August 20, 2007 | Executive Summary on Latin America
If Simón Bolívar had returned to Venezuela in 2007 for his 224th birthday, he would have encountered a large man sporting a red shirt named Hugo Chávez exploiting his legacy. Although President Chávez claims to be Bolívar's worthy successor, the Liberator would see red when comparing Chávez's "21st century socialism" with the reality of his regime. Bolívar would be embarrassed to see Venezuelans being oppressed by the same kind of Latin American caudillo (strongman) from which he fought to free them two centuries ago. Bolívar championed a unified South America and strong constitutional government to provide the same freedom, equality, and prosperity that he saw developing in North America. He opposed precisely the type of one-party, personalized, dictatorial rule that is embodied by Hugo Chávez.
A self-declared enemy of the U.S., Chávez aims to dominate the Caribbean Basin and Andean region and fulfill the long-time dream of his hero and mentor, Cuban dictator Fidel Castro. Chávez is a much bigger threat than officials in Washington seem to realize, and they need to wake up fast.
Consolidating Power. Steadily tightening his grip on power in the "Bolivarian Republic" of Venezuela, Chávez has hollowed out democratic institutions and stoked class conflict. He has packed the courts and the National Assembly, putting loyalists on the bloated state payroll. In January 2007, the National Assembly granted him power to rule by decree. Since his re-election in December 2006, Chávez has moved steadily from socialist theory to authoritarian practice. He is rigging the rules to stay in office indefinitely while his draconian media-control laws stifle dissent. In May 2007, Chávez closed down RCTV, Venezuela's oldest television channel and the strongest remaining opposition voice. Now he is free to jail his opponents. Chávez has ordered his troops to greet one another with "Patria, Socialismo, o Muerte" (fatherland, socialism, or death), and officers in his politicized military are in command of provincial governments and the police.
Petroleos de Venezuela SA (PdVSA), the state-owned oil company, has become a large slush fund for Bolivarian schemes, from social welfare cash transfers to billion-dollar arms purchases. Chávez is killing his golden goose by diverting so much revenue that PdVSA cannot afford the modern technology to keep it globally competitive. Since Chávez took office, PdVSA production has dropped by 50 percent, although high oil prices have masked the loss. Billions have vanished into non-transparent accounts set up by Chávez as piggybanks for his regime.
His power base is drawn from the millions of Venezuelans subsisting on less than $2 per day. He has given them billions in non-productive government subsidies, but the handouts have not improved their lives. They suffer from rising crime (Caracas has the Western Hemisphere's highest murder rate) and inflation (also the hemisphere's highest). The infrastructure is deteriorating. Income inequality has not improved. Reports of massive corruption by Chávistas undermine Chávez's claims that his revolution is morally superior to the "savage capitalism" that he professes to be fighting.
Petro-Diplomacy. Chávez is buying friends with "petro-diplomacy," spending at least $2 billion per year to prop up Castro's dictatorship and billions more to fund PetroCaribe. He intends to control all defense, economic, social, and foreign policies in the region through the Bolivarian Alternative for the Americas, his socialist trade scheme. Bolivarian Circles promote leftists such as Evo Morales in Bolivia, Rafael Correa in Ecuador, Lopez Obrador in Mexico, and Ollanta Humala in Peru. Chávez berates Washington Consensus political and economic reforms, calling the International Monetary Fund and World Bank tools of U.S. domination. He claims that "21st century socialism" will empower and prosper people, but his retrograde statist policies and iron-fisted tactics-old wine in even older bottles-doomed (among many other countries) the Soviet Union, Cuba, and Zimbabwe.
To damage U.S. interests, Chávez expropriates from U.S. oil companies while steering billions in lucrative contracts to oil companies from China, Russia, Iran, Belarus, and other authoritarian capitalist nations. The quantity of narcotics smuggled to the U.S. via Venezuela has soared. Even more alarmingly, Chávez is spending billions on unnecessary land, sea, and air weapons that threaten Venezuela's neighbors and are leading to a renewed regional arms race. His adventurism is threatening next-door Colombia, a firm U.S. ally.
The Venezuela Problem. Distracted by problems elsewhere, the U.S. has tried to discredit Chávez by ignoring him, but Washington has been slow to recognize the magnitude of the threat posed by Chávez and Castro. Venezuela has the largest proven oil reserves in the Western Hemisphere. If Chávez succeeds in blocking access to Venezuelan oil, the U.S. will become even more reliant on the volatile Middle East. The U.S. has wisely refused to react directly to his taunts and threats, but to counter his many challenges and provocations, the Administration must deliver the message of good governance, the benefits of the free market, democratic principles, and respect for the rule of law more aggressively.
To isolate Chávez politically and economically, Congress should approve pending trade promotion agreements with Peru, Panama, and Colombia as originally negotiated. The Administration should pursue additional free trade agreements with Paraguay and Uruguay. Relations with Brazil should be improved, starting with elimination of U.S. tariffs on Brazilian ethanol. Congress and the Administration also should extend Andean Trade Preferences to Bolivia and Ecuador beyond the February 2008 expiration date and continue to press both countries to pull back from Chávez.
The Administration should increase regional security cooperation through joint programs with friendly governments to battle transnational terrorism, crime, and narcotics trafficking. To tackle the income disparities and deep-rooted poverty that Chávez is exploiting but not solving, Congress should increase funding for the region from the Millennium Challenge Corporation. The Administration should ask the Organization of American States to censure Chávez for his crackdown on press freedom.
Conclusion. The U.S. should counter Chávez by increasing support for market-based democratic institutions, lest his efforts bear bitter fruit. A strong and resolute U.S. government should avoid repeating past mistakes and instead act to encourage true reform in the region.
James M. Roberts is Research Fellow for Economic Freedom and Growth in the Center for International Trade and Economics at The Heritage Foundation.