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For better or worse, Hugo Chavez and his Bolivarian Revolution are influencing events in and beyond Venezuela, from the Bronx to Buenos Aires.
For better or worse, Hugo Chavez and his Bolivarian Revolution are influencing events in and beyond Venezuela, from the Bronx to Buenos Aires.
María González takes stock of government-subsidized sugar for her bodega.
The broken bridge, built in 1953, was diagnosed as buckling in 1987, but between President Hugo Chávez and his predecessors, the problem was neglected for 18 years. In recent months, the Chávez regime has been working furiously to build an emergency bypass, but like many of Chávez's ambitious efforts, the bypass has been slow in coming. Likewise, the administration's aim to replace the bridge on this essential roadway by February 2007 may be hard to fulfill since the entity charged with repairing it – the Ministry of Infrastructure – is behind schedule on issues closer to heart. Sixteen months after having been consumed by flames, the top half of the ministry's headquarters is still a hollowed out skeleton.
The Chávez regime has proven more enduring, however, with an agenda that is both big and growing. At home, the objectives of what he calls a 'Bolivarian Revolution' are, if not utopian, then at least utilitarian. While critics are skeptical of proclaimed achievements in areas like literacy, health and housing seven years into his rule, the Chávez government swears it's making progress in a country where a third of the 25 million inhabitants live on just two dollars a day. If he manages to raise the living standards of Venezuela's many poor to better reflect the country's vast oil wealth (state oil company PDVSA reportedly sold $75 billion in crude last year, making it one of the five biggest oil producers in the world), Venezuela might just be a better place.
There's no question that his influence on Latin America is vast and growing as he puts his money where his mouth is. According to Stephen Johnson, a scholar with the Washington, DC-based Heritage Foundation, a conservative think tank, Venezuela promised $3 billion in aid last year (about 2% of its annual GDP) to Latin American neighbors – nearly twice as much as the US doled out to the region in the same period.
Plus, Chávez has staying power. Having survived a coup in 2002, and recently reiterated his interest in running Venezuela through 2030, he's likely to be on the scene for quite some time. Chávez has already expanded his mission to include all the downtrodden of Latin America and even the US. Though even ideological peers worry he's squandering Venezuelan oil proceeds to make political statements abroad, Chávez seems to be growing stronger by the day as his efforts to support shifts to populist leadership in the Americas and quick-fix solutions for the poor start to bear fruit.
Because of his endurance and proven ability to manipulate politics and economics throughout the Western Hemisphere, Chávez is LatinFinance's Man of the Year for 2006. Love him or hate him, but don't ignore him – no one is more influential in Latin America these days.
Hugo Chávez is often larger than life. Literally. Overlooking the highway leading past the downtown military airport in Caracas is an advertisement celebrating the accomplishments of the Bolivarian Revolution with a 20-foot tall Hugo Chávez kneeling down to receive a hug from a 6-year-old girl. In mid-2005, Caracas police SUVs were emblazoned with a close-up of a defiant Chávez raising an arm as if he were leading the Bolivarian Revolution into the future, or at least through Caracas' interminable traffic jams.
Similarly, Chávez looms over the Americas, from the Bronx to Buenos Aires. He has supplied crude oil throughout the Caribbean and Latin America, heating oil to the US and financial aid to Argentina and Ecuador.
In Bolivia, of course, Chávez scored his most notable foreign policy coup, as leftist rabble-rouser Evo Morales won that country's presidency in December. While Morales has vehemently denied persistent rumors of campaign contributions from Venezuela, the close connection of the two was underlined by Morales' first post-election trip, to Havana. There, in the Western Hemisphere's cradle of communism, Morales hailed Chávez and Cuban dictator Fidel Castro as the "commanders of the liberation armies of the Americas." Morales' January world tour was flown on the wings of a Venezuelan government plane. The next electoral test of Chávez's influence comes in April, when Ollanta Humala – like Chávez a former coup-plotter turned politician – hopes to sweep Peru's presidential race.
Like Castro, Chávez defines himself in opposition to the conservative foreign policy of US President George W. Bush, who he calls "Hitler Danger Bush" or "Mister Danger" for short. Bush, Chávez says, has repeatedly tried to topple his regime. In a move that hit Bush close to home, Chávez has made available 39.7 million gallons of heating oil at a discount of up to 40% off market prices to cities in seven states across the northeastern US, including Boston, Philadelphia and parts of New York City. US Congressman José Serrano, whose district in the Bronx was one of the first recipients of heating oil in the US, applauded Chávez in December, saying "We are truly grateful to ... the Venezuelan people for their generosity."
With the US preoccupied in Iraq, the leadership vacuum in Latin America has grown from significant to enormous and Chávez is eager to seize the opportunity. Speaking in Jamaica last autumn, where Venezuela was offering affordable fuel plus cash relief for debt and anti-poverty initiatives, the bombastic president insisted that Latin America has the chance to break free from the "domination and servility" that US investment and influence have long imposed on the region.
Javier Corrales, a political science professor at Amherst College asserts: "Chávez needs his Goliath. Otherwise, how can you be impressed with David?" Corrales profiled the Venezuelan president in a cover article early this year for Foreign Policy magazine, which is edited by a Venezuelan national and vocal Chávez opponent, Moisés Naím,
Sometimes Goliath strikes back. John McCain, a respected US senator and potential Republican candidate for the presidency in 2008, grabbed headlines in January for saying that US energy supplies shouldn't depend on "wackos in Venezuela." Venezuela's vice president, José Vicente Rangel, shot back that McCain can "go to hell."
Chávez and his cohorts provoke right-leaning leaders in the US and elsewhere in part to score points with the Latin American left. And it works. Rafael García Tinajero, a Mexican congressman with the leftist Democratic Revolution Party and a doctor by training, says he likes how Chávez's foreign policy differs from that of Mexico. "Chávez's plan to integrate Latin America is good," he says.
Mexican President Vicente Fox is one of several conservative leaders in the region who Chávez has publicly insulted in his ongoing quest for the spotlight (see Friend or Foe?, left).
Oil for Friends
Chávez's oil diplomacy is not limited to winding up the Americans – he's also looking to diversify his client portfolio from his biggest customer, the United States, which buys over half of Venezuela's oil exports.
Cuba receives about 100,000 barrels per day (bpd) of discounted Venezuelan crude, helping prop up Castro's now decades-long rule, while Central America and other parts of the Caribbean receive an additional 145,000 bpd, or over 18% of the region's consumption. Not to mention plans for an 8,000-kilometer natural gas pipeline across South America. In January, a coalition of leftist-run towns in El Salvador appealed to Venezuela for 21,000 gallons a month in diesel and gasoline over the objections of President Tony Saca, who said the deal would violate trade agreements with the US.
Chávez is also putting his oil profits to work to help "liberate" countries in the region from answering to Wall Street investors or Washington institutions like the International Monetary Fund (IMF). Over the course of the past 12 months, Venezuela has picked up debt from several of its neighbors, and in late February the country's Finance Ministry announced that it would erase a large chunk of the $3.9 billion in obligations backed by US Treasury bonds that it still owes under the Brady bond program.
Venezuela's purchase last year of $1.7 billion in Argentine debt, mostly dollar-denominated Bodens maturing in 2012, helped Argentine President Néstor Kirchner wipe out a $9.6 billion IMF tab earlier this year. Venezuela has kept up the purchases, buying $308 million more Bodens in February.
While Chávez enjoys playing the comrade, sometimes his handouts are laced with self-interest. Late last year, the Venezuelan Finance Ministry quietly sold $600 million of its Argentine Bodens through local private banks to unidentified investors in deals that were shrouded in secrecy.
Similarly, when cash-strapped Ecuador lined up for assistance, the country's then-finance minister, Rafael Correa, was hoping that Venezuela would supply the $500 million Ecuador needed to meet its infrastructure funding requirements. When Ecuador came to market in early December after a long hiatus, joint bookrunner JPMorgan said Venezuela had expressed interest in just $200 to $300 million of the debt. Ecuador issued $650 million in 10-year bonds at 91.69 US cents on the dollar, giving a yield-to-maturity of 10.75%. Ramiro Crespo, director of Quito-based Analytica Funds Management, points out that Chávez didn't do what he said he would. "Instead of buying lots of bonds at an interest rate of 9%, below market rates, Chávez only bought $25 million at market rates of almost 11%," observes Crespo. JPMorgan noted that Venezuela was far from the largest buyer.
Popular in the Barrios
While many question his motives, Chávez has won plenty of fans in Venezuela's barrios populares, or shantytowns, such as the José Félix Ribas neighborhood on the eastern edge of Caracas. "Josefe," as residents call it, is a sprawling series of red brick hovels climbing over the foothills of the Cerro Ávila mountain range and reputed to be the second largest slum in South America.
In Josefe's section 6, María González, a saucy middle-aged bodega owner, is one of the many poor Venezuelans who have embraced the Bolivarian Revolution. On the wall of her store – which occupies the front half of a house – is a hand-lettered sign offering residents suffering from cataracts or other eye afflictions state-sponsored operations in Cuba, courtesy of Mision Barrio Adentro, which aims to provide healthcare in the slums. Barrio Adentro claims to have served over 18 million as of the end of 2004 (the most recent date available), or nearly three-fourths of the population.
González gets up before the crack of dawn twice a month to go on an 8-hour shopping trip to the nearest government-subsidized Mercal supermarket, where she buys two weeks' worth of discount foodstuffs that she resells in her bodega. Since the government fixes prices of basic goods like milk, flour, meat, beans and rice, González sells them almost at cost, making her profit on soda, liquor and cigarettes. In spite of this hardscrabble livelihood, and the admission that she herself has benefited very little from the Bolivarian Revolution, González is steadfast in her support of Hugo Chávez – posters celebrating his seven years in power are on every door in the house. "I'll vote for Chávez," in the upcoming December presidential election, she promises, citing Mercal and Barrio Adentro as two of his initiatives that have improved life in Josefe.
While Chávez gets kudos for seemingly trying to address problems of poverty, critics say his measures are mere band-aid solutions. Teodoro Petkoff, editor of Caracas' leading TalCual newspaper and a vocal Chávez opponent, thinks the social missions are lovely in theory, but sees them as proof that the Chávez regime lacks long-term cures for Venezuela's ailments. "They alleviate the problems of poverty – they don't solve them," he says.
According to data collected by the Institute for Social and Economic Research at the Universidad Católica Andrés Bello in Caracas, 64.6% of households are below the poverty line after Chávez's seven years in power, up 5.2% from the level under his predecessor and 10.5% higher versus the second administration of Carlos Andrés Pérez, which ended in 1993.
The cost effectiveness of the missions is also questionable. While PDVSA has, according to its own estimates, poured $8.8 billion into Chávez's social development projects, clinics and supermarkets are already short on supplies.
Juan Uslar, president of BanGente, a private sector microfinance bank that works with 30,000 residents of the barrios populares across Venezuela, sees limits to the benefits Chávez can bring. "The government is spending money on our clients, and our clients are doing well," he says, "but these are unsustainable policies." An adjustment is coming, and the biggest victims will be the residents of José Félix Ribas, predicts Uslar.
Chávez's blustery rhetoric has completely polarized Venezuela, inspiring grandmothers to march in the streets and sending thousands into voluntary exile. Opposition to Chávez is fragmented, with the remnants of pre-Chávez political parties and disaffected ex-chavistas unable to rally around a common leader. Nationwide, almost 4 million people voted to recall Chávez from power in a referendum in August 2004, whereas a slight majority of 5.8 million opted to keep him in office. Chávez characterizes his naysayers as the discredited elites of Venezuela.
According to José Guerra, an economist at the Universidad Central de Venezuela, all government-run companies in the country are losing money, except for PDVSA.
PDVSA claims to produce 3.3 million bpd, and has recently announced plans to increase that to 5.8 million by 2012. By the estimates of many independent oil analysts, though, PDVSA is actually producing closer to 2.6 million bpd. In part, PDVSA is still recovering from a crippling two-month strike that ended in January 2003 and sent production plummeting to 25,000 bpd. Following the strike, Chávez dismissed more than 18,000 PDVSA employees, including most of the company's finance department and the bulk of its engineering staff.
The situation remains grim for the oil company. Pedro Burelli, a former PDVSA director who stepped down shortly before Chávez came to power, states bluntly: "PDVSA's production will decline." Burelli, who consults for international oil companies from his firm outside Washington DC, estimates that PDVSA will lose an additional 200,000 bpd in production during 2006. Burelli says it would cost $2 billion a year to replace the output that PDVSA loses annually. For the state company to achieve its goal of pumping 5.8 million bpd within six years, Burelli reckons PDVSA should be investing more than $5 billion a year. "But in 2005 they budgeted $3.9 billion, and spent $2.7 billion," he notes.
Much of PDVSA's money is not going to capital expenditures, but rather into poorly supervised social funds. Last year, Chávez transferred $6 billion in hard currency reserves to Fonden, a social development fund over which legislators have no oversight, and PDVSA has contributed another $2 billion, bringing the fund's assets to over $8 billion.
Burelli fears that the Venezuelan government has promised too much of its oil proceeds to a society that has already become accustomed to these new handouts.
Moving Up in the Ranks
Despite his spendthrift ways, Chávez has kept creditors happy. Venezuela recently earned an upgrade to 'BB-' from Standard & Poor's, based largely on money pouring into the country from years of high oil prices. "Chávez can weather a storm," says Richard Francis, S&P's sovereign analyst for Venezuela. "He's always paid his debts, even when tested," such as during the PDVSA strike.
Francis notes that Venezuela's debt-to-GDP ratio, a key indicator of creditworthiness, is falling, driven both by the country's recovery from the work stoppage and oil revenue. After posting growth of 17.9% in 2004, the country's GDP expanded 9.4% in 2005 and is expected to grow another 7.6% this year.
Despite lofty oil prices on the world market, and a credible job done by Venezuelan tax authorities – who doubled fiscal income from 2003 to 2004 by cutting down on tax evasion – total foreign public debt has increased by 30% to $31 billion since Chávez came to power in 1999.
That number could quickly balloon, since Chávez's free-spending ways have made Venezuela's budget extremely sensitive to fluctuations in the price of oil. According to Goldman Sachs research, Venezuela needed oil prices above $50 a barrel last year to balance its budget. Among major oil producers, the United Arab Emirates is the next most fiscally dependent on high oil prices, with a budget balancing out at $35 a barrel.
Venezuela's credit rating also compares unfavorably to oil-producing peers like Russia, Kazakhstan, the countries of the Persian Gulf and Mexico, which are all investment grade. The only other major oil producer rated 'BB-' is Nigeria, which is beset by civil unrest, religious strife and rampant corruption. But even Nigeria is in the black when oil prices are north of $30 a barrel. Clearly, Venezuela could do better.
"It's going to be hard to have further upgrades unless policies change," says S&P's Francis. "How the oil money is spent is important – if it's used to buy back debt, that's good. But if it's used to buy food for people in the barrios, that's a net negative [from a credit perspective]."
Venezuela's plans to pay as much as $4.7 billion in foreign debt in the coming months, including the repurchase of roughly $3.9 billion in Brady bonds, could very well put the country on the path to higher credit ratings.
Chávez is likely to win Venezuela's December presidential election and then move to consolidate his rule even further. At the end of February, Chávez threatened to submit a referendum changing the constitution (that he wrote) to allow him to stand again in 2012 if the opposition boycotts the upcoming election. Regardless of whether he has anyone to run against, Chávez is likely to clear the path for reelection in six years as part of his stated plan to remain in power until 2030.
The Venezuelan Supreme Tribunal of Justice, which Chávez is accused of stacking, began its 2006 session by singing Chávez's campaign theme: "Uh! Ah! Chávez is here to stay!" The theme is also heard during commercial breaks on the government-controlled VTV television station, which records Chávez's every public moment for the country to see.
Chávez faces no opposition in Venezuela's unicameral National Assembly after political rivals boycotted the last legislative elections to protest what they called a biased electoral authority. He's already trying to outmaneuver potential accusations of electoral fraud later in the year by labeling the observer designated by the Organization of American States a "right-wing Argentine."
TalCual's Petkoff is among the names being tossed around to run against Chávez in December. Petkoff – who hasn't committed to run yet – says that even with a clean election, the opposition might not stand a chance. "Not even God knows if the opposition will coalesce around a candidate," he laments.
On a recent evening in February, Chávez was once again on television in front of the nation, discussing the various affronts to his regime, including the Bush administration and the collapsed bridge between Caracas and the coast. Interest in Chávez's broadcasts, which used to be primetime viewing on all channels, has slackened in recent years. But on that particular night, everyone in Caracas was glued to their TV sets to watch the Leones, a local baseball team, face the Tigres from the Dominican Republic in the championship game of the Caribbean series. Chávez currently has the region's attention, but unless he comes up with more sustainable solutions, Latin America will change the channel, too.
From Boyhood to Bravado
Hugo Rafael Chávez Frías was born in the western Venezuela state of Barinas on July 28, 1954. While he was always close to his parents – his father is now governor of Barinas – he was sent at a young age together with his older brother – now Ambassador to Cuba – to live with their grandmother.
At 17, Chávez enrolled in the Venezuelan Academy of Military Sciences, where he studied communications. Graduating after four years, he joined the military and eventually rose to the rank of Lieutenant Colonel. While in the military, Chávez developed a keen interest in political science, which he explored through courses at Simón Bolívar University.
Chávez slowly developed his concept of Bolivarianism, named after the 18th century South American independence leader, and in 1983 he founded the Revolutionary Bolivarian Movement (MBR-200), a clandestine group of military officers. The movement was the backbone of Chávez's attempt to overthrow the neo-liberal presidency of Carlos Andrés Pérez in February 1992.
The uprising ended after two days when a captured Chávez went on TV to ask his comrades to put down their arms, famously saying that the revolution was over "...for now."
Chávez spent two years in jail for the failed coup before being pardoned in 1994. He then regrouped the MBR-200 as the Fifth Republic Movement, and turned it into a political vehicle to contest the 1998 presidential election. Chávez ascended to the presidency that year with 56% of the vote, and within months he began reshaping Venezuela through what he calls a "Bolivarian Revolution."
Friend or Foe?
Across Latin America, Chávez has worked to establish close relationships with some heads of state, while picking fights with leaders who are right-leaning friends of the US. Javier Corrales, a professor at Amherst College, characterizes Chávez's socializing as an effort to cultivate the compliance of Latin American governments so as to forestall US attempts to isolate him politically. "He says to other Latin American leaders: 'Treat me well, and I'll buy your debt. If you aren't nice, I'll cause trouble by stirring up your left,' be it the [Brazilian] MST, [Argentine] piqueteros, or indigenous movements," Corrales summarizes.
Energizing the left is more than an empty threat. During a nasty exchange of words with Mexican President Vicente Fox in November, when Chávez called Fox Washington's "puppy" and both countries recalled their ambassadors, the Mexican left rallied to Chávez's side. Following the spat, two legislators with Mexico's Democratic Revolution Party, Emiliano Vladimir Ramos and Rafael Quintana, marched in Caracas to support Chávez. "Everything that is being done by the people in Venezuela we wish would be done in Mexico," Quintana said on Chávez's Aló Presidente TV show the day after the march. Ramos, for his part, says he's impressed by the accomplishments of the Bolivarian Revolution in addressing issues like illiteracy and health. "In the [Venezuelan] process of social change," he says, "the people are finally involved in decisions."
Meanwhile, Chávez is often accused of harboring members of guerrilla groups that have been rebelling against the Colombian government for decades. After a war of words in early 2005, Chávez and Colombia's right-leaning president, Álvaro Uribe, hugged and made up in December. Further south, Peruvian President Alejandro Toledo called foul in January after Chávez met with retired Lt. Col. Ollanta Humala – a candidate for the presidency in Peru's April election – and then openly endorsed Humala as the voice of Peru's poor. Toledo accused the Venezuelan leader of meddling in Peruvian politics and of destabilizing Latin America in general; Chávez responded by calling Toledo – who is legally barred from serving another term as president – a lame duck crony of the US government.