Re: [OPE-L] The visible hand of petro dollars in Venezuela

From: Dogan Goecmen (Dogangoecmen@AOL.COM)
Date: Sun Dec 03 2006 - 12:16:48 EST

Is that meant to be a leftwing critique?
_bhandari@BERKELEY.EDU_ (mailto:bhandari@BERKELEY.EDU) :

December 3, 2006
Venezuela's Economic Boom Buoys  Chávez's Campaign

CARACAS, Venezuela, Dec. 2 - To  understand why Hugo Chávez seems set
for victory in Sunday's presidential  election and a strengthened
mandate for what he calls a socialist  revolution, consider the vigor
here of that most capitalist of  institutions: the stock exchange.

Housed in El Rosal, an upscale  district with new skyscrapers and
hotels, the 59-year-old Caracas stock  exchange was the site of
frenzied trading this week. Its main index climbed  to a record high
of 46,741, topping off a 129.2 percent rise this year that  has made
it one of the best performing markets in the world. On Friday,  the
index climbed 8 percent for its biggest daily gain in four  years.

"For all of Chávez's faults, his government has been  extremely
pragmatic in economic terms," said José Guerra, a former chief  of
economic research at Venezuela's central bank.  "State-supported
capitalism isn't just surviving under Chávez," he said.  "It is

Often lost in the campaigning between Mr. Chávez  and his electoral
challenger, Manuel Rosales, is that Venezuela, with the  largest
conventional petroleum reserves outside the Middle East, is  having
one of the most significant oil booms in its history. Economic  growth
this year is set to pass 10 percent, making Venezuela  the
fastest-growing economy in the Americas.

The Chávez government,  while wrapping itself in socialist imagery -
like red clothing - and  deepening its alliance with Fidel Castro's
Cuba, has made this expansion  possible by quietly working with
Venezuela's banking system. The rush of  petrodollars into the economy
has led bank deposits to climb 84 percent in  the past 12 months,
according to Softline Consultores, a financial  consulting business

The boom is evident in an economy that has  put financial speculation
and conspicuous consumption ahead of domestic  manufacturing. For
instance, foreign automobile companies Ford and General  Motors will
sell 300,000 cars in the country this year. Economists  describe
Venezuela as a "harbor economy" because of its lust for  imported

"Many people say we're in a profound political and  social crisis,"
said Michael Penfold-Becerra, an economist at the Institute  of Higher
Administrative Studies, a Caracas business school. "On the  contrary,
we've returned to a temporary period of harmony. Oil is buying us  a
certain social peace and stability."

Neither candidate in Sunday's  election seems to acknowledge the
growing consumerism in rich and poor  households as one of the main
reasons Mr. Chávez has resilient popularity  ratings after eight years
as president. Most opinion polls give him a  double-digit lead over
Mr. Rosales, governor of the oil-producing Zulia  State in the west.

Mr. Chávez makes frequent exhortations in favor of  socialism,
sometimes describing Jesus Christ as the first socialist and  Judas as
the first capitalist. Mr. Rosales said in an interview that  Mr.
Chávez, who has deepened ties with Cuba by bringing thousands  of
Cuban doctors to Venezuela in exchange for subsidized oil,  was
"implementing a Castro-style system of autocratic rule in  Venezuela."

While Mr. Chávez promises socialism, historians say that in  effect he
is delivering old-fashioned populism. He is often compared to  Carlos
Andrés Pérez, the populist president who oversaw economic  expansion
in the 1970s when Venezuela also benefited from higher oil  prices.

"Chávez has a problem in that what he calls his socialist  revolution
never involved the overthrow of a dictator like Batista or  Somoza,"
said Alberto Barrera Tyszka, who co-wrote an acclaimed biography  of
Mr. Chávez. "He's redefining socialism as a concept that could  exist
only in Venezuela, where it is characterized by hatred of George  Bush
and an excess of BMWs and Audis."

Some Chávez economic policies  draw inspiration from formulas used
with mixed results by countries  in the developing and industrialized
worlds the 1960s and 1970s. These  include price controls for food and
gasoline, strict limits on buying and  selling foreign currency and
caps on everything from lending rates at banks  to hourly fees at
parking lots.

At the same time, the government has  channeled billions of dollars in
oil revenues into social welfare programs  and small cooperatives
intended to produce goods to replace imports on the  domestic market.
The government says these efforts are moving Venezuela  toward a
vaguely defined "21st-century socialism."

Oil is at the  heart of this development model. Venezuela, in contrast
to oil-exporting  countries like Mexico or Saudi Arabia that tightly
circumscribe the  operations of foreign oil companies, still produces
oil in ventures with  some of the largest private energy companies,
including Chevron and Royal  Dutch Shell. And the government works
closely with Venezuelan and foreign  banks to maintain economic

Unlike Rafael Correa, the  newly elected president of Ecuador, who
plans to renegotiate the foreign  debt, Mr. Chávez has made every
effort to meet Venezuela's obligations with  foreign lenders. As a
result, markets still consider Venezuelan bonds about  as safe an
investment as bonds issued by Brazil, a neighboring  industrial

The Finance Ministry, meanwhile, has  tolerated loopholes for the
moneyed classes to circumvent foreign exchange  controls by allowing
them to buy stocks and bonds that can be exchanged for  securities
denominated in dollars. Critics of this system say it has  allowed a
new elite to emerge through opaque dealings with the  government.

Fernando Coronil, a Venezuelan historian at the University  of
Michigan, said Mr. Chávez's policies were reminiscent of the  heady
years after World War II when Democratic Action, a social  democratic
party, swept into power on a platform that emphasized  distributing
oil wealth to the poor. Leaders even called their movement  the
October Revolution, though populist rule in Venezuela  eventually
became characterized by a lack of transparency in the  distribution of
favors through the state.

While earlier booms  revolved around huge investments in industrial
projects like aluminum  smelters, analysts say the latest expansion is
especially risky because it  focuses mainly on consumption.

Despite boasting of some of South  America's most fertile land in an
area the size of Texas and Oklahoma  combined, Venezuela still imports
more than half its food, largely from the  United States and Colombia.
An overvalued currency, meanwhile, has been  disastrous for Venezuelan
industry with the number of manufacturing  companies falling to about
8,000 today from 17,000 in 1998, according to  Mr. Guerra, the former
economist at the central  bank.


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