Ask the Expert: Chávez and Venezuela

Richard Lapper, the FT's Latin America Editor, joins Mark Weisbrot, co-director of the Center for Economic and Policy Research in Washington, DC and Francisco Rodríguez, former chief economist of the Venezuelan National Assembly and assistant professor of economics and Latin American studies at Wesleyan University to answer questions on Venezuela.

Hugo Chávez won a landslide election victory in December and has started his new term in office with a series of radical policy measures to bring what he calls 21st Century Socialism to Venezuela. The country’s electricity and telecommunications industries are to be nationalized and a new socialist constitution introduced. Mr Chávez has assumed decree powers for the next 18 months and plans a reorganization of local government.

Richard Lapper (above left), the FT’s Latin America Editor and the author of a recent Council on Foreign Relations report on Venezuela, joins Mark Weisbrot (above middle), co-director of the Center for Economic and Policy Research in Washington, DC and Francisco Rodríguez (above right), former chief economist of the Venezuelan National Assembly and assistant professor of economics and Latin American studies at Wesleyan University on Monday January 29 from 1-2pm eastern US time (6-7pm London time) to answer your questions. Refresh your screen to see new responses

Depending on who you ask some describe Mr Chávez as a liberator and an individual that has helped redistribute wealth, increase social services including greater investment in education and health care. Others say that he has hurt his people by mutilating the state companies that used to run the country’s natural resources, as well as investing heavily abroad, neglecting some serious problems at home, and evident cronyism.

It seems like it is a continual publicity battle on both sides to alienate the other. Were do you think the reality of this matter stands? How beneficial has Mr. Chávez’s policies been to Venezuela as a whole in the short and long run?

Arash Nazhad, Austin Texas

Richard Lapper: All this is true. Chávez has been sitting on top of an almost unparalleled oil bonanza. When he came into office the price was hovering around $10 a barrel. Now it is at least four times as high, and of course last year it was even higher.

Oil is very important for Venezuela, accounting for more than three quarters of its dollar income and around about 40 to 50 per cent of its fiscal revenues. Chávez has used the extra money from dividends paid by Pdvsa, the state oil company, royalties and taxes to increase social spending among other things.

There are arguments about how effective the increase in spending has been but it has been increased, especially through the extensive programme of missions covering health care and education. There is also no arguing with the fact that he has spent heavily abroad. The Cuban doctors working in Bolivia are financed by Venezuela. Venezuela has been buying up Argentine and Ecuadorean debt, essentially lending cheap money to these countries. It has offered oil on credit terms.

The question Chávez’s supporters have to answer is this. How sustainable is this increase in spending? Obviously, the oil price is the key factor here. If oil prices fall dramatically – not to $10 but just to $20 or $30 – then, it seems to me, everything is up in the air.

But oil is not the only factor. Another big issue is expectations, a typical problem for petro-economies. Every time spending increases it sets expectations about service delivery up one notch and it makes even a small cut back in service more difficult politically to put into effect.

Let me give you an example. I was in a poor barrio of Caracas called Santa Eduvigis in November to look at a mission barrio adentro programme. When I was there before in January 2005 Cuban doctors went out visiting every afternoon and five small clinics – really doctors’ surgeries – were open every morning. In November there were only two of the five doctors still open. The doctors didn’t visit any more and the surgeries were frequently closed.

Health care may still be better than it was in 1997 – before Chávez came to power – but that is not the point. Popular memory is short, especially because these are young populations lacking political sophistication. They remember 2005 not 1997. This population is overwhelmingly Chavista but it is not ideologically committed in the way that say that Cuban Communists and the supporters are committed.

If Venezuela were to experience the kind of economic hurricane that hit Cuba in the early 1990s after the collapse of the Soviet Union, there is no way that they would willingly, out of ideological commitment, accept extreme austerity. Chávez might wish his people were disciplined communists – but they are not – and introducing Cuban-style communism among them is going to be extremely tough or at least in my view, impossible.

There is another issue. Governments that benefit from commodity price booms usually have to plan for the future because you can never assume that high prices will last forever. Venezuela’s history is one of sharp rises in oil prices, big increases in public spending on social provision and state-sponsored industrialisation, and then big politically damaging cutbacks. It has happened repeatedly throughout Venezuelan history and it happening again now. Chávez likes to say that he is inventing a new way of doing things – Bolivarianism, 21st Century Socialism or whatever he chooses to call it. But actually it’s not that new at all. Venezuelan petro-populism – populism because it is not sustainable – goes completely with the grain of the country’s history.

Mark Weisbrot: It must always be kept in mind that you are getting a very one-sided story on Venezuela from the major international media – it is like listening to a prosecutor and his witnesses and evidence in a criminal trial, and not getting to hear the defence unless you actively look for it outside the courtroom. Most reporting (there are some exceptions) and almost all editorial opinion resembles the news we got in the U.S. prior to the Iraq war, when the majority of Americans were convinced not only that Saddam Hussein had weapons of mass destruction, and an active nuclear program, but also that he was directly involved in the 9/11 massacre. Expert sources cited are overwhelmingly of the same anti-government view, and sometimes as reliable as Ahmed Chalabi and friends in the run-up to the Iraq war.

That said there is some truth on both sides. Critics are correct to point out that crime and murder rates have increased considerably under the Chávez administration, the rule of law remains weak, there is plenty of corruption, and the country has not made significant progress diversifying away from its dependence on oil or coming up with an economic development strategy. But in most of these respects Venezuela does not differ from its neighbours.

On the positive side, the official poverty rate, which measures only cash income, shows a 21 per cent decline from 42.8 per cent of households when Chávez took office at the beginning of 1999 to 33.9 per cent for the first half of 2006. Furthermore, incomes would be considerably higher and poverty lower in Venezuela today if not for the enormous economic losses inflicted by the opposition oil strike of 2002-2003, the explicit goal of which was to overthrow the elected constitutional government; as well as other economic instability and damage attributable to other extra-legal opposition efforts such as the April 2002 military coup.

The official poverty rate does not take into account other gains by the poor that are even more significant, such as increased access to health care and education. More than 2000 health centres have been created, serving millions of poor people since December 2003. It is difficult to put an economic value on these services, which have saved many thousands of lives and improved the quality of life for poor Venezuelans.

Some 47 per cent of Venezuelans, mostly poor, buy subsidised food at more than 15,000 mercal centres established by the government.

Region-wide polling by Latinobarometro shows Venezuelans nearly tied with Uruguay for first place in considering their country to be democratic, and again second only to Uruguay in their satisfaction with their democracy, as well as the most politically active of any Latin American country. These results, plus Chávez’ landslide victory in December with 63 per cent of the vote (the highest of 9 elections in Latin America last year) indicate that the government is delivering at least some of what its citizens voted for.

I have discussed the media coverage of Venezuela elsewhere as have others who focus on the media, e.g. http://www.fair.org/index.php?page=3009 and www.borev.net, which I do not.

Francisco Rodriguez: In principle, it should be easy to answer this question. Chávez has been in power for eight years, so we should be able to look at changes in indicators of well-being and poverty to evaluate his progress. In practice, this is more difficult because of two reasons: (i) it is hard to disentangle the long-run economic damage done by the national strike, and (ii) it is hard to tell apart propaganda from reality in some of the government’s claims.

One way to deal with both of those issues is to concentrate on progress in some indicators of well-being that are not generally sensitive to short-run changes in economic conditions, and for which we can trust the statistics. This is the approach that some colleagues and I took in our recent evaluation of the government’s literacy programme. In that work, we evaluated the success of the government’s literacy campaign using the raw data from official household surveys provided by the National Institute of Statistics. In contrast to the government’s claims of having taught 1.5 million people how to read and write and reducing illiteracy to less than 0.1 per cent of the population, we found that after the end of the program there were 1.01 million illiterate Venezuelans (5.6 per cent of the adult population), and only slightly less than the 1.11 million illiterates at the start of the program. Even this small reduction in illiteracy can be traced back primarily to changes in the demographic composition of the population. Our results thus suggest that the Chávez administration’s progress in the fight against poverty may be much less than it’s commonly made out to be.

Another interesting statistic that is revealing of the government’s priorities is the evolution of the share of social spending in total government spending. This share is much more important than changes in absolute levels of spending because no one disputes that Chávez is spending more money on just about anything – the question is whether he is distributing a larger share of the nation’s windfall to the poor. It turns out that once you take out social security, which in Venezuela benefits mainly the middle and upper classes (the poor work primarily in the informal sector) the share of social spending in the budget has actually decreased during the Chávez administration (29.3 per cent for 1999-04, in contrast to 31.5 per cent from 1990-98). In other words, most of the increase in spending resulting from the five-fold expansion in oil prices has been directed at other objectives – such as foreign assistance, military expenditures and growth in government employment. It has not been primarily directed at raising the living standards of the poor.

Mark Weisbrot: Here is a link to the actual numbers, as well as percentage of GDP, for social spending in Venezuela.


If you click on this link you will see that social spending increased enormously under Chávez, from 8.2 per cent to 13.2 per cent of GDP. Even without Social Security, it increased from 6.8 per cent to 10.1 per cent. This is for 1998-2005; there was significant increase in 2006 but the data are not available yet. The tables also show that social spending increased significantly as a share of the budget.

Also, I would not exclude social security spending as Francisco does, since it is a very important source of income for many workers and their families who are not well-off.

I would also question the idea, oft-repeated in the media, that Venezuela is about to collapse if and when oil prices drop. Venezuela has budgeted for $29 dollars a barrel for 2007, and $26 a barrel in 2006. They have $36 billion in reserves and another $17 billion in a development fund. There doesn’t look to be any austerity in Venezuela’s foreseeable future, unless there is a collapse of oil prices far beyond what any analysts are predicting.

Francisco Rodriguez: The data on the CEPR website do not address my point about the composition of social spending. They refer to the share in total spending including social security and to the share of spending in GDP. The relevant data is the share of social spending excluding social security in total spending. The data shows no trend after Chávez. The data comes from the Ministry of Planning’s School of Social Management and the last figure published on their web page is 2004.

President Hugo Chávez has been practising an aggressive, if not bellicose, form of domestic and foreign policy. Restricting domestic rights and liberties in various manners, insulting heads of state, and encouraging the creation of conflict to fuel his Bolivarian Revolution, he has undeniably caused great ire in the international community.

Many have interpreted the President’s rhetoric to be classic deflection politics in order to achieve domestic support, but with his recent moves to radically reform the constitution to further consolidate state, economic, and social powers, the world is starting to take into account the true implications of his actions. After criticizing the nationalisation of CANTV, the Secretary-General of the OAS Jose Miguel Insulza, a Chilean, was ordered by Chávez to resign, calling Insulza an idiot and viceroy of the empire.

What conditions or events will prompt moderate-leftist countries of Latin America such as Brazil and Chile to earnestly criticise Chávez and take concrete action through bodies such as the OAS or through other means?

Timothy Alexander Walton, Georgetown University, Washington D.C.

Richard Lapper: This is a good question and it is not easy to answer. Celso Amorim, the Brazilian foreign minister, has been much criticised, for example, for his failure to stand up to Chávez publicly. Brazil’s position in Amorim’s words – is that Chávez’s way “is not our way”. President Luiz Inacio Lula da Silva made a number of pointed references to the need to maintain democratic freedoms in a speech last week. Brazil believes it can more effective behind the scenes. In other words when Chávez criticises Brazilian officials or rants on about decontaminating Mercosur of neo-liberalism or using it as a platform to build 21st century socialism, Brazil simply allows him to get on with it and then in the evening Lula has a quiet word with Chávez, reminds him how bigger Brazil is than Venezuela and tells him to behave better in future. Brazil thinks this approach has worked in the case of another radical neighbour, Bolivia, whose gas nationalisation last year was ultimately framed in such a way as to be far less prejudicial to Brazilian interests than originally looked likely. Too much open criticism would simply make the problem worse, say the Brazilians.

This is well and good as far as Brazil is concerned, which for its own economic reasons wants Venezuela and Bolivia to be in Mercosur because they have large amounts of energy resources, desperately needed by Brazil if it is to grow faster. You get the impression that Brazil sees Venezuela and Bolivia almost as if they were rebellious Brazilian states, whose eccentricities are to be tolerated for the sake of national unity. Indeed, Brazilian governors have been known to come out with the kind of anti-capitalist rhetoric that Chávez likes.

As far Chile, I think Insulza’s criticism of the arbitrary way in which RCTV is losing its license fairly reflects official thinking inside the Chilean government. It was firm and clear but also acknowledged that Chávez had a point. Chávez’s intemperate reaction says it all and shows how difficult it will be.

Francisco Rodriguez: While Chávez has been aggressive in his foreign policy, he has been careful in courting moderate leftist governments across the region. A number of them receive substantial financial assistance from Venezuela. For example, Venezuela has already bought more than $3bn in Argentine debt, enabling Argentina to repay its obligations to the IMF. Even those who do not depend on Venezuelan aid have strong extreme leftist constituencies, among which Chávez is very popular. Leftist governments who want to stake out a moderate route have to worry about keeping these extremist parts of their constituencies in their coalition, and supporting Chávez is a low-cost way of doing so. Thus, even though the impasse with Insulza (which was over the non-renewal of the RCTV concession) generated considerable ill-feeling between the Chilean and Venezuelan governments, Chilean President Bachelet has already announced that she will visit Caracas in April.

Chávez gets into trouble when he becomes involved in other countries’ internal politics by supporting challengers to existing governments. This is what led to the diplomatic crises with Mexico and Peru. On the other hand, it has paid off for him when these challengers win – as in Bolivia, Nicaragua and Ecuador. Currently, most governments in the region have a friendly stance towards Chávez. I do not expect that to change in the short run. A drop in oil prices, however, may lessen the ability of Chávez to buy international support for his regime.

Mark Weisbrot: The short answer to Timothy’s question is “none.” That is, Brazil and Chile are not going to “take concrete action” against Chávez; in fact Chilean President Michelle Bachelet is planning an official visit to Venezuela soon in April. Lula’s relationship with the Chávez government is even stronger: last November Lula made Venezuela his first foreign trip after being re-elected, flying there to preside over the dedication of a new Brazilian-financed $1.2bn bridge over the Orinoco river. Lula lavished praise on Chávez, making what was practically a public endorsement of the Venezuelan president as he headed into the final weeks of his own re-election campaign. The Chávez government also has good relations with other governments in South America, including the US-supported government of Colombia.

Incidentally, Insulza did not criticize the nationalization of CANTV, as Timothy alleges. Rather he criticized the Venezuelan government’s decision – not yet implemented – not to renew a broadcast license for the TV station RCTV, which prompted the harsh response from Chávez. They have since made up, as have Chávez and Alan Garcia of Peru, who had previously exchanged insults.

Latin America’s leaders do not share the view that the Chávez government is “restricting domestic rights and liberties in various manners.” As in the United States, in Venezuela there is freedom of speech, the press, and assembly. But a TV station that had done even a fraction of the things that RCTV has done – including participation in a military coup, the devastating 2002-2003 oil strike to overthrow the government, as well as legal political campaigns – would not receive a broadcast license for a public frequency in the US or other democratic countries. (For links documenting this see http://www.borev.net/2007/01/and_you_thought_fox_news_was_c.html ). There are legitimate concerns about due process – e.g. I think there should be a hearing of some kind before such a decision is made, although it is not clear that this is required by Venezuelan law – but this is not a question of free speech or freedom of the press.

The media in Venezuela, with or without RCTV’s broadcast stations, is still much more oppositional and critical of the government than is the US media, for example, or probably any other media in the hemisphere. All you need to do is look at biggest TV stations and newspapers there (the private, anti-Chávez, media still has majority of the market).

As for Venezuela’s relations with Washington, these are mostly a result of Washington’s support for the military coup of April 2002 (which is well-documented, see http://www.cepr.net/index.php?option=com_content &task=view&id=649&Itemid=45), its tacit support for the oil strike, last year’s election boycott and other efforts to destabilise and/or overthrow the government of Venezuela.

The Bush Administration has also tried, as Timothy suggests, to isolate Venezuela diplomatically from its neighbors, but this has only succeeded in further isolating themselves in the region. A better approach would be for the Bush Administration to offer to normalise relations, including a cessation of current funding for opposition groups in Venezuela, its blocking of sales of military and military-related equipment (e.g. from Spain and Brazil), and other U.S. actions/sanctions that would be considered very hostile by any sovereign government.

Do you think the coverage of Venezuela has been excessively slanted in favour of the IMF? For example, news stories today rarely mention the Caracazo, the 1989 massacre of anti-IMF protesters in Caracas. Responding appropriately to this slaughter is central in the minds of many key Chávez supporters, yet this unspeakably brutal violation of human rights never bears mentioning in corporate media coverage of Venezuela’s recent history. Instead, the reporting leaves the impression that Chávez somehow arose to power in a vacuum, when in fact his first coup attempt was a direct response to that massacre of innocents in the Streets of Caracas. What are your thoughts? Is dissent from IMF orthodoxy in Latin America given a fair shake in today’s reporting?

Matt Dubuque,San Francisco, CA

Richard Lapper: There are some important issues here. The history – as you suggest – is important. Venezuela before Chávez was not the democratic nirvana imagined by the right.

Having said that, I think it is worth making a couple of other points.

First, for all its faults Venezuela in the 1980s was not a dictatorial police state run at the behest of international capitalism. Second, it seems from your question that you exaggerate the IMF’s role. Governments in the 1980s failed to come to terms with the fall in oil prices and the impact on the economy. Botched efforts to adjust – including steep increases in bus fares – triggered the rioting and killing in 1989 known as the Caracazo.

But it was the Venezuelan government of the time that designed the adjustment programme. As for the story today, basically, the IMF has very little interest in Venezuela. Venezuela has substantial economic reserves and no need of IMF assistance. As a result, the IMF is in no position to impose or even advise the Venezuelan government about its economic policy.

Mark Weisbrot: I think the main thing that the media has underestimated and not adequately reported on is the collapse of the IMF’s influence in middle-income countries over the last few years. This is an epoch-making change, the biggest change in the international financial system since the breakdown of the Bretton Woods system of fixed exchange rates in 1973.

It is especially important for Latin America, where the United States exercised most of its influence over the last three decades through the IMF, by means of a creditors’ cartel. A government that didn’t agree to funding from the IMF, which was and still is mainly controlled by the US Treasury, would not get most loans from the much larger World Bank, IDB, G-7 governments, and sometimes even the private sector. This was very powerful, and it is no longer in effect. Venezuela has played a major role in the breakdown of this cartel by providing an alternative source of credit, to Argentina, Bolivia, Ecuador, and other countries, from its $36bn in oil reserves, with no policy strings attached.

I have discussed this elsewhere, here http://www.cepr.net/index.php?option=com_content& task=view&id=773&Itemid=45 and at length here: Latin America: The End of an Era Winter 2006, Mark Weisbrot http://www.cepr.net/index.php?option=com_content&task=view&id=373.

Francisco Rodriguez: I agree that the February 1989 protests, and the reaction to them, are one of the motivations for the support of chavismo. I would not give it a central role, as the Chavista movement within the armed forces was well constituted before 1989.

I think most of the media has correctly interpreted support for Chávez as a result of a demand for a change in a political system that was, to the eyes of most Venezuelans, severely biased in favour of the country’s wealthy.

It is not hard to find examples of the press under-reporting both negative and positive stories with respect to chavismo. For example, the international press has also given little attention to the fact that Chávez favours the theory that the CIA blew up the Twin Towers, and that the Venezuelan National Assembly called in an official resolution for an investigation of the links between the Bush and Bin Laden families. I would not interpret these gaps as a result of a bias but rather as a result that journalism doesn’t always work to transmit the most important or relevant news.

What is the possibility of a new cold war taking place in Latin America? On one side we’d have Venezuela, Cuba, Bolivia, Ecuador and Nicaragua (anti-US) and in the other Mexico, Colombia, Peru, Paraguay and Chile (pro-US) What is the possibility of the US making efforts to remove Chávez from power, given the Iraq situation? How do you think that Fidel Castro’s death will affect Hugo Chávez’s regime? After all, Fidel Castro is Chávez’s ideological father and logistics advisor.

Alvaro Ruiz-Navajas, Manchester, UK

Richard Lapper: I think they are pretty limited in the sense that the Cold War did actually involve a stand-off between two superpowers and there was always the threat of mutually-assured nuclear destruction in the background. Obviously there are growing ideological fissures between the two camps you mention but at this point at least it is very difficult to see anything as momentous for the world as the Cuba missile crisis or even the Central American civil wars of the 1980s happening in Latin America either today or in the near future.

Will the US try to force out Chávez militarily? Unless things change quite radically it is unlikely I think. First, because logistically and politically it would be very difficult for the US to launch a military adventure along the lines of the Panamanian invasion of 1989. Second, because if you leave all the rhetoric aside and the US and Venezuela still big trading partners. The US buys about 11 per cent of its oil from Venezuela and Venezuela relies for about half of its oil revenues on purchases by the US.

As for Fidel Castro’s death, my guess is that it will have relatively little impact in Venezuela. It is said that Raul Castro enjoys a less positive relationship with Chávez than Fidel. Whether that is the case or not the fact is that the Cuba-Venezuela relationship is already very important for both countries. Cuban exports of medical services – mainly to Venezuela – are far and away its biggest export (at $4.5bn in 2006 generating more than twice as much revenue as tourism, nearly four times nickel exports and perhaps forty times more than sugar). Cuban doctors are vitally important for Chávez in terms of buttressing his popularity in the barrios. They are key to the success of Barrio Adentro and Venezuela has made only the most limited progress in replacing the 20,000 Cubans (doctors, dentists and sports professionals) with new Venezuelan professionals in these areas.

Mark Weisbrot: The Cold War view of Latin America is the prevailing view in the Bush Administration, but it is not likely to materialize, since as I noted above the Latin American countries do not want to choose sides – even Washington’s closest ally Alvaro Uribe in Colombia refused to criticize Chávez when he met with member of the US Congress here, for example.

The Cold War view also misunderstands the nature of the changes taking place in Latin America. What we are really witnessing here, in the present and near future, is a search by a number of governments for ways to make capitalism work after 25 years of the worst economic failure in over a century.

Latin America as a whole grew by 82 per cent per capita from 1960-1980, but managed a record-breaking failure of 13 per cent for 1980-2005. The voters have concluded that the “neo-liberal” reforms of the last quarter-century (indiscriminate opening to international trade and investment flows, tighter [often pro-cyclical] monetary and fiscal policies, large-scale privatisations, and the abandonment of development or industrial policies) had something to do with this failure, and have gone over the heads of the political classes, through elections, to demand an improvement to policies that have now denied more than a generation and a half of Latin Americans an opportunity to improve their living standards – a situation this, in modern capitalist societies, relatively rare.

Francisco Rodriguez: Many of the governments that you mention would not benefit from open confrontation with their neighbors. Ortega is striving to make his alliance with Chávez compatible with maintaining IMF support. With the exception of Cuba, these countries are subject to electoral politics and I think we’ll be seeing the pendulum swing in them and others in both directions. I doubt the US will try to do anything to remove Chávez given the fact that he has been recently re-elected and that the Iraq situation is draining away most of their efforts. If we see a smooth transition in Cuba, as Fidel has tried to ensure, we should not see any relevant changes in the relationship with Venezuela. Remember, Cuba gains immensely from this relationship so an even more open regime would have little reason to let go of the generous oil subsidies.

What are the principal risks to the derailment of Chávez’s socialist revolution now that the political opposition is in shambles?

Michael Kalavritinos New York, NY

Francisco Rodriguez: I think that a combination of a decline in oil prices and a recession – in part caused by a decline in investment generated by growing uncertainty about the scope of nationalisations – may put a damper on Chávez’s popularity and the sustainability of his regime. Most surveys coincide in putting his popularity at very low levels during the 2001-3 recession. As in many other countries, economic growth generates support for political incumbents. While the opposition is very disorganized, it would not be the first time in Latin America that a strong challenge emerges to a candidate just a few years after he wins re-election with a very large margin (witness the evolution of Peruvian politics after Fujimori’s 1995 re-election with 64per cent of the vote). Chávez faces a referendum on constitutional reform this year or next, and the staggering of Venezuelan local elections implies that we will have municipal, state-level and Assembly elections in several of the following years. So Chávez will have a number of electoral challenges in which he could start doing worse.

Will nationalisation of corporations and basic services be to the detriment or improvement of the Venezuelan poor compared to their period under-liberalised reform?

Khaled Tanveer

Francisco Rodriguez: I don’t think the problem lies so much in the fact that telecommunications and electricity are being nationalised but in the uncertainty that this generates about how far the government will go and how much it will respect existing institutions. The government has been extremely unclear as to what amount of compensation will be paid to firms, with Chávez several times stating that the compensation will be on the terms decided by the state. Other countries have carried out nationalisations (Venezuela itself in the 70s) with transparent and fair compensation arrangements, and these moves have been taken as legitimate choices of development strategy. However, it appears that in Venezuela the government will not balk at using its power to seize assets with a nominal compensation at best, this creating severe doubts about its respect for the institution of private property.

More dangerous is the set of signals clearly coming out of the government that they are exploring a much broader set of expropriations. Labour Minister José Ramon Rivero stated to El Universal in a January 12 interview that they are considering legislation that would make all private firms share profits with community councils and workers’ councils. It thus appears that the government may be considering the creation of something much closer to a centrally planned command economy. It is my belief that this would have disastrous consequences for the Venezuelan economy and for the Venezuelan poor.

How would you characterize the anti-poverty policy of Hugo Chávez? Is it just another form of asistencialismo or is it really changing – economically and politically – the balance of power in Venezuela?

Masimo Cavallini

Francisco Rodriguez: A full systematic diagnosis of Chávez’s social policies has, to the best of my knowledge, not yet been carried out. However, some of the governmental claims of progress on this front are very hard to take seriously. As I pointed out in my introductory remarks, my colleagues and I have carried out research regarding one of the major programs, the Misión Robinson literacy program, and have found almost no statistically distinguishable results (in contrast to official claims of illiteracy eradication). Also, inspection of aggregate statistics does not show any striking breaks in trends before and after Chávez: infant mortality rates have kept falling at pretty much the same rate they were falling during previous administrations, and the proportion of underheight and underweight babies, which was declining, has actually increased after Chávez took office. There is no evident sign in the data that supports the hypothesis that Chávez has been any better than his predecessors for the Venezuelan poor, and a good deal of it appears to say that he might have been worse.

An even more worrying development is that Chávez’s expansion of spending (on everything, not just on social programs) has created a clearly unsustainable fiscal situation. Venezuela last year ran a budget deficit of more than 2per cent of GDP, despite the fact that oil prices were five times as high as when Chávez reached office. A decline in oil prices must sooner or later be followed by spending cuts, and this will likely mean a decline in social spending. In this sense the story would again not be that different from the experience of previous Venezuelan governments.

Richard Lapper: I wanted to say something on freedom of the press and come to back to a point Marc made earlier. Marc suggests that the concern on the decision to cancel the RCTV license is about due process rather than press freedom. In other words it is not a concern for press freedom. I disagree, precisely because the absence of due process creates the very strong impression of official intolerance towards oppositional media, a point made forcefully by Insulza. Especially, in a context where Chávez and his supporters have effective control over the judiciary and legislature and other instances of power, arbitrary decisions like this are a BAD thing.

True, Chávez may have a point with RCTV ­ which he says was supportive of the coup of 2002. But this is not the point. These concerns need to be taken through the legal process and RCTV needs an opportunity to defend itself. The other thing is the intolerance of Chávez’s response to Insulza, which indicates that he will brook not the slightest discussion on the matter. By the way I think it is pretty likely that behind the scenes, Brazil, echoed Insulza’s concerns. For the good of Venezuelan democracy, I feel that Brazil ought to be forceful about these criticisms. For the reasons I have outlined above they have not made them openly.

Francisco Rodriguez: On the issue of freedom of speech, I would like to add that it is somewhat circular to refer to whether Venezuelan law requests due process if we are talking about a law that was written by the Chávez government. In an article in today’s El Nacional, Minister of Communications Willian Lara has made clear that the channel substituting RCTV will be under government control. Therefore, the outline of the story that we can expect to see in future years is pretty clear: the three private networks that have supported the opposition (Globovision, Venevision and RCTV) will pass to government control and there will be no space for an opposition message in television.

I find it hard to understand how one could conceive of this as not being an issue of freedom of speech. It is also factually incorrect to say that the main newspapers are owned by the opposition. Venezuela’s two largest newspapers are Ultimas Noticias and Panorama, and both are staunchly pro-government.

Mark Weisbrot: Well I am all for due process as I said above. So I agree that is important, and could be related to press freedom, if it could be shown that the media is intimidated by such actions. But 70 per cent of the media is still opposition, and much more so than it is in the United States. So I think the media is more likely to interpret the denial of this license as that there are rules that any democracy must have for the public frequencies — as when, in 2004, 19 Democratic Senators in the US wrote a letter to the FCC about one of our largest broadcasters, Sinclair, when Sinclair ordered its 62 TV stations to show a film arguing that John Kerry had betrayed US soldiers in Vietnam, just a few weeks before the election. Sinclair backed down and did not show the film.

I’m not going to defend Chávez insulting anyone, but I don’t agree with your interpretation of it. The way Chávez sees it, is Insulza taking sides against him. Insulza did not criticize the abuses at Guantanamo, the Bush Administration’s claims that it has the right to torture and indefinitely detain people, and other serious abuses by the U.S. government. Isn’t the US part of the OAS? So, from his viewpoint, why is he joining Bush and a media chorus in trying to make it look like the press is not free in Venezuela? That is how Chávez saw it — and as you know, there were press reports when Insulza got his job, leaked emails from US officials indicating that they pressured him to make a thinly-veiled criticism of Venezuela back then, for no legitimate reason.

The opposition has been predicting (and accusing the government) of dictatorship for 8 years now. So far, the only dictatorship Venezuela has had in the last 8 years was the 48 hours when the US-backed opposition coup government abolished the Constitution, the General Assembly, and Supreme Court.

As I said before, with or without RCTV’s broadcast license, Venezuela will still have the most oppositional media in the hemisphere. And it remains uncensored. Venezuelans haven’t lost civil liberties like we have in the United States since September 11. I will take these fears of dictatorship much more seriously if Venezuela ever reaches the level of political repression, one-sided media and electoral irregularities that we see in, for example, Mexico.

Can socialism work in terms of economic success from the standpoint of both a modern world in which countries are indeed moving away from this ideology and Venezuela’s current make-up?

Marc Morgenthaler, New York

Francisco Rodriguez: My biggest problem in answering this question is that it is very difficult to know what Chávez means by his “21st century socialism.” If it is the institutions of a centrally planned economy, or anything vaguely resembling the Cuban economy, I think it would be disastrous. I do not think it can work in terms of economic success as the track record of this type of economies is well established. It is, however, possible for Chávez to consolidate his power for a very long time in an economy where the state controls the allocation of resources.

Richard Lapper: I don’t think “21st century socialism” can work a) because no-one knows what it is other than constant improvisation whose themes and direction depend on what Chávez has last read. One day it will be Soviet Marxism of the 1920s (Georgi Plekhanov), the next it is the Italian New Left of Tony Negri and the next day it will be Simon Bolivar, the Bible or Victor Hugo. Chávez is famously eclectic but I don’t think he has developed a road map at all. And (b) more seriously, because it offers no pathway to develop small and medium-sized businesses that is the only way Latin America can create enough jobs. And (c) Because it offers no route for Venezuela to reduce dependency on oil and diversify the economy. Chávez may talk about diversification but in fact the way things are going he is increasing dependency on oil and the oil price. As I said before, Venezuela has been here before.

I think the theme here is constant improvisation. The car is being driven faster and faster but no-one – not even the driver – really knows where it is going and whether it will stay on the road. In terms of divisions within Chavismo one thing is certain. If Chávez starts to touch the interests of the new boli-bourgeois rich, there will be a reaction from within his own ranks.

To what extent is the Chávez phenomena (and more generally the growth of the left in LA) a result of a failed US economic policy/doctrine in the area?

Secondly, what can the USA learn from 40 years of trying to undermine and deal with the Fidel Castro government that could be useful for engaging with the current regime in Venezuela? Finally, is Chávez good for Mercosur?

Fag du Clooner, Caracas

Richard Lapper:On the first question, it is more complex than that. What is happened in Venezuela in the 1970s and 1980s was very different to what happened elsewhere in Latin America principally because Venezuela is so dependent on oil.

In addition, elsewhere in Latin America right through the 1980s and 1990s there were a whole range of different policy responses to the difficulties posed by the debt crisis of the early 1980s and the recession of the 1980s. I’m uncomfortable with the idea of reducing this – as I think Marc runs the danger of doing – to one big failed experience with capitalism. Chile, for example, has been very successful – not just in Latin American terms but in comparison to most other emerging market both in growing its economy and introducing a much greater element of social welfare. And while it has done this in a “market friendly way” it has not simply accepted instructions from the IMF or “Washington”. Indeed, its main company – Codelco – remains state owned – and its successful capital control policies in the 1990s were maintained in the face of fierce criticisms from international financial markets and the IMF.

On the other issues. The one lesson the US can learn from its Cuba policy is that economic embargos has been a completely ineffective. The US need to engage with Cuba.

Is Chávez good for Mercosur? I think the main problem is that the Mercosur countries could waste an awful lot of time discussing his fantastic and probably unrealisable mega projects when they should be looking to deepen and strengthen the integration they have already achieved. In my view rather than pretending it is a global power block – which both Chávez and the Brazilians are keen to do – Mercosur ought to get on with the business of creating a genuine internal market that would allow its economies to grow faster and compete on the international stage. That was the agenda of “open regionalism” that they signed up to in the early 1990s and it is still the best route forward.

Francisco Rodriguez: I think that the support for the Left in Latin America is definitely a manifestation of the very real opposition to the Washington consensus reforms that came to be know as neoliberalism in the region during the 80s and 90s. The fact that the US oriented its foreign policy so strongly towards supporting the adoption of free market reforms hurt its stance in the region. It is no secret that the results of these reforms have been, at best, much poorer than expected.

I am not sure that there is much that an external power can do to change a government after it has become entrenched in the power structure of a country. What I think the US can do is to try to do something to stop the rest of the region from falling under the control of virulent anti-American regimes like the Chávez one. A new strategy where aid is not conditioned on economic policies would be a start.

The flood of policy announcements over the last few weeks leads to questions about the capacity of Chávez’s government to implement all his new ideas. Two questions: (1) which policies do you believe will be fast-tracked? and (2) are any of the new policy directives causing problems within Chavismo?

Lucia Paz

Francisco Rodriguez: I think that Chávez will try to do a lot of changes at the same time very fast. If some of them have to take back stage, they will probably be the economic ones and those that cause severe policy restrictions, since his main goal is consolidating power. There do appear to be fissures over the constitution of a the unified party, although Chávez is in such a dominant position vis-à-vis his followers that I expect him to be able to keep these under control. On the other hand, Chávez strategy in the past has been to throw out initial very radical statements only to later negotiate with his opponents from a position of strength.

What are the implications [of this radical shift to the left] for US suppliers of commercial goods currently being sold on credit terms to Venezuelan importers? Are there any parallels to be drawn from the Cuban revolution vis a vis non-payment of debt obligation?

Byron Shoulton, New York

Francisco Rodriguez: I think the threat of non-repayment is a serious one. Chávez has stated in several interviews that in principle he opposes the paying of Latin America’s debt, but that he has decided to repay the Venezuelan debt for strategic reasons (see his 2002 interview with Martha Harnecker). If oil prices go down, or if Chávez feels emboldened (or both) I would not be surprised to see the Venezuelan government talk more about the unjustness of “Fourth Republic Debts”.

At what oil price will Mr Chávez feel it necessary to constrain his foreign policy activities? In Q3 when oil reached a peak ($78/ barrel) Venezuela had a current account surplus of $30bn, equal to 10 per cent of GDP. Now that the price of oil has declined by one third, is Mr Chávez forced to retreat from his foreign policy goals and focus on refurbishing the country’s petroleum infrastructure?

Robert Derbenti

Francisco R. Rodríguez: A ‘back of the envelope” calculation would give approximately $30/barrel (about $14 less than current prices) as the price at which Venezuela starts running into balance of payments problems. However, think that the problems can start at much higher prices. The government will likely run a deficit of about 6 per centof GDP even at current oil prices this year and the money it has been printing is starting to cause serious inflationary tensions. The price of oil may be less important than the pace at which spending has increased. Unless the government caps spending growth, Venezuela could be in for a fiscal crisis in the midst of an oil boom ( it wouldn’t be the first time: this also happened in 1979-82, during the second oil boom).

Source: Financial Times