The Heritage Foundation

Backgrounder #1623 on Latin America

February 12, 2003

February 12, 2003 | Backgrounder on Latin America

Stability and Democracy, Not Oil, Are at Risk in Venezuela

Venezuela is the world's fifth largest oil producer and normally provides 13 percent of U.S. petroleum imports, but the United States should not be so eager to open the spigot that it acquiesces to the consolidation of an emerging dictatorship or to prolonged turmoil there. Neither outcome will enhance stability in volatile South America or assure a steady supply of petroleum at a time when the United States is likely to engage in military action in Iraq.

The only way to rescue Venezuela's viability as an energy producer and trade partner is to help restore democracy by bringing sustained pressure on President Hugo Chávez to allow a peaceful, constitutional vote on his mandate and then supervise the resulting campaign and vote to safeguard political and civil liberties until the Venezuelan government is able to do so itself. So far, the Bush Administration has pursued this course.

More Than a Petrol Problem

For more than a year, this South American nation of 23 million has experienced increasing upheaval provoked by the dictatorial ways of its fiery, demagogic president Hugo Chávez. On December 2, 2002, business and labor leaders called a national work stoppage, hoping to pressure him into resigning. Some 35,000 workers walked out of the state oil monopoly PDVSA (Petróleos de Venezuela Sociedad Anónima), temporarily slowing production to a trickle.

The loss of 1.5 million barrels of imported heavy crude per day from December 2002 to January 2003 made headlines and helped push U.S. gasoline prices up 10 cents at the pump, but that is within the range of normal market fluctuations. Furthermore, the Organization of Petroleum Exporting Countries (OPEC), of which Venezuela is a member, promised to increase output by about 1.5 million barrels per day. And after reportedly firing 5,000 striking oil workers and replacing some of them with loyalists, the government has managed to boost production to one-third of previous levels.

The real issue is what would happen if Venezuela's increasingly unpopular president tried to impose a dictatorship in order to stay in office. This would exacerbate the conflict, possibly even provoking a civil war. Possible scenarios include:

  • Financial collapse affecting trade partners
    Venezuela once had the highest per capita income in South America and was the United States' 25th largest trading partner. Now its economy is beginning to look like Haiti's, having contracted 18 percent since Chávez took office in 1998 and threatening to implode as Argentina's did in 2001. This would harm trade partners already battered by a regional economic downturn and internal problems.1

    Historically, the state has intervened in Venezuela's economy to a high degree, but in November 2001, Chávez introduced a package of 49 decrees to tighten control of various local industries and enable the government to confiscate "unused property." Meanwhile, anticipating the creation of a Cuban-style command economy, local and foreign investors began taking their money elsewhere. Since the December 2002 strike, shuttered Venezuelan businesses and industries have become vulnerable to nationalization. In 2002, Colombian exports to Venezuela totaled some $1.2 billion. For the moment, many exports cannot get past the border, and if they do, they may find fewer buyers.2

  • Increased terrorist foothold in South America
    Disorder and dysfunctional government provide a welcome haven for criminals and terrorists. Last March, the Venezuelan army reported that more than 700 combatants of the Marxist Revolutionary Armed Forces of Colombia (FARC) had established camps in the western border states.3 If Chávez establishes a dictatorship, the FARC and other groups such as Basque Fatherland and Liberty (ETA), with whom he is reportedly friendly, might find Venezuela an even more hospitable environment.4
  • Refugee exodus
    Refugee outflows would impose hardships on neighboring countries and the United States. Colombia already has an internally displaced population of about 3 million, and Ecuadorans are leaving their country at a rate of about 250,000 per year to find work and escape invading Colombians. Anarchy or government crackdowns on civil liberties could provoke a Venezuelan exodus.
  • Lagging recovery of oil production
    Without a satisfactory outcome to Venezuela's political troubles, experienced managers and skilled technicians at PDVSA may not return to work. And without their business expertise and engineering know-how, production and distribution may never return to previous levels. Although the government claims that operations are returning to normal, reports of spills, accidents, and lost capacity in older oil fields suggest disarray.5 For Venezuela to service its foreign debt, production needs to approach pre-strike levels.6

A Ruptured Consensus

Venezuela's crumbling state cannot be patched together overnight. For decades, Venezuelan leaders neglected citizen participation in government and shunned economic liberalization. Instead, they nationalized the country's oil industry to fund extravagant social spending while shielding the established business community behind convoluted regulations and weak rule of law. As the government piled up debt, the poverty rate increased from 27 percent in the 1980s to 60 percent in the 1990s.7

With Venezuela's political parties in disrepute, Chávez--a former coup plotter and cashiered army officer--was elected president in 1998 with a broad mandate to clean house. But instead of weeding out corruption or empowering the poor, he had the constitution rewritten to expand his powers, extend his term in office, and complicate any attempt to remove him from office. He diverted government funds to military cronies to buy loyalty and to organize armed, partisan militias called "Bolivarian Circles"--similar to Cuba's Revolutionary Defense Committees.

On April 11, 2002, spurred by his decrees curbing property rights and hobbling private enterprise, a group of dissident military officers and business leaders rebelled and temporarily removed Chávez from power. Since then, the breech between Chávez and his growing number of opponents has widened. Calling them "fascists" in public appearances, he has polarized society and made it clear that his presidency serves only himself and a declining number of supporters.

Struggle for Control

Since April 2002, Chávez has pursued a two-track strategy to maintain his hold on power. On the domestic front, he discarded initial promises of reconciliation in favor of bullying opponents and manipulating national institutions. In June, he began warning media owners of unspecified consequences if their outlets broadcast stories disrespectful of his government. In October, he appointed Lenín Ramírez Sánchez, brother of convicted terrorist Illich Ramírez Sánchez (Carlos the Jackal), as a director in the energy and mines ministry.

In November, Chávez ordered the military to seize control of the Caracas police force from Mayor Alfredo Peña, an outspoken opponent. The same month, he asked the National Assembly to modify the election law to remove the existing National Electoral Council, which seemed inclined to approve a petition signed by 2 million Venezuelans calling for a non-binding "consultative" referendum on his rule.8

In January 2003, troops led by National Guard General Luis Felipe Acosta Carles confiscated soft drinks and beer at bottling plants closed by striking workers outside Caracas. Although such beverages are not considered public necessities under Venezuela's "hoarding" law, General Acosta said he was acting on presidential orders to distribute them "because collective rights come above individual rights."9 Finally, having tired of negative publicity in the commercial media, Chávez introduced a new media law on January 23 that would permit the government to close independent TV and radio stations for broadcasting material that promotes "disrespect" for government authorities.10

On the international front, Chávez has tried to complicate outside efforts to promote reconciliation. In April 2002, the Organization of American States (OAS) Inter-American Commission on Human Rights asked the government to create a truth commission to look into killings during the uprising that ousted Chávez. To date, no such group exists. In June, Vice President José Vicente Rangel invited former U.S. President Jimmy Carter to chair talks between the administration and opponents, perhaps thinking that Carter--perceived as an international "boy scout"--would be easy to manipulate. Instead, Carter invited the OAS to join the dialogue and, to his credit, observed that Chávez showed little respect for Venezuela's existing institutions.11

By September, a tripartite negotiating mission had formed consisting of the OAS, the Carter Center, and the United Nations Development Program. In November, OAS Secretary General César Gaviria opened negotiations in Caracas, admonishing both sides to avoid recriminations. But in the collective mind of the opposition, reconciliation competed with the desire to force Chávez from office, no doubt inspired by the president's continued verbal attacks.

On January 21, 2003, Carter laid two options on the table: a constitutional amendment truncating the presidential and legislative terms to four years, which would necessitate new elections in the immediate future, and a binding recall vote in August according to the current charter. In the background, however, the Supreme Justice Tribunal unseated the members of the National Electoral Council, placing decisions on referenda and any constitutional changes in limbo.12

What Washington Should Do

As Venezuela's internal conflict draws on, U.S. policymakers might feel tempted to back a deal with Chávez that pays lip service to democracy in order to make peace--particularly in the interest of boosting oil exports. If that happened, Chávez could either consolidate his regime or lead the country further into anarchy--either way complicating energy and trade problems.13 By the same token, strong measures such as sanctions would focus the rage of both sides on the United States and be equally unproductive.

Instead, the United States and its democratic allies in the hemisphere should bring sustained pressure on Venezuela's president to agree on a peaceful, constitutional, democratic, and electoral solution and then help supervise the resulting campaign and vote through international observers to safeguard political and civil liberties in the absence of official will to do so. A stable, democratic Venezuela would be a more prosperous trade partner, a more reliable energy supplier, and a peaceful, responsible neighbor.

For now, the Bush Administration is on the right track. After a public relations misstep last April in commenting prematurely on Chávez's ouster, the Administration has quietly supported the tripartite mission to bring the Venezuelan government and the country's democratic community to a common understanding. In January 2003, U.S. and Brazilian diplomacy helped organize a "group of friends of Venezuela" that includes foreign ministers from Mexico, Chile, Spain, and Portugal as interested observers in ongoing talks.14 These observers will help to hold Chávez accountable for his promises and give hope to Venezuela's beleaguered democrats.

But more needs to be done. To help restore democratic governance and a viable economy in Venezuela, Washington should:

  • Continue to declare the obvious
    Venezuela's democracy is broken according to the standards of the OAS Inter-American Democratic Charter. Opponents charge that Chávez has violated 91 articles of the Bolivarian Constitution and the Democratic Charter 39 times. Although it has been stated in OAS reports and declarations, the United States and the OAS should restate this fact to keep ongoing negotiations in perspective.
  • Increase pressure for a lawful, democratic solution
    President Carter's two proposals were among many considered by Chávez's opponents. Putting them on the table galvanized negotiating parties to act on them. Both proposals have distinct advantages and risks, but once an agreement is reached, facilitators and outside observers should encourage all parties to follow the agreement. The Venezuelan government should not block public choice by trying to stack the National Electoral Council or through other anti-democratic means; nor should opponents sidetrack it with mob action to force the president's resignation.
  • Protect civil liberties and democratic processes
    Negotiators must continue to urge all parties to respect civil liberties and fair campaign practices and allow international observation of the resulting campaign and vote. Specifically, the OAS and the Group of Friends should insist that all government-supported partisan groups such as the Bolivarian Circles be disarmed and dismantled. The Inter-American Commission on Human Rights should continue to push for the creation of a truth commission and, along with other observers, monitor the critical phases of any developing solution to help safeguard civil liberties.
  • Urge the democratic opposition to develop a national reform plan
    Venezuela must solve its root problems of weak political institutions, inadequate separation of powers, an over-regulated economy, and dependence on state oil. While Chávez delivers a toxic form of the welfare-state policies Venezuelan leaders have implemented in the past, his democratic opponents have yet to formulate a blueprint to address the problems that led to the current crisis. Even without Chávez, Venezuela will remain unstable unless it makes its political system more representative and accountable and restructures the economy to promote private enterprise and investment.
  • Increase intelligence collection
    The Bush Administration should boost efforts to gather information about Cuban agents working in Chávez's government, the training and strength of all armed bands, and the activities of outside groups such as the FARC that could further destabilize Venezuela or pose a regional terrorist threat.
  • Stay engaged
    The U.S. should work through the Group of Friends and support the OAS facilitators. The U.S. Congress should increase visits with its counterparts in the National Assembly, encouraging them to curb executive branch excesses through proper oversight. International organizations supported by the U.S. National Endowment for Democracy (NED) should continue to advise the full spectrum of Venezuela's political parties, civic groups, and unions.

Conclusion

Compared to Iraq's Saddam Hussein or North Korea's Kim Jong-il, Hugo Chávez may seem like a minor nuisance, but he admires those men and could become more like them as time goes by. Decrying capitalism and freedom of choice as "fascist neoliberalism," his demagogic speeches resonate with growing numbers of poor in Latin America who have lost hope in the slow evolution of democracy and market economies. The chaos he has inspired in Venezuela could further depress commerce in the hemisphere and destabilize neighbors. Because of him, one of the world's most important petroleum producers faces prolonged turmoil and mismanagement under a budding dictator.

To avoid dependence on unstable regimes for critical resources, the U.S. should facilitate exploration elsewhere in the Caribbean Basin and in Alaska and welcome market-developed technologies that are less dependent on finite resources. Meanwhile, by increasing international pressure on Venezuela's president to agree to a constitutional, democratic decision on the future of his country with outside scrutiny to safeguard the process, the United States can help restore stability to this important energy producer and ally. Moreover, it can help the people of Venezuela retake their government, open up their economy, and work for the kind of prosperity that has so far eluded them.

Stephen Johnson is Senior Policy Analyst for Latin America in the Kathryn and Shelby Cullom Davis Institute for International Studies at The Heritage Foundation.


1. Andy Webb-Vidal, "Venezuela Economy `Faces Greatest Collapse,'" Financial Times, January 14, 2003.

2. "Colombia's Usual Exports to Venezuela Still Shut Out," Dow Jones Business News, January 20, 2003.

3. Javier Ignacio Mayorca, "740 de las FARC en Venezuela," Venezuela Ana lít ica, March 11, 2002, at www.analitica.com/va/vpi/5521076.asp (April 1, 2002).

4. Other groups could be welcome as well. Chávez was the first democratically elected leader to visit Saddam Hussein since Iraq invaded Kuwait. Moreover, Chávez's former personal pilot, Major Juan Díaz, charges that after September 11, 2001, Chávez sent funds to Afghanistan's Taliban government and to the terrorist Al-Qaeda group under the guise of aid to Afghan refugees. See Casto Ocando, "Organismo demanda a Chávez en Miami," El Nuevo Herald, January 30, 2003, at www.miami.com/mld/elnuevo/news/world/americas/5060974.htm (January 31, 2003).

5. Francis Robles, "Oil Accidents Mount in Venezuela: Novice Stand-Ins Blamed for Chaos," The Miami Herald, January 21, 2003, at www.miami.com/mld/miamiherald/4993381.htm (January 28, 2003).

6. Some Venezuelan business leaders believe that Chávez might consider the "unthinkable," selling off oil company assets, including a major stake in PDVSA, to foreign investors to isolate PDVSA from local politics. Royalties would still go to the government, workers might be less inclined to strike, and oil-consuming nations like the United States might be less concerned with whether Chávez stays or goes.

7. "Venezuela tuvo el mayor aumento de la pobreza en la región," Agence France-Presse, in El Nacional, June 20, 2001, at www.el-nacional.com/eln20062001/pe8sl.htm (June 20, 2001).

8. The Electoral Court in the Supreme Justice Tribunal, dominated by Chávez sympathizers, later ruled that the referendum could not take place because the existing Electoral Council was not named by the current National Assembly. A magistrate in the Constitutional Court in the same Tribunal now says the Electoral Court exceeded its authority. See Irma Alvarez and Juan Francisco Alonso, "Sala Constitucional debe poner orden," El Universal, January 29, 2003, at www.eluniversal.com/2003/01/29/29104AA.shtml (January 29, 2003).

9. Patrick Markey, "Venezuelan Troops Seize Coca-Cola Affiliate Plant," Reuters, January 17, 2003.

10. Penalties include a two-day shutdown of outlets disseminating disrespectful content and an indefinite suspension of the operator's license if more than two infractions occur within a three-year period. See "Proyecto de Ley Sobre La Responsabilidad Social en Radio y Televisión," introduced in the National Assembly, January 23, 2003, Gaceta Oficial, at www.eluniversal.com/especiales/leytvradio/pagina.shtml (January 28, 2003).

11. Everett Bauman, "Nunca vi un país tan dividido," El Universal, July 22, 2002, at www.eluniversal.com/2002/07/22/22108CC.shtml (July 22, 2002).

12. The tripartite negotiating mission maintains that an independent judiciary and a credible elections council are crucial to a democratic solution to Venezuela's political crisis. See Christopher Toothaker, "Delegation Wraps Up Mediation Mission," Associated Press, September 19, 2002.

13. Attending the World Social Forum in Porto Alegre, Brazil, on January 26, President Chávez declared, "I've saved my rifle, and I don't want to take it out. But I've kept it and if the oligarchies don't accept changes peacefully, like Che Guevara said, sounds of combat and bursts of machinegun fire will thunder." Alberto Garrido, "Tiempo Real," El Universal, January 28, 2003.

14. Chávez wanted to add other countries to the group, including China, Russia, France, and Cuba. On January 15, Brazilian President Luis Inacio Lula da Silva told him he would not support expansion. On January 28, the French government declared its support for the tripartite mission and freedom of the press. See "Venezuela: Lula no quiere más `amigos,'" BBC Mundo.com, January 18, 2003, at news.bbc.co.uk/hi/spanish/latin_america/newsid_2672000/2672281.stm (January 30, 2003), and "Francia ofrece respaldo a propuestas de Carter," El Universal, January 28, 2003, at www.eluniversal.com/2003/01/28/28107OO.shtml (January 28, 2003).

About the Author

Stephen Johnson Senior Policy Analyst
The Kathryn and Shelby Cullom Davis Institute for National Security and Foreign Policy