When Venezuela’s President Hugo Chavez faces the electorate in 2012, the stiffest challenge to his 13-year hold on power is likely to come from the private sector.
Under the presidency of the former army colonel the economic muscle of the state now far exceeds that of the private sector. Two things, primarily, have been responsible for this. Firstly, Chavez has systematically removed most of the country’s oil industry from private hands. Secondly, the oil industry apart, the Venezuelan President has simply miniaturized the private sector and reduced the clout of its once powerful umbrella organizations.
Oil is central to the Venezuelan economy. Chavez’s critics say that oil is also central to his political longevity. Last month the Energy and Petroleum Ministry in Caracas announced that the country had ‘cashed in’ significantly on the recent sharp spike in oil prices. Over the Easter weekend the South American Republic raked in US$108.29 per barrel for oil sold by the state-run Petroleos de Venezuela. So far this year the average price for the country’s mix of heavy and medium crude has been in the region of US$94, higher than either the 2010 price of US$72.43 or the 2009 average price of US$ 57.01 and currently above the high of US$86.40 set in 2008.
Nor does the country hide its oil wealth under a bushel. At 2.1 cents per litre this year, Venezuela’s domestic gasoline is the cheapest in the world. Filling a tank in Venezuela is reportedly cheaper than buying a can of soda. And if oil prices continue to rise the bubble will probably not burst for Chavez’s regime in the immediate future. Venezuela’s estimated 211-billion-barrel proven oil reserve is reportedly the second largest in the world. This amount represents a major upward revision resulting from the inclusion of significant reserves of heavy oil in Venezuela’s Orinoco belt. In 2009 the country had net oil exports of 1.75 million barrels per day (bbl/d), eleventh largest in the world and the largest in the Western Hemisphere.
Life, however, is filled with the most peculiar ironies and one of those is the convoluted nature of the relationship between Venezuela and the United States. While Washington has made no secret of its belief that the Chavez administration is part of a post Cold War ‘evil empire’, targeting Caracas for what it says is Chavez’s human rights violations and its support for international terrorism, Venezuela continues to supply at least 10 per cent of the oil imported by the United States. From time to time US lawmakers make an issue of that country’s continued oil imports from Venezuela. Earlier this year, Republican Senator Connie Mack, who chairs the House Western Hemisphere Sub Committee, sought to persuade President Barack Obama of the wisdom of approving the construction of an oil pipeline from Canada to the Gulf of Mexico to make a point to Chavez that “the US is not willing to fund his regime indefinitely”. President Obama himself has made a separate commitment to cut US oil imports by 2025. For the time being, however, the US remains a major importer of Venezuelan oil.
The increase in oil prices not only provides Venezuela with greater financial resources but also better equips the country to continue to share its oil wealth within countries in Central America and the Caribbean. At current prices if the country’s oil production remains at the estimated 2.4 million barrels a day (mbd’s) oil exports could earn the country around US$71.4 billion this year and US$81.4 billion next year. Of course, if the country’s true oil export income is to be determined, oil exported in the region at preferential prices would have to be discounted.
Cuba reportedly receives around 120,000 bpd from which Venezuela will reportedly earn or an estimated US$3.2 billion this year and US$3.6 billion next year. Elsewhere in Central America and the Caribbean Venezuela’s PDVSA finances 50 per cent of the value of oil exports under preferential conditions that include loans for between 17 and 25 years at a 1 per cent interest rate with a one- to two-year grace period.
If providing countries in the region with cheaper oil will reportedly cost the Venezuelan government around US$12.8 billion in earnings – at present world market prices – over the next two years, that upside is that it makes the Chavez administration the biggest benefactor in the hemisphere. The Dominican Republic and Nicaragua, the principal beneficiaries of the arrangement with Central America and the Caribbean each receive 30,000 bpd with the former refining and reselling the oil at market prices and reportedly expected to earn US$450 million in 2011 and US$500 million in 2012.
Then there is China, the US’s most aggressive competitor in the global economy which has loaned Venezuela around US$32 billion under preferential terms in return for which Caracas has reportedly committed oil exports to Beijing totalling 300,000 bpd for the next ten years.
The increasingly dominant role of the state in the Venezuelan economy has been paralleled by a reduction in the private sector’s role and an increasing grumpiness in the country’s private sector. It is no secret that Chavez and Venezuela’s once powerful business community are not exactly enamoured of each other. An estimated 40% of the country’s 11,000-odd major industrial concerns have reportedly been affected by the former army colonel’s accession to the presidency. More than that, Chavez’s tendency towards the nationalization of the privately-owned interests in the country’s oil sector and the expropriation of seemingly idle firms in other sectors of the economy have made businessmen wary of his administration. Companies like the formerly privately-run paper manufacturing VENEPAL – renamed INVEPAL – were appropriated then re-opened with state financing under a public/private sector management scheme.
Local privately-run commercial banks are reportedly brooding over the announcement by Chavez earlier this year that Venezuela will allocate US$6.9 billion to building 150,000 homes, half of which will come from government and the other half from the banks. “Private banks can’t just finance one sector of the population, they also have to finance the low-income sectors, professionals, and the middle class, without using speculation mechanisms,” a clear indication that they have little if any choice in the matter. Perhaps not surprisingly rumour has been rife in Caracas for some time now that private sector elements have supported attempts to remove Chavez from power.
Not that the private sector has disappeared but the government now has a virtual stranglehold on the country’s economy on account of its control of the oil industry, which accounts for more than a quarter of the country’s economy. Add to this the range of state measures including government exchange controls, price ceilings and credit regulations and the creation of huge state-run enterprises to supply key staples like milk, flour and maize and it becomes pretty clear that the Venezuelan President does not subscribe to the dictum bandied around in neighbouring Guyana that the private sector is ‘the engine of growth.’
Seemingly oblivious to criticism of his style of management of the country’s economy which, his detractors say, focuses on doling out money in direct assistance rather than focusing on long-term development, Chavez has poured billions of dollars into improving the slum neighbourhoods from which he draws his support. His approach to improving the quality of life in those communities is exemplified in the order which he reportedly issued to PDVSA to build and run an elaborate social services centre in a poor neighbourhood. In answer to his critics Chavez has reportedly said that his government is “building hospitals, universities, housing, highways, railroads, [and] public works projects like water distribution.” All of which, he says, “costs money.”
Neither the disgruntlement of the Venezuelan private sector nor what his political critics have had to say about his running of the economy has served to deter Chavez. Last year, the economy reportedly shrunk for the second consecutive year though, buoyed by increased oil earnings, it is reportedly heading for growth this year. More than that, the central bank in Caracas announced recently that government is
abolishing a two-tiered exchange rate and going back to a single, government-set rate. The central bank also announced that the country’s gross domestic product should grow by around 2 per cent this year. Despite the extent of state control of the economy Chavez understands that it difficult to ‘sell’ socialism to a country that has long been steeped in private enterprise. For all its unpopularity with the political administration the private sector still controls more than half of the economy. Even as he selectively nationalizes companies, establishes state-run enterprises and promotes worker-managed businesses, there is little that Chavez appears to be able to do to curb consumerism among the middle class who reportedly flock the shopping malls and upscale restaurants to sate their appetites for imported designer apparel and fancy food.
Equally troubling for the soldier-turned civilian president is that fact that his aggressive espousal of socialism reportedly coincides with some the biggest scandals including one less than a year ago involving PDVAL, a state-run food distribution outlet which reportedly left hundreds of containers of food to rot in a Venezuelan port.
Still, Chavez soldiers on with a disgruntled private sector and a public sector that has reportedly grown from around 1.4 million in 1999 to 2.4 million last year and many of whom, the Venezuelan President’s critics say, are incapable of managing the growing state sector that he has built. Oil, however, appears to be sustaining the Venezuelan economy and some may even say, Chavez’s hold on power.
