Late last month, Venezuelan President Hugo Chavez took a beating at the ballot box, where his party lost gubernatorial races in five states and the mayorship of the capital city, Caracas. These states account for 45% of Venezuela’s population and 70% of its economic activity, making the opposition victory pivotal. Buoyed by historically high revenues at the state oil company, Chavez has spent the last few years exporting his “Socialism of the 21st Century” to Bolivia, Ecuador and Nicaragua, among others, but with oil prices now at a four-year low, his leadership is in a precarious position.
Chavez’s poor management of Venezuela’s oil revenues have led to skyrocketing public spending. A study by Deutsche Bank estimated that in order for Venezuela to finance its 2009 budget, it will need an oil price of at least $97. On Wednesday, December 10th, the price of oil closed at $43.52, putting Chavez in a very uneasy spot.
The discontent of the Venezuelan people is growing. Under Chavez’s administration, poverty levels have increased from 43 to 54 percent, and the poor have seen Chavez squandering the profits they were promised elsewhere. Since 2005, Chavez has spent $5.9 billion buying weapons to modernize the army, and he recently acquired a $1 billion loan from Russia to purchase even more armaments.
The other big drain on public spending is Chavez’s cooperative ventures abroad. Venezuela has two main aid projects through which it channels funds to its allies: the Petrocaribe, which allows countries in Central America and the Caribbean to purchase oil at preferential prices, and the ALBA (Bolivarian Alternative to the Americas) which aims to correct the disparities that place underdeveloped countries at a disadvantage when competing against developed nations. Since 2005, ALBA alone has cost the Venezuelans over $32 billion — roughly 23.1% of the country’s tax revenues.
The new financial constraints will force Chavez to cut either domestic spending or foreign aid. Alberto Quiroz, the former head of Shell’s Venezuelan operations, told AFP in mid-October that the only action Chavez has proposed to address the current crisis is cuts in domestic spending — leaving foreign aid as bloated as ever.
This will put the many Venezuelans who still haven’t benefited from the “Socialism of the 21st Century” under even greater strain, and create more resentment towards a government that spends money abroad when it is badly needed at home.
If Chavez cuts the cooperation he provides to his allies, his influence in the region will diminish significantly. Without money, Chavez is just another politician spouting anti-American rhetoric. Moreover, he is swimming upstream, trying to convince leaders to follow a development agenda which time and again has proven unworkable. There’s a reason China only became a rising power when it abandoned socialist planning and began liberalizing its economy.
Furthermore, Chavez rules in an era where mass communications and technology inform citizens around the world about what really goes on inside corrupt regimes. When President Ortega’s party committed electoral fraud in Nicaragua in November, people found out about it, as they did when Chavez expelled Human Rights Watch from Venezuela, and illegally financed Cristina Kirchner, a friendly candidate running for the Argentinean presidency.
Though many presidents now preach Chavez’s “Socialism of the 21st Century” — which is as repressive and unsuccessful in creating prosperity as the socialism of the 20th – it would be a lot fewer if he could no longer shovel billions of dollars in aid to their governments. If Chavez actually did cut his foreign aid spending, the world would see just how unappealing he is.
For now, Chavez faces two choices: either he can cut his domestic budget and lose power domestically, or he can cut his foreign aid expenditures and lose influence abroad. Either way, he will no longer be the lion he was.
-Mario Magaña Duarte is a writer from El Salvador.
Source: AFF Doublethink Online | Joseph Hammond
Source: AFF Doublethink Online | Emma Elliott Freire