Stanford University
ENGR 297B
Prof. Bruce Lusignan
Venezuela: A Tenuous Democracy
“From Paratrooper to Populist President”
Camelia Coupal - SUID: 5043694
Ashlee Rosenthal - SUID: 5039743
March 12th, 2004
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FROM PARATROOPER TO POPULIST PRESIDENT
Venezuela has been a democratic country for the past 44 years. Now the question
is will this democracy survive today in Venezuela? Hugo Chávez, the current president of
Venezuela, came to power under the premise that he would redistribute income and help
the country’s poor majority.
However, since 1998, Venezuela’s history of relative
political peace and stable democracy has been rattled. The instability that Venezuela is
going through has become an international concern of how much longer Chavez will
remain in power.
This paper analyzes the current situation in Venezuela, specifically the political
conflict that exists between President Chávez and the opposition.
It begins with a
description of the country’s political, economic and social history, and how it came to
elect Chávez. It continues by describing Chávez himself, his military background and his
political transformation, a former paratrooper and then a populist president. Then the
paper focuses on the most important events of his presidency, including the April 2002
coup, the two-month strike in December, and the current situation. Besides the political
situation, it will analyze as well the impact that the situation has on oil supply and the rest
of Latin America, as well as the significance of democracy.
In the last decades Venezuela’s leaders have been democratically elected
achieving a sense of political stability; however, there have always been rumors of
political corruption. During the 1980s, Venezuela was going through a crisis, mainly
economical, but political and social as well. The country was governed by inefficient and
corrupt politicians, which created political instability.
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In 1992, Hugo Chávez attempted an unsuccessful military coup against the
presidency of Carlos Andrés Pérez trying to take advantage of the climate of instability
due to the economic reforms that Pérez was trying to implement.
These reforms,
although economically necessary for long term stabilization in the country, were
unpopular. The people wanted a change, and Chávez was growing very popular. He
made promises to eliminate the corruption and inefficiency of the past political parties
and appealed to 80% of the population who were poor and mainly uneducated. He
promised the poor new opportunities greater equality and prosperity.
The people,
desperate for change, believed him and he went on to win the presidential election in
1998. Now in 2004 Chávez is going through a crisis of his own, declining in popularity
to the lowest levels since his election.
It was precisely this popularity which had made him a hero who would save the
Venezuelans from the situation they were facing at the time. Currently, it seems that this
paratrooper turned populist president has his remaining days counted due to
incompetence and demagoguery. His lost opportunities to really do something good for
the population and his own style of corruption have become a leading issue at the
moment.
Background
In 1958, Venezuela became a democratic country consolidated mainly around two
political parties, AD (Acción Democrática) and COPEI. These two parties are very
similar: “Each is a multiclass party, drawing a varied social base together around a
central party leadership. Both parties also have permanent professional leaders, both are
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organized across the entire nation and at all levels, and both incorporate functional groups
(like unions, students, and professional associations) as wings in the party organization”
(Mainwaring and Scully p.47).
Upon comparison, COPEI is viewed as a more
conservative party, and known as the Christian Democratic Party. Additionally, Michael
Coppedge explains the parties as AD being center–left and COPEI as being center–right
or right. Even though both parties have the same base of a political system, they are
viewed as different and controversial among themselves.
Carlos Andrés Pérez
In 1988 Carlos Andrés Pérez won the presidential elections for the second time in
Venezuelan history. At this time Venezuela was going through an economic crisis which
had begun in 1983 with Black Friday, the first serious currency devaluation in the
country. While Pérez was not elected for his position on economic issues, the voters
remembered his first term in office, which had been characterized by blossoming
prosperity. “Sophisticated voters, such as the editors of VenEconomy, could not decide
six months before the election whether Pérez would be a ‘populist’ or a ‘develop
mentalist’ if elected. Unsophisticated voters probably expected that he would somehow
return Venezuela to the boom of the 1970s” (Coppedge p.19). Pérez with his advisers
created an economic shock plan.
The government was forced to seek assistance from the International Monetary
Fund, which also meant immediate and harsh economic austerity. Pérez planned to
restructure the economy on neo-liberal lines; he announced a new economic plan in midFebruary 1989, which included a major devaluation of the currency, extensive increases
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in the price of gasoline and transportation, and the elimination of subsidies for most food
items (Martz 1995). This plan created more conflict and the short notice of economic
austerity brought instability to the private sector. The impact of the economic plan
quickly resulted in riots and disturbances, because as Coppedge states that: few
Venezuelans thought such drastic reforms were necessary.
In consequence, the people were decidedly against economic liberalization, which
was what the shock program was trying to create. In 1989, GDP contracted by 8%.
During this time the economic decline was at its peak and the public felt that it had
nothing to do with falling oil prices, declining terms of trade, rising interest rates, and low
productivity, but rather because of corruption. By February 1992, the remuneration of
this new economic policy had not yet filtered down to the standard Venezuelan.
Consumers saw their purchasing power decline further, the gap between rich and poor
was even larger, and the elites (businesspeople, politicians, journalists, and public
officials) continue to uphold their lavish lifestyles. Venezuelans began questioning where
the billions of petrodollars had gone.
The perception of corruption in government
became a dominant theme in popular press.
The public had become completely disillusioned with the two traditional parties.
“I have argued elsewhere that by the 1970s Venezuelan parties had become too strong:
their internal discipline was so rigid that they lost responsiveness to the rank and file, and
their obsession with penetrating and controlling other organizations in civil society
blocked informal channels of popular representation between elections” (Coppedge). This
political struggle and competition between both parties resulted in conflict and this is the
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most probable reason why Chávez was the only solution the people believed could
change their situation.
1992: Coup Attempts
On February 4th, 1992, Chávez led a group of mid-ranking military officers in an
attempt to overthrow Pérez. He assured to reinstate patriotism and protect the interests of
average Venezuelans. To substantiate the coup, he cited Article 250 of the constitution,
which he claimed “provides for the correction of violations of the Constitution
specifically where…corruption is concerned” (Burgraaff and Millett 1995, p. 66). The
group called itself the Simón Bolívar Revolutionary Movement. They appealed to
military symbols and three historical figures in particular: Simón Bolívar, Simón
Rodriguez (Bolívar’s mentor and teacher), and Ezequiel Zamora (a nineteenth-century
general who had favored distribution of land to soldiers). Even though the coup was
unsuccessful, Chávez was seen as a national hero who promised to put an end to corrupt
politicians, develop the conditions of the poor and change the country to a new and better
one. In November of 1992 the movement attempted another coup which failed as well.
Caldera
In the presidential elections of 1993, after Perez was removed from office because
of corruption charges, Rafael Caldera won the Presidency. Previously he had been
president of Venezuela as a leader of COPEI; however, this time he was an independent
candidate. During his presidency the oil prices continued to fall and the foreign debt
increased which made it harder for the state to reduce inflation. Before leaving office
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with the country in economic shambles, Caldera pardoned and let out of jail Chávez and
all the military and the civilians who had taken part in the two failed coups.
Chávez
Following this period were the elections of 1998, where Hugo Chávez became a
presidential candidate. “Chávez employed populist and extreme nationalistic rhetoric,
frequently lamenting the poverty and hunger that so many Venezuelans were suffering”
(Coppedge p.27). He promised the people that he would be different and eliminate the
elite’s power in politics and create equality for all social classes. Chávez was elected by
a majority of votes, with 56.2% of 3,673,685 votes (Dominguez 1999).
Many suggest that he simply won because people voted for a change and could
not continue under the same prototype. “The unhappiness is basically because of the
economy; year after year the situation was deteriorating and becoming worse” (Garcia
Mendoza, p.414). In addition, it seemed as though he was against the upper class and
wanted to create equality with the other social classes by lowering the overall standards.
The result was a lot of resentment and deterioration of the relations between the haves
and have-nots. He went from being a paratrooper and coup leader to the President of the
country. Chávez named his new organization the Movimiento Quinta República (MVR),
the Fifth Republic Movement. He stated Venezuela needed to create a new republic, and
the new movement’s name was designed to indicate a complete break with the past (Gott
2000).
As most populist leaders, Chávez’s speech was radical. His most frequent subject
is the division between friends and foes of “the Revolution.” You were either with the
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Revolution or against it; there was no middle ground. Chávez’s words and actions
divided society into two sections: the small elite and the masses. According to Chávez,
the lower area (the pueblo), represents goodness, while those on top, the elites and private
enterprise, represent distortion. This separation between the rich and the poor and the
bad and the good permitted him not only to create a large base of support, but as well
allowed him to justify actions that punished one group and contributed to the
centralization of power.
Chávez associated the elite as an oligarchy; they became the enemy to blame for
the country’s problems. The pueblo (the people) were those who followed Chávez.
Those who opposed him were considered part of the “corrupt oligarchy, the privileged,
those linked to interests banished by the revolution” (Blanco 2002, p. 362). The ideology
of Chavismo (Chávez’s movement) is focused a lot on Simón Bolívar, the liberator of
Venezuela; he even changed the name of the country from Venezuela to República
Bolivariana de Venezuela (Bolivarian Republic of Venezuela).
During the beginning of his term, there was excellent economic income due to the
high price of oil at the time and this lasted for over two years. There was a low external
debt, but a high internal debt. In his third year, oil prices fell and there was more
dependence on income from the taxes on oil. Also the bolívar (local currency) continued
to deteriorate in value and was constantly devalued. Chávez, having enormous income
for his budget during the beginning of his term, did nothing of what he promised; instead
he traveled the world in his first year as President more than any other President has done
in the history of Venezuela. In fact, he spent enormous amounts of money on events that
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did nothing to help the poor who had elected him nor did he invest into any projects
which could help to bring the country out of its economic crisis.
Moisés Naim, the minister of Industry and Commerce in Venezuela between 1989
and 1990 during the Presidency of Carlos Andrés Pérez and a world renowned economist,
states that the wealth that the oil creates of which the State is the owner, makes the
inhabitants grow up believing that they are rich, when in reality they are actually growing
poorer. As well, he states that this contradiction creates frustration and resentment. The
people rationalize that if the oil is everyone’s and they do not receive anything from it
then somebody is depriving them, and this is because of corruption.
This is the context of Hugo Chávez, who will go into history as one who
misused an enormous political fortune. This common misconception that Venezuela is
rich because of its oil is especially held by the lower class population. Hugo Chávez
emerged in the midst of a population that was ready to break with the past. It was ready
for Chávez, someone who promised a deep structural change that would allow the wealth
from petroleum to benefit the majority. Venezuela is a rich country in resources,
however, the government has never managed it well enough to control the economy nor
develop other sources of income.
Chávez centralized power through a sequence of elections/referendums after the
1998 presidential election.
Once he was elected he declared a referendum for a
constituent assembly to be held in April 1999.
The referendum would “replace
Venezuela’s constitution, eviscerate the powers of the legislature and the judiciary, and
place governing authority under a ‘Constituent Assembly” (Zakaria 2003, p. 96). The
proposed new constitution “increased the president’s term by one year, allowed him to
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succeed himself, eliminated one chamber of the legislature, reduced civilian control of
the military, expanded the government’s role in the economy, and allowed the assembly
to fire judges” (Zakaria 2003, p. 96). Devastatingly, 88% of the voters approved the
convocation of the assembly, and 82% accepted that the body defines the limits of its
own powers, as Chávez proposed. In the July election, Chávez’s Polo Patriótico alliance
won almost all of the 131 seats of the National Assembly (Ellner 2001).
Chávez’s popularity has gone down since elections. He has not done anything
that he promised the people, but rather has put the country in much worse condition than
before. He has abused his socialist rhetoric to the point of offending the United States and
befriended known despots around the world. His unusual brotherly bonding with Fidel
Castro has also been a major eye sore for the United States. His international credibility
is low as a leader and his ties to terrorist organizations are questionable.
The state of the national institutions are in crisis and there is currently political
conflict with the main industry of the country PDVSA (Petróleos de Venezuela), whose
workers are protesting because of firing workers based on merit and replacing them with
Chávez’s political allies.
In addition to this, in the Government National Assembly
many have resigned; FEDECAMARAS (The Nacional Chamber of Commerce known as
Federación de Cámaras de Comercio y Producción) and CTV (The National Labor Union
known as Confederación de Trabajadores de Venezuela) have united against Chávez
along with the Church. Religion in this South American country is very important to its
population and Chávez has been relentless in his insults towards the clergy and other
members of the church.
Many Universities are also against him, like the Universidad
Simón Bolívar, and the UCV (Universidad Central de Venezuela).
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As a result, these groups took their protests outside established political control
and into the streets. Opposition to Chávez among military and armed forces officers
grew as well, Cornel Soto demanded Chávez to resign from the Presidency because of his
incompetence and destruction to the Venezuelan society.
These demonstrations of
opposition from military as well as politicians and the society at large have created a
climate of social, economic and political instability. To make things worse, currency
exchange was floated and overnight there was 40% devaluation of the Bolivar. Also
Chávez is inciting street violence by his supporters to aggravate the conflict between the
pro-chavistas and the anti-chavistas. Beginning in December 2001, the country was
seriously disrupted by work stoppages and protest marches, leading to an attempted coup
on April 11, 2002.
The attempted coup on April 11, 2002, symbolizes growing political discontent
about the country’s deteriorating economy. However, Chávez was reinstated in power
after two days. He still had support from certain sectors of society and the country was
not in a severe crisis yet. The failed coup actually aided Chávez in achieving more
centralized goals. He eliminated all those that opposed him from important political and
military positions, and separated those who supported and opposed him.
In a survey done by Alfredo Keller on the scenes of 2002, he exemplifies the
population’s opinion on different aspects, for example: 85% of the population agrees that
Venezuela is one of the richest countries in the world, while 15% disagree. 76% are
against the phrase that we all have benefited from the wealth the country has, while 23%
agree. These surveys were done in August and later in December of 2001. 66% of the
people agree that Venezuela will become rich again when the corruption ends, and 33%
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disagree with this. In relation to Chávez’s popularity which has gone down, 58% of the
people dislike him, while only 33% like him. Adding to this, 70% lost confidence in him,
while 29% still have confidence in him. An interesting survey question was if you
believed Chávez has gone crazy and that we have to elect another president, 48% of the
population agreed with this. This illustrates how a large portion of country has basically
lost all interest and trust in Chávez.
It’s not only the upper class who is against Chávez; these surveys were done to
the whole population. One of the survey questions shows 78% agree that many poor
people are against Chávez, while 20% only think that the rich and powerful are against
him. Currently in the crisis, 49% agree that Chávez has to be dismissed from office via
laws. 5% agree that he should be dismissed immediately through a military coup, and
43% agree that he should govern until 2007. Another question was that if there were
elections right now, would you vote for Chávez or for another candidate: in August, 35%
would vote for Chávez while 41% for another candidate; in December 25% would vote
for Chávez while 63% would vote for another candidate. This exemplifies how his
popularity has diminished from the original majority of supporters; the number of people
that would vote for him became less while the number of people that would vote for
another candidate grew.
By December 2002, political opposition was at its peak. A national strike started
on December 2, demanding either Chávez’s resignation before the end of his mandate in
2006 or new elections. The strike was organized by the labor unions; all sectors joined
the strike including the oil industry. Oil exports were cut by about 90%, representing a
significant fall in government revenues. Most people believed that if a large part of
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government revenues were eliminated, Chávez would be obligated to resign or negotiate
with the opposition. However, Chávez declared he would only resign if he lost an
election. The strike lasted until February of 2003.
The opposition and the government reached an agreement regarding a referendum
scheduled for August 19, 2003. Chávez announced that if he lost the referendum he
would resign from the Presidency. The opposition had to collect signatures to petition for
this referendum to take place. Once the signatures and the state ID where verified the
referendum was going to be able to take place after 90 days. Not surprisingly, once all
the signatures that were needed were collected and handed in by November of 2003 to
the National Electoral Council, Chávez announced that the referendum was not going to
be able to take place because many of the signatures were not verified. The government
announced that there must have been some sort of fraud during the recollection of
signatures and that they were not valid. For the referendum to take place there is a need
of a minimum of 2.4 million signatures. The opposition announced that they had
collected approximately 3.6 million signatures.
Currently, the signatures that were not verified are going to be re-verified by the
National Electoral Council and those people will be asked to re-sign their forms. Once
this goes through the referendum might be able to take place. Everyone in the country is
waiting while they are living through its worst recession ever with a shrinking economy
and increases in poverty levels. Paradoxically, this is happening at a time when oil prices
are relatively high.
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Economy
Venezuela’s economy has had its ups and downs. Since the 1920s this Latin
American country has relied heavily on the oil sector as the bases for the economy.
Consequently Venezuelan economy has been affected by the fluctuations of the world
market for oil. When the market for oil is high, Venezuela’s economy flourishes, but
when there is less demand for oil throughout the world, Venezuela suffers. Through the
examination of Venezuela’s economy throughout history, this pattern becomes obvious.
Such fluctuations in wealth greatly affect the political and social environment of a
country. Government policies are constantly changing in order to adapt to changes in the
economy. This often causes uproar in society because people often have a hard time
dealing with change. In order to ensure stability, Venezuela should attempt to step away
from its heavy reliance on oil exports and begin to search for other areas that could
produce wealth for the country.
Early Economic History (1700 to 1920s):
Petroleum was not always the central element of Venezuela’s economy. During
the colonial era, people saw no useful purpose for the vast amounts of petroleum in
Venezuela. It was know as the “devils excrement,” and no one knew what to do with it.
Tobacco had been considered the most important crop in Venezuela before 1700, but
cocoa took over the economy in the eighteenth century.
By the end of the colonial era Venezuela was extremely wealthy due to its
production and trade of cocoa. This time period was known as the “cocoa boom.” The
Venezuelan war for independence from Spain however brought an end to this prosperity
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and had a huge impact on the economy. This combined with the collapse of the
international market led to the end of the “cocoa boom.”1 In the nineteenth century coffee
took the place of cocoa and became the main export in Venezuela. Although the economy
had suffered greatly early in the 1800’s from the struggle for independence, by the 1830’s
Venezuela had become the third largest exporter of coffee in the world. This boosted the
prosperity of Venezuela; however the market for coffee had its ups and downs throughout
the nineteenth century, causing Venezuela’s economy to vary.
It was not until 1917 that Venezuelan’s began to drill for oil. The rising popularity
of internal combustion engines gave petroleum a purpose in the minds of Venezuelan’s.
By the 1920’s petroleum had replaced coffee as the country’s main export. “By 1928
Venezuela was the world’s leading exporter of oil and it’s second in total petroleum
production.”2 Venezuela eventually went from a poor agrarian country in the early
twentieth century to the wealthiest country in Latin America due to the so called “oil
boom.”
Petroleum (1930’s to 1970’s)
When the petroleum industry first gained influence in the 1920’s, it was under
the control of foreign firms, but by the 1930’s the government started to take over the
sector. In 1936 the government introduced a policy known as “sowing the oil” (“sembrar
el petroleo”).3 This became the slogan in Venezuela and is still famous today. The policy
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was based on “using oil revenues to stimulate agriculture, and later, industry.” 4 The
earnings from the petroleum industry were used in other sectors of the economy. This
made it so that petroleum was truly the backbone of Venezuela’s prosperity. Without it
the economy would suffer greatly. By 1946 the government succeeded in getting a fiftypercent tax on the oil profits of foreign oil companies. At the same time, however, there
were large amounts of corruption in foreign companies and within the Venezuelan
government itself. Venezuela managed to achieve economic growth during this time
period despite these deficiencies. “Economic growth in the 1950’s was because of
unprecedented world economic growth and a firm demand for oil. As a result, physical
infrastructure, agriculture, and industry all expanded swiftly.”5
The year of 1958, marked the emergence of democracy in Venezuela. The new
leaders of the country focused on using the revenues from the oil industry to help finance
the new “reformist” economic and social policies that they wanted to implement. One of
the major steps that were taken by the government in 1958 was the creation of a new
ministry, Cordiplan (Central Office of Coordination and Planning). The purpose of this
ministry was to make plans with the aim of broad economic development over multiple
years.6
In 1960 Venezuela became one of the founding members of the Organization of
Petroleum Exporting Countries (OPEC) (see below), which led to a major expansion of
Venezuela’s economy going into the 1970’s. “Throughout the 1960’s, the government
addressed general social reform by spending large sums of money on education, health,
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electricity, potable water, and other basic projects.”7 With the economy doing so well the
government was able to focus its attention away from the wealth of the country and to
social policies. From 1960 to 1973, Venezuela’s per capita output increased by twentyfive percent.
Venezuela hit its peak in oil production in the 1970’s. The government began to
create new “state-owned enterprises” and “decentralized agencies.”8 For example, The
Venezuelan Investment Fund (Fondo de Inversiones de Venezuela – FIV) was
established and was “responsible for allocating huge oil revenues to other government
entities.”9 FIV was at the center of the new institutions that were being created by the
government because it controlled the amount of assets from oil they were allotted. By
1976 the oil industry was fully controlled by the government. This was due to the
“nationalization of assets of the foreign oil firms.”10 Foreign firms were taken out of the
picture and the Venezuelan government was able to take over control of oil revenues.
A Corrupt Government
It is inadequate to assume that Venezuela’s transition to democracy in 1958
eliminated of all of the problems that were present in the previous system of government.
It is important that a democracy is set up with proper institutions to ensure that problems
such as corruption and the abuse of executive power are minimized. Emerging
democracies are constantly faced with problems of corruption and abuse of power, yet
7
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through manipulating institutional variables such as horizontal accountability these
problems can begin to be reversed. Elections by themselves are too weak to guarantee an
honest, representative government. Corruption thrives in secrecy therefore it is important
that agents of horizontal accountability are used to draw attention to unlawful acts that
take place in government. It is important that when individuals enter the realm of politics
that they say goodbye to their private life. The best way to combat corruption and abuse
of power is through complete transparency.
Venezuela is consistently ranked as one of the most corrupt countries in the world
according to Transparency International. It is also one of the least economically free
countries in the world. Since the 1980s the political leaders have constantly attempted to
resist reform. “About two-thirds of Venezuelans now live in poverty – twice the number
of the early 1990s… The relationship between corruption and the lack of economic
freedom in Venezuela is not coincidental” (Vásquez). Because the government in
Venezuela has such control over the economy there is much more opportunity for
personal gain through the abuse of power. It is important to have economic regulatory
institutions such as security and exchange. Markets have a tendency to get perverted and
it is important to have a system of regulation that requires transparency so that confidence
can be generated in markets.
Fluctuations in the World Market for Oil (1980’s to present)
The one thing the Venezuelan government did not have control over was the
international price of oil. The international price of oil is constantly changing, and it has a
huge effect on Venezuela’s economy. High oil prices lead to Venezuela’s high per capita
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income, however the prices are subject to change. During the Luis Herrera Campins
administration, from 1979 to 1984, the price of oil fell dramatically. Interest rates also
went up causing large amounts of national debt in Venezuela. The oil sector could no
longer support the other sectors of the economy nor could it support the “array of
government subsidies, price controls, exchange-rate losses, and the operations of more
than 400 public institutions.”11 Venezuela had relied so heavily on oil to maintain the
other aspects of economic and political life that without it the country began to shutdown.
Jaime Lusinchi, the president from 1984 to 1989, made attempts to instigate
economic growth through many different reforms. These included: “devaluations of the
currency, a multi-tier exchange-rate system, greater import protection, increased attention
to agriculture and food self-sufficiency, and generous use of producer and consumer
subsidies.”12 Once the government was unable to rely on oil revenues to back the other
aspects of the economy, it had to focus on other methods to support these sectors.
Lusinchi’s reforms, in 1983, lead to economic growth. Venezuela went from negatives
growth rates in 1980 to 1981, to economic growth from 1985 to 1988.
In 1989, however, “the economy could no longer support the high rates of
subsidies and the increasing foreign debt burden.”13 More policy reforms were made by
the second Pérez administration in 1989. These reforms, however, led to large amounts of
rioting and social uproar in February 1989. This was the worst violence Venezuela had
seen since its transition to democracy in 1958. Pérez was attempting to lessen the
government’s role in the economy. He had a vision of a more free market with greater
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foreign investment. “The most fundamental of the 1989 adjustments was the massive
devaluation of the bolívar from its highly overvalued rate to a market rate.”14
Other major reforms took place within the Central Bank of Venezuela (Banco
Central de Venezuela – BCV). The BCV made many changes to its policies in an attempt
to improve the bank’s control over the allocation of money. “The most important policy
change was the government’s decision to allow the interest rate to fluctuate with market
rates.”15 This policy change created a situation in which people had incentives to save
and invest their money, making it easier to preserve capital. “In 1990, however, the
Venezuelan Supreme Court declared that the BCV was legally responsible for setting
interest rates.”16 It is ironic that Pérez would push for such reforms because he oversaw
the expansion of the government in the 1970’s. One would think that he would continue
to urge the government to play an increased role in controlling the economy. Pérez’
backing of reforms that reduce the role of the government shows how the fluctuations in
the world market for oil has had a major effect on the political situation in Venezuela.
In 1998 Venezuela’s economy went through another recession due to a decrease
in the price of oil, high interest rates and a downfall in export earnings. “The recession
continued into 1999 with oil prices forecast to stay relatively low, but rising.” 17 This
economic downturn in 1998 put a halt to Venezuela’s reform program that had been
going on since the Pérez administration. In an attempt to reduce inflation and the national
deficit, the government reduced spending, improved tax collections, and “accelerated
14
http://lcweb2.loc.gov/cgi-bin/query/r?frd/cstdy:@field(DOCID+ve0037
http://lcweb2.loc.gov/cgi-bin/query/r?frd/cstdy:@field(DOCID+ve0037
16
http://lcweb2.loc.gov/cgi-bin/query/r?frd/cstdy:@field(DOCID+ve0037
17
http://www.photius.com
15
20
privatization of state-owned firms.”18 President Hugo Chávez had recently been elected
and it was believed that he was going to have a hard time dealing with all of Venezuela’s
economic problems. “Chávez has promised to strike a balance between reforms designed
to address the structural deformities of the economy and addressing declining living
standards. Chávez has sought to play down the populism that marked his political
campaign for the presidency in an effort to allay investor concerns. The wide range of
viewpoints represented on Chávez's economic team is likely to make rapid
implementation of a coherent policy difficult.”19 The recession at the beginning of 1998
was due to a downturn in international oil prices, which consequently made Chávez abide
by “OPEC-led production cuts in an effort to raise world oil prices.”20
The situation was exacerbated in December 1999 when there was massive
flooding and landslides in Venezuela. These disasters caused approximately fifteen to
twenty billion dollars in damage. The government had to ask for international assistance
in order to begin reconstruction. Despite the slight rise in oil prices at the end of 1999
Venezuela’s economy was still doing poorly because of a variety of variables. Most
importantly there was not much backing behind President Chávez and his economic
reform agenda. In 2002, President Chávez changed his policies toward a “free floating
exchange rate,”21 causing the bolívar to depreciate greatly.
\
18
http://www.photius.com
http://www.photius.com
20
http://education.yahoo.com/reference/factbook/ve/econom.html
21
http://www.nationmaster.com/country/ve/Economy
19
21
OPEC – Past and Present
In order to understand the world market for oil and how fluctuations in the price
of oil affect Venezuela’s economy, it is important to understand why OPEC was founded
and what its objectives are. The Organization of Petroleum Exporting Countries was
created on September 10th to 14th, 1960 at the Baghdad Conference. The found founding
members included Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. In the following
years, eight other members joined OPEC: Qatar (1961, Indonesia (1962), Socialist
Peoples Libyan Arab Jamahiriya (1962), United Arab Emirates (1967), Algeria (1969),
Nigeria (1971), Ecuador (1973-1992) and Gabon (1975-1994). From 1960 to 1965 the
headquarters for OPEC was in Geneva, Switzerland. In 1965 it was moved to Vienna,
Austria.
OPEC has specific objects that it continually works to achieve. “OPEC’s
objective is to co-ordinate and unify petroleum policies among Member Countries, in
order to secure fair and stable prices for petroleum producers; an efficient, economic and
regular supply of petroleum to consuming nations; and a fair return on capital to those
investing in the industry.”22 There is a Conference of Ministers that meets twice a year in
order to determine OPEC’s policy toward achieving the above objectives. The quantity of
oil the can be exported to other countries is controlled by OPEC quotas, such as the San
Jose Accord.
In the 1960’s OPEC sought to defend the rights of the five member countries in
the world oil market. This was extremely important for Venezuela because it determined
the amount of oil that it could produce and export and therefore the amount of oil
22
http://www.opec.org/
22
revenues that were acquired. This led to a rapid expansion of Venezuela’s economy in the
1960’s. OPEC kept a “low-profile” throughout this decade and began to engage in
negotiations with multinational companies. The “Seven Sisters” multinational companies
controlled the oil market at the time. By the end of the 1960’s OPEC had ten members.
During the 1970’s OPEC gained international influence. This was mainly because the
governments of the member countries, such as Venezuela, gained control over the
petroleum industries and began to have a say in the international price of oil. There were
two major downfalls in the price of oil during the 1970’s. The Arab oil embargo in 1973
and the Iranian Revolution in 1979 had important impacts on the price of oil. These
events were combined by the overall imbalances in the world market for oil and caused.
Oil prices began to rise quickly and peaked at the beginning of the 1980’s. However
prices dramatically dropped in the mid-1980’s until the third oil pricing crises in 1986.
The OPEC member countries began to realize the importance of working together
in order to achieve price stability. “Prices rallied in the final years of the decade, without
approaching the high levels of the early-1980s as awareness grew of the need for joint
action among oil producers if market stability with reasonable prices was to be achieved
in the future.”23
Because of this joint effort on behalf of the OPEC member countries to control
the fluctuations in oil prices “a fourth pricing crisis was averted” at the beginning of the
1990’s. Hostilities broke out in the Middle East causing a rise in oil prices. The member
countries worked together and increased the output of petroleum. This kept the prices
stable until 1998, when the economies of South-East Asia began to fail and oil prices
23
http://www.opec.org/
23
collapsed once again. Just as the Venezuelan government worked to pass reforms during
this time in order to induce economic recovery, OPEC and some “non-OPEC producers”
worked together to help generate a recovery of the international oil market.
By the end of the 1990’s there was “a spate of mega-mergers among the major
international oil companies.”24 There was also a large increase in the technology that oil
producing companies had to work with. Despite these advances, however, there was still
a major threat of decreases the demand for oil in the future. Overall, OPEC has played a
major role since the 1960’s in helping to stabilize a fluctuating market for oil. This
intergovernmental organization is likely to have an extensive impact in the future as well.
Foreign Economic Relations
Venezuela puts a heavy reliance on the export of oil, making foreign trade is
extremely important. Therefore in order to have a firm grasp in Venezuela’s economy it
is essential to understand the foreign economic relations of the country. During the
1970’s Venezuela experienced “favorable terms of trade”25 due to the increase in oil
prices; however this made Venezuela depend on only one export, oil. As a result of the
success in the 1970’s, Venezuela adopted import patterns that were hard to sustain. There
was an increase in the demand for imported luxury goods no matter what status the oil
market was in. “The 50 percent reduction in world oil prices in 1986 underscored these
structural weaknesses in the Venezuelan economy.”26 The Venezuelan import policy is
described below:
http://www.opec.org/
http://lcweb2.loc.gov/cgi-bin/query/r?frd/cstdy:@field(DOCID+ve0061
26
http://lcweb2.loc.gov/cgi-bin/query/r?frd/cstdy:@field(DOCID+ve0061
24
25
24
Import policy traditionally sought to protect local industry and agriculture from
foreign competition and to substitute local production for imports. The
government accomplished these goals through exchange rate manipulation, the
imposition of tariffs, and through import licensing restrictions.27
In 1989 the government worked to change the trade policy by moving away from
Venezuela’s major dependence on the oil sector. With the depreciation of the bolívar,
Venezuelan exports became cheaper and the imports became more expensive. Therefore,
Venezuela began to favor “export-oriented production over import-dependent
activities.”28 In 1988, Venezuela exported half of its commodities to the United States,
6% to West Germany, 4% to Japan, 4% to Cuba, and 4% to Canada.
Venezuela joined Ancom in 1973 and became a member of the Latin American
Free Trade Association (LAFTA) in 1982. Caracas, Venezuela became the headquarters
for “Ancom’s Andean Development Corporation and the region’s Latin American
Economic System (Sistema Economico Latinoamericano – SELA).” SELA’s purpose
was to analyze the “economic and social policies throughout the hemisphere.”29
Venezuela also had the goal of accepting the General Agreement on Tariffs and Trade
(GATT) in the early 1990’s. This, however, was not well liked by many. “Venezuelan
adherence to the GATT entailed several unpopular policy reforms, some of which would
come at the expense of exporters.”30
Venezuela’s bilateral economic relations are described as follows:
Venezuela's bilateral economic relations were characterized by technical
cooperation agreements, student exchanges, or commercial accords similar to
those signed by the major industrial nations. Its oil wealth in the 1970s, however,
http://lcweb2.loc.gov/cgi-bin/query/r?frd/cstdy:@field(DOCID+ve0061
http://lcweb2.loc.gov/cgi-bin/query/r?frd/cstdy:@field(DOCID+ve0061
29
http://lcweb2.loc.gov/cgi-bin/query/r?frd/cstdy:@field(DOCID+ve0061
30
http://lcweb2.loc.gov/cgi-bin/query/r?frd/cstdy:@field(DOCID+ve0061
27
28
25
did allow the country to become a major provider of bilateral and multilateral
financing.31
In 1974 Venezuela gave US$7.3 billion to international development. The majority of
this money was used towards “multilateral sources,” including the United Nations Special
Fund, the Andean Reserve Fund, the OPEC Fund, the Coffee Stabilization Fund, the
Caribbean Development Bank, and the Central American Bank for Integration.
Venezuela had become one of the major monetary contributors to the international
system.
One of the most important bilateral relations to understand is between the United
States and Venezuela. Both countries have major incentives to keep stable, tight relations
between each other. The U.S. has many interests in Venezuela, the most important being
the continued access to oil. Other interests include “promotion of U.S. exports and
protection of U.S. investment, continuation of the economic reform program,
preservation of Venezuela’s constitutional democracy, and closer counternarcotics
cooperation.”32 In October 1997 President Clinton visited Venezuela to secure relations
and established a “Partnership for the 21st Century.” However, currently under President
Chávez, Venezuela and the United States do not have the secure or good relations that
Venezuela has had in the past with the U.S.
Approximately half of Venezuela’s business is conducted with the U.S. (half of its
imports come from the U.S. and half of its exports go to the U.S.). This makes the U.S.
Venezuela’s most important ally. Venezuela is also extremely important to the U.S.,
especially since 1996 when Venezuela opened the petroleum sector to foreign
investment. This meant that there were more opportunities for trade and investment for
31
32
http://lcweb2.loc.gov/cgi-bin/query/r?frd/cstdy:@field(DOCID+ve0061
http://www.geographyiq.com/countires/ve/Venezuela_us_relations_summary.htm
26
U.S. companies. Consequently, there are about 500 U.S. companies present in Venezuela
Overall, “Venezuela is one of the top three suppliers of foreign oil to the United States.”33
34
Petroleum has been the main source of Venezuela’s prosperity and success since
its introduction into the economy in the 1920’s. It also, however, has the potential to
cause ongoing problems due to the fluctuations in the international oil prices.
Venezuela’s over-dependence on the oil sector will eventually lead to the demise of its
economy. In order for Venezuela to prepare for the possible downfall of the world market
for oil it must have other areas in which it can gain prosperity. For example, it could put
more emphasis on tourism, much like Mexico has. With other sectors of the economy
gaining wealth for the country, the fluctuations in the international oil prices would not
have such a major effect on Venezuela’s economy.
33
34
http://www.geographyiq.com/countires/ve/Venezuela_us_relations_summary.htm
news.bbc.co.uk/.../newsid_1925000/ 1925514.stm
27
The social and economic circumstances in the country presented an opportunity
for a populist leader, on promising economic growth and income redistribution, to
emerge. Chávez represents a continual hope in Latin America that a new hero will
emerge and mend society’s problems.
Luiz Ignacio da Silva in Brazil and Lucio
Gutierrez in Ecuador are examples of leaders who appealed to the need of the majority of
the population.
If Latin America’s social and economic problems continue, this
phenomenon could become more widespread.
With high levels of support, Chávez was able to centralize power through a
succession of referendums.
Chávez has pushed the country away from a limited
government by taking away the powers of institutions. As a result, Venezuela has been
steered away from the stable democracy that characterized the country since 1958.
How did a paratrooper become a populist president and consequently make such a
mess of things. The answer lies in the quest for power above all else and the use of
populism as a tool to power. Whether or not Chávez actually does anything to help the
poor who helped to elect him has become an issue in the distant background. With four
years behind him in the presidency, he has had more than ample time to prove himself as
a good leader. However, the opposite has occurred and he has turned out to be a true
example of a demagogue.
Demagogues spread very distinct emotional messages which elicit negative
emotions, particularly fear and anger. The threat to “us” from “them” and the dread that
“they” will take what “we” have is the message that polarizes people rather than uniting
them in a common cause. Chávez, and other leaders like him including dictators such as
Hitler and Pol Pot, have built their platform for action of a negative resonance. He has
28
united his followers behind a banner of resentments, fear and rage- all to his nation’s
detriment. As a demagogue, Chávez has cast his spell through destructive emotions
killing hope and optimism as well as innovation and creative imagination. The hope for
his removal lies in the biological perspective that negative emotions exhaust and burn out
their recipient if they last too long. Anger and fear may help a leader remain in power for
a time, but they are short lived motivators. Chávez’s time may already be counted. The
final outcome of Venezuela’s current situation will have important effects not only on the
nation’s political scene but also for the rest of Latin America.
29
References
- Alocución del Señor Presidente de la Republica Hugo Rafael Chávez Frías en el salón
elíptico del Palacio Federal Legislativo. Caracas, Venezuela. July 5th, 1999.
- Blanco, Carlos. 2002. Revolución y Desilusión- La Venezuela de Hugo Chávez. Madrid:
Catarata.
- Coppedge, Michael: Venezuela: Conservative Representation without Conservative
Parties. Working paper, June 1999.
- Domínguez, Freddy. 1999. Chávez: La Revolución Pacifica y Democrática. Caracas:
Editorial Panapo
- Ellner, Steve. 2001. “The Radical Potential of Chavismo in Venezuela. The First Year
and a Half in Power” Latin American Perspectives. 120(128/5): 5-32.
- Faria, Hugo: 6 Propuestas para rehacer a Venezuela. 1999.
- García Mendoza, Oscar: Comentarios al Borde del Caos. 1999.
- Gott, Richard. 2000. In The Shadow of The Libertador. New York: Verso
- Keller, Alfredo: Survey on the scenes of 2002.
- International Monetary Fund. 1999. Venezuela: Statistical Appendix. October 7, 1999.
Available at <http://www.imf.org/external/pubs/cat/longres.cfm?sk=3225.0>
Accessed 7 May, 2002.
- Mainwaring Scott and Scully, Timothy R: Building Democratic Institutions. 1995.
- Medina, Medofilo: El Elegido. 2001
- Naim, Moisés. “Fwd: M.Naim. Entrevista sobre Chávez [El País – Madrid].” E-mail.
02/25/02
- Santodomingo, Roger: La Conspiracion 98. 1999.
- Vásquez, A Venezuelan Recipe for Poverty and Corruption. Dec. 14, 1999
- Vivas, Leonardo: Chavez. 1999.
- Zakaria, Fareed. 2003. The Future of Freedom. New York: W.W. Norton and Company.
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