Venezuelan turmoil

Patrick Crow
Washington, D.C.
[email protected]

Venezuela's President-elect Hugo Chavez, 44, intends to control not only the official government but also what he sees as a shadow government, Petroleos de Venezuela SA (Pdvsa).

Like any reformer, Chavez represents both the hope and the threat of change.

As a paratroop officer, he led an unsuccessful coup d'etat in 1992 against the government of President Rafael Caldera. After Chavez served 2 years in jail, Caldera pardoned him.

Chavez then tried the slower, democratic route. He assembled a hodgepodge of political support and ran an anti-establishment, anti-corruption campaign that the two major political parties simply could not counter.

He won 56% of the vote in the Dec. 6 election, the biggest margin in the 40 years that Venezuela has been a democracy. Chavez begins his 5-year term on Feb. 2.

He has moderated some of his positions since the election but will have trouble achieving his vague pledges for economic and political reforms (see related story, p. 32).

His primary problem is how to rescue Venezuela from a recession and high inflation absent a rebound in world oil prices.

Pdvsa under attack

To many Venezuelans, Pdvsa and the government are practically indistinguishable. So Chavez campaigned as much against Pdvsa as for election.

Pdvsa is responsible for 80% of Venezuela's export earnings and half of the government's income. Many Venezuelans resent Pdvsa's deep influence in the nation and the higher standard of living that Pdvsa's 40,000 employees enjoy.

Chavez accused Pdvsa of being a "state within the state," accused it of extravagant spending, and pledged to fire Pdvsa Pres. Luis Giusti.

And he wants Pdvsa to scale back its goal of investing billions to increase production capacity to 6.2 million b/d by 2005.

After the election, Chavez said, "We have to subordinate Pdvsa to the Venezuelan state. Today it is insubordinate."

Pdvsa recently said low oil prices will push its 1998 profits down 65% to $1.4 billion. At the same time, its payments to the government will drop to $7.4 billion this year, down from $11.7 billion in 1997. In response to Chavez, it was expected to cut its planned $9.8 billion 1999 budget to $8.1 billion.

Foreign affairs

International oil companies are dismayed at Chavez's earlier threats to roll back petroleum expansion in Venezuela.

They've invested heavily in retail marketing in expectation of higher pump prices, but Congressman Ali Rodriguez, Chavez's energy spokesman and the likely new energy minister, has said gasoline prices will be kept at about 46¢/gal.

That's smart politically. Venezuelans consider cheap gasoline to be part of their national patrimony.

Earlier this year, Venezuela, Mexico, and Saudi Arabia agreed to cut production to stiffen world oil prices. Venezuela pledged a 525,000 b/d cut to 2.845 million b/d, and currently is at about 2.935 million b/d.

Chavez has said Venezuela would meet its goal, but would not cut more and probably would not extend the deal when it expires in June.

But he also said producing nations should reexamine the global oil market and "avoid a price war that could take oil prices down to $4 or $5/bbl."