Venezuela's Hugo Chavez Makes His Bid for a Bolivarian Revolution

Posted in Other | 04-Apr-05 | Author: Michael Weinstein

Venezuelan President Hugo Chavez

Throughout the first three months of 2005, the chronic verbal jousting between Washington and Venezuela's "populist" regime led by President Hugo Chavez ratcheted up in intensity, with Chavez threatening to cut off oil exports to the United States if Washington moved to destabilize his rule, and Washington declaring that it was pursuing a policy to "contain" him.

The latest round of rhetorical conflict began in January, when recently appointed U.S. Secretary of State Condoleezza Rice said that the Chavez regime was a "negative influence" in the Western Hemisphere. With power passing to the State Department, Washington has woken up to threats to its perceived interests around the world that had been festering since the Iraq intervention diverted attention from them. Despite the fact that Iraq continues to be an obstacle to fresh initiatives, Washington has decided to move to restore its global influence, including in South America, where left and center-left governments have taken control in the southern cone and a cycle of political instability has taken hold in the Andes.

Washington sees Chavez to be its greatest problem in South America, because he is the most radically leftist regional leader and the only one offering a clearly alternative and opposed model to Washington's scenario of a Free Trade Area of the Americas (F.T.A.A.) composed of market democracies led by the United States.

At the same time that Washington has become more assertive, Chavez has sensed an opportunity to implement his vision of a united South America that acts in accordance with its own interests, independent of Washington, and a "new socialist society" based on cooperatives that would eliminate poverty and subordinate private business to broader social aims. Although the "Bolivarian" vision is utopian -- and Chavez knows it -- it provides a framework for more practicable policies that put him on a collision course with Washington.

The tensions between Washington and Caracas reflect Chavez's judgment that the hemispheric balance of power has shifted against the United States and that Washington is not in a position to stop him from acting against its wishes. Since it is not clear that Chavez is correct, the conflict between Caracas and Washington has become a test of their relative influence in South America.

Chavez has espoused and attempted to implement his Bolivarian revolution since his election as Venezuela's president in 1998, but his progress was hindered by economic distress caused by depressed oil prices that led to severe domestic social conflict culminating in an unsuccessful coup attempt against him in April 2002 that was tacitly supported by Washington, and a widespread general strike in December of that year in which the state oil company P.D.V.S.A. was shut down.

Having weathered the attacks against his regime, Chavez's fortunes changed as the price of oil began its recent rise, general economic conditions improved and state coffers were replenished with funds that could be allocated to social programs, military expenditures and diplomatic initiatives. With the domestic opposition against him dispersed and demoralized after a referendum to recall him in August 2004 was defeated by 59 percent of voters, Chavez also felt free to consolidate power by taking greater control over the communications media and pursuing land reform, renegotiation of energy contracts with foreign oil companies, and diversion of oil revenues to infrastructure and social programs, and a military build up.

Oil is the basis of Chavez's power. The world's fifth largest crude oil exporter, Venezuela sells 60 percent of its output to the United States, accounting for 15 percent of the latter's petroleum imports. The Venezuelan state also has a major stake in refining and distribution in the United States through its ownership of Citgo. The recent high oil prices provided the stimulus for Venezuela's economy to grow by 17.3 percent in 2004, leading to a decrease in unemployment from 17 percent in early 2004 to 14 percent in February 2005.

U.S. dependence on Venezuelan oil puts a damper on any moves by Washington to destabilize Chavez's regime, but it also makes regime change in Caracas an ultimate aim for Washington. Chavez is aware of Washington's predicament and seeks to exploit it. Washington responds with efforts at damage control.

The Bolivarian Vision

With the exception of Cuban President Fidel Castro, with whom he cultivates friendly ties, Chavez is the only Latin American leader who stands for a model of development that deviates significantly from the broad Western consensus on market democracy, including its more competitive Anglo-American form and its more welfare-oriented continental European variant. More than the demagogue, vague populist and aspirant to a Castro-style dictatorship that his opponents in Venezuela, Washington and the U.S. press make him out to be, Chavez is a visionary attempting to consummate a social revolution in his country that will put into place a "new socialism" based on cooperativism and participation of all sectors of society in managing local affairs, and will transform Venezuela into as self-sufficient and developed a state as possible -- a "small major power," as he calls it.

Inspired by the continentalist liberator of South America from Spanish rule, Simon Bolivar, Chavez's Bolivarian revolution is neither an old-fashioned systematic modern ideology like Castro's Communism, nor the kind of ad hoc expedient appeal to the poor and disadvantaged familiar in Latin American populism; instead, it is something in between and with a distinctiveness of its own -- a set of broad principles and goals around which to mobilize Venezuelan society that reflect adaptation to the country's economic underdevelopment and its sharp social divisions -- especially between rich and poor.

Like any other political vision -- for example, the polity of market democracies in a globalized world advanced by his competitors -- Chavez's Bolivarism falls short in practice and might be impracticable altogether, yet it provides relatively coherent direction for national policy, does not seem to be simply a rationalization for power and -- if even moderately successful -- would constitute a concrete alternative to capitalist market democracy. Chavez appears to be serious and resistant to being bought off, which is why Washington perceives him as a special threat.

In common with many of the ideologies that have emerged in the post-Soviet era, Bolivarism is an eclectic combination of tendencies that were normally kept apart in the great struggles of modern politics. At its center, Chavez's vision, like Bolivar's, is continentalist, projecting the scenario of a unified South America composed of cooperating states that form an independent power bloc in the world and do not follow U.S. leadership. Yet Chavez is also an ardent nationalist, defending Venezuelan sovereignty and concentrating his efforts at change on transforming the country's society. His nationalism and continentalism are reconciled by the hope that by creating a cooperativist society in Venezuela, the country will provide a successful example for other states to emulate.

Chavez's domestic model -- a "new socialism" -- is an eclectic mixture of state intervention in the economy, tolerance of an independent private business sector, mobilization of society through a revolutionary party that penetrates every community, yet tolerates political opposition and adheres to constitutional procedures; "participative democracy" at the local level that focuses on "endogenous development" projects that bring the various sectors of society together in pursuit of common purposes, yet are energized by "Bolivarian circles" composed of his supporters; a dose of Catholic "liberation theology" that emphasizes preference for the poor; and an overarching nationalism that provides the rationale for patience and sacrifice on the parts of the conflicting interests that constitute the entire program.

To call Chavez a "populist" and leave the matter there dismissively -- as his opponents consistently do -- is a mistake. Instead, Bolivarism is a complex vision that is riddled with tensions, yet provides a basis for institutional development and a framework for particular policies. The primary tension is between social mobilization through state intervention, a revolutionary party, and the network of Bolivarian circles; and the tolerance of a private business sector, political opposition and inclusion of civil society at the local level, all of which are capable of running counter to mobilization.

The balance between mobilization and inclusion is shaky and susceptible to falling toward the Castro-style dictatorship that Chavez's opponents foresee or toward the deadlock and disorder that broke out in 2002. Success in implementing the vision depends on a steady stream of funds from high oil prices, enabling Chavez to improve the conditions of the poor, who form his base, and to keep the more advantaged interests at bay.

Former Venezuelan diplomat Sadio Garavini Di Turno notes that there are "three Venezuelas": the pro-Chavez sectors, the intransigent opposition, and those in between who voted for Chavez in 1998, were disaffected and joined the opposition in 2002, and returned to support him in the 2004 referendum, when they became frustrated by civil strife, the economy improved, and Chavez's development "missions" began to bear some fruit. Di Turno anticipates that Chavez will again disaffect the middle third by being unable to carry through his revolution and urges the opposition parties to unite and offer a credible program "to channel this disappointment."

It is far from clear that Di Turno is correct that Chavez will fail and set off another cycle of instability. If the price of oil remains high and enough development projects are successful, leading to an improvement in the standard of living for the poor -- who compose approximately half of Venezuela's population -- Chavez's parallel institutions might begin to take root and alter the social system.

Bolivarism is a compromise formation adapted to a deeply divided society, but unlike other experiments to promote social change through social mobilization in underdeveloped countries, it is fueled by wealth and not dependent on foreign patrons. It remains to be seen whether Chavez will be able to keep the middle third of the Venezuelan public acquiescent. Facing an election in 2006, he knows that he must move rapidly to demonstrate progress and consolidate his power. He is doing so aggressively on all fronts, having declared 2005 "the year of the productive economy," in which Venezuela will make its "leap forward."

Oil Policy

If Chavez is to effect his Bolivarian revolution, Venezuela must keep pumping enough oil to finance it. On the surface, his prospects seem to be promising. The country has the largest proven oil reserves in the Western Hemisphere (78 billion barrels) and the largest in the world (300 billion barrels) if the super-heavy crude in the Orinoco tar belt is included. The Venezuelan state also owns significant downstream refining and distribution assets through Houston-based Citgo. The Citgo refineries are specially adapted to process Venezuela's heavy crude and its chain of service stations in the United States markets the output.

Beneath the surface, there are problems. In the aftermath of the 2002 strike, which dried up oil exports for two months, Chavez fired 18,000 oil workers, temporarily paralyzing P.D.V.S.A. Although production recovered, it has not reached the peak of 3.5 million barrels a day recorded in 1997 and analysts dispute the government's current figure of 3.2 million barrels a day, estimating the actual amount to be 2.6 million.

The lagging production figures reflect depletion of Venezuela's developed oil fields and insufficient investment in developing new ones. With profits estimated at $6.5 billion for 2004, P.D.V.S.A. claims to be investing $5 billion a year in development and exploration, with the goal of bringing production up to 4.9 million barrels a day by 2010. Yet Chavez is also estimated to be diverting $4 billion a year of the oil profits to finance the Bolivarian revolution, leading analysts to posit an investment shortfall that can only be made up by foreign investors.

Faced with the conflicting demands of expanding oil production and funding the Bolivarian revolution, Chavez has moved to extract more money from foreign producers operating in Venezuela. In October 2004, he raised the royalty tax on companies working in the Orinoco belt from one percent to 16.6 percent. All the affected companies except Exxon Mobil have acquiesced in the tax hike so far. Exxon Mobil, which argues that the original low tax compensates it for its capital investment, has succeeded in getting the government to enter talks with it on the issue, but Venezuelan Oil Minister Rafael Rodriguez insists that the tax hike will not be rolled back. Under a law passed in 2001, new projects will have a royalty rate of 30 percent, which does not seem to have discouraged investors in the short term (for example, on March 31, ChevronTexaco announced plans to pursue joint development in the Orinoco belt with P.D.V.S.A.).

As a longer term growth strategy that has geostrategic implications, Chavez has moved aggressively to diversify the market for Venezuelan oil and the sources of investment for its oil industry. Caracas has signed energy agreements with Beijing and Brasilia, and is negotiating with New Delhi. Chavez's plan is to deal government-to-government, rather than with private firms, and to make Venezuela less dependent on exports to the U.S. and on private investment. He also wants to see a cooperative energy agreement be made in South America to create a complex -- Petrosur -- uniting all state hydrocarbons companies in the region, with the goal of excluding the big multinational oil companies from energy development.

Chavez's diversification strategy is still in its early stages. In its favor is the escalating demand for oil in South and East Asia, and the aspiration of Brazil to be a regional power. On the downside, Venezuela's potential new markets do not presently have the capacity to refine its heavy crude, and pipelines and shipping routes for moving the oil east do not exist or are inefficient. For the moment, Venezuela remains dependent on the U.S. market and that is not likely to change in the short to medium term. Nonetheless, Washington is studying alternatives to Venezuelan imports because of Chavez's threats to cut off supplies to the U.S. if Washington attempts to destabilize his regime or tries to assassinate him, as he suspects it intends to do. Chavez has stated repeatedly that he wants to sell oil to the U.S. and Rodriguez has reassured Washington that Venezuela's new markets would be served only by expanded production.

It is not yet clear how much substance lies behind Chavez's oil policies. Will the higher royalty fees and requirements that P.D.V.S.A. have a majority stake in development projects discourage investment? Will supply and refining problems in the new markets be resolved? Chavez's domestic critics claim that he will not be able to rectify the investment shortfall and that production will stagnate. The administration responds that production is high and that there is no investment shortfall.

In reality, the picture is mixed: there is strong demand for Venezuelan oil and efforts to expand supply have an unknown probability of success. The grand design of south-south cooperation and of Petrosur remain visions, yet emerging regional powers are eager to stake out positions in Venezuela's energy sector. How quickly development proceeds -- if it does at all -- will determine whether Chavez will be able to continue to finance the Bolivarian revolution and avoid the scenarios of a slide into dictatorship or a breakdown of his rule through renewed civil disorder.


Given the uncertain future of Venezuela's oil industry -- at least in the short term -- it is far too early to predict with confidence the degree of success that Chavez will achieve in realizing his vision. With the rise in oil prices a relatively recent trend, he is still in the deal-making phase and in the early stages of social development and military expansion. Acting on all fronts, he is forging agreements with Russia, Brazil and Spain to supply the Venezuelan military with aircraft, naval vessels and 100,000 assault rifles; instituting stricter press controls; expropriating land for distribution to peasants; buying public debt from Argentina; making security arrangements with Brazil; moving to gain access to currency reserves held by the central bank; organizing citizen defense forces; starting up agricultural and industrial development projects in Venezuela's hinterland; and cutting energy deals with China, India, Russia and Brazil.

Although Chavez's flurry of activity -- all undertaken in the past several months -- might simply be scattered initiatives rather than a set of synergistic policies, it has awakened Washington's concern and opposition. In particular, Washington has attempted, without success, to stop the arms deals, and has expressed concern over press restrictions, as have international human rights organizations. In its moves to "contain" the Bolivarian revolution, Washington has not been able to gain the support it desires from other interested powers, each of which has interests in cultivating good relations with Caracas.

Chavez is making his move. It is possible that he has bitten off more than he can chew, but there is also a chance that his Bolivarian revolution will gather momentum. Whatever the future holds, the political situation in Venezuela bears close watching, as the only major effort to implement an alternative model to the dominant neo-liberalism unfolds.

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