilians were wounded. Within hours, Pérez was on television announcing that the attempted coup was being put down.
Chávez surrendered soon afterward and was taken to prison. But first the government allowed him a minute on national TV to tell his co-conspirators in other parts of the country to lay down their arms. Chávez made an indelible impression in those few seconds. “The objectives we set for ourselves have not been achieved,” he said, “por ahora.” For now.
During his two years in Yare prison, Chávez worked on his master’s degree in politics from Universidad Simón Bolívar. He also entertained a succession of visitors, members of the Venezuelan left. Among them was Planning Minister Giordani, then an economics professor at the Universidad Central de Venezuela, who came every week to help Chávez with his thesis and to collaborate on a blueprint for a revolutionary government. Another pilgrim was Luís Miquilena, who would play a key role in organizing Chávez,s presidential campaign.
Meanwhile, Venezuela’s political system was falling apart. In November 1992 Pérez survived another bloody coup attempt, during which Miraflores Palace was bombed by air force pilots. That December’s regional and municipal elections saw major gains by left-wing parties. Pérez had become a liability. In May 1993 Congress voted to allow the president to be brought to trial on charges that he had embezzled $17 million from the government. Pérez was suspended from office. Rafael Caldera Rodríguez, a founder of the center-right Comité de Organización Política Electoral Independiente, or Copei, ran as an independent and was elected in December to replace Pérez. But the two parties, stranglehold on government had loosened under the pressure of a sick economy and endless corruption scandals.
When Chávez got out of prison in 1994 and took to the countryside to tout his movement, now called the Movimiento V República, his populist rhetoric fell on receptive ears. Among the listeners was Castro, who gave Chávez a hero’s welcome when he visited Havana that year , a show of support that Chávez cherishes to this day.
In 1998 the Movimiento al Socialismo party announced its support for Chávez’s presidential bid, and a group of leftist parties allied around his MVR won 34 percent of the seats in Congress. Terrified, the old guard joined forces. Copei abandoned its presidential candidate, former beauty queen Irene Sáez, and Acción Democrática dropped its candidate, Luis Alfaro Ucero. Instead, both parties threw their weight behind an independent, Henrique Salas Römer. In December Chávez won the election with 56.2 percent of the vote, completing an improbable journey from prisoner to president in four years.
Like other populists before him, Chávez won the presidency by promising to modernize the country and bring Venezuela’s natural wealth to the masses. His campaign played to voters, conviction that only a corrupt elite stood between them and prosperity. Chávez asked them to imagine a Venezuela cleansed of its outdated institutions and greedy politicians.
Chávez has certainly tackled the purge with gusto. In April 1999 he held a national referendum that approved his plan to create the Asamblea Nacional Constituyente that would draft a new constitution. ANC elections in July then resulted in Chávez’s Polo Patriótico, a coalition of small, mainly left-wing parties, winning 120 out of 131 seats. Effectively shut out of the new political order, the leaders of Acción Democrática and Copei resigned. The old Congress was put on indefinite recess.
“In the business of manipulating democracy, he makes Fujimori look like an amateur,” says Robert Bottome, head of the economic consultancy VenEconomía.
Then, last December, in another referendum, 71 percent of the voters approved a new constitution. The constitution extended the presidential term to six years, allowed consecutive terms, permitted increased state intervention in the economy, reduced civilian oversight of the military and strengthened the rights of Venezuela’s indigenous population. It dissolved the old bicameral Congress, replacing it with a new Asamblea Nacional, and installed a new Supreme Tribunal of Justice in place of the old Supreme Court.
The constitution includes some new powers for the public, as well. It gives voters the right to remove elected officials and annul most laws with an absolute majority. It also provides enhanced social security and labor benefits. (And it contains a strange clause mandating that the press provide “truthful information.”) But its main effect was to take the old political system apart. The old Congress disappeared for good in January 2000, and the ANC approved Chávez,s nominees to head key institutions, including the Tribunal of Justice, the central bank and the national auditor. Two hundred judges were fired on corruption charges, and Chávez assigned the army a big role in national redevelopment.
By July 2000, when the new constitution called for a round of presidential, legislative, gubernatorial and mayoral changes to formalize the new order, even some of Chávez’s intimates had turned against him. Disillusioned with Chávez’s attempts to concentrate power and with what he called the president,s “messianic” tendencies, Francisco Arias, who had been his second-in-command during the 1992 coup, ran against him for the presidency. Military intelligence chief Jesús Urdaneta, another coup co-leader, quit his post and supported Arias, furious that Chávez had backed an investigation into alleged human rights violations by the army in the aftermath of the floods. Arias and Urdaneta also accused Chávez adviser Miquilena and Foreign Minister José Vicente Rangel of corruption.
“We had a political misunderstanding,” says Chávez philosophically. “If you analyze the history of any country, you will find people who were together and just separated, since Christ and Judas. Bolívar and Páez were together for many years, in battle risking their lives, and then ended with confrontation.”
Chávez won the election comfortably, ensuring at least six more years in office. He has wasted little time in continuing to centralize power. Most recently, he called a referendum for this month to throw out the top brass at the Confederación de Trabajadores de Venezuela, the country’s biggest union. Representing Venezuela’s 1 million public sector workers, the CTV was traditionally an important source of political patronage for the opposition Acción Democrática party. Now Chávez wants to bring all the country’s workers under the umbrella of his newly created megaunion, the Fuerza Bolivariana de Trabajadores.
More ominously, the Chávez-controlled national assembly passed in November an enabling law that for a period of one year permits the president to implement legislation without seeking its approval. Other Venezuelan presidents have received similar powers, though none quite so far-reaching.
To listen to Chávez, all of these moves follow a well-thought-out plan. First take care of politics, then economics. “After this year and a half, a series of institutions have disappeared, and we are seeing the creation of new ones. Here in Venezuela we now have five powers: executive, legislative, judicial, citizens, power and electoral power,” says Chávez. “Now we are beginning a new phase. It is a matter of beginning the economic reactivation, the transformation of the economic model from an oil economy into a diversified, sustainable, modern and humanist economy.”
Chávez plans, for example, to use this new decree-making authority to push through what he considers the second phase of his program: a raft of economic and social measures, including laws to promote small and medium-size enterprises, to distribute public land or tax idle land and to repeal a 1994 financial emergency act that had aimed to restrict central bank independence.
Some of these measures could be positive, but none of them is likely to boost economic performance in the short term. And the legislative carte blanche Chávez received from his new national assembly has made local businessmen, foreign investors and diplomats, especially those in the U.S., extremely nervous , especially coming, as it did, right after Castro,s October visit to Caracas. The Washington Post and The New York Times both ran hand-wringing editorials about Chávez’s ambitions, with the Post calling him the next Castro.
Chávez dismisses such criticisms as ignorant, when they are not part of some ill-defined plot to oust him. “Those who are behind these newspapers and editorials are trying to disturb relations between Venezuela and the U.S. And this forms part of a bigger plan, a conspiracy against Venezuela,” he says.
Chávez definitely has made good on his vow to raze Venezuela’s former political institutions. But so far that hasn,t translated into significantly better living standards. When he took office, Chávez announced an antipoverty program called Plan Bolívar 2000 that mobilizes the military to rebuild roads, schools and public buildings alongside civilians. The military also helps run markets that sell food to the poor at wholesale prices and a system of new “Bolivarian” schools that offer students three meals a day and basic health care. The schools have attracted 600,000 children to date, and Planning Minister Giordani believes they are partly responsible for a rise in consumption among the poor.
In September Chávez announced a 100-day, $2.1 billion spending program, financed by a revaluation of central bank foreign exchange reserves and administered by Plan Bolívar 2000, under which infrastructure projects and social programs are to receive some $800 million each. Plan Bolívar allows Chávez to bypass the government ministries and other agencies, since it puts control over the purse strings directly in his hands.
Among Chávez’s pet projects is jump-starting the formation of small and medium-size businesses. He has created an economic council to identify opportunities and work with entrepreneurs, and he is especially keen on creating jobs in the interior, to encourage the poor to leave the urban slums. Among other initiatives, example, he launched the Banco del Pueblo to provide credit for small or family businesses, backing it with $30 million worth of government financing.
But beyond such initiatives, Chávez has not exactly rocked the economic boat. If anything, he has been conservative. He talks seriously about increasing tax collections, and despite last year’s recession, he did not increase public spending. The budget deficit actually shrank from an expected 7.8 percent of GDP to 3.1 percent. In April he awarded public sector workers a 20 percent raise , not bad considering inflation was running at 15 percent, but niggardly compared with the largesse of his predecessor Caldera, who gave them a 100 percent raise in 1997. Chávez also created a macroeconomic stabilization fund in which excess oil revenues can be hoarded against lean times. The fund, into which half of oil revenues in excess of $9 a barrel is paid, is expected to have $4 billion by year-end.
The 2001 budget, which assumes GDP growth of 4.5 percent and inflation at 10 percent, does show Chávez,s willingness to open the spigot a little. The budget would hike spending by 29 percent and provides for use of $2.7 billion from the macroeconomic stabilization fund to cover social spending and wage increases.
But many analysts doubt Chávez will spend the money in the allotted 100 days. “He won,t do it,” says Efraín Velazquez, an economic consultant at Azpurua, Garcia-Palacios & Velazquez in Caracas. “Chávez talks a lot, he’s very populist, but he’s a conservative president.” Adds a former senior central bank official: “People have learned that there is a lag , it could be an indefinite lag , between rhetoric and action.”
Chávez gets some credit for deciding to move ahead with liberalization of the gas, telecommunications, aluminum and electricity sectors, recently opening the gas and telecom industries to private investment. Says Tal Cual’s Petkoff: “He has been pragmatic on economic policy. He inherited privatization of aluminum, electricity and gas and has kept them all. So far he has not done anything catastrophic.”
A comprehensive telecom law, passed this summer, allows foreign investment in the Venezuela’s fixed-line and long-distance markets and ends the monopoly enjoyed by Cantv, the national telephone company, which is owned in part by Verizon Communications. The majority of the $2.8 billion in foreign direct investment that Venezuela attracted in the first half of 2000 comes from telecom investment. A new electricity law prompted U.S.-based AES Corp. to purchase 87 percent of Electricidad de Caracas this summer for $1.7 billion.
But he has also not crawled through the window of opportunity that high oil prices have opened for structural reforms. “In the long run we need three things,” says Félipe Pérez, an economist and unofficial government adviser at the Instituto de Estudios Superiores de Administracíon, the Caracas business school. “We must invest in human capital, we need industrial diversification, and we need to increase financial intermediation.”
Perhaps the most important of the three is diversification. Oil accounts for 70 percent of Venezuela’s exports, 60 percent of government revenues and 30 percent of GDP. But if anything, he has bolstered the country’s dependence on oil. Although he certainly cannot claim credit for the jump in world demand that followed the global recovery from the Asian crisis, he has used higher oil prices to raise Venezuela’s profile on the world stage, working hard since his inauguration to revive OPEC’s fortunes. At that time, with oil at less than $10 a barrel, OPEC was increasingly regarded as an irrelevant organization. Venezuela was the black sheep of the club for exceeding its production quotas by almost 1 million barrels a day, far more than any other member. In his first year in office, Chávez slashed average production by 300,000 barrels a day. That helped bring Venezuela back into favor with its oil-pumping colleagues.
Then, early this year, he persuaded OPEC members to adopt a price-band mechanism designed to keep oil in the $22-to-$28 range. “We believe that the band is fair, and we are contributing what we can to stabilize this price,” Chávez says. In recognition of his efforts, OPEC named Ali Rodríguez, Chávez’s minister of Energy and Mines, as its secretary general last month.
Over the summer Chávez visited OPEC heads of state, including Qaddafi and Saddam Hussein, to encourage them to cooperate with one another. His moment of glory came in late September, when he successfully hosted an OPEC summit , only the second time in the organization,s 40-year history that the leaders had convened.
Chávez was in his element. The capital had been spiffed up for its august visitors, the highways repaved, the street vendors driven away. Speaking without notes as always, Chávez invoked the names of Allah, Jesus, Indian philosopher Krishnamurti , and, naturally, Bolívar. The burden of his lecture: OPEC nations should not be made the scapegoats for world poverty. “Do you know how much a barrel of Coca-Cola is worth?” he asked. “A barrel of Coca-Cola is worth $74.70 , 303 percent compared to a barrel of oil.” Chávez concluded grandly: “We cannot allow that, once again, we be indicated as those who are guilty for the imbalances of the world. The guilty are elsewhere. We are victims of the imbalances of the world economy.”
His grandstanding was short-lived. Barely two weeks after the summiteers returned to their faraway homes, 30,000 Venezuelan oil workers struck, incensed that their long-expired contract had not been renegotiated and demanding a pay raise. Days later PDVSA announced that it had agreed to a 60 percent wage hike, and Chávez left it in place. But he fired the PDVSA president, replacing him with active-duty General Guaicaipuro Lameda , a man whom Chávez has known since they were cadets together at the Caracas military academy, who was formerly head of the national budget office and who readily admits that he knows nothing about oil.
Such lack of experience is nothing new for PDVSA presidents, but some observers fear that the government is strengthening its control over Venezuela’s biggest and most important company. PDVSA has always been caught between the government’s desire to siphon off an ever-larger share of its revenues and management,s efforts to invest for the future and run a profitable enterprise. Lameda, a U.S.-educated engineer, says he wants to make PDVSA more efficient. One of his first acts as president was to announce that PDVSA’s 2001 dividend to the government will be $3.5 billion, up from this year’s $2 billion. “I have to make money quick and easy and preserve the future of the company,” says Lameda. “I want to make people feel they work in the best company, and I don,t need to know about oil to do that.”
Not surprisingly, the disenfranchised members of Venezuela’s old political and business elite are howling for Chávez’s head. Big business feels left out by his economic policies. He has been unswayed by their demands for tax breaks, arguing that Venezuela needs to collect more, not less, in taxes. Venezuela currently collects less than 10 percent of GDP in taxes, compared with 40 percent in France and more than 30 percent in the U.S.
Chávez has also ruled out a currency devaluation (a measure previous governments used to keep business happy during economic downturns), even though high oil prices have boosted the exchange rate. Venezuela employs a crawling peg system whereby the bolivar depreciates against the dollar at a fixed rate. But this policy has come at the cost of crippling domestic investment. Local firms struggle to remain competitive by cutting labor costs or by importing intermediate and even final goods, becoming, in effect, marketing firms. Vicente Brito, president of Fedecamaras, the Venezuelan business federation, estimates that his members have cut 500,000 jobs over the past three years.
Investors and analysts complain that the administration suffers from inexperienced management. Chávez has surrounded himself largely with old friends, some from the military, whom he trusts but who have little qualification for top government jobs. Planning Minister Giordani, now 58, is still the rumpled, bearded academic. In his view the aim of economic policy is to pay off what he calls the social debt , that is, invest in education, health and infrastructure to help the poor. “With strong political leadership,” he says, “the economy can be reactivated and social problems solved within ten to 15 years.”
The business community worries that Chávez has been reluctant to seek outside input on economic policy. “The government doesn,t understand the importance of the private sector. We have to change the language of confrontation,” complains Fedecamaras, Brito. “We are uncompetitive, and we cannot solve our problems by selling oil and importing goods.” Others suspect the government wants to replace the business elite. “The government wants new business leadership, so it doesn,t care about the big companies,” says Ruth de Krivoy, central bank president under Caldera and now head of Síntesis Financiera, an economic consulting firm in Caracas.
Members of the business establishment are the ones most likely to voice fears that Chávez is laying the foundations of dictatorship. “Everything depends on one variable,” fumes Antonio Herrera, vice president of the Venezuelan-American chamber of commerce in Caracas. “The whole political system depends on one person, and the whole economic system depends on the same person.”
Ricardo Penfold, former chief economist at the Caracas office of Spain’s Banco Santander Central Hispano, was so concerned about the possible consequences of Chávez’s autocratic leanings that last month he packed up his family and moved to New York to take a job with Goldman, Sachs & Co. “Chávez doesn,t delegate,” he says. “He doesn,t understand the need for opposition, strong institutions or checks and balances. When he loses popularity, he,ll have no party to rely on.”
For now, perceptions of Chávez remain largely divided along race and class lines , like the country itself, though this is a subject few Venezuelans are comfortable speaking about. The majority of the population are dark-skinned, like Chávez. But the top echelons in government, business and finance are white.
Venezuelans have a habit of turning to messianic leaders for social, political and economic renewal, only to be disappointed. Chávez is the latest in a long line. As likely as not, Chávez will find himself trapped in the patterns of the past , his vision, like so many others,, destined to fade into history. As pressure for results inevitably mounts, Chávez , and his countrymen , must beware of his succumbing to authoritarian tendencies and undermining the very reforms he has sought to implement.
Bolívar and béisbol: The world according to Chávez
For a man who strikes some skeptics, including the editorial writers at The Washington Post, as the second coming of the Antichrist , or at least of Fidel Castro , Hugo Chávez comes across as anything but imperious. Of medium height and with the powerful build of a former paratrooper, Chávez moves through the ornate surroundings of Miraflores Palace, the Spanish colonial-style home of Venezuela’s leaders, with an easy mix of camraderie and command. Informal, relaxed, always expansive, he banters genially with his young aides (his chief of staff is only 30), none of whom seem intimidated by his presence.
Four larger-than-life oil portraits of Venezuelan heroes dominate Chávez’s office. Among them is Chávez,s personal muse, the liberator Simón Bolívar, whose words the president invokes constantly. On his desk and a sideboard are photos of his second wife, Marisabel, and his six children, four girls and two boys. Otherwise few personal touches intrude.
A former amateur baseball player like his pal Fidel, Chávez also peppers his conversation with baseball metaphors. He strides about the room, offering refreshments to guests and aides alike. A man of immense energy, he drinks cup after cup of coffee as he speaks for nearly three hours , and into the wee hours of the morning , with Institutional Investor Senior Writer Deepak Gopinath last month after his return to Caracas from the city of Valencia where he had inaugurated a new General Motors paint factory.
Institutional Investor: You have been president for 21 months. How do you rate your performance?
Chávez: The game is starting, and we are winning. We,re in the second inning. We have made a huge effort to give a new image to the country, and any assessment should be measured by the process and the results. We have the process , democratic, open, peaceful, respecting human rights. We have a stable economy. Personally, I am satisfied. In 21 months we have practically rescued almost 1 million kids from the streets. Kids who didn,t go to school because they couldn,t pay. Now we are making the right to free and compulsory education a reality for everyone. We have made a great effort to take care of the people,s health. Venezuela is a country with an international profile. We are now president of OPEC, president of the Andean Community, with a clear international policy, independent, sovereign, peaceful. We have all the reasons to say we are winning the game.
You produce strong reactions in people. They either love you or hate you. Why? Is it based on race or social class?
There are some who may think about my native Indian face. My face may not be agreeable to them , they reject it, it fills them with revulsion. There are maybe some who look at my peasant background; this may cause them to reject me. But I don,t think these are determining factors. Anyone who analyzes Venezuelan history will see that this has been a problem on very few occasions. I don,t think it is a matter of Hugo Chávez; it has to do with a much deeper process. Here the war of independence did not have a happy outcome. After more than ten years of war against the Spanish Empire, Bolívar died betrayed and alone and finished his life proclaiming this phrase: “I have plowed in the sea.” In other words, the process of structural change, of the colonial political model, of the colonial economic model, of the social domination model, could not be broken. They broke the chains that had oppressed us from the Spanish Empire, but that was all. It was not possible to create a social model of an integrated society with social fairness, equality, fraternity like the French Revolution. Here everything was left hanging in the air , pending.
We have 80 percent poverty in a country that is extremely wealthy in natural resources. [We have] an elite that is terribly corrupt; a government system that is called democratic but, as a matter of fact, was a tyranny of small groups, with an authoritarianism, massacring the people, using the armed forces, limitless repression, persecution, murder, genocide. All that gave way to this new social and political force , the historical radicalization between a dominating minority and a majority that was dominated but that breaks chains and starts to construct or promote transformation.
So what happens with Hugo Chávez? Well, no one planned that I would be born in 1954, that I would be a soldier, or what would happen in 1992 [when Chávez attempted a coup d,état]. These are circumstances that arise randomly within historical processes. I could have died on February 4, when many of my comrades died. I could have died in some parachuting jump or in an accident, but here I am. We have a minority that has a lot of power, that hates me. They really hate my guts. But not because I have done anything personally, but because, at this moment of our small history, the forces of transformation are centered in me. Let me finish with one of Bolívar’s phrases: “I cannot do good or bad. I am just a simple straw that is swept by the revolutionary hurricanes.”
Some say you have good intentions but lack people with experience who can translate your vision into reality. Do you have enough experience in your team?
The first person who has no experience whatsoever is me. I am 46 years old, and 16 of these years I spent in the inner part of the country. I planted corn, was a fisherman, a baseball player. I was a singer, poet, then a soldier for 20 years, prisoner for two years. That is my history. What kind of experience do you mean? Here we had experts in politics, and they practically tore the country down. Here we had great economists with many years of experience who created misery and finished off the economy. Here some sociologist experts came with years of experience, books written, research, seminars, and they practically dismantled the society. Experience is relative, and sometimes that experience is detrimental. I know what I am doing. We have a team, a plan, a project. What does a big-league team do without a manager or discipline? We have a team. The whole is greater than the sum of its parts. We learn every day. I learn every day.
You are using members of the military for important positions.
For us, we the military and civilians cannot be separated. They are men and women prepared to do anything. Bolívar was general and liberator, he was civilian and military. The military is a public officer trained to fulfill different functions , not only to fire weapons or throw bombs. In the new constitution the Venezuelan people approved a new mission for the armed forces, to ensure national defense and actively participate in national development. We have an armed force with men and women of a high academic level, scientific and technological. But this doesn,t mean that I think the military is the only institution. Most of my ministers are civilians, and most of the governors are civilians.
How will you diversify the economy from oil and reduce poverty?
As soon as we began the government in 1999, we launched the first economic program for 1999 and for part of 2000. That first phase was oriented toward achieving balance in the main macroeconomic indicators. It has been successful. Inflation, for example, was a devil in a blue dress, practically. When we came to office, inflation was above 40 percent. Today it is 15 percent. The fiscal deficit was approximately 8 percent; this year it will be below 2 , a perfectly manageable deficit. International reserves have doubled, and today they are above $20 billion. The exchange rate is perfect. Our currency, the bolivar, moves according to a floating band. We have no fear of devaluation or exchange controls. The price of oil, which was at $7 when we came to power, is on average this year at $26.70 per barrel.
Now we are entering the second economic phase. That has to do with recovery. This year the growth of the gross national product is around 2.6 percent for the first quarter, and we are certainly expecting that at the year’s end it will be above that. [Ours] is an economic model in which investment of the state in this first stage must fulfill a role of activation. Therefore we have increased investment in agriculture, infrastructure, tourism, the energy industry, etc., in small businesses, microenterprises, family businesses. Last year we started early making laws by way of a constitutional procedure that is known here as an enabling law, or fast-track law. That is, Congress, the legislative power, authorizes the president to legislate on economic and social matters to face crises. We passed laws oriented toward creating trust and attracting of investment capital. We modified the income tax law to incentivize productive investment. We passed a [natural] gas law to open the sector to private investment. We passed a telecommunications law to open this sector in the same way, and that has generated growth in telecommunications. We have taken governmental measures such as eliminating the [value-added tax] for primary producers, for tourism and for many others, to reactivate industrial areas. We have taken a series of measures aimed therefore at establishing a mixed economic model.
Much current spending depends on relatively high oil prices. What happens when the prices fall?
We will do everything possible to keep them at current levels. We have established a price band for the stabilization of the oil price, and we hope that it is stabilized between $22 and $28 [a barrel]. However, it may happen that the oil price will fall again in one or two years. What are we doing? For the first time we are saving part of the oil income. Last year we created an investment fund for macroeconomic stabilization. It is a very strict law that obliges us to deposit a percentage of the oil income in this fund. At the end of this year, this fund should have almost $4 billion. It is like a piggy bank. The government may use part of these resources for special development programs, so it is perfectly valid that we will take some money to promote, for example, educational projects or for health, or for promoting small businesses, for creating employment. But we don,t want to do that unless it is absolutely necessary. We have a whole strategic plan. Tomorrow I am going to swear in a new team for the CENIAT , that is a tax and customs collecting institution. In the U.S. over 30 percent is collected of the gross national product in taxes. In Venezuela, we hardly reach 10 percent. We have to at least triple this over the next few years to give more strength to national income to finance all public expenditure and development. Tax evasion has been incredible , almost 50 percent of this year’s budget. We are going to depend much less on the price of oil per barrel. But tell the world that we will continue with our strategy of maintaining fair prices for our oil. We believe that an oil price at $10 a barrel is totally unfair.
One reason for increased demand for oil, and therefore higher oil prices, has been the economic recovery in Asia and other developing countries. Do you worry that continued high prices could hurt this recovery and reduce demand?
We believe that the band of $22 to $28 is fair, and we are contributing what we can to stabilize this price. Barely a week ago we decided at OPEC to increase production by 500,000 barrels per day, with which, notice, OPEC this year [will have reached] 4 million barrels a day of increase. If prices reach $40, $50, we don,t want this; it would have a strong effect on the economy of the developed countries and an even more serious effect on the economy of the third-world countries that do not produce oil. It would be fatal for many small, medium and underdeveloped countries. We don,t want that to happen, and I am sure it won,t. With these fair prices I don,t think they will negatively affect the economy of the U.S. or Asia or Europe.
The Venezuelan business federation Fedecamaras is concerned that the bolivar is overvalued and says this is contributing to job losses. Is this something you have been thinking about?
Not everyone in the Fedecamaras thinks like that. We are asking Venezuela’s private companies to join and also to make a greater effort in other directions to reduce costs, increase productivity, technology, and we are offering support for this. We have identified development projects of the private sector, and in two or three months, [a presidential] commission has collected over 1,000 projects, all from the private sector, that go from small agricultural projects to large tourist projects, for example. And none of these sectors, none of these businessmen, are complaining that the bolivar is overvalued. They request support from the state, investment in infrastructure, fiscal incentives, and we are giving them to them. Nobody requests devaluation of the bolivar. This is what generates, among other things, inflation and benefits, but only for a small sector. It also generates a drop in purchasing power , misery and poverty.
Have you considered fixing the exchange rate?
No, the exchange rate is floating. The central bank handles the exchange policy, and it is handled on a slope and a totally free flotation of the currency, subject to the market every day.
Investors are confused about your beliefs. They see a man who has established a very good electricity law or a telecommunications law, but then they hear you talking about the problems of neoliberalism. How would you define yourself? Socialist, capitalist, pragmatist?
I don,t like to define myself. I do believe in democracy, and from the political point of view, our daily actions are to create a true democracy. Some say I am promoting a dictatorial model in Venezuela. Some say that I am concentrating power, but if they spent some time studying the reality, they would realize that what we are doing is leaving behind a tyranny, a system that concentrated power in a few hands that was disguised with a mask of democracy, and that we are generating a democratic process and system of distribution of powers. However, just see how superficial people can be, as was the case with The New York Times and Washington Post. My goodness, they were telling tremendous lies in their editorials this week. Poor them. They don,t know what they are writing about. So in economic issues, we have many who say that I am trying to copy the Cuban model, communism. No. We are fostering an economic process; we are looking for international investment; we are offering facilities and security, open investment in gas, electricity, tourism. We are sowing a capitalist system. However, the system must be marked by economic humanism, not this savage neoliberalism.
Some of your comments echo those of the antiglobalization movement that began in Seattle. Do you see a connection between what you are trying to achieve here and what the antiglobalization protesters are trying to do?
I haven,t seen any documents or firm positions or proposals of these movements that we saw on TV, so I can,t make comparisons. But I do think that even in the developed world, certain reactions have started to be heard against the neoliberal model as people start becoming aware of the negative impacts of a savage economic model. I criticize neoliberalism wherever I go and will keep doing it because I am convinced that it is the road to hell. To be antineoliberal does not mean to be antiglobalization. To be antineoliberal does not mean that one is a communist. No. We can,t put that in black and white. To understand economics, you have to look at the society and you have to look at politics and you have to assess history. Pure economismo, that Cartesian vision of economic technocracy, has been very detrimental in our world.
How do you think globalization can be made to benefit most people?
First, we have to globalize our own country, to reunite our country, a broken-up economy, society, political system. How do you globalize a country in that condition? Therefore the first phase of our project is an inward, endogenous globalization. At the same time, we have launched the idea to implement a second phase of globalization, which is the globalization of Latin America and the Caribbean, the union of Mercosur and the Andean Community and the Caribbean, to form a pole of strength in this part of the world. We can then have a balanced interaction between different poles of power. North America is a pole of power. We respect it, want to be their friends, we want to be their allies, have commercial exchange. Europe is strengthened and must be another pole of worldwide power. Asia too. Latin America must form a pole of strength. That is our vision of globalization, because if it weren,t so, then the small, nonunited, vulnerable, underdeveloped countries could be swept off the map by the dominating forces of the global world. This proposal is not anti-American, anti-European or anti-Asian.
There’s a clause in the new constitution that allows the public to call a referendum to get rid of an elected official. Are you worried that this could be used against you?
No, not at all. The last thing that matters in this process is me. I am not important. I,m going to speak with my heart in my hand. Not even my life is important in this process. What matters is the process, the birth of a solid, legitimate democracy that is supported by the majority, plural democracy, capable of generating happiness to the people. Words of Bolívar. So suppose in two years it is evident that I have failed,? Fine. I believe in the social contract between the Venezuelan people and Hugo Chávez. They have contracted with me to work day and night, every day, all year round. Why? To take care of their interests, to respond to their needs. And if I am unable do it, they own the power. And they should have the right , and in a democracy they have the right , to kick me out.
What institutions have you put in place to ensure that your successor follows your democratic ideals instead of creating a dictatorship?
People have recovered their belief in a democratic system. Our people like democracy. They believe in it now more than yesterday. About a decade ago in Venezuela, many people dangerously began to think that we needed a dictatorship. Today the situation has changed radically, and the majority believes in the new constitution, and they approved it. They helped design it through popular referendum, through electing a constituent assembly. Men, women who never voted in over 50 years went to vote. This is the biggest and first guarantee that in Venezuela we are going to have a democracy forever, and now not a false democracy. A solid democracy. Democratic will cannot be concentrated in one person. That is not democracy. It would be autocracy. I therefore believe the process is guaranteed here, and if tomorrow or the day after someone comes to establish a dictatorship, the people don,t want it. We don,t want a dictatorship in Venezuela. We want democracy, and we are building a new democracy. We have defined it not only as a representative democracy, but participative and protagonistic. I believe that the previous model of representative democracy failed in Venezuela and in much of Latin America. We have to look for other models.
Is there a conspiracy against you?
I am sure these editorials form a part of a conspiracy because nobody in the world can think The New York Times or The Washington Post were pamphlets or that they are uninformed. No. They know very well what they are doing. It is impossible to think that they don,t know what they are doing when they write editorials like that , they have very clear intentions to create perturbations. Those who are behind these newspapers, editorials are trying to disturb relations between Venezuela and the U.S., and this forms part of a bigger plan: a conspiracy against Venezuela. There is no doubt about it.
Do you think the conspiracy originates in Venezuela?
I don,t know where it came from. I have said that there are individuals and sectors interested in that. They have been acting like that for several years. That is their line and what they publish in the U.S. There is coordination. It even goes beyond these editorials. Some think of taking my life away, of killing me.
