There is no longer any doubt that Venezuelan president Hugo Chávez’s “Bolivarian Revolution” is having a significant economic and political impact on Latin America. The question now is, Will it last?
It’s 11 o’clock in the morning on any given Sunday in Caracas, Venezuela. Most television sets are tuned in to the state television network, but not to listen to the news or the latest soap opera. Instead, viewers are watching “Aló Presidente,” Venezuelan president Hugo Chávez’s weekly live talk show, in which he welcomes guests ranging from peasants to celebrities. He also takes questions from the audience and even tells a joke or two, often at the expense of his US counterpart, George W. Bush, whom he repeatedly identifies as his nemesis.
“I don’t even support most of what he says or does, but when you watch him on television, you realize that Chávez is part politician, part rebel and part pop idol,” says Armando Suarez, a small-business owner in the Venezuelan capital. “He’s also admired throughout Latin America almost as the heir to Fidel Castro,” he adds, referring to the Cuban leader whose advanced age and failing health appear to be bringing his nearly 50-year regime to an end.
Chávez and Castro have indeed forged an ideological alliance in a bid to keep the Cuban leader’s Latin American leftist revolution alive at a time when most of the region’s governments are in the hands of democratically elected left-wing administrations. Instead of ideology and personal sacrifice, though, Chávez is using his nation’s oil sector windfall to buy his way into the hearts of his neighbors.
Chávez has no qualms about his oil diplomacy. “Venezuela has a strong oil card to play on the geopolitical stage,” he says. “It is a card that we will play with toughness against the toughest country in the world, the United States.” Washington has done little to counter his growing influence in the developing world, aside from the occasional jab from administration officials, and has had to watch idly as Venezuela provides cheaper heating fuel to low-income families in several US cities, including New York. Chávez was also among the first to pledge aid to victims of Hurricane Katrina in 2005, an offer that Washington refused.
“Anyone who tries to downplay Venezuelan president Hugo Chávez’s aspirations should take note of the fact that he has pledged over $100 billion in grants, loans and investments to governments in the developing world—an economic commitment, in other words, of the magnitude of the Marshall Plan,” writes Richard Feinberg, professor of international political economy at the University of California in San Diego. “In Latin America, Chávez’s largess dwarfs the combined activity levels of today’s major multilateral development institutions, the World Bank and the Inter-American Development Bank,” he points out.
In fact, Chávez has forged ahead with plans to create Banco del Sur (Bank of the South), a financial institution funded primarily by Venezuela and Argentina, which will operate partly as a regional development bank to dilute the influence of other multilateral lenders. Accepting “help from the IMF is like drinking a glass of poisoned water,” says Chávez, who has vowed to pull Venezuela out of both the IMF and the World Bank. He paid off the country’s debt to the lenders five years ahead of schedule and has encouraged some of his neighbors to follow suit.
Ecuadorian president Rafael Correa, a close Chávez ally, expelled World Bank representative Eduardo Somensatto from the country this year and declared him persona non grata. Correa charges that the World Bank tried to strong-arm his administration into not increasing the amount of money it draws from an oil stabilization fund, and dedicates to social spending, by suspending the disbursement of a $100 million loan that had already been approved. Correa has now ordered auditors to look into every multilateral loan and vows to take legal action if any overpayment or wrongdoing is detected.
While Chávez says his aid comes with no strings attached, Feinberg states that there is what he calls “Chávez conditionality,” which broadly means joining what the Venezuelan leader calls his “21st-century socialism,” as opposed to “Bretton Woods” conditionality, which usually entails many of the harsh economic reforms that have left Latin American voters dissatisfied and looking for more radical solutions to the region’s socioeconomic problems.
In Nicaragua, the region’s second-poorest country after Haiti, Chávez provides oil to the energy-strapped nation at favorable terms under which the government pays for 60% of the bill within 90 days of delivery and then has 25 years to pay off the remainder at 1% interest and with a two-year grace period. He has also offered to build roads, an oil refinery and 200,000 homes. Needless to say, Nicaraguan president Daniel Ortega, once one of the region’s rising leftist stars until he ran his nation’s economy into the ground during his Sandinista regime of the 1980s, is another of Chávez’s closest friends.
In Cuba Chávez has established a program to exchange Venezuelan oil for Cuban doctors, who tend to patients throughout Venezuela. In Argentina Chávez’s purchase of some $4 billion in Argentine sovereign bonds helped to keep Buenos Aires afloat while it nearly drowned in the aftermath of its hefty $110 billion sovereign default and subsequent financial crisis—though Chávez quickly sold the paper to local bankers and investors and turned a tidy profit. Venezuela and Argentina have even issued bonds jointly, with Caracas’s cash flow amidst high oil prices helping dispel any lingering concerns over Argentina’s less-than-pristine payment record.
Chávez’s plans for regional integration are complex and far-reaching. He hopes to build a 5,000-mile natural gas pipeline from Venezuela to Argentina, and he is creating the Petrosur regional oil company as a conglomerate of state-owned oil ventures. He has launched TeleSUR as a regional television broadcaster that, of course, transmits weekly broadcasts of “Aló Presidente.” He is also the main proponent of what he calls the Bolivarian Alternative for the Americas (known as ALBA for its acronym in Spanish), a regional free-trade arrangement to rival the US’s failed Free Trade Area of the Americas (FTAA) hemispheric trade pact.
In return, Bolivian president Evo Morales, a Chávez protégé, has acted on his campaign promise to nationalize his country’s energy sector—which includes the region’s second-largest gas reserves—introduced a radical land reform program and announced plans in January to retake control of Entel, the country’s telecommunications company privatized in 1996 and controlled by Italy’s Telecom Italia. Morales has already renationalized Aguas de Illimani, the La Paz water utility, which was privatized in 1997 and had been controlled by France’s Suez. Other countries have taken similar steps drawn from Chávez’s playbook, which saw him retake control of oil operations in the Orinoco Belt from foreign companies and threaten others with nationalization.
But while many Latin American governments continue to take Chávez’s aid and adhere to the “Chávez conditionality” by echoing his political rhetoric, many find themselves stuck between Washington and Caracas in a region where the US remains the number-one trading and investment partner.
“We are not asking permission from any country, from any president, about who we meet, where we meet or what we talk about,” Nicaragua’s Ortega said after a Middle East tour that took him to Libya, Algeria and Iran. However, he remains in talks with the IMF for a three-year poverty-reduction and growth facility and has forged ahead with implementation of the DR-Cafta free trade agreement between the US, Central America and the Dominican Republic.
In a country with little foreign investment, Ortega must also deal with the reality that recent major investments have come from the US. In 2006 Citigroup acquired Banco Uno, a Nicaraguan bank. The year before, General Electric’s consumer finance division acquired a 49% stake in the country’s largest financial group, Banco de América Central-Credomatic. Nicaragua is also becoming a destination for US retirees, who have become important real estate investors.
“There are not refractory stances vis-à-vis the United States, and there is not an exclusive alignment with the government of Venezuela,” said Ecuadorian minister of domestic and foreign security Fernando Bustamante recently while trying to dispel talk of a mounting Caracas-Quito axis. Not coincidentally, his statement came just as the US’s Andean preferential tariffs arrangement was set to expire and would be reconsidered for an extension.
Brazils president Lula (right) has inked a deal to sell ethanol to the US that has put him potentially at odds with other Latin American leaders
Brazilian president Luiz Inácio Lula da Silva is one of the wild cards that will determine whether or not Chávez consolidates his regional leadership. Although a leftist himself, Lula remains fiscally orthodox as well as friendly to the business community. When Bolivian president Evo Morales seized some of Petrobras’s assets in Bolivia, Lula stood his ground, forcing Morales to back down and negotiate new gas delivery contracts with the Brazilian state oil company. Lula has also given lukewarm support to Chávez’s Banco del Sur project and has not yet committed any funds.
Ethanol is causing an even greater rift between Brazil and Venezuela. Chávez and Castro have supported the development of biofuels in the past, but they now argue that producing ethanol from sugar cane, as Brazil does, or corn, as the US does, will divert food sources away from the poor. Lula, nevertheless, has signed an ethanol regional production agreement with US president George W. Bush, creating further tensions with Chávez.
“Chávez is a rival of Lula in Brazil,” former Brazilian foreign minister Luiz Felipe Lampreia told the press in June. “He wants to undertake hegemony in South America.”
Not surprisingly, the new cadre of activist leftist leaders in Latin America are attracting severe criticism from a range of sources. “For [Latin American left-wing governments] rhetoric is more important than substance, and the fact of power is more important than its responsible exercise,” Mexican intellectual and former foreign minister Jorge Castañeda wrote in Foreign Affairs last year. “The despair of poor constituencies is a tool rather than a challenge, and taunting the United States trumps promoting their countries’ real interests in the world.”
Many analysts agree that Chávez’s South American hegemony drive will last only as long as his oil profits. “Chávez has an inflated sense of importance because he’s had an unbroken series of successes,” says Eduardo Gamarra, director of the Latin American and Caribbean Center at Florida International University in Miami. “The only thing that can slow him down would be a dramatic drop in the price of oil.”
The same holds true on the home front, where increased social spending and a booming economy help reduce the impact of some of Chávez’s more controversial political moves, including this year’s closure of RCTV, the country’s oldest privately owned television broadcaster, on charges that the network supported a 2002 coup attempt against Chávez. The closure has led to street protests, principally by university students speaking out against media censorship, and polls show 70% of respondents oppose the move.
But 2006 oil revenue was nearly $59 billion, the World Bank reports a 10% drop in poverty levels, unemployment has fallen by 7.7% since Chávez took office, and GDP grew by 10.3% in 2006 for the third consecutive year of growth above 10%, boosted mainly by soaring domestic demand. Private consumption rose by 17.7% in 2005 and 18.8% in 2006, leading to a 33% rise in bank profits last year on account of increased lending. Consumer lending rose by a nominal 119% in 2006, with auto loans alone rising 145% and mortgages increasing by 195%. Credit card loans were up more than 100%.
Yet there are signs that the party may be winding down. Economic growth is expected to slow to 5.8% in 2007 and just over 3% in 2008, according to private estimates. At nearly 20%, Venezuela’s inflation rate remains the highest in Latin America, despite the government’s anti-inflation measures that include strict price controls. Increased social spending is boosting the budget deficit from 1.8% of GDP last year to this year’s expected 5%.
Oil output and prices are on the decline. Venezuelan oil production, according to the International Energy Agency (IEA), fell from 2.7 million barrels per day (b/d) in early 2006 to 2.46 million b/d in February 2007, due partly to an OPEC-mandated reduction and to decreased output from existing oil fields. Oil export revenues for the PDVSA state-owned oil company dropped 10.9% during first-quarter 2007 to $10.7 billion. Venezuela’s basket of crude declined from an average price of $52 per barrel in first-quarter 2006 to $50 in first-quarter 2007.
Ironically, the United States, Chávez’s main foe, remains his country’s biggest customer. Venezuela is the US’s fourth-largest oil supplier, and PDVSA owns Citgo, one of the US’s largest gasoline retailers. In 2006, 60% of Venezuelan oil exports were destined for the US market. Bilateral trade expanded by 36% during the year.
Looking to the East
Just in case Washington takes a harder stance against Caracas, Chávez has already made friends with China. In March the two countries signed several cooperation agreements, including one to create a bi-national investment fund to build three refineries in China to process Venezuelan heavy crude. PDVSA did not export any oil to China when Chávez first took office in 1999 but now exports some 200,000 b/d. That figure is expected to rise to 1 million b/d by 2012. Bilateral trade was $4 billion in 2006, and Chinese direct investment in Venezuela, at $5 billion, is the largest in Latin America.
Chávez’s “Bolivarian Revolution,” whose name evokes that of Venezuela’s 19th-century liberator Simon Bolivar, is set to continue spreading its ideology and petrodollars throughout the region. “We do not think that the status quo will change any time soon, due to high oil wealth and lingering high levels of social spending,” says Bear Stearns analyst Albert Bernal in a research report published in June. “As long as oil prices remain high, the Chávez administration will be able to maintain ample political control.”
Despite his having been elected for a third term only a year ago in 2006, Chávez’s supporters are already calling on him to seek reelection in 2012. It is extremely unlikely that he will not stand, and, in his typical taunting manner, Chávez says, “Let’s see who lasts longer, Mr. Bush.”