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CIAO DATE: 04/03
Venezuela Alert: Chávez Dominates Political Scene
Lowell R. Fleischer *
Hemisphere Focus: 1998-2000
Series VIII, Issue 3
February 2, 2000
Overview
Venezuela is in the midst of a massive social experiment, the outcome of which could have many repercussions in the rest of Latin America, especially on other countries in the relatively unstable northern tier. For Venezuela, the major question is whether President Hugo Chávez Frias, who has deftly put together a new coalition of military elements, broad masses of the under class, and even some segments of the elite, will be able to hold to a reformist strategy and pull off what he has called a "peaceful revolution", or whether he will abandon democratic institutions and turn increasingly to authoritarian methods. Other individuals and groups will have some influence, of course, but it will be mainly up to him. For Venezuela's immediate neighbors and the rest of Latin America, this is a question they will be following closely.
In his first year in office, Chávez has wrought a massive upheaval in Venezuela's political institutions and has come to completely dominate the political landscape-filling all political space, as one local commentator put it. The overwhelming approval of the new constitution on December 15 was a political triumph for the president and a crushing blow to the fragmented and leaderless opposition, which has been incapable of blunting Chávez' enormous popular appeal. Chávez has been omnipresent since the devastating floods and mudslides that began as voters were preparing to go to the polls on December 15. Dressed in his army fatigues and now famous red beret, he has personally taken charge of the relief effort thereby continuing to dominate the headlines. This has led some political commentators to call attention to a cult of personality beginning to develop around Chávez.
Leading opposition figures have accused President Chávez of running a sham democracy in which key public institutions are controlled by handpicked Chávez allies. "This isn't a democracy because that requires pluralism and the limitation of power," said former presidential candidate Claudio Fermin, constitutional law expert Allan Brewer Carias, and leading opposition figure Alberto Franceshi in a joint statement at the end of the year. Their message has not garnered much support. Criticism that the government ignored warnings that torrential rains could cause massive damage and so was ill prepared to cope with disaster when it struck have likewise not diminished his luster and popularity. Chávez is getting high marks for his handling of the crisis-at least so far. A poll in early January showed that 86 percent of the people in Caracas regarded his performance as "good" or "very good."
More and more criticism of the president is beginning to emerge, however. Under pressure from human rights activists the government has finally admitted that human rights violations, including the summary executions of looters by troops, may have occurred in the aftermath of the devastating floods and mud slides.
A Powerful President
Under terms of the new constitution, which has already gone into effect, Chávez will be the most powerful president in the democratic era of the country. He could surely be reelected for a six-year term this year under the new constitution, which means that he would remain in power for 13 years since this constitution permits the immediate reelection of a president.
With the attention of the nation focused on the mudslides that killed 10-30,000 Venezuelans on the north coast (some estimates are as high as 50,000) and left as many as 150,000 homeless, President Chávez and his allies in the Constituent Assembly have moved ahead to implement changes they say are authorized by the new constitution-eliminating congress, replacing the supreme court and hand-picking top judicial and other officials.
The assembly dissolved congress and appointed a 21-member "mini-congress" of Chávez backers (including his brother Adan) which will legislate until elections are held for the new National Assembly. New elections for president, mayors, governors, and the legislature, originally scheduled for March, have been postponed until May 28 because of the disaster. President Chávez probably would have preferred an earlier date, but given the massive cleanup and reconstruction effort underway which requires the undivided attention of the government, it is doubtful that electoral officials could have been prepared much sooner. Chávez is well aware that he could suffer if the elections are delayed late into the year as continued high unemployment (now about 18 percent) and economic stagnation could damage his popularity, still running at over 70 percent.
The assembly also named a new Supreme Tribunal of Justice (replacing the Supreme Court), comptroller, public prosecutor, national electoral council, and other officials. Critics have called the appointments backroom politics at their worst. But Chávez supporters stress that the appointments are temporary and say the assembly acted quickly to help the government cope with the national crisis. The former comptroller, Eduardo Roche Lander, has issued a scathing report criticizing the president, saying he has worsened a recession, trampled the rule of law and done little to achieve his stated goal of eliminating corruption. According to Roche, there is rampant corruption in the Bolivar 2000 program, the government's centerpiece public works program. "Lamentably, the president of the republic used all of his time and power to obtain his political objectives, ignoring his basic obligations to a country that had elected him, fundamentally to lead a process of social and economic recovery," he said. Chávez' supporters said Venezuelans recent approval of the new constitution required Roche's removal, but the former comptroller called the move "arbitrary and of very doubtful legality."
The New Constitution
The new constitution calls for the vast overhaul of Venezuela's political institutions. Among the most important changes: á The president's term is extended from five to six years, and the ban on immediate reelection for a second and final term is lifted;
In January the Assembly ratified Chávez' choice of Diego Castellanos, a former economics professor and head of the Foreign Trade Bank, as the new president of the Central Bank. Little is known about his policy inclinations and he is expected to broadly follow Chávez' directions. The appointment only served to emphasize critics' concerns that the new constitution seriously undermines Central Bank autonomy.
72 Percent Vote Yes
Although celebrations were curtailed as the news of the massive flooding spread, Chávez was elated at the 72 percent approval for the new constitution, which he called "a birth certificate for the new Venezuela." He added that it would allow the construction of "an economy for everyone; a model which is not like this savagery that we have now where only a small number of Venezuelans benefit." He has also tried to explain away at least some of the 54 percent abstention rate as being due to the heavy rains.
His opponents remain unconvinced, however, and maintain that the new constitution greatly increases the state's role in the economy and contains unrealistic promises of social security, free health care and state education that would bankrupt the state if fulfilled. Paternalistic governance, they say, is what helped plunge the country into poverty in the first place. Even one of the principle intellectual authors of the new constitution, Hermann Escarra, a prominent professor of constitutional law and chairman of the drafting committee of the new charter, who voted yes, described the final draft as "a populist model under military tutelage."
Now that the new constitution is in place, Chávez faces increasing pressure to deliver a quick improvement in living standards and economic opportunities. His supporters have been patient, willing to accept his promises that once the new constitutional system is in place, things would improve.
Long Road to Recovery
How long they will remain patient is uncertain. Venezuela can expect a long and arduous road to recovery, especially as the economy remains mired in a deep recession. The bill for cleanup and reconstruction, which by some estimates could reach a staggering $15-$20 billion, will be painful for a government already saddled with a $3 billion fiscal deficit, and an economy that shrank by as much as 7.5 percent last year. Before the floods generated the need for additional government spending, the 2000 budget already called for a strong fiscal expansion, increasing spending by some 30 percent.
Citing concerns over the new constitution, Standard and Poor's in December downgraded the country's foreign currency sovereign debt rating. "The new constitution presents a setback to structural reform," Boris Segura, assistant director of Latin American sovereign debt ratings, said. "It promotes an increased role for the state in economic affairs and the new constitution does not address key constraints on Venezuela's creditworthiness," he added. Others have raised concerns over capital flight which has been estimated at about $4 billion since Chávez took over last February, a statistic which has been disputed by Finance Minister José Rojas. U.S. investment, which is about 40 percent of all foreign investment in the country, fell 73 percent in 1999 to $32.3 million down from $122.2 million in 1998 (these statistics do not include energy).
Venezuela needs about $4 billion to service its external debt this year, and the government has been talking for months about easing the burden of debt payments over the next few years. Last month, however, Chávez said that Venezuela would continue its debt service payments despite the disaster of the floods. The World Bank said in December that the bolivar remained overvalued by about 50 percent compared to the 1990-1996 average. Earlier in January the Central bank announced that Venezuela would stick with its currency band system that allows the bolivar to float within upper and lower limits 7.5 percent either side of the central rate. The bolivar ended 1999 at about 673 to the dollar.
The only good economic news at year's end was that inflation for 1999 totaled 20 percent, down from 30 percent last year and the lowest 12-month increase in 13 years. Obviously benefiting from the recovery in oil prices, Venezuela has a nice cushion of international reserves, about $16 billion at the end of the year.
Petroleum Still King
Three of the 350 articles in the new constitution refer directly to the oil industry. The most controversial, article 303, keeps all of the shares of PDVSA in the hands of the state. Article 12 establishes that all mines and hydrocarbon deposits belong to the state, a basic principle of Venezuelan law unchanged since independence. Article 302 effectively gives constitutional status to the 1975 oil nationalization law which reserves the oil industry to the state.
Article 350 does contain a loophole to permit PDVSA to sell shares in subsidiaries, for example its stake in CITGO in the United States, without lengthy constitutional reforms. The Chávez administration has vowed to respect the contracts signed by previous administrations. However, it has drastically reduced the investment available to PDVSA and has no plans to extend the reach of the private sector in the oil industry.
Chávez is Hard to Read
The blend of socialism, militarism, and romantic idealism, as well as his fascination (some would say obsession) with Bolivar, which seems to make up his ideology, was on display recently when he spoke to a group of Argentine relief workers. He called for a single Latin American currency and a regional military union similar to NATO. "I think we have to fight to establish a confederation of republics. This is possible. Over there are the Europeans with only one currency. Why not a currency of our own? That mustn't be the dollar, of course. We need another currency, ours. Why not a common military organization? If NATO exists, why not consider it. Why can't we think about a Latin American military union to face situations like this and many others: our sovereignty, the scientific and technological development of our people. I think this is the only way: the union of our people, of our armed forces, of our economic organization, of our economic models."
In the past he has spoken often of his friendship with the United States, but he used those same remarks to rail against capitalism. "Neoliberalism is savage. We don't defend neoliberalism any more. No, what we have to do is attack it. This is the road to hell. We have to search for other models. We have to build other models. We can't allow them to continue selling us models that we then copy exactly. No, we have challenges ahead. It is necessary to build distinct economic, political and social models."
He also cannot seem to pass up an opportunity to tweak his nose at the United States. The most recent example was a tense standoff between Chávez and the United States over the issue of U.S. troops operating heavy equipment to clear a coastal road heavily damaged during December's torrential rains. Responding to a Venezuelan request for aid, the Pentagon announced it was sending two shiploads of equipment and 450 personnel. Abruptly, after one ship had already sailed, Chávez said it wanted only the equipment and not the U.S. soldiers. Despite Ambassador John Maisto's comments that the disagreement was not seen as a diplomatic incident by the U.S. government, the aborted mission left U.S. officials feeling puzzled and miffed. Last year Chávez denied a U.S. request to use Venezuelan airspace for anti-drug reconnaissance flights.
U.S. Policy
Up to now, U.S. policy toward Chávez has been appropriately low key, stressing the importance of democracy and the rule of law. A democratic Venezuela is important for the United States because of the danger of contagion elsewhere in Latin America if democracy were to falter. A stable Venezuela is important because the United States needs the country's petroleum and its cooperation in fighting narcotraffickers. Venezuelan officials regularly stress that President Chávez should be judged not on his often-inflammatory words but on his deeds. Whatever his reasoning (so far, not very well explained), the United States should quietly accept his decision not to welcome an additional 450 U.S. soldiers (120 who arrived with water purification equipment remain). His personal friendship with Cuba's Fidel Castro likewise should not determine U.S. policy. The United States must be prepared, however, to speak out forcefully and to take any necessary action if Venezuela begins to take actions inimical to vital U.S. interests.
Despite his often-inflammatory rhetoric and an undercurrent of xenophobia and despite legitimate concerns that the new constitution represents a setback for private initiative, Chávez has displayed a surprising degree of pragmatism since taking office. He realizes that Venezuela must have access to the global capital markets in order to maintain development and that he cannot deliver on his promises to his followers if those markets dry up for him. He is in a trap. If he implements all of his policies, his access to those markets will close. If he continues to exhibit this pragmatism, some of the more onerous provisions of the constitution could be mitigated, but might also make the constitution meaningless. Many of the articles are subject to interpretation and many require legislative action. Many could also end up in the courts. This could be a constitution that stresses objectives (as the Venezuelan Ambassador to the United States Alfredo Toro Hardy puts it), rather than a guide to near-term actions.
Key Dates in Chávez Career
December 1982:
Chávez forms Bolivarian Revolutionary Movement and begins to plot the overthrow of the government.
February 1992:
He leads thousands of troops in failed but bloody coup against President Carlos Andres Perez. His brief televised surrender speech, in which he takes full responsibility, instantly makes him famous.
March 1994:
He is released from prison by President Caldera.
May 1997:
He announces plans to run for president.
November 1998:
Chávez' political alliance wins one-third of the seats in congress and 8 of 23 governorships.
December 1998:
He easily defeats Henrique Salas Romer for president winning 56 percent of vote.
February 1999:
He takes office.
April 1999:
80 percent of Venezuelans voting back creation of a constituent assembly.
July 1999:
Chávez' Patriotic Pole sweeps 121 of 131 seats in Constituent Assembly
December 1999:
More than 70 percent of Venezuelan voters approve new constitution (54 percent abstain).
Lowell R. Fleischer is a senior associate in the Americas Program at CSIS. He is also contributing editor of the Latin American Law and Business Report and the North American Investment Report. He is a retired Foreign Service Officer, who served in Venezuela, and a former Deputy Director of the Washington Office of the Council of the Americas. He has taught at the University of Connecticut and the University of Massachusetts and has been a consultant to the World Bank and the U.S. Institute of Peace. Dr. Fleischer is a graduate of Ohio Wesleyan University and holds M.A. and Ph.D. degrees from the University of Connecticut. Back.
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