|
|
|
|
Map of South America |
CIAO DATE: 2/00
Venezuela Alert: Policy Direction Still Uncertain
Hemisphere Focus: 1998-2000
March 26, 1999
Overview
Considerable uncertainty still surrounds the policy direction of the Chavez administration and especially the course of his economic program, which remains vague at best. However, in his first two months as president of Venezuela, Hugo Chavez Frias has left no doubt about his determination to shake up the system.
He has responded to criticism of various actions by repeating the mantra that he is a revolutionary president. “What we have here is a revolution that is going faster and faster,” he said in response to criticism about his plans to hold a constituent assembly. His unconventional style was underlined when he took liberties with the traditional oath at his swearing in last month. “I swear before God, before the fatherland, and before my people—and upon this moribund constitution—that I will complete this democratic transformation and give the republic a new constitution appropriate to a new age,” he improvised—to the consternation of many traditional political leaders on the platform.
His cultivated image as the people’s president was enhanced recently when he announced that he is giving up his salary as president and said the money would be used to create three student scholarships. His pension as a retired military officer was enough to live on, he said, as he did not have to pay for anything at the presidential residence. He had previously cut back on the number of bodyguards, cancelled the purchase of a new bulletproof presidential car, and floated the idea of turning one presidential residence into a school.
Chavez Shoots from the Hip
In his short time in office, he has antagonized the Supreme Court, labor unions, bankers and political party representatives, among others, but his popularity remains high, especially among the estimated 80 percent of Venezuelans who live below the poverty line. According to a recent Datanalisis poll, over 90 percent of respondents rated the new government as very good, good, or acceptable. In what many observers believe is the low point of his fledgling presidency, Chavez warned that he and the people “will take to the streets” if the Supreme Court tries to block his decree setting up a referendum to elect a constituent assembly charged with writing a new constitution. After a stern rebuke from the president of the court and dire newspaper editorials warning of a possible dictatorship in Venezuela, he backed down, promising to “honor with respect the decisions of the Supreme Court.” The atmosphere in Caracas is such that even the presence of many Chavez supporters in the streets wearing his trademark red beret has members of congress and other politicians beating their breasts.
Some of his statements have led many Venezuelans from all political factions to conclude that he has little respect for the rule of law and even less understanding of the importance of checks and balances. Long-time COPEI leader Eduardo Fernandez, a 1988 presidential candidate who lost to Carlos Andres Perez, is one of his most outspoken critics. In newspaper columns he has called for the formation of a broad national front for the defense of democracy and the rule of law “before it is too late.”
Power of the Armed Forces
About the only institution to escape Chavez’s wrath has been the armed forces. He has called on officers from various services to replace bureaucrats and politicians for whom he has blamed many of the country’s woes. So far, he has appointed some 50 active or retired officers to influential government positions, including two cabinet posts, the governorship of the federal district (Caracas), the tax institute, the budget office, the political police, and civil defense organizations. In addition, he named two colonels to sit on the board of the state oil company, Petroleos de Venezuela, S.A., to oversee finances and logistics.
Chavez has also announced that he will boost the role of the army in everyday life, dispatching thousands of soldiers to work with thousands of civilians in a “Bolivar 2000” project to improve roads, build schools and cultivate farms. According to Caracas newspapers, the president recently hinted that the armed forces should get a political role when the country rewrites the constitution. “We have to leave behind the idea that the military is apolitical. That is an invention of those who think only they have the right to lead the country,” he is quoted as telling a group of soldiers.
Not all Venezuelans have welcomed these moves. Some critics have called him a military populist whose plans are sending the wrong message at a time when Latin America’s fragile democracies are struggling to keep the military in their barracks and out of politics. Chavez has dismissed such concerns. “The armed forces should be prepared to work for the development, the peace, the progress of our people,” he said at a gala military parade marking the seventh anniversary of his failed coup. At that parade Chavez invited former coup participants from two military rebellions in 1992, who he called heroes, back into the ranks of the armed forces, adding that they would be eligible for retroactive promotions. One former key coup plotter has been elected president of the Senate and another was reelected governor of Zulia in the heart of the oil belt.
Constituent Assembly Date Set
Of as much concern to critics as the newly elevated status of the armed forces is Chavez’s decree calling for a referendum on the establishment of a constituent assembly which will take place on April 25. Venezuelans seem to be united in their desire for political reform and the idea of reforming Venezuela’s bankrupt political culture through a new constitution has widespread appeal. Of those polled on the question recently, almost 89 percent favored the establishment of a constituent assembly.
At the present time it looks as if the vote will take place as scheduled, even though the Supreme Court ruled last week that the controversial second question in Chavez’s decree was unconstitutional. The president did not have the right to decide how the members of the assembly would be chosen, the court said. According to Venezuelan press reports, the National Electoral Council, in whose hands the mechanics of the referendum rests, will now decide the form of the question or questions to be voted on. Chavez’s reaction to the decision of the court was surprisingly mild. The process remains in place, he said, and the constituent assembly will be held as scheduled.
There will be little serious opposition to the assembly in congress, whose members may lose their seats before the end of the year as a result of the vote. Another casualty may also be municipal elections still scheduled for June, which are likely to be postponed. Regardless of how members are selected, Chavez will have irresistible influence on the proceedings. Whether, as some fear and as close Chavez allies fervently hope, the new document will be packed with political wishes remains to be seen. Venezuela could end up, as did Colombia and Brazil in recent years, with a new constitution much worse than the one it will replace. If the vote is in favor, the assembly would be installed on Venezuelan Independence Day, July 5. Chavez has in mind a six-month timetable. The new constitution would be submitted to another referendum, the president recently said.
Economy in Dire Straits
Meanwhile, the economy continues to deteriorate. Venezuela is in a severe recession (the economy may decline by as much as 4 percent this year) and virtually broke, with a fiscal deficit of 9 percent of GDP or roughly $9 billion, and inflation exceeding 30 percent. Even if the recently announced OPEC production cuts are successful in driving up the price of oil, it will take years for Venezuela, Latin America’s fourth largest economy, to recover from the worst oil price crash in 25 years.
Despite criticism from opposition political parties that the bill is too broad and vague, congress seems poised to grant Chavez’s request for power to enact a number of legislative items by decree. The so-called Enabling Law places heavy emphasis on tax measures including a one-year 0.5 percent bank transaction tax and a 15.5 percent value-added tax to replace the existing 16.5 percent wholesale tax. In all, the government bill contained 29 separate proposals.
Chavez said he would introduce an investment protection bill guaranteeing the free repatriation of profits and respect for contracts, a reform of the way concessions and privatization contracts are awarded, and bills to encourage investment in petrochemicals, gas, and power sectors. He also wants to reduce the number of ministries and to consolidate a plethora of social programs and state financial institutions. “We cannot continue with this chaotic state, which wastes money,” he said, claiming that at least 85 percent of state money destined for social programs was being wasted on bureaucracy.
Country Needs to Finance Foreign Debt
In laying out his legislative agenda, Chavez also reiterated the government’s plan to refinance part of its foreign debt payments, which he said accounted for 30 percent of government spending each year. According to some calculations, only 12 percent of this $23 billion obligation would be eligible for renegotiation.
Without firmer fiscal austerity plans, a clearer indication of other economic policies to be followed, and perhaps a new IMF-backed reform program, the Venezuelan government will have great difficulty in selling a new debt deal to international investors, according to many Wall Street analysts. Any new bonds would have to be priced inexpensively and creatively packaged to compensate for the risk, they say. Since November 5, 1998, emerging market debt spreads widened by 195 basis points across the board while Venezuelan spreads widened by 269 basis points over U.S. treasuries.
Relations with U.S. off to Warm Start
Since his election, Chavez has been conciliatory in his comments about the United States and the Clinton administration has reciprocated. Just prior to Chavez’s inauguration, culminating eight years of negotiations, the United States and Venezuela signed a landmark tax treaty, which, if ratified, will eliminate double taxation, reduce taxes for multinationals and facilitate the repatriation of profits. Also, an investment treaty is expected to be signed this summer.
Nevertheless, how long the honeymoon between the two countries will last remains to be seen. For one thing, with few exceptions, his cabinet is composed of a grab bag of Chavez allies, including several leftists not known for their objectivity regarding the United States.
Until recently, Venezuela’s relations with the Colombian government also had been strengthened. Chavez and Colombian President Andres Pastrana have met several times in recent months and the trade, finance, and planning ministers from the two neighbors plan to continue a series of meetings begun by their predecessors. However, in mid-March, Pastrana canceled a planned border meeting with Chavez after the Venezuelan president declared himself “neutral” in Colombia’s conflict with guerilla groups and suggested that the largest rebel group, the 15,000-member Revolutionary Armed Forces of Colombia (FARC) controlled enough territory to be formally classified as “belligerents.” The Colombian government does not want to confer this status on the rebels, which would admit the existence of a full-blown civil war within its borders and require captured rebels to be treated as prisoners of war rather than criminals.
Other Latin American leaders, many of whom attended his inauguration, are watching Chavez closely, well aware that if he fails, or in frustration, abandons the democratic path, the country could plunge into chaos. And this could mean trouble for the entire region as well as the United States.
Ability to Deliver on Promises in Doubt
Chavez may well have raised expectations beyond the ability of the government to deliver. He has announced an average increase of 20 percent in public sector wages from May 1, a considerable sum for the government given its severe budget restraints, but a far cry from the 200-300 percent increase demanded by the labor unions, most of which are still under the control of AD and COPEI.
He is obviously counting on the constituent assembly to distract his supporters, most of who are unlikely to gain much economically in 1999, from his inability to fulfil his most extravagant promises.
Even his critics admit that he has an extraordinary opportunity to transform Venezuela. But what kind of transformation he has in mind remains an open question.
Email this citation