[A-List] Venezuela: Chavez turns left

["Michael Keaney" <michael.keaney@xxxxxx>]

As Chávez'sgrip tightens, oil-rich Venezuela moves towards 'Castro
communism'
By Richard Lapper and Andy Webb-Vidal
Financial Times; Feb 06, 2003

Dressed in his trademarkred paratrooper's beret, Hugo Chávez was in
combative mood at a rally this week at which land titles costing a tenth of
a US cent were handed out to Venezuela's urban poor. "Government to the
attack, people to the attack - this is the year of the revolutionary
offensive," he roared to supporters in the impoverished El Calvario district
of Caracas. "Chávez is tougher than ever, Chávez is stronger than ever."

Since he swept to power in a landslide four years ago and won re- election
in 2000 with an even bigger majority, Venezuela's president has often been
dismissed as a maverick whose radical rhetoric is accompanied by generally
cautious policies. But not any more.

As the stand-off with striking oil industry managers and technicians enters
its third month, Mr Chávez appears intent on pursuing a revolutionary
programme of increased state control over the economy and the dispersal of
his political enemies - the "coup-mongers", "oligarchs" and "fascists".

Critics warn that Venezuela, a country that normally supplies 14 per cent of
the US's crude oil, is moving towards "Castro communism".

Exchange controls are not new in Venezuela. Moderate governments introduced
them in the 1980s and 1990s. But Mr Chávez has declared they will be used to
deny foreign currency to his enemies - a category that includes some of
Venezuela's biggest businesses. An army captain is to take charge of the
scheme. "The order I have given him is: not one dollar to the
coup-plotters," says Mr Chávez.

Prices, too, will be controlled, to ensure cheap food for supporters in poor
areas and to insulate them from the expected rampant inflation. Efforts to
take political control of PDVSA, the state oil company, are well advanced.
And in the past few days Mr Chávez has warned that the outside world should
not be surprised if opposition-aligned television stations are closed.

"It is worrying," says Eduardo Gamarra, director of the Latin American
Centre at Florida International University. "The [US] administration used to
say: 'don't listen to what he says, look at what he does.' He's now begun to
do some of the things that he said he would do."

Mr Chávez has no plans to expropriate the foreign multinationals that have
made multi-billion-dollar investments in oil and telecommunications. But the
domestic business community and the middle class fear that property rights
will come under sustained attack. "There are many differences but the mood
reminds me of Cuba in 1959 [the year Fidel Castro won power]," says one
Caracas-based Latin American diplomat.

Across much of Latin America, leftwing politicians' fortunes are reviving
because many of the market-friendly policies of the 1990s are unpopular.
Lucio Gutierrez, a radical former soldier, is leader of Ecuador. Leftwing
parties espousing anti-US policies have also gained ground in regional
elections in Peru. Most importantly, in the region's biggest economy,
Brazilians have elected Luiz Inácio Lula da Silva, leader of the Workers'
party.

However, the approach being taken by Mr Lula da Silva - and by Mr Gutierrez
- contrasts sharply with those being introduced in Venezuela. While Mr
Chávez favours bombast and conflict, Mr Lula da Silva has sought to build
bridges with his country's middle class and business groups. "They both have
concern for the poor but they are polar opposites," says Michael Shifter,
director of the Inter-American Dialogue, the Washington-based policy forum.
"Mr Lula da Silva is a skilled politician who has built a party and knows
how to negotiate. Mr Chávez is a quintessential anti-political figure."

There are already signs that the two men - who may find themselves vying for
leadership of Latin America's resurgent left - have fallen out. In the early
weeks of Venezuela's general strike, Brazil aided Mr Chávez by supplying
petrol. Since then Mr Chávez has ignored Mr Lula da Silva's advice to
negotiate with his opponents.

Mr Chávez can afford confrontation - he has already defeated a two-month
general strike - partly because the state already controls Venezuela's oil
wealth and dominates the economy. Until the current production stoppage
began, the country was the world's fifth biggest oil exporter, making it
less dependent than its neighbours on foreign loans and investment.

According to Alberto Garrido, who has written extensively about Mr Chávez's
political history, the president still believes much of the revolutionary
socialism learnt from former guerrilla fighters who recruited supporters
inside the armed forces during the 1970s. His obsession with Simon Bolivar,
Latin America's 19th-century independence hero, and his continued faith in
the ability of the armed forces to secure national freedom and social
justice also stem from this period. So does his desire to project himself as
a leader of the anti-globalisation movement. "If we don't put an end to
neo-liberalism," Mr Chávez told last month's World Social Forum in Porto
Alegre, Brazil, "neo-liberalism will put an end to us."

"He really does have a messianic concept of his historical mission," says Mr
Garrido.

Certainly, the unrest of the past 18 months has accelerated the president's
move to the left. April 2002's attempted coup, which was badly planned and
ended in fiasco, has provided the pretext to purge opponents from the senior
ranks of the armed forces. Similarly, the general strike, organised in
December to force Mr Chávez either to resign or to call early elections,
gave the president the opportunity to introduce changes at PDVSA.

The company was widely regarded as one of the most efficient and
best-managed public sector operations in Latin America. But Mr Chávez
portrays it as "a state within a state" and views its technicians and
skilled workers as a corrupt and self-serving labour aristocracy. Thousands
of these workers have been sacked in the course of industrial action
described as "criminal" by the government.

The strike - which won the backing of Venezuela's main business groups - has
badly weakened the economy. Gross domestic product is expected to contract
by as much as 40 per cent in the first quarter. Domestic demand is
plummeting, foreign exchange is likely to become scarce and hundreds of
smaller and medium-sized businesses face bankruptcy.

There are also signs that the strike has helped consolidate Mr Chávez's
political base among the poor, with his poll ratings holding steady at about
35 per cent. Opposition leaders are making much of having last Sunday
collected more than 3m signatures - at least a quarter of the electorate -
calling on Mr Chávez to resign or hold elections. But Alfredo Keller, a
Caracas pollster, says recent polls show a growing proportion of the
electorate is as equally dissatisfied with the leadership of the Democratic
Co-ordinator opposition alliance as with the government.

"People were really fed up with the [general] strike. They didn't like their
kids not being able to go to school and they got fed up with beer and petrol
shortages," he says.

The blanket support of the private-sector media for the general strike and
persistent hostility towards Mr Chávez could set the scene for further
radicalisation. Enraged by television and newspaper support for the
opposition, the government has proposed laws that could limit freedom of
expression.

The US, having prematurely recognised the two-day government that held power
in April, is keeping its distance - reducing its potentially moderating
influence on events.

Even so, Mr Chávez may choose to negotiate not just an end to the oil
dispute but a broader accommodation with his opponents. The constitution
allows a referendum in August that could lead to his resignation. Some
critics are hopeful that he may agree to call elections before those due in
2006.

Diplomatic efforts by the Organisation of American States have been under
way since November and have received fresh impetus in the past few weeks
with the formation of an international "group of friends", comprising
Brazil, Mexico, Chile, Portugal and Spain, as well as the US.

Teodoro Petkoff, a former guerrilla fighter and planning minister who now
edits an independent newspaper, says the initiative - comparable in some
ways with the one that brought peace to Central America in the 1980s -
should not be underestimated. There is widespread concern among Venezuela's
neighbours that its civil conflict could become enmeshed with that of
neighbouring Colombia, where a drug-financed civil war continues to rage.
"There is a lot of international pressure," he says. "They are really
worried about the spill-over."

Equally, continued confrontation with the private sector can only deepen
Venezuela's economic decline, increasing social problems and crime, which
could make a mockery of Mr Chávez's pretensions to be the leftwing leader of
global stature.

Yesterday, there seemed to be little sign of moderation as Mr Chávez and his
supporters talked about "revolutionary democracy" and "ideological
deepening". But Mr Petkoff, who knows the president personally, continues to
hope he will eventually step back from conflict and negotiate. "I told him
that he will have to make concessions. If he doesn't, he will be hit by an
avalanche."

Ali Rodriguez, the former leftwing guerrilla in charge of PDVSA, claims oil
production will return to "near normal" production levels of 3m barrels a
day within weeks. Having sacked several thousand strikers, the government is
gaining the upper hand, he maintains.

With crude trading at $33 a barrel on world markets and a possible war in
Iraq threatening disruption to Middle East supplies, a full resumption would
come as a relief to western consumers.

Venezuela is currently exporting about 500,000 barrels of crude a day, less
than a third of its pre-strike capacity.

But beyond the graffiti-marked walls of PDVA's headquarters in Caracas, life

is far from normal in the extensive and complex network of oil fields, wells
and refining installations.

In Maracaibo, the country's second largest city and historic centre of its
oil industry, a succession of mile-long queues outside petrol stations
testifies to the snail's pace of recovery.

PDVSA is restoring output in areas such as Maturin, in the east, and
Barinas, in the south, where wells are relatively easy to operate. But in
and around Lake Maracaibo the reservoirs are older and more complex. The
government faces enormous obstacles in raising production from these fields
to the 1.4m b/d achieved last year.

Many of the 10,000 wells have been exploited for years and roughly nine out
of 10 need pressure to be increased by the injection of gas - a process
known as "gas lift". For this reason, the lake-bed is covered by a
30,000-kilometre network of interlocking and overlapping pipes.

One set of pipes carries oil and gas from wells to so-called flow stations.
Another takes gas to the 37 compressor plants, where it is broken down into
liquid natural and dry gas. Some dry gas is then transported back to the
wells to support production. Much of the rest goes to fuel the Paraguaná
refinery complex, which is the world's biggest but has yet to start up again
since the strike began.

One of the main problems for the government is that PDVSA has automated many
of its facilities since the early 1990s and striking technicians now hold
the key to the information and computer system used to monitor and
co-ordinate production.

PCTJ-3 - one of the compressor units in the lake - was idle for the best
part of two months, mainly because strikers "took the access codes and
crashed servers" that controlled it, says Nestor Nava, a PDVSA official.

The strikers, though, reject accusations of sabotage and blame the company's
difficulties on the loyalist workers' lack of expertise. Dilia Rosa Guerra,
head of information systems, says each well needs to be monitored
individually to optimise output.

PDVSA is recruiting retired engineers to manage its installations but many
learnt their trade before the new systems were introduced. "This is the
biggest problem we have," says Mr Nava.

Further challenges could also slow the return to full production. The
manpower shortages have reduced the company's capacity to maintain wells,
compressor plants and other equipment, reducing productivity.

Reduced maintenance and poor co-ordination are leading to an increase in oil
spills on the lake. The pollution is more than four times normal levels,
according to the strikers, and PDVSA admits it is taking longer to send out
clean-up teams. Safety is also an issue: two workers were in hospital
yesterday after an accident on PCTJ-3.

Venezuela has already lost at least $4bn in export earnings, a setback that
will severely constrain PDVSA's ability to keep up output in the months
ahead. "There is a very real question over whether PDVSA has the money to do
all these restarts and to prevent capacity losses," says George Beranek, a
consultant at Washington-based PFC Energy. "The effects of this strike are
going to be with PDVSA for the foreseeable future."

-----

Rate controls add to Venezuela gloom
By Andy Webb-Vidal in Caracas
Financial Times; Feb 07, 2003

Hugo Chávez, Venezuela's president, announced details of draconian foreign
exchange controls yesterday, which analysts said would lead to financial
distortions that would compound the bleak economic outlook.

A fixed exchange rate - in force for an indefinite period - and limits on
dollar purchases would replace a floating rate and daily central bank dollar
auctions, Mr Chávez said.

The introduction of the controls ends a two-week suspension on currency
trading, which was ordered to halt a rapid decline in foreign reserves and a
plunging bolívar.

The continuing but weakening strike at state oil company Petróleos de
Venezuela, which began in December, has deprived the government of at least
$4bn (£2.4bn) in export earnings.

The crisis prompted the bolívar to tumble 32 per cent in the first two weeks
of January, until it was halted at 1,922 bolívars against the dollar.

The central bank, which will act as cashier under the new system, will
maintain a rate of 1,600 bolívars, a rate subject to "occasional" revision,
Mr Chávez said.

Administration of foreign exchange sales to importers will be policed by a
five-member commission, to be called Cadivi, headed by an army captain.
Priority will be given to basic goods such as foodstuffs, prices of which
will also be controlled.

Three foreign companies, including Switzerland-based Société Générale de
Surveillance, are said to want to act as agents checking invoices.

In the short term, exchange controls will allow the government to guard its
international reserves, currently at $11bn, and ensure it continues
servicing its $22bn foreign debt.

But fears were gathering yesterday about the effect of exchange controls on
domestic companies, local financial markets and the economy.

Carlos Fernández, head of the Fedecamaras business chamber, yesterday
accused the government of using the controls as a political tool. "What's
coming is repression against the business sector," he said.

Mr Chávez warned this week that "not a single dollar" would be sold to
"coup-plotters", the catch-all term he uses to describe his opponents.

Local currency purchases of Venezuelan foreign debt - in particular Brady
bonds - would be outlawed, the president said, closing up a loophole that
has been used by brokers to circumvent currency controls.

But analysts said government inefficiency would almost inevitably lead the
system to spring leaks, allowing a black market to blossom, undermining the
controls and forcing the government to devalue to help it cover a ballooning
budget deficit.

"These systems tend to be very leaky," said Rafael de la Fuente, chief
economist for Latin America at BNP Paribas. "Despite price controls you will
start to see inflation seep through and eventually they will have to devalue
for fiscal reasons."

Controls are expected to lead to shortages, as companies unable to access
official dollars to restock are forced to use the black market, so stoking
inflation. Prices are expected to rise by at least 50 per cent this year.

Exchange controls will also provide fertile ground for corruption, allowing,
for example, bogus import companies to be used to sell dollars on the black
market.

Venezuela maintained a regime of preferred exchange rates during the 1980s.
Known as Recadi, it was notorious for resulting in the embezzlement of some
$60bn.