The Other November Election
by MBusch
As Venezuela prepares to mark the tenth anniversary of its Bolivarian Revolution, Hugo Chávez has little cause for celebration. His stewardship of the state economy has largely resulted in failure: income inequality is on the rise while poverty reduction has not kept pace with the country’s unprecedented oil returns. Basic food staples — such as milk, eggs, and meat — are scarce, raising fears that an impending food crisis looms on the horizon.
Violence is rife. Venezuela’s murder rate, which tallied over 12,000 homicides in 2007, has grown so ruinous that the country no longer releases official data. Internal disturbances from burgeoning secessionist movements have threatened state stability. Moreover, recent government politics hardly inspire confidence. In the last year alone, Venezuela threatened war with neighboring Colombia, repeatedly rattled its saber at the United States, and most recently, tossed Human Rights Watch observers from the country after the organization issued a critical report on regime transgressions.
With the country suffering under the weight of political turbulence and a deteriorating economy, Venezuela’s November election could produce a significant shift in the balance of national power. Indeed, some analysts have argued that the winds of change are gusting through Caracas with increased momentum. To be sure, Chávez’s Bolivarian Revolution looks vulnerable to defeat. The economy is in serious distress; public support for the Chávez regime is wilting; state nationalizations have repelled potential investment; and government policies have largely refused to conform to the necessities of reality.
Yet in all likelihood, Chávez will escape the impending vote with minor losses. The Bolivarian regime stands to benefit from a confluence of at least three factors that will maintain Chávez’s power in the near term. First, and of greatest concern, is the country’s seeming transition to authoritarianism. Chávez has declared a state of exception that has allowed him to extend executive power and bar political opponents from participating in this month’s election. Second, any organized opposition that remains finds itself in shambles. Though it seemed as if an opposition movement might take shape following Chávez’s December referendum defeat, any hints of continued momentum are undetectable. Finally, and most importantly, Chávez will benefit from the strongest buffer against electoral defeat: his populist politics. Though the recent drop in oil prices will likely force Chávez to scale back his state-spending on the poor in 2009, the government will not consider any reductions until after the election. Indeed, Chávez has increased spending as the elections draw near. As in the past, this will translate into victory at the polls.
Venezuela’s Troubled Economy
The election comes at a particularly tumultuous period in the country’s recent history. While a number of factors have been isolated to explain Venezuela’s current problems, the locus of trouble is the economy. Until the global finance crisis this fall, the surging price of oil on international markets had dramatically expanded Venezuela’s economy which result in inflation spiking to dangerous levels. Venezuela currently suffers from the highest inflation rate in Latin America, and forecasters see no end in sight. Experts expect it to climb past its current rate of 35% by year’s close, which would rank Venezuela’s towering inflation second only to Zimbabwe in the global economy. Compounding these concerns is the weak value of Venezuela’s newly-introduced currency. The bolívar fuerte was launched with the objective of curtailing Venezuela’s inflationary economy, but has had the opposite effect. The “strong bolivar” trades on the black market at less than half its nominal value, pushing up the costs of imports which in turn further intensifies mounting inflation. In October, collapsing oil prices on the international market devalued the new currency to its all-time low, capping off a 44 percent plunge since the middle of August.
Adding to the country’s difficulties, the tremendous economic growth enjoyed over the past five years has begun to stall, dropping from 10.3 percent at the end of 2007 to between six and seven percent in the first quarter of 2008. One problem has been a slowdown in industrial production. Another has been the steep decline in foreign investment. According to the Economic Commission for Latin America and the Caribbean, neighboring Colombia — a country wracked by security concerns — attracts nearly fourteen times more investment from abroad than Venezuela. To the southwest, Peru’s annual inflows from foreign investment dwarf Venezuela’s by a magnitude of nearly ten. Even tiny El Salvador and the Dominican Republic enjoy more foreign investment than Venezuela.
Cast in historical perspective, the Bolivarian republic closely resembles previous revolutionary regimes in the developing world. Earlier experiments with state socialism in the Global South have all articulated a standard menu of policies. Each is generally designed to accomplish five central objectives: combat the economic influence of foreign capitalists; nationalize key industries that generate significant international exchange; recentralize state capacities; collectivize agriculture; and redistribute wealth. In addition, revolutionary regimes have often created social welfare programs to enhance the lives of the poor. The Bolivarian Revolution shares these ambitions.
Chávez has pursued a dramatic restructuring of Venezuela’s sociopolitical institutions. Before coming to power, Chávez built his political platform on attacking the established order as the source of the nation’s problems. He criticized the ruling regime for their willingness to mortgage Venezuela’s future on the economic policy prescriptions of so-called Washington Consensus neoliberalism, and promised radical reforms if elected. Once in office, Chávez initially delivered on his pledge to jettison the decrepit state institutions of the Punto Fijo era. In their place, he established alternative political structures that promised to deliver much-needed social services to the extensive ranks of Venezuelan poor. On top of these concessions, Chávez outlined a comprehensive reform agenda for state overhaul to be implemented throughout the duration of his presidency.
Similar to nation-states in the developing world emerging from revolutionary tumult, Venezuela labors under structural constraints that limit the Bolivarian government’s attempts at social welfare improvement. Yet because the country is endowed with the second largest hydrocarbon deposits in the world, including massive petroleum reserves, Chávez has enjoyed room for maneuver that many leaders pursuing radical reform have not. This has been especially true until this fall when oil prices skyrocketed following the American invasion of Iraq in 2003.
Unsurprisingly, then, a key component of Chávez’s redistribution scheme is nationalization of Venezuela’s natural energy sector. The government has moved aggressively to reclaim control of its oil fields, and the profits they produce. In April 2006, Chávez ordered the expropriation of eighteen oil operations and the cancellation of over thirty operating service agreements. In the aftermath of these state takeovers, Venezuela renegotiated terms of agreement with all the firms but three, which increased taxes on profits to 50 percent, and placed 60 percent of operations under direct governmental control.
Unlike many developing countries possessing a wealth of energy resources, Venezuela enjoyed the technical and managerial capacity needed for effective nationalization. By the time Chávez ascended to power in 1999, Venezuela’s state-owned oil company, Petróleos de Venezuela, S.A. (PdVSA), had developed into one of the world’s most efficient, technologically advanced, and profitable energy firms. PdVSA possessed the expertise and physical capabilities to extract over four million barrels of oil per day from Venezuela’s expansive reserves of heavy crude. The company’s team of engineers and geologists were so highly valued that they became an invisible hand guiding state political and economic decision-making.
Chávez moved to gut PdVSA of its senior management early in his presidency, however. Following the failed coup against him in the spring of 2002, state oil employees staged a work strike that ground the country’s oil sector to a halt. Chávez responded by firing 18,000 striking PdVSA employees, a move that effectively cut the company’s workforce in half. Employees left with more than their pink slips. According to one former PdVSA president quoted by journalist Christian Parenti, “Those workers took with them tens of thousands of years of experience, types of embedded experiential knowledge that cannot simply be purchased.” Since then, official numbers show that the company’s production has been cut by over 700,000 barrels per day. Outside expert observers argue that these numbers grossly underestimate the slowdown by at least a half a million barrels per day more.
Venezuela has never recovered from the disruption to its oil production. While the spike in energy costs on international markets temporarily infused the country’s struggling domestic economy with new life, Chávez’s decapitation of PdVSA’s technical and bureaucratic expertise exacerbated the uncertainty of private investment in Venezuela. Between an unstable regulatory framework for private investment, the government’s growing portfolio of expropriated industries, and deteriorating physical security conditions on the ground, the cost of doing business in Venezuela has been proved too high for many potential financiers. As a result, the toxic combination of private sector fears, reduced industrial production, and an inflationary environment has intensified the country’s economic turmoil.
Ideals and Reality
Yet at the moment economic indicators increasingly suggest that real living standards in Venezuela must fall, and Chávez has responded with aggressive policies designed to raise the living standards of his constituents. Most recently, the president celebrated International Worker’s Day by announcing a thirty percent wage increase for all Venezuelans, noting “there is no socialism without the working class.” At the same time, Chávez made plain his intention to lighten the burden of labor by reducing the national work day from eight hours to five. The government has also subsidized the public’s consumption of food and basic goods through government-run supermarkets that purportedly serve eleven million citizens. Moreover, the state has launched job creation schemes outside the oil industry to relieve economic stresses generated by unemployed sectors of the population.
The chief dilemma of this charitable state-spending is the fact that investment is directed at the most unproductive and marginal sectors of the population. On the one hand, many of Chávez’s state-sponsored efforts to improve the lives of Venezuela’s poor, like food subsidies and health care, are simply consumed without any yield. On the other hand, those resources dedicated to raising the productive capacity of marginalized segments of the population have largely failed to do so. Despite government claims to the contrary, for example, illiteracy throughout Venezuela has not been reduced significantly since the advent of the anti-illiteracy program Mision Robinson. According to The Economist, the literacy initiative has taught nearly 100,000 Venezuelans how to read, a far cry from the 1.5 million claimed by the government. Another, paradoxical, problem faced by Chávez’s oil-financed Bolivarian social service programs is the perpetuating cycle of “catch-up” they face in meeting the needs of marginalized populations. While mission workers welcome and depend on increased petroleum revenue, the influx of oil wealth into the Venezuelan economy produces greater rates of inflation, which in turn exacerbates disadvantages faced by the impoverished majority.
The president’s militancy on behalf of his impoverished constituents ironically set a trap of policy contradictions into which Chávez has unwittingly wandered. His Bolivarian Revolution is currently caught between the opposing forces of rising expectations among the citizenry, and the necessary compromises needed for economic stability. In an interesting turnabout this past spring, Chávez acknowledged as much by reversing course on his anti-neoliberalism. Arguing that he would not sell-out his poor constituents, Chávez nevertheless issued a number of presidential decrees mandating new economic policies that mirror prescriptions outlined by Milton Friedman in the name of national stability. The president ordered a temporary reduction in state spending, increased the cost of borrowing money, ordered all banks to double their reserve holdings on all new deposits, and removed significant sums of money from circulation. While the new policies paid immediate dividends by slowing inflation, their use-by date was of short duration. With national elections looming, Chávez soon resumed his lavish spending on the downtrodden.
November Forecast
Increased state financing of programs aimed at Venezuela’s poor is especially important in the face of a perceived reduction in popular support for the Chávez regime. While in the past Chávez has enjoyed the buffer of widespread popular support against the harsh reality of Venezuela’s deteriorating economy, public confidence began evaporating in 2008. Chávez’s declining popularity took shape most startlingly this past December when voters dealt him his first electoral defeat in a referendum that would have significantly expanded presidential powers. Chávez’s loss, however, was not in itself a major stumbling block for the Bolivarian Revolution. Chavista absenteeism, however, was startling. The government lost the referendum by a hair’s breadth, yet 44 percent of Chávez supporters chose to stay home during the election. Another three million voters, who had supported Chávez in his reelection bid earlier in 2007, voted against his platform in December. Since then, a survey published by Datos pollsters shows the popularity of Chávez’s Bolivarian government declining 34 percent, a sharp departure from already sagging popularity ratings at the end of 2007.
Chávez has, in a sense, been betrayed by his own. A recent series of high profile defections from the Bolivarian regime have undermined government stability. First, General Raúl Baduel, former Venezuelan Defense Minister and close aide to Chávez, publicly broke with the president. Baduel attacked Chávez for failing to meet the growing needs of Venezuela, and claimed that Chávez was leading the country down the road to authoritarianism. Then came accusations from Chávez’s ex-wife Marisabel Rodríguez that the president harbored dreams of dictatorship, and needed to be stopped from consolidating further power in the executive. Rodríguez’s public show of opposition was followed by the refusal of the Podemos Party, long a key supporter of Chávez’s Bolivarian coalition, to continuing supporting the president.
Still, an opposition victory in November is far from certain. In the first place, and certainly most worrisome to many observers, is Chávez’s willingness to unleash his unappetizing autocratic impulses to stem defeat across the nation. To be sure, the stakes are high. Up for grabs are nine regional gubernatorial seats, including oil-rich Zulia and a significant bloc of neighboring states. Were opposition parties to seize power in these departments, Chávez’s plan for a self-styled “Bolivarian revolution” would grind to a halt. This marks the election as the most significant moment in Chávez’s presidency since the failed coup which briefly jettisoned him from power in 2002. Chávez himself has not been shy to forecast the dire consequences of an opposition victory. “Imagine if the opposition groups managed to win…the state of Miranda, the state of Carabobo, Zulia, Tachira, Anzoategui…the next step would be war, because they would come for me,” he warned in June.
Possibly sensing his increased vulnerability, Chávez decreed a small, but sweeping, expansion of executive power at the start of August. Along the way, he also ordered the disqualification of hundreds of local opposition candidates poised to win seats in this month’s election. Chávez argued that those barred from running deserved prison sentences for their rampant corruption, not state-sanctioned legitimacy. Nevertheless, none of those expelled from electoral participation have been found guilty of any crimes. At the end of October, Chávez continued his offensive against the ranks of opposition candidates, threatening to jail the governor of Zulia, Manuel Rosales. As The Advocate went to press, Rosales’ future was unclear. Yet Chávez emphatically announced his determination to “put Manuel Rosales behind bars” before the elections. Predictably, such actions provide fodder for those alleging Chávez’s thirst for dictatorship.
These claims notwithstanding, it is unclear whether such measures are even necessary to maintain government power. The opposition is a mess. Looking to capitalize on Chávez’s weakened position following December’s referendum vote, opponents of the Bolivarian government took the offensive. Eight of the country’s most influential opposition parties signed a “unity pact,” building on increased popular dissatisfaction with the direction of state politics. Since then, however, political capital accrued from the referendum victory has been squandered by infighting and disorganization.
The most startling evidence belying a potent, “unified” opposition took the form of recent demonstrations protesting the president’s August decrees. In stark contrast to the marches against Chávez’s December referendum — rallies which drew tens of thousands to the streets — recent demonstrations have attracted paltry numbers of participants.
Beyond strong-armed tactics and an increasingly ineffective opposition, however, the most important safeguard buffering Chávez from political opponents is his potent populism. Latin America boasts a rich tradition of government spending and clientelistic practices to strategically manipulate electoral outcomes. Venezuela is no different. Chávez pursued a dramatic restructuring of Venezuela’s sociopolitical institutions after coming into power in 1999, delivering on a pledge to dismantle the decrepit stilts propping up the old order. In their place, Chávez established alternative political structures that he promised would deliver much-needed social services to the extensive ranks of Venezuelan poor. Bolstered by billions of dollars from unprecedented oil sales on the international market, state sponsored programs have enjoyed hefty bankrolling and an explosion of growth in the size and scope of their operations. The political utility of these grassroots operations is clear: for millions throughout the country, they provide a consistent, positive interface with the government — a valuable asset in securing voter turnout on November 23rd.
When the smoke clears following the Venezuelan elections this fall, Chávez will have suffered the loss of only a handful of regional allies. In all likelihood, of the twenty-one governorships currently controlled by Chávez and his allies, only two will fall to the opposition. Results for the hundreds of regional posts to be determined by local elections are more difficult to determine, but will almost certainly proportionally mirror gubernatorial outcomes. If so, these minor cuts and bruises should not significantly hamper Chávez’s march toward “socialism in the twenty-first century.” The fluctuating price of oil, Venezuela’s disintegrating economy, and Chávez’s own hubris, however, just well might.
