Chavez’s Grand, Risky Dream

PUERTO ORDAZ, VENEZUELA — From a distance, President Hugo Chavez seems to be lavishing all his oil wealth on headline-grabbing social programs for the poor, a military buildup and aid to socialist brethren in Cuba, Bolivia and Nicaragua.

But the fiery critic of the U.S. is also investing mountains of cash on bricks-and-mortar mega-projects to further his socialist agenda and bring economic development to remote areas such as the southeastern state of Bolivar.

The building program will be evident to those who attend the Copa America soccer tournament in Venezuela next week. As tournament host, Chavez has built or remodeled no fewer than nine major soccer stadiums across the country, including the new $80-million Cachamay arena in this town close to the banks of the mighty Orinoco River.

Granted, the stadiums probably won’t have a long-term economic effect; they probably will be more of a “bread and circuses” offering to the masses and a way to impress out-of-towners attending the tournament, which kicks off Tuesday.

But most of Chavez’s projects are earnest attempts at furthering his “socialism for the 21st century” agenda. It’s part of his bid to transform Venezuela according to his grandiose and some say impractical vision that includes repopulating rural and remote areas and promoting so-called endogenous development in areas with little economic activity.

The plan is Chavez’s strategy to tackle Venezuela’s grinding poverty and unemployment and redistribute this country’s immense oil wealth. Between 30% and 40% of the population lives on $2 a day or less.

He’s not the first Venezuelan leader to try. President Carlos Andres Perez spent billions in the mid-1970s on state-owned steel, paper and aluminum factories, nationalizing iron ore and steel plants owned by U.S. Steel and Bethlehem Steel — only to have them go belly up in the early 1980s when Venezuela and other countries were forced to default on foreign loans and cut back on domestic subsidies after oil prices collapsed.

Flush with cash, Chavez has been more prudent in taking on debt and has paid off Venezuela’s World Bank and International Monetary Fund loans. What worries economists is the long-term viability of the projects into which he is plowing money, the drying up of private-sector investment in recent years and the huge increase in government spending.

Last year, public spending leapt to one-third of Venezuela’s economic output of about $180 billion, up from the average of one-quarter of output in the 1990s, said Jose Manuel Puente, an economist with the Institute for Advanced Administrative Studies in Caracas.

Chavez’s social engineering has taken his predecessors’ plans a step further in giving worker groups a piece of the enterprises and letting them manage the businesses in concert with networks of “community councils” that are local governing modules.

The architect of Venezuela’s endogenous development plan is Jorge Giordani, minister of planning and development and a close Chavez advisor. He did not respond to several requests for an interview.

“Public spending itself is not the problem; it is the rhythm that President Chavez has created, a kind of double-spending,” said economist Orlando Ochoa of the Andres Bello Catholic University in Caracas. “In the middle of the oil bonanza, you can’t call it anything but stupid or extremely populist.”

Along with galloping consumption, the public works spending boom is a major factor in Venezuela’s accelerating inflation, which last month reached an annual rate of 19.5%, the highest in Latin America. In the simplest analysis, spending creates demand, which pushes prices up and boosts inflation.

In no area of Venezuela is the spending push more evident than here in Bolivar state, where Chavez recently completed a billion-dollar bridge over the Orinoco, and the $400-million first phase of a new “Steel City.”

The fifth phase of a sprawling hydroelectric project that provides the country with 70% of its electricity is under construction on the nearby Caroni River, which feeds into the Orinoco.

“This will all become an industrial zone,” said Radwan Sabbagh, president of Ferromineros Orinoco, the state-owned enterprise in charge of Steel City. The project is going up in Ciudad Piar, an isolated municipality 65 miles south of here that has about 8,000 residents, most of whom work in low-paying mining and cattle jobs.

Steel City’s first phase, which employs 300, is a system that concentrates iron ore to make Venezuelan steel more competitive in domestic and foreign markets. In 10 years, Sabbagh said, the area will be a heavy industry nexus that will include smelters and steel factories and be home to 10,000 steel industry workers.

“The iron factories will bring light industry and then urban growth,” Sabbagh said. “It’s part of our territorial development policy to generate economic and social development where now there is low population density.”

Chavez plans several other industrial cities around state-owned lumber and aluminum factories and gold mines here in the four-state region called Guayana. The region has 52% of Venezuela’s land mass and a preponderance of the country’s nonpetroleum natural resources but only 8% of its population.

The magnificent $1.2-billion Orinico River bridge inaugurated just west of here in November is meant to spur development of Anzoategui and Monagas states to the north and increase commercial links with Brazil to the south.

Brazil, in fact, financed $100 million of the bridge’s cost. The Sao Paulo-based Oderbrecht construction firm was the contractor. Construction will start soon on another billion-dollar bridge spanning the Orinoco 300 miles west of here, also to be built by Oderbrecht.

While praising Chavez’s spending on infrastructure such as the bridge, and new mass transit systems or extensions in Caracas, Valencia and Maracaibo, Puente and other economists say Chavez’s state-financed industries like Steel City may collapse if oil prices go down and the state needs to cut back on spending.

“Chavez’s socialism for the 21st century, unfortunately, is too much like socialism of the 20th century, which failed and whose lessons apparently the president has not learned,” Puente said.

William Vega, a project manager at Steel City, said in an interview that the project was not just sound, but necessary.

“It’s something Venezuela has to have to compete. Without enriched ore, our domestic steel won’t sell on foreign markets in 10 years,” Vega said. “Once this is complete, we’ll have 50 years of life and a good future.”