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Defeat for Hugo Chávez
The
wind goes out of the revolution
By
The Economist
Background
Venezuela is defined by its leftist president, Hugo Chávez, who has centralised power in his own hands
since taking office in 1999. Mr Chávez's brand of “21st-century
socialism” has started to look more like old-fashioned
autocracy. And though his “Bolivarian revolution” has
brought social benefits, his unusual handling of Venezuela's
oil-dependent economy has led to the rise of a new oligarchy.
Meanwhile, his neighbours are concerned about his desire for
regional influence.
For many
years a weak political opposition and restrictions on dissenting
media meant Mr Chávez faced few obstacles.
Though forced from office in 2002, he was quickly reinstated
and overcame a recall referendum the next year. In late 2006,
Mr Chávez was re-elected. However, his attempt to make
sweeping changes to the constitution, such as to make him president “until
my bones are dry”, backfired. Its defeat in a referendum
has given the anti-chavistas new impetus.
Venezuelans
have seen the future—and many of them realise that
it doesn't work
ON REFERENDUM night, December 2nd, a giant, inflatable
Chávez
doll lay face-down and semi-deflated on a Caracas street. Nothing
better summed up the moment. As workers dismantled the stage
that was to serve as the scene of his triumph, letting the
air out of the doll, Hugo Chávez was grappling with
how to respond to his first-ever defeat at the polls.
Were Venezuela
the dictatorship that some of his more radical opponents
claim, its people might have spent the night toppling
bronze statues of the Leader as he fled the country. Were it
a parliamentary democracy, the government would surely have
resigned. As it is, Mr Chávez still has the chance to
pump some air back into his project and serve out the remainder
of his presidency—which now must end in early 2013. But
there is no doubt that his plan to install what he calls “21st
century socialism” in what was once, in the 1970s, the
richest country in Latin America has been badly punctured.
And that setback may also take much of the momentum out of
his industrious efforts to form a regional block of allies
and client states.
Voters had been asked for a yes or no on changes to 69 of the
350 articles in the 1999 constitution. Their effect would have
been to concentrate almost
all power in an already top-heavy executive. The pluralism enshrined in the
current constitution would have been replaced with obligatory “socialism”.
And two decades of decentralisation would have been reversed: elected state
governors and mayors would have been eclipsed by an unelected “popular
power” dependent on the presidency.
On any
reasonable interpretation of the 1999 constitution (itself
drafted and promoted by the chavistas), such fundamental
changes should have been submitted to a separately elected
assembly. Instead, Mr Chávez had them drafted in secret
and rubber-stamped by a parliament which, thanks to the opposition's
boycott of the election in 2005, is overwhelmingly composed
of his unconditional supporters.
But by a tiny majority, of around 1.4% according to the official
figures, Venezuelans said no. Many supporters of the president
stayed at home. Only a year ago he had won a new six-year term
with 7.3m votes or 63% of the total; by contrast, only 4.4m
voted yes in the referendum.
It is a
result that redraws Venezuela's political map. Hitherto,
the president has been blessed with an incompetent opposition,
tainted by the failures of the 1980s and 1990s, when low oil
prices pushed many Venezuelans into poverty. Having sought
to overthrow Mr Chávez, first in an abortive coup and
then through a general strike-cum-lock-out, many of the opposition's
leaders were too easily dismissed as spoiled “oligarchs”.
But since
his re-election last year, Mr Chávez has
overreached himself and provoked some more dangerous opponents.
His first mistake came last January, when he summoned the four
parties in his coalition and ordered them to merge into a single
Venezuelan United Socialist Party (PSUV), loosely modelled
on Cuba's Communist Party. Podemos, a social-democratic party,
and two other smaller groups refused. Then, in May, Mr Chávez
decided not to renew the broadcasting licence of the main opposition
television channel, ostensibly because it had supported the
2002 coup attempt. This was unpopular with ordinary Venezuelans
and was opposed by a new and energetic student movement, which
went on to take the lead in the No campaign.
The president's
drive to turn the armed forces into a tool of his socialist
project aroused the weighty opposition of
General Raúl Isaías Baduel, who stepped down
as defence minister in July and who is a hero to the chavista
grassroots for his role in restoring Mr Chávez after
the 2002 coup. Installed in a sleek glass office block in Caracas,
General Baduel, a man as serene as the president is intemperate,
has spent the past few weeks telling Venezuelans that the proposed
reform amounted to another coup.
On top
of that, many chavista politicians were unenthusiastic, since
the reform would have let Mr Chávez run indefinitely
for president but banned re-election for other posts. The chavista
movement suffered “a top-to-bottom split, from state
governors down to the grassroots”, said Ismael García,
the leader of Podemos.
The emergence
of what Mr García calls a “third
pole” between the government and the traditional opposition
allowed many of the president's supporters to vote no, or at
least to abstain, without feeling that they were betraying
their leader. The students did much of the hard work of bringing
out voters and watching over ballot boxes. And when it seemed
that Mr Chávez might be tempted to claim victory, General
Baduel played a key role, with an—at least implicit—threat
to reject such a result and split the armed forces.
The economy boils over
It is not hard to see what lies behind the decision of many
chavistas not to vote. Their continuing loyalty to their
comandante is being eroded by mounting economic distortions
and the corruption and incompetence of his government.
It was
Mr Chávez's good fortune to preside over a massive
increase in the oil price (to which he made a modest contribution
by cancelling plans under which private investment would have
doubled Venezuela's oil output). The result has been a wild
economic boom (see chart 1). This has prompted a sharp drop
in the number of Venezuelans living in poverty, from 43% in
1999 to 27.5% earlier this year, according to government figures.
Hundreds of thousands of new cars have turned Caracas into
an all-day traffic jam.
The
boom has been fuelled mainly by public spending, which has
risen
from around 20% of GDP in the late 1990s to some
38% last year (including several off-budget funds controlled
by the president). It has been amplified by expansionary fiscal
and monetary policies. To check inflation, the official exchange
rate has been pegged at 2,150 bolívares to the dollar.
That has been possible hitherto because revenues from oil exports
have risen dramatically, from $17 billion in 1999 to $58 billion
last year.
The result
is known to economists as Dutch disease: an overvalued exchange
rate favours imports but makes life hard for manufacturers
and farmers. In Venezuela's case this has been exacerbated
by Mr Chávez's ideological hostility to the private
sector, which has involved selective nationalisation and intermittent
threats to private property. While many private companies (and
banks) have done well out of the boom, they have been loth
to make long-term investments. Imports have risen fourfold
over the past four years, while GDP has expanded by only half
over the same period.
José Manuel Puente, an economist at IESA, a business
school in Caracas, sees four warning lights for the economy:
oil output, inflation, fiscal problems and a growing shortage
of dollars. Since Mr Chávez took direct control of PDVSA,
the state oil company, after the crippling strike of 2002-03,
production of crude has declined. That is partly because PDVSA
has slashed investment in order to pay for social programmes,
and partly because its payroll has doubled to 90,000 in the
past four years. The government's policy of maximising its
share of oil revenues by obliging foreign companies to become
minority partners in joint ventures appears to have intensified
the trend. Oil output has fallen for six consecutive quarters,
according to the Central Bank. Although officials still insist
that oil production is 3.3m barrels per day (b/d), even OPEC,
of which Venezuela is a founder member, does not believe this:
in October it slashed Venezuela's production quota to 2.5m
b/d.
The second
warning light is inflation (see chart 2). In November prices
rose by 4.4%, the highest monthly figure for four years,
taking the annual rate to 21%, the highest in Latin America.
Food prices have risen even faster, by 29%—despite price
controls. Because of those controls, staples such as milk,
eggs, black beans and cooking oil are in such short supply
that shoppers sometimes fight for them.
To
try to slow inflation the government slashed VAT earlier
this
year, from 14% to 9%. To plug the resulting fiscal
gap, in November it imposed a tax on financial transactions—one
reason for that month's spike in inflation. Another clear
sign of strain is a surge in the parallel-market price
of the dollar.
Even if oil prices remain at current levels, many economists
believe the government will have to devalue and start
to cool the economy early next year.
The
frustrations of collectivism
That will strain political loyalty further. After nine years
of the Bolivarian revolution (named after Símon Bolívar,
the South American independence hero) Venezuelans are
becoming increasingly disillusioned with its corrupt
inefficiency.
Look behind the ubiquitous billboards proclaiming the
government's social projects, and everywhere the failures
and frustrations
are palpable.
Take, for
example, a model collective farm near the village of Buenos
Aires in the coastal plain of Barlovento, an area
with a large black population east of Caracas. Set up in 2002,
it looks like a neat suburban estate, its one-storey houses
for 144 families grouped in 12 circular cul-de-sacs. Three
tractors, from China and Iran, are parked nearby. But farming
the project's 108 hectares (267 acres) “did not go as
we wanted”, says Jacobo Pacheco, one of the community's
leaders, with quiet understatement.
Mr Pacheco,
who is 62 and whose red beret has an image of Che Guevara,
says he continues to support Mr Chávez.
But he paints a devastating picture of government mismanagement.
Agronomists from the National Lands Institute (INTI), which
is responsible for the project, advised the collective's farmers
to plant half a dozen different fruits; all but the lemons
failed, either because the land was unsuitable or because of
defects in the irrigation system. The water supply to the houses
has been cut off because a pump doesn't work. None of six promised
workshops, providing training and employment in carpentry,
metalworking and the like, has been built. The local branch
of Mercal, the government's subsidised supermarket chain, has
been closed for the past year.
The farm's
members have to take outside work to make ends meet. Mr Pacheco
says that collective farming doesn't suit
Venezuelans. He wants INTI to divide the land into individual
plots. He has other grievances, too. When invited to an exhibition
about the project at the presidential palace he saw pictures
and plans of the houses, showing that they should have been
equipped to a higher standard. He has seen receipts for the
household equipment and says that between them the officials
and supplier involved pocketed 1 billion bolívares ($465,000).
This story
rings true. Many government projects are either misconceived,
or unfinished, or both—like the gleaming
new fish-processing plant along the coast at Boca de Uchire
that has stood empty for a year because a planned wharf remains
on the drawing board, while just three carpenters work on the
beach building the fishing fleet designed to supply it. Two
out of three of the Mercal branches in Caracas have closed,
reckons Jésus Torrealba, a former opposition activist
who now runs a radio programme on the problems of the poor
barrios.
Officials
point with pride to the Cuban-designed social programmes
known as misiones implemented by Mr Chávez when oil
revenues picked up in 2003. Certainly, a primary-health programme
called Barrio Adentro, which is mainly staffed by Cuban doctors
and dentists, seems to work well, and is valued by residents
in poorer neighbourhoods. Yet such evaluations as exist of
these programmes suggest they have had little overall impact.
Mr
Chávez
declared in 2005 that thanks to Misión Robinson, a scheme
to teach adults to read and write, Venezuela had eradicated
illiteracy, a boast quickly parroted by UNESCO officials. But
the government was later forced to withdraw the claim after
its own surveys suggested that over 1m adults are still illiterate.
Perhaps the most successful educational policy has been one
to extend the school day and provide meals. This was devised
by a previous government, though to his credit Mr Chávez
implemented it.
Despite
the apparent success of Barrio Adentro, a recent decline
in infant mortality merely mimics the historical trend in
Venezuela,
according to a study by Francisco Rodríguez, chief economist
at the National Assembly from 2000-04 and now at Wesleyan University
in Connecticut. The incidence of stunting and malnutrition
in children has even slightly increased, from 8.4 per thousand
in 1999 to 9.1 in 2006 according to government data. That points
to the deterioration of public hospitals under Mr Chávez.
Strip away the propaganda, and the government's socio-economic
policies do not particularly favour the poor. Much of the extra
public spending has gone on arms purchases, bureaucracy (public
employment has doubled) and infrastructure (some of it useful,
to be sure).
The government
also spends money on indiscriminate subsidies. These mean,
for example, that a tank of petrol costs less than
$2, and that all credit-card holders get a quota of cheap dollars.
Such policies favour the better off—including the new
chavista elite of military officers, political leaders and
favoured businessmen. According to the Central Bank, the distribution
of income has become less equal under Mr Chávez. The
Gini coefficient, a standard measure of inequality, has risen
from 44.1 in 2000 to 48 in 2005. Over the same period, income
distribution has become more equal in Brazil, Mexico and Chile.
A different landscape
Margarita López Maya, a social scientist at the Central
University of Venezuela, points to the Bolivarian revolution's
success in bringing the poor into politics and giving them
a sense of citizenship, partly through a network of neighbourhood
councils. Had the constitutional reform been approved, this
would have been jeopardised, she says, since the councils would
have depended directly on the president and his largesse.
That sense
of inclusion remains Mr Chávez's prime political
asset. He still controls almost all the country's institutions,
has billions of dollars to spend at will, and for the next
nine months—thanks to an enabling law—can rule
by decree over wide swathes of national life. He is a man whose
political skills have frequently been underestimated, and who
could yet bounce back from defeat.
After his
reverse, Mr Chávez insisted that his project
had not been derailed, merely shunted into a siding “for
now”. That was a deliberate echo of the phrase he used
after leading a failed military coup in 1992; seven years later,
he was president. Maybe the country was not yet “ripe” for
socialism, but “there will be no step back”, he
said. “You should know that I am not withdrawing a single
comma of this proposal.” He promised to reintroduce some
bits of the reform by other means.
Nevertheless,
the referendum marks a watershed. Mr Chávez “has
been winged—he's passed his peak,” says Teodoro
Petkoff, a centrist opposition leader and newspaper editor.
For the first time in nearly a decade it is possible for Venezuelans
to envisage life after Mr Chávez.
The opposition
victory, and the admission of defeat by the president, ought
to convince radicals on both sides that the
only solution to the country's bitter political polarisation
is peaceful and electoral. The emergence of the “third
pole”, composed of Podemos, General Baduel and the student
movement, should in itself herald a less polarised politics.
Some talk of calling a constituent assembly to claw power back
from the president. Others are looking ahead to elections for
mayors and governors next year.
The referendum
defeat means Mr Chávez cannot legally
run again for the presidency. His aura of invincibility has
gone, and the battle for the succession seems bound to begin
soon. In the ruling party, political survival no longer demands
unquestioning loyalty to the comandante. Fractures have already
begun to appear in the supreme court and the parliament.
“This is not a 100-metre sprint, it's a marathon,” cautions
Mr Petkoff. But its direction is clear. “Venezuelans
have woken up” is a phrase often used by supporters of
Mr Chávez to describe the political mobilisation of
the poor. The referendum suggests that many of them are waking
up to the shortcomings of his revolution.
The
Economist is athe leading magazine
of analysis on international business and world affairs.Petroleumworld
does not necessarily share these views.
Editor's
note: This commentary was originally published by The Economist,
on Dec 6th 2007. The background part was publish on Dec 4th
2007. Petroleumworld
reprint this article in the interest of our readers.
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