CHÁVEZ’S FIRST YEAR: A REAPPRAISAL – IS THE GLASS HALF-FULL?

  
His open admiration for Fidel Castro and strident public speeches at times have made President Hugo Chávez of Venezuela a polemical leader. However, some highly-placed official American analysts close to the Venezuelan scene caution that Chávez should not be judged on his inflammatory rhetoric, but rather on his actions. This view stresses that to date, the Chavez administration has carried out some important economic and political reforms, although many problems remain. These optimistic observers assert that, despite the rhetoric, basic economic policies have not been altered, and that radical programs that upset the basic economic structure seem unlikely to emerge.

Economic Gains and Challenges

During its first year in office, the Chávez administration has cut government spending by 10%; continued to pay into the petroleum trust fund—which now stands at $1.3 to $1.8 billion—despite low oil prices and 15% unemployment; privatized the steel industry; and passed a new law to promote and protect foreign investment. The aluminum industry is on schedule to be privatized using a piece-by-piece approach, and US companies have expressed interest (in at least in some of the pieces). And recently, Venezuela signed a tax treaty with the US.

Knowledgeable observers say that the telecommunications sector is better run than ever, especially the National Commission of Telecommunications (CONATEL). A new telecommunications law is due out soon, and the sector is expected to be deregulated later this year. Once those changes are in place, the speculation is that $10 billion will be invested in Venezuelan telecommunications ventures over the next 8 years.

As all Venezuelan presidents inevitably must, Chavez recently unveiled his plan for re-charging petroleum-driven growth. Speaking on national television, Chávez reaffirmed the United States’ present and future position as Venezuela’s main energy sector partner. Venezuela now accounts for 18% of the U.S. market and the president asserted that his program’s goal is to increase that to a 28% share in ten years. To accomplish that, the current production of 2.8 million barrels a day (mbd) would have to rise to 5.8 mbd. That is an enormous undertaking that will require massive new investment and infrastructure development, for which Chavez is looking outside Venezuela, principally at the US business and financial sector, which he has been courting earnestly and personally.

A drop in trade due to the recession has been felt strongly in Miami, for which Venezuela has traditionally been an important export market. The position of the Chávez government regarding free trade, or at least increased trade liberalization, is unclear. Venezuela recently placed restrictions on Colombian truckers, and there are reports that protectionist phytosanitary regulations and subsidized credit are being used to help the agricultural sector (instead of adjusting the overvalued exchange rate).

Some of the economic challenges facing Venezuela include stimulating nontraditional exports to create jobs and diversify exports; reforming the Social Security system; increasing dynamism in the private sector; and signing a bilateral investment treaty with the US. Venezuela’s Gross Domestic Product (GDP) declined more than 7% in 1999 and continued to fall in the first quarter of 2000, albeit at a lower rate, due largely to uncertainty about the future in the domestic and foreign private sectors.

Political Reforms

When Chávez was elected president—with a 57% majority of votes—many of Venezuela’s institutions had been discredited. Political parties, the judiciary and the legislature were among the institutions that had lost the public’s confidence. Chávez’s affiliation with the armed forces—one of the few institutions (along with the Catholic Church and the press) that still commanded some respect among Venezuelans—gave him added credibility with voters.

One year later, Venezuela is installing a new judiciary that will implement the criminal procedure code that went into effect on July 1, 1999. This code instituted major changes such as the use of oral as opposed to written testimony and reform of the role of the prosecutor. The country’s new constitution also includes provisions that affect the judiciary, among them the creation of additional chambers in the Supreme Court. The Constitutional Convention has fired corrupt judges, and many more new judges will be appointed following the May 28 elections, presumably using merit-based selection professional procedures that do not make reference to political affiliation. (But the interim record on that aspect is not so rosy.)

The new constitution also established a new legislature, which will begin to function after the May vote. In addition, Venezuela continues to enjoy real freedom of the press, although relations between journalists and the government are often strained. Most important for Venezuela’s long-term political future, however, is the emergence of a credible and increasingly strong opposition in the upcoming presidential elections.

Skeptics say that Chávez is only waiting until the elections are over to consolidate power. They warn that if he does not win he will attempt to seize power. In fact, however, the armed forces are unlikely to throw their support behind a single candidate. Rather, the military’s public position has been that it will support the democratic political system. A more serious threat, perhaps, is the alarming personal security situation in Venezuela. The lack of public safety could be exploited through the granting of extraordinary powers to the president. This scenario remains at the level of speculation; in the meantime, a serious electoral race is shaping up.

Chávez’s fiery rhetorical style may turn certain sectors against him. The Catholic Church has already criticized the administration’s appointments to the country’s Electoral Commission, which is supposed to be bipartisan. New judges have been appointed from the president’s party, ignoring procedures adopted by his own Constitutional Convention which were designed to make the process less political. Chávez has also clashed with the Episcopal Conference, whose leadership he criticized for opposing his government’s changes.

With only a few weeks remaining before the elections, Chávez is reportedly running 11% ahead of his most serious opponent, Zulia state Governor Francisco Arias Cárdenas (also a retired lieutenant colonel). The Arias Cardenas phenomenon has gained hugely in the last two months, and, as shown by recent events in Peru, when the tide starts to turn, it sometimes moves rapidly. However, if a cautiously positive interpretation of Chávez’s first year in office is accepted, asserting that no real harm to democracy or free markets has been done, then in terms of public policy it may not matter too much which of the two candidates is elected. Whoever wins will have to take steps to restore confidence in the domestic and foreign private sectors. Without such confidence, Venezuela can expect only anemic economic recovery based on government spending.

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