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Venezuela risk: Political stability risk
[July 25, 2007]

Venezuela risk: Political stability risk


(RiskWire Via Thomson Dialog NewsEdge) COUNTRY BRIEFING

FROM THE ECONOMIST INTELLIGENCE UNIT

RISK RATINGSCurrentCurrentPreviousPreviousRatingScoreRatingScoreOverall assessmentD74D74Political stability riskD65D65Note: E=most risky; 100=most risky.SUMMARY

Mr Chavez's total control of the legislature--and recently approved powers to rule by decree for 18 months--gives him a free hand in policymaking. However, in light of a striking degree of political polarisation and policy radicalisation, potential for destabilisation of the political scene is high. The decay of political institutions, which do not command the respect of voters, also heightens the risk of political instability. The 2006 presidential election passed uneventfully, with Mr Chavez's large margin of victory precluding any claims of electoral fraud. However, the president's evident commitment to radicalising policy in his new term of office is likely to create renewed opposition, and possibly periodic outbreaks of violence. Mr Chavez's often confrontational stance towards neighbouring Colombia and towards the US, which serves to channel nationalist sentiment into support for the government, will keep the potential for dispute with these countries high. However, the risk of armed conflict is low.



SCENARIOS

Opposition to economic policy radicalisation grows, leading to disruptive protests (Moderate Risk)


The closure at the end of May of Venezuela's most popular television station, the privately owned RCTV, on the basis that it was involved in the attempted coup in 2002, triggered the largest anti-government protests since 2002-04 (when large opposition marches were a regular occurrence), led by media students across Venezuelas public and private universities. The protests were mostly peaceful and had no long-term policy impact, but demonstrate the growing risk of social unrest posed by the combination of policy radicalisation and a lack of opposition representation in government. The president evidently sees his clear victory in the presidential election as a strong mandate for a programme that combines high public spending on social investment with a much more controversial drive towards "21st century socialism". This significant acceleration of the trend towards state-led development (up to now radical rhetoric and legal and regulatory weaknesses have been offset by opportunities for the private sector to make significant profits in the ongoing oil-driven consumption boom) has the potential to raise political opposition to the government. Spontaneous demonstrations will remain the most frequent means of expressing discontent with government policy. A particular flashpoint will be constitutional reform, which will include controversial proposals to redefine property rights and eliminate presidential term limits; it will require approval by single majority in a referendum likely to be held in 2008. In the event of public demonstrations, anti-foreigner sentiment is rare, but protests can disrupt economic activity. The date and location of protests are usually announced in advance, and companies should monitor announcements carefully and step up security if necessary to limit the risk of damage to property and operations. Foreign business should also warn their representatives to be sensitive to the possible political connotations of their participation in campaigns and forums organised by local business groups.

Extremist opposition groups engage in campaign of assassination of public officials to disrupt public administration (Low Risk)

Extremist groups have long existed on the radical fringes of the opposition movement. It is believed that dissident military officers play a role in these organisations; anti-communist organisations based in Miami are also thought to be connected to extremist anti-Chavez groups. There is a risk that the radicalisation of policy and increasing concentration of power in the president's hands will strengthen this movement. However, until now there has been little obvious activity by extremist groups within Venezuela. A public prosecutor investigating the involvement of over 400 opposition figures in the 2002 coup attempt was killed in a car bomb attack in 2004. His assassination was an unprecedented development in Venezuelas political conflict and was immediately condemned by the main opposition groups, amid fears that the country was lurching towards a "Colombianisation" of politics. However, two years on, there have been no further assassinations, and the risk of a campaign of violence by extremist opponents against government members still appears low. Targeting of figures in the private sector is even less likely.

Relations with Colombia degenerate into armed conflict (Low Risk)

Relations with Colombia are frequently marred by disputes relating to activity of guerrilla groups in the border area. Colombia has previously alleged that Venezuela provides a safe haven for members of the FARC, a leftist Colombian guerrilla group. In 2005 tensions over the issue escalated, followed the arrest by Colombian authorities of a leading member of the FARC, which Venezuelan authorities alleged took place on Venezuelan soil in violation of Venezuelan sovereignty. For a two-week period in 2005, Mr Chavez cut diplomatic ties with Colombia and suspended trade negotiations between the two countries. The dispute was eventually resolved following a meeting between the two presidents. Since then diplomatic relations have improved, as evidenced by progress on the construction of a cross-border natural gas pipeline. But fundamental sources of tension persist, and given Mr Chavez's often confrontational stance and the popularity of the Colombian government's hardline position against guerrilla groups, relations with Colombia will remain susceptible to conflicts throughout the forecast period; we consider the escalation of these disputes into violence unlikely, but they will complicate commercial ties.

US-Venezuela commercial ties disrupted by political disputes (Moderate Risk)

Venezuela is unlikely to soften its diplomatic stance towards the US for as long as Mr Chavez is in power, even though there are signs that the US is changing tack, with a counterproductive policy of confrontation with the Chavez government replaced by a more neutral tone (while attempting to engage more positively with the rest of the region). Despite poor diplomatic relations and Venezuelas pursuit of new markets for oil trade and investment, oil supply to the US is expected to be largely unaffected during the forecast period. Venezuela will continue to be an important source of crude for the US market. For the moment at least, Venezuela has few other viable markets for its petroleum exports, and the public finances will continue to rely heavily on oil income. But tense bilateral ties and hostile rhetoric will sustain the perceived risk of a serious break in commercial ties, and the possibility of such a break cannot be ruled out altogether. Potential flashpoints would include further nationalisations, if they were to evolve into uncompensated expropriation of the assets of US companies. Following the decision by US oil companies ConocoPhillips and ExxonMobil to essentially abandon their Venezuelan operations rather than convert them to government-majority joint ventures, discussion over compensation is ongoing, but is likely to make very slow progress.

BACKGROUND

(Updated: July 3rd, 2007)

Political Forces

The president created the MVR in 1994 as a vehicle for his presidential ambitions, but has in office sought support from a much broader range of political organisations, including two existing and more politically experienced left-wing groups, PPT and Podemos. Community organisations, interest groups and labour movements also identify with the government and form part of the Chavista network. Small community organisations such as the Circulos Bolivarianos have been encouraged by MrChavez to develop outside the organisational framework of the party system, with the aim of stimulating new types of political participation. In December 2006, in the wake of his third presidential election victory, MrChavez announced his intention to unite these various elements into a single party, the Partido Socialista Unido de Venezuela (PSUV). The aim is to unite the various groups into a more ideologically coherent whole, focused on the government's still-developing project of "21st-century socialism". Along the way, leading members of some traditional left-wing minority parties could become sidelined in favour of other political forces. This is likely to lead to some tensions, as politicians wrangle for position.

The MVR: The MVR is a relatively young party. It was formed in 1994 as the electoral arm of the Movimiento Bolivariana Revolucionaria 200 (MBR-200), a military movement established in the 1980s by a group of junior army officers, including MrChavez. A decade of covert activity by MBR-200 culminated in a failed coup attempt in February 1992. Although MBR-200 was conceived as a military movement, MrChavez sought alliances with parties from the left through contacts fostered by his brother, Adan Chavez, a veteran left-wing activist. Sections of the left participated in the 1992 coup attempt, but their failure to convene a general strike in support of the uprising reinforced MrChavez's sceptical view of civilian politicians.

Organisationally, the MVR is weak. Its representatives in elective office owe their positions to MrChavez's personal popularity. The MVR has failed to build links with the grassroots of Venezuelan society, where the party has been effectively displaced by Circulos Bolivarianos, independently organised groups of MrChavez's supporters. Ideological differences between moderates and radicals have caused several splits.

MAS and Podemos: MAS was founded in 1969 by former communist guerrillas who fought in a failed insurgency against the Venezuelan state in the 1960s. It did not become a significant political force until the early 1990s, when its shift to the political centre enabled it to capitalise on the opportunities created by decentralisation to win power at the regional level. Amid deep internal disagreement, the party decided to support MrChavez's 1998 election campaign. However, MAS was not awarded any cabinet positions, and tensions quickly surfaced, as the party became critical of the government's refusal to negotiate with its opponents. MrChavez expelled MAS from the ruling alliance in 2001. In 2002 the party formally split, with one faction (Podemos) opting to support the government in the legislature and another (MAS MAS) forming part of the opposition.

The PPT: The PPT was formed in 1998 as a breakaway group of La Causa Radical (LCR). In common with MAS, Causa Radical had its origins in the Venezuelan communist party. Following its formation in the early 1970s, Causa Radical concentrated its organisational activities on the slum areas of Caracas and the industrial sector in Bolivar state, in the east of the country. The party capitalised on growing disaffection with AD and COPEI, and in the 1993 presidential election, its candidate, Andres Velasquez, a union leader, was only narrowly defeated in a contest marred by allegations of fraud. Causa Radical split in advance of the 1998 presidential election, owing to disagreement over whether or not to support MrChavez's presidential candidacy. PPT, the pro-Chavez faction of Causa Radical, entered the ruling alliance with MVR and MAS.

AD, COPEI and new oppositionforces: The opposition is made up of a number of heterogeneous groupings: the two historically dominant parties, the social-democratic AD and COPEI; breakaway groups from these two parties formed in the 1990s, following the failure of AD and COPEI to implement organisational and programmatic reforms; and breakaway groups from the government alliance, mainly moderate centrist or centre-left groups in disagreement with policy radicalisation under the Chavez government. Primero Justicia (PJ), Proyecto Venezuela (PV) and Convergencia Nacional were created by former COPEI members, while Alianza Brava Pueblo was set up by disaffected AD politicians. Solidaridad was created by Luis Miquilena, a former mentor of MrChavez who left the government in 2001; it joined Causa Radical and MAS among the leftist groups opposing the government.

During 2002-04 all of these parties belonged to a broad opposition coalition, the Coordinadora Democratica (CD), which was created in 2002 to unite the heterogeneous political parties in the campaign to remove MrChavez from the presidency. They were joined by non-party groups, such as the main trade union and the business chambers, which had also taken a leading role in rallying opposition activity. However, factionalism persisted within the opposition movement, leading eventually to the break-up of the CD soon after the revocatory referendum in August 2004. Individually, the two traditional parties, AD and COPEI, have the largest national recognition and established organisational structures. However, they suffer from their continued identification with the discredited corrupt political system of the pre-Chavez era. The largest of the newer opposition parties, the PJ and the PV, have not yet developed a significant national presence. More recently, Un Nuevo Tiempo, the political party founded by Mr Rosales, the opposition's losing presidential candidate in the December 2006 election, has come to some prominence. However, this is also centred in the opposition stronghold of Zulia, where MrRosales has been governor since 2000.

Main political figures

Hugo Chavez: A former army lieutenant-colonel. A charismatic populist, in December 1998 MrChavez won the presidential election with widespread support from the middle class and from the most marginalised members of society on a platform of radical reform. His victory transformed the political landscape and inflicted a humiliating defeat on the historically dominant parties, Accion Democratica (AD) and the Comite de Organizacion Politica Electoral Independiente (COPEI). In 2000, having reformed the constitution, he won again, extending his base among the most excluded section of the population, but losing much middle-class support. Notwithstanding the number of attempts to remove him from office, MrChavez is still the country's most popular politician. His enduring appeal owes as much to the opposition's discredit as to MrChavez's ability to connect with society's poorest and to implement social programmes that directly address their needs.

The constitution gives significant political power to the executive. In practice, MrChavez retains even more influence than stipulated under the constitution. There are few major political figures in their own right in the cabinet. This is particularly the case since a long-serving politician, Ali Rodriguez, took on a less high-profile role as ambassador to Cuba, having previously headed the Ministries of Energy and Foreign Affairs, and since Jose Vicente Rangel was replaced as vice-president at the beginning of 2007. However, some ministers in the new administration are likely to be more influential than others.

Adan Chavez: The president's older brother and new minister for education, Adan Chavez is a long-time left-wing activist and also something of a troubleshooter for the president in his most recent role of secretary of the presidency (before which he was ambassador to Cuba). Adan's appointment may be viewed as an attempt to eliminate dissent among cabinet ministers. His challenge will be to merge the education misiones (see Resources and infrastructure), which are funded by the executive, with the normal budget of the Ministry of Education. Adan's appointment has raised concern among the opposition over the introduction of an ideological element to the school syllabus.

Jorge Rodriguez: MrRodriguez replaced the long-serving vice-president, Jose Vicente Rangel, in January 2007. Before this, he was president of the Consejo Nacional Electoral (CNE, the electoral authority) during a politically charged period, in which the institution faced repeated accusations of bias by the opposition. MrRodriguez stepped down in early 2006 in the wake of an opposition boycott of the December 2005 legislative poll.

Rafael Ramirez:The minister of energy and oil and president of Petroleos de Venezuela (PDVSA, the state oil company). MrRamirez has presided over a programme of sweeping changes to private oil contracts, designed to increase the government's tax take. MrRamirez is considered a government hardliner; a secretly filmed video released by the opposition in late 2006 showed him stating to managers that no-one who was not fully identified with the "revolution" had a place in PDVSA.

Manuel Rosales: By virtue of being the unity opposition presidential candidate in 2006 and one of the few opposition figures with any real public influence (he is governor of Zulia state), MrRosales is currently the most noteworthy figure in the opposition movement. However, there are as yet few signs that he has gained much momentum from the presidential campaign.

Political Development

Management of Venezuela's petroleum wealth has been the dominant political and economic issue for most of the past century. Political disaffection rose as cycles of oil-led boom and bust became more pronounced following the oil price shocks of the 1970s. Frequent economic crises and endemic corruption eroded support for AD and COPEI, culminating in a crisis of legitimacy for the Punto Fijo system a decade later. Despite mounting fiscal difficulties, successive COPEI and AD administrations eschewed reform of the country's development model, centred on sembrando el petroleo ("sowing the oil"), as political support was dependent on clientelistic distributive policies. Instead, the state bureaucracy became unsustainably large, inefficient and costly. Government and opposition politicians alike encouraged a populist model founded on oil wealth, which undermined popular support for economic reform. Carlos Andres Perez of the AD was elected president in 1988 on the promise of a return to the "good old days" of his first presidency (1974-78), which had coincided with an oil windfall. His decision immediately upon retaking office to adopt stabilisation and structural adjustment measures to address chronic fiscal problems quickly left him isolated. Austerity policies were opposed by his own party and seen as a betrayal by the population. In February 1989 hundredsof people were killed in riots, known as the Caracazo, following sudden increases in public transport fares implemented as part of "shock" adjustment therapy.

After the Caracazo, MrPerez sought to defuse rising alienation through political change and introduced a programme of decentralisation and electoral reform. However, deteriorating economic conditions fuelled an intensification of popular resentment. The population's faith in the potential of "trickle-down", which had underpinned the legitimacy of the traditional political system from the 1950s to the 1970s, had all but vanished. In February 1992 six junior officers, including MrChavez, attempted a military coup. The coup leaders were imprisoned, but the fact that MrChavez achieved folk-hero status illustrated the public's deep disaffection with the political system.

The founder of COPEI and a former president in 1968-73, Rafael Caldera, capitalised on the popular rejection of MrPerez by refashioning himself as a political outsider. Having been rejected as COPEI's presidential candidate, he founded a new political vehicle, Convergencia Nacional (CN), and won the election on a populist platform, marking the first time since 1958 that a party other than the AD or COPEI had won the presidency. However, MrCaldera was forced to negotiate with AD in order to secure the passage of legislation. This association with the discredited AD reduced popular support for his government, as did MrCaldera's attempt to roll back the decentralisation and other political reforms introduced by MrPerez in 1989. Disaffection with the administration mounted after MrCaldera adopted an IMF-backed adjustment programme in April 1996.

MrCaldera's term ultimately served to intensify anti-system sentiment. MrChavez, who had been released from prison by MrCaldera in 1994, became the beneficiary of this mass political disaffection. His Polo Patriotico (PP) alliance, which grouped his own MVR with the Patria Para Todos (PPT) and Movimiento al Socialismo (MAS) parties, campaigned on a platform of radical reform of both the economy and the political system. MrChavez pledged to replace the discredited Punto Fijo state and lead the country to a new phase, the "Fifth Republic". Drawing support from across the social classes, but predominantly from among the poor, MrChavez won the presidency in the December 1998 election with 56% of the vote, the largest majority in Venezuela's democratic history, in an election that was regarded as fair. However, a stubbornly high level of voter abstention (36.5%) showed that the alienation created by the decline of the two main traditional parties, AD and COPEI, had played a significant role in MrChavez's victory. These two parties, which had virtually alternated in power for more than two decades, had become so internally divided that neither fielded a candidate.

MrChavez assumed the presidency in February 1999. On the day of his inauguration, he decreed a popular referendum on the convocation of a constituent assembly, in order to rewrite the constitution. The referendum approved the assembly, and a new constitution was drafted in just three months. Fresh elections were held in July 2000 to relegitimise all elective posts. MrChavez was returned with an enhanced landslide, winning 60% of the vote, although abstention reached an unprecedented 43.5%.

Abstention in presidential elections(% of electorate)197812.4198312.3198818.1199339.8199836.5200043.5200625.9Source: Consejo Nacional Electoral.The poor standing and demoralised state of the mainstream parties helped to assure MrChavez a protracted honeymoon period. However, by 2001 many middle-class voters who had supported MrChavez in 1998 and 2000 became alienated by his inflammatory style and radicalisation of the economic policy agenda, and impatient with the government's failure to deliver on promises to improve personal security, create employment and reform institutions. The credibility of new institutions created by the 1999 constitution was rapidly undermined by political appointments and by MrChavez's proclivity for bypassing constitutional procedure in order to accelerate the passage of legislation. Amid accusations of increasing authoritarianism and extremism on the part of the Chavez administration, anti-government sentiment broadened.

As a result of the prevailing distrust of the impartiality of political institutions, anti-government sentiment was channelled into street demonstrations. In an increasingly bitter standoff, government policy initiatives were regularly met with protest action, with business groups playing a ever-more proactive role. Anti-government protests climaxed in an abortive coup on April 12th 2002. MrChavez was removed from power, and the president of the main business association, Fedecamaras, Pedro Carmona, was appointed by the military to replace him. Two days later, a counter-coup, led by elements within the army that remained loyal to MrChavez, restored him to the presidency. The refusal by the Organisation of American States (OAS) to recognise MrCarmona's regime was also instrumental in its downfall, as was a series of mass protests in favour of MrChavez.

Recent election results(no. of seats in the National Assembly)20002006Movimiento Quinta Republica (MVR)76117Podemosn/a19Patria Para Todos (PPT)111Partido Comunista de Venezuelan/a7Accion Democratica (AD)290Movimiento al Socialismo (MAS)210Comite de Organizacion Politica Electoral Independiente (COPEI)50Primero Justicia50Others2813Total165167Source: Economist Intelligence Unit.Conciliation efforts following MrChavez's restoration to the presidency rapidly gave way to renewed polarisation and intransigence, with both sides accusing each other of bad faith. A nationwide general stoppage convened by opposition groups in November 2002 sought to force MrChavez to resign. Although it dragged on for two months, it failed in its objective and persuaded important opposition groups to shift their efforts towards securing a revocatory referendum, under a clause introduced in the 1999 constitution. Opposition groups successfully mounted a campaign to secure the necessary 2.5msignatures, and a recall referendum was scheduled for August 15th 2004. The results, which were disputed by the opposition, but ratified as free and fair by independent electoral observers, confirmed MrChavez in his post until the end of his tenure in 2007.

MrChavez's success in the revocatory referendum was aided by the expansion of his core support base in 2004, following a rapid acceleration of spending on social programmes in marginalised neighbourhoods, financed by windfall oil revenue. He also benefited from a rapid and large-scale government voter registration drive targeted at the poor urban communities most likely to support the president. By the time the electoral list was closed to referendum participants in July, it totalled slightly over 14m. This compared with 12.3m in November 2003, when the initial signature-gathering efforts of the opposition required to trigger the referendum took place. MrChavez's victory was also a reflection of the weakness of the opposition, which remained plagued by internal divisions and failed to broaden its popular appeal among the large bloc of voters (estimated at the time as accounting for 40% of the electorate) that supported neither the government nor the opposition.

In the wake of the referendum, popular support for an opposition movement perceived as divided and ineffective fell drastically. Pro-Chavez candidates made sweeping gains in state and local elections, held at the end of 2004 and in mid-2005 respectively. As an election for the 167-seat national legislature approached at the end of 2005, the main opposition parties were forced to confront the demands of anti-government organisations urging voters not to participate in the election, on the basis that this would legitimise a political system that they perceived as authoritarian and an electoral system that they believed to be fraudulent. The major opposition parties decided to boycott the legislative election just days before the December 4th vote, citing a lack of confidence in the Consejo Nacional de Elecciones (CNE, the electoral authority), and in particular, in the electoral register and the electronic voting system. The withdrawal of the opposition came despite a last-minute agreement by the CNE, brokered by election observers from the EU and the OAS, not to use controversial fingerprinting machines. The government dismissed the opposition's decision as a ploy to avoid an embarrassing defeat and urged its supporters to vote. Nonetheless, abstention rates (officially put at 75%, although the opposition claims that they exceeded 80%) were high. Moreover, although EU and OAS election observers noted only minor irregularities in the vote (including an extension of voting hours coinciding with efforts to mobilise the Chavista vote), they commented that broad sectors of society had no confidence in the electoral authority.

For potential opposition presidential candidates, much of the year leading up to the presidential election on December 3rd 2006 was spent trying to agree a unity candidate and persuade a reluctant opposition to vote. In August, after months of negotiation and just before a planned primary, Manuel Rosales, governor of the populous western border state of Zulia, received the backing of his competitors within the opposition. Agreement on MrRosales's candidacy marked something of a milestone for the opposition, which had lacked direction and impetus since failing to dislodge MrChavez in the 2004 recall referendum. The return of politicians to centre stage, after years in which business groups, trade union leaders, media bosses and non-governmental organisations (NGOs) had been the focus of attention, with frequently disastrous results, was also significant. However, MrChavez nonetheless gained a comfortable victory over MrRosales in December, with a margin of victory of 63% to 37% and a lower abstention rate than in past elections of 26%. MrChavez reaped the benefits of high global oil prices, which had permitted a sustained expansion of public spending to record levels and a broadening of the redistributive programmes that had benefited previously marginalised poor voters. Meanwhile, notwithstanding an effective campaign by MrRosales, the persistent perception remained among much of the electorate that the opposition was ineffectual, elitist, corrupt or out of touch with ordinary voters.

The president evidently sees this clear victory as a strong mandate for a programme that combines high public spending on social investment with a much more controversial drive towards "21st-century socialism". On the eve of his swearing-in ceremony in January 2007, MrChavez announced his intention to nationalise Venezuela's largest private company and dominant fixed-line telecoms monopoly, CANTV. Going further, MrChavez stated that all sectors of strategic significance should be nationalised. Complete control of the legislature and strong influence over weak and politicised institutions should facilitate this agenda. However, there are major challenges to policymaking. Perhaps most important, it is unclear whether a majority of voters support the shift to socialism. Opinion polls consistently show that MrChavez's support is based on his pro-poor policies and the rise in real incomes in recent years, rather than solid ideological support for socialism.

Meanwhile, weaknesses in the bureaucracy, growing signs of mismanagement and corruption, and pressures on fiscal revenue from falling oil prices will all complicate policy delivery. Failure to deliver on issues such as crime, corruption, housing and inflation could eventually erode support for the government. The opposition has raised fears that the government will respond by repressing dissenters, pointing to the government's decision at the end of 2006 not to renew the licence of a major privately owned television station as a further check on press freedom. A proposed enabling law, which would allow MrChavez to rule by decree for 18 months, is raising concerns over increasing authoritarianism and the concentration of power in the executive. MrChavez has stated further that he would like to reform the 1999 constitution (drawn up when he first took office), although there are as yet few details of the reforms.

Important recent events

2002: An abortive coup attempt in April briefly unseats the president, Hugo Chavez. The opposition seeks to regroup around an indefinite general strike from November, aimed at forcing MrChavez to resign. The unsuccessful strike lasts for two months.

2003: In February the government imposes draconian exchange controls as a means of halting the loss of reserves and stabilising the economy, following the strike-induced collapse. In December the opposition holds a campaign to collect the 2.5m signatures needed to demand a revocatory referendum on MrChavez's tenure.

2004: The electoral authority validates opposition-gathered signatures in favour of a recall referendum, which is scheduled for August 15th. In the referendum, more votes are recorded in support of MrChavez than against, confirming MrChavez's tenure. The opposition disputes the results, but independent observers accept them. Violent demonstrations subside.

2005: Perceptions of bias in the electoral authority among a large segment of the population persist. Faced with growing pressure to abstain and the prospect of a poor showing, the opposition withdraws from the legislative election held on December 4th. Pro-Chavez candidates sweep an election marked by abstention.

2006: The governor of Zulia state, Manuel Rosales, manages to unify a fractured opposition around his candidacy and to discredit some of the more extremist and abstentionist elements within its ranks. However, on the back of a massive oil-fuelled fiscal stimulus, MrChavez gains a comfortable victory in the presidential election on December 3rd. Abstention is reduced to 25.9% of voters.

2007: Just weeks after his election victory, MrChavez sets about trying to accelerate the drive towards "21st-century socialism", announcing the nationalisation of a private telecommunications company, CANTV, and suggesting that others will follow. A proposed enabling law, which would allow MrChavez to rule by decree for 18 months, raises fears of growing authoritarianism.

International Relations and Defence

Venezuela has no history of armed conflict with its neighbours, although there are longstanding territorial disputes with Colombia and Guyana. MrChavez has developed his foreign policy in accordance with the main tenets of "Bolivarianism". This claims inspiration from the ideas of the 19th-century independence leader, SimonBolivar, who sought to integrate Latin American countries to counterbalance the power of the US. The Venezuelan government is highly critical of what it sees as US interference in its domestic politics. Relations with the US have been particularly fragile since the short-lived coup of 2002, which the Chavez administration believes was backed by the US. Anti-US sentiment is frequently presented as defensive, with MrChavez often referring to the threat of US military action in Venezuela. However, particularly in the absence of a strong domestic opposition, strident hostility to the US also provides a useful means of translating nationalist sentiment into support for the government. To emphasise his position, MrChavez has increasingly taken a provocatively close stance to some traditional US adversaries, such as North Korea and Iran. He also campaigned unsuccessfully in 2006 for a non-permanent seat on the UN Security Council on an essentially anti-US platform, which garnered significant attention, but insufficient votes. This failure is unlikely to result in any softening of Venezuela's diplomatic stance towards the US for as long as MrChavez is in power. However, in the wake of MrChavez's third presidential victory in December 2006, there were signs that the US was changing tack, with a counterproductive policy of confrontation with the Chavez government replaced by a more neutral tone (combined with attempts to engage more positively with the rest of the region).

MrChavez's foreign-policy vision initially met with a sceptical response among neighbouring countries, but since the revocatory referendum in 2004, the Chavez government's attempts to extend its influence in the region through economic integration have achieved greater success, particularly in poorer countries, as a result of MrChavez's more solid political position and the country's oil-driven economic boom, which has increased interest in joint-investment projects and oil co-operation accords. Recent elections in Bolivia, Nicaragua and Ecuador have brought to power leaders who are strengthening their ties to Venezuela. However, Venezuela's increasingly radical international agenda has also given rise to unease in the region (relations with Mexico and Peru remain strained after disputes in 2006). In 2006 Bolivia's nationalisation of its gas industry (which Venezuela was viewed to have influenced) and Venezuela's decision to leave the Comunidad Andina (CAN) trade area in mid-2006 in favour of deepening ties with members of the Mercado Comun del Sur (Mercosur, the Southern Cone customs union) both created regional tensions.

Relations with Colombia have been fragile since 1999 as a result of MrChavez's criticisms of the US-financed anti-narcotics strategy, Plan Colombia, as well as Colombian allegations that MrChavez is sympathetic to left-wing Colombian guerrilla groups and has been providing guerrillas with a haven within Venezuelan territory.

Economic and diplomatic ties between Venezuela and Cuba have been strengthened since MrChavez assumed power. Commercial and social agreements include the provision by Cuba of medical and educational personnel, sports instructors and other technical assistance to Venezuela in exchange for discounted oil supplies.

Elsewhere in the Caribbean, the Chavez government has developed an energyco-operation accord with 13 countries belonging to the Caribbean Community (Caricom). Under the terms of the deal, Venezuela will provide crude oil and petroleum products on concessional terms, improving on those previously offered through the 2000 Caracas Energy Accord. The new accord consists of a series of sliding scales, to allow importers of oil from Venezuela to defray the cost of oil price spikes, to be financed with soft loans repayable over 15-25 years, depending on the oil price, with a two-year grace period. The programme also involves upgrading storage, refining and distribution facilities in the recipient countries.

In 1999 the four branches of the military were merged into a single national armed force. At the same time, the 1961 constitutional stipulation that insisted on a "non-deliberative" role in national affairs for the military was removed, and serving personnel were accorded the right to vote. The politicisation of the armed forces is not a new phenomenon. The major novelty under MrChavez stems from his undisguised ambition to forge a joint civil-military revolutionary project. This has found expression in the appointment of military figures to high public office and the deployment of the military in infrastructure renewal and social development projects.

MrChavez's redefinition of corporate identity eroded unity and authority within the armed forces. Although many among the junior ranks remained loyal to MrChavez, many active and retired senior officers expressed their opposition. Hostility towards MrChavez was particularly pronounced among senior personnel appointed by previous governments. Critics argued that MrChavez had eroded the military's monopoly of force by distributing weapons to the estimated 10,000 members of the Circulos Bolivarianos. They also alleged that his government had undermined the territorial integrity of the country by permitting crossborder activities by left-wing Colombian guerrillas. The depth of the fractures within the armed forces was exposed by the abortive coup of April 2002. Since then, personnel changes and alterations to the lines of accountability have been undertaken to diminish the possibility of a coup by anti-government elements within the armed forces.

The government embarked on an intensive round of military spending in 2005. According to a 2007 US Defense Department report, military spending in Venezuela totalled US$4.3bn in 2005-06, higher than in China or Iran. The government is also creating a structure of military "reserves" and "territorial guards", intended to reach 2m in number. This is ostensibly aimed at resisting a possible US invasion, but the opposition claims that the political militia will also serve to defend the regime against internal dissent.

Military forcesTotalArmy34,000Conscripts27,000Navy18,300Marines7,800Air force7,000National Guard23,000Total armed forces82,300Reserves8,000Source: International Institute for Strategic Studies, The Military Balance, 2005/2006.Venezuela's policing levels (505 police officers per 100,000 inhabitants) compare relatively well with other developing countries, but confidence in the police is generally low. Decentralisation of police forces during the 1990s led to their proliferation from 24 (one per state) to over 300, and resources are distributed extremely unevenly. The prosperous Caracas municipality of Chacao has one of the highest densities of police officers (over 1,000 per 100,000 inhabitants), while poorer districts have only a fraction of that coverage (Libertador municipality in Caracas has less than 100 police offers per 100,000 population). Extra-judicial killings are a serious problem, with Provea, a respected local human-rights organisation, estimating that 169people (mostly males aged under 18) died at the hands of police between October 2005 and September 2006.

Copyright 2007 Economist Intelligence Unit

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