Fw: Venezuela: Back to the Third World? by Michael Radu

["John Gelles" <jjgelles@xxxxxxxx>]

	Dear Friends,

	The following comments on Venezuela are forwarded
	for strong informed opinion from our South American
	PKT scholars.

	In the past, the Foreign Policy Research Institute, the
	publisher, has, in my opinion, been an honest source of
	analysis of political economy in Asia and Russia.

	The story below may be extreme anti-Keynesian and
	anti-democratic garbage -- I do not know. I apologize
	to all if it is.  Or, after hearing other opinion, I may come
	to respect it.

	Because we have recently been concerned with
	Venezuela, and we have honest scholars here to
	review it, I send it to the list as written, in accordance
	with the FPI copyright.

	     John Gelles       jjgelles@xxxxxxxx
		http://www.rain.org/~jjgelles/


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From: Foreign Policy Research Inst <fpri@xxxxxxx>
To: jjgelles@xxxxxxxx
Subject: Venezuela: Back to the Third World? by Michael Radu
Date: Wednesday, December 09, 1998 10:42 AM

		   Foreign Policy Research Institute
			A Catalyst for Ideas


	VENEZUELA: BACK TO THE THIRD WORLD?
			by Michael Radu

December 8, 1998

Michael Radu is Senior Fellow at the Foreign Policy Research
Institute in  Philadelphia and  writes  regularly  on  Latin
American affairs.


            VENEZUELA: BACK TO THE THIRD WORLD?

                      by Michael Radu

On Sunday,  December 6,  Venezuelan voters went to the polls
and elected  a new president -- a former paratrooper, spell-
binding orator,  leader of a failed coup in 1992 against the
elected government  of Venezuela, friend of Fidel Castro and
of Colombia's  Marxist guerrillas,  and  enemy  of  American
"imperialism." In  short, Hugo Chavez Frias, 44, is a symbol
of everything  that is  wrong south  of the  Rio Grande.  As
such, it  may be tempting to write off the entire country as
just another  Latin American country heading for a fall. But
Venezuela --  the world's  largest oil  exporter outside the
Middle East  and the  world's largest supplier of oil to the
United States  -- is  not so  easily ignored.  Moreover, the
Venezuelan case  appears to  be part  of a larger disturbing
trend in Latin America.

Elected with  56% of  the vote,  Chavez claims  to be a true
revolutionary. But  he is  quite the  opposite, yet  another
Latin American  populist pied  piper who intends to lead his
country down  a tragic path of false hopes, broken promises,
and certain  failure --  a path, it must be said, that is by
now all  too familiar. Following in the footsteps of Castro,
Allende, and Peru's Alan Garcia (1985-1990), Chavez despises
free markets  and believes  that the  State -- controlled by
him --  has all  the answers  to all the problems. But he is
apparently a better student of ideology than of history.

Chavez' political  platform is as simple as it is dangerous:
he intends  to dissolve  the recently  elected congress, re-
nationalize former  state enterprises  privatized during the
last decade,  dismiss the judiciary, and purge the military.
All that  and he  will eliminate corruption, a scourge which
most Venezuelan  voters agree is their single most important
problem.

That  Venezuela  is  corrupt  is  indisputable.  Indeed,  as
Venezuela became  one of  the world's  largest oil exporters
during the 1960s, the entire country became addicted to easy
money and  the big  government it  funded. A  formerly rural
population moved to the cities to get make-believe "jobs" in
a bloated  public sector. Huge new "industries" were created
without regard  to efficiency, cost, or common sense, mostly
with money  borrowed from  abroad against  future  high  oil
prices.  Both   major  political   parties  --   the  social
democratic Democratic  Action (AD)  and Christian democratic

COPEI --  engaged in  massive corruption  when in  power, by
enriching their  leaders and  buying popular support with an
unrealistic health, education and welfare system.

As oil  prices collapsed,  first during  the 1980s and again
recently, Venezuela's  house of  cards did  too. Immediately
after his  reelection as  president  in  1988,  one  of  the
original architects of the system, AD's Carlos Andr?s Perez,
faced the  reality of  a world  where oil  was cheap, credit
expensive, and  foreign debt impossible to pay. His attempts
to cut  "social" spending  and   privatize state-owned white
elephants were not well received. In 1989 frustrated mobs of
addicted  beneficiaries   of  state   largesse  burnt  large
sections of  Caracas. In  1992 Hugo  Chavez staged  his coup
against the  corrupt state  and despite his failure became a
popular hero.

The established  political parties went down with the system
they had  created, leaving  behind a political vacuum. Perez
was impeached  and former COPEI president Rafael Caldera was
elected as an "independent" populist in 1993. This year, for
the  first   time  ever,   the  AD   and  COPEI  fielded  no
presidential candidates  of their  own. Instead,  they  both
supported the  independent Henrique  Salas Romer.  The Yale-
educated Salas, who had earned a stolid reputation as former
governor of the state of Carabobo, became -- too late -- the
consensus candidate  of Venezuela's  political and  business
establishment.

This is a growing pattern in Latin America: the few existing
traditional political  parties are  in  decline  across  the
region. They are being replaced not by new parties but, more
often  than   not,  by   charismatic  individuals   with  no
institutional base  -- Fujimori  in Peru, Cardoso in Brazil,
and now  Chavez. The  resulting structural  instability  and
threat of  rapid and  unpredictable policy  changes  do  not
create  a   promising  scenario   for  investors   or   U.S.
policymakers.

The Chavez presidency has an easily predictable future. With
no majority  in  the  recently  elected  congress,  and  his
victory itself  a product  of unrealistic  expectations  and
class hatred,  the ex-coup  leader can hardly avoid bringing
his  country   to  a  dead  end.  His  "third  way"  between
capitalism and  communism can  only lead,  in the  memorable
formulation of  former Czech  Prime Minister  Vaclav  Klaus,
back to the Third World. Rebuilding the state sector through
renationalization will  only make  the  disastrous  economic
situation  worse,   lead  to   financial  isolation,  hyper-
inflation, and  political  chaos.  Capital  flight,  already
massive, will  increase, as will the inability of the regime
to pay  its debts  -- with  huge implications  for the  U.S.
economy and the international financial systems.
Chavez' victory  bodes ill  for the  rest of  the region  as
well. His  fondness for  Castro will  probably lead  to some
help for  Cuba, in  the form  of cheap  oil supplies,  which
would prolong  the life  and increase  the arrogance of that
regime. His  affinity for  Colombia's Marxists  could easily
deepen the already serious political crisis of that country.
Finally, his  anti-Americanism will  attract the  support of
the increasingly  influential Left throughout Latin America,
always in search of a standard bearer.

Given Venezuela's  prominent role  as  an  oil  supplier,  a
hostile regime  in Caracas  will inevitably  affect both the
economy of  the United  States and  its  political  position
throughout Latin  America. In  a way this is a well-deserved
reward for the Clinton Administration's consistent passivity
in the  region. Indeed,  although Chavez  has been  denied a
U.S. visa  since 1997  because of  his role in the 1992 coup
attempt, no  effort was  made to signal the Venezuelans that
his election  would have  serious and negative repercussions
on relations  with Washington.  Nor was  any serious  effort
made  to   support  the   democratic   opposition   to   the
paratrooper's ambitions.

While the  future  of  Venezuela's  democracy  and  economic
situation is  bleak   and the  likelihood of  violence -- or
even a  coup -- high, hopes that Chavez will "see the light"
and behave  "rationally" are  unrealistic.  Elected  on  the
basis of  irrational and unrealistic expectations, he has no
choice but to veer to the extreme -- and to blame the United
States  for   whatever  happens.  Unfortunately,  Washington
appears both  unprepared and unwilling to react effectively.
Further "apologies"  for the alleged "guilt" of the gringos,
such as those offered recently by the Clinton Administration
in regard  to the  Allende regime  in Chile, simply will not
do. And  there are ample reasons to believe that a policy of
economic, financial, and political containment of the Chavez
regime is too much to be expected. At best, Chavez' election
may awaken  Washington, or at least Congress, from six years
of sleepy ignorance of developments in Latin America.


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