Hugo Chávez and the Future of Venezuela

  • The “Bolivarian Missions” under Chávez have increased healthcare coverage—especially to the poor segments of society—improved education, and eradicated illiteracy.  He has repeatedly failed to reach his housing goal; a crippling crime rate and high level of corruption are still pressing issues.
  • Hugo Chávez has made great efforts to diversify the country’s assets in major industries such as finance, construction, trade, and communications, but Venezuela still struggles with a fluctuating economy due to its dependence on oil.  Oil revenue has allowed Chávez to reduce poverty and unemployment, but not enough effort has been put into reducing the public debt and rampant inflation rate.
  • Various administrative changes have given Chávez the power to nationalize multiple industries in Venezuela and run for office indefinitely.  The president’s interest in developing relationships with foreign dictators and his outspoken anti-imperialistic rhetoric has led some to question his democratic values.  There is still a close division in Venezuela among voters, but signs show a greater level of discontent.

    Source: BBC

As the 2012 Venezuelan presidential electoral season begins, many question whether Hugo Chávez will manage to remain in power and if his overall performance merits another term in office. As expected, Chávez’s presidency has been filled with instances of both success and failure since he came to power in 1999, and his past record has led the Venezuelan people to contend over the future of Venezuela and whether Hugo Chávez should be a part of it.  An analysis of Venezuela’s current social and economic condition provide part of the answer as well as Chávez’s political actions, and each must be carefully assessed in order to evaluate the effectiveness of the Chávez administration and its “Bolivarian Revolution.”  In doing so, a more informative decision can be made as to whether or not, taken as a whole, the Venezuelan firebrand deserves reelection in the coming year.

Social Indicators

Beginning in 2003, the Chávez administration commenced a series of “Bolivarian Missions” intended to address the social problems facing Chavista Venezuela.  These missions set out to improve a number of serious social problems festering in key sectors such as healthcare, education, housing, food and nutrition, and agriculture.  Through a few of the most influential missions, Chávez has been able to improve such mainstays as healthcare and education, but Venezuela still struggles with a biting housing shortage and a crippling crime rate.

Missions Barrio Adentro, Robinson, and Ribas were great successes.  Mission Barrio Adentro sought to provide free and high quality health care by increasing the number of primary care physicians twelvefold while constructing several thousand additional health centers across the country.  As a result, over 300,000 lives have been saved and infant mortality has been reduced by twenty percent.[1]  Mission Robinson was a literacy campaign that used the help of community and military volunteers to teach reading, writing, and arithmetic to the underprivileged adult population. Between 2003 and 2005 it helped over one million adults learn to read and write.  According to various health and education organizations including the World Health Organization (WHO) and the United Nations Development Programme (UNDP), the adult literacy rate in Venezuela went from 93 percent in 2001 to 95.2 percent in 2007 and continues to exceed 95 percent today.[2] This consistent growth in literacy has qualified Venezuela as a “Territory Free of Illiteracy” for the past six years.[3]  Mission Ribas went a step further and provided secondary education to returning adults.  In its first three years, over 500,000 adults graduated, which constitutes about three percent of the country’s adult population.[4]  These achievements have been a great success and Chávez was commended by social planners around the world for following through on his promise to improve healthcare and education.

In order to reverse the housing deficit—a persistent problem in Venezuela that is bedeviled by a current shortfall of 2.5 million homes[5]—Hugo Chávez initially established Mission Hábitat, which aimed at constructing a rash of new housing for the poor.  In 2006, Chávez claimed that 150,000 new homes would be built, but within half a year, the government built a disappointing 35,000 homes, completing only about 24 percent of the mission’s initially stated goal.  In 2011, Chávez launched a new housing program called Misión Vivienda Venezuela (Mission Housing Venezuela) which promised to build two million new homes between 2011 and 2017.[6]  The new housing mission improved upon mission Habitat by setting annual benchmarks, stating that 153,000 homes would be built in 2011, 200,000 in 2012, and 300,000 each year after that.[7]  However, while nearly 100,000 homes have been built this year, only 284,000 have been built in the past twelve years, allowing that his claim could be dismissed as being filled with empty promises.[8]  Chávez’s most recent goals will be nearly impossible to achieve, leaving the majority of the poor in squatter settlements or in the streets for an indefinite period of time.

The crime rate in Venezuela is a problem of epidemic proportions that the Chávez administration consistently has had difficulties containing.  According to figures from the Pan American Health Organization (PAHO), murder rates have tripled from the time when Chávez first came to power.[9] The United Nations Office of Drugs and Crime (UNODC) reported 52 homicides per 100,000 inhabitants in 2008, making Venezuela the world’s third most murderous country.[10]  The city of Caracas in particular has seen one of the highest felony rates in the world, with 92 fatalities per 100,000 inhabitants in 2009.[11]  The increase in crime is causing the general public to fear for its safety.  According to a survey conducted by the Venezuelan Institute of Data Analysis (IVAD), in February 2011, 85.3 percent of respondents felt that personal security was the greatest problem that Venezuela was currently facing and that it was the government’s fault.[12]  President Chávez has blamed poverty and U.S.-born capitalist values for the high level of crime; however, the increasingly socialist country has witnessed a sharp reduction in poverty in spite of rising crime rates.  Critics have suggested that corrupt police officers and judicial officials, overworked prosecutors, overcrowded prisons, the raging region-wide drug trade, and illegal weapons, being smuggled largely from the U.S., have all contributed to the rising crime levels, and that more can be done by the Chávez administration to remedy the situation.[13]

Economic Indicators

Positive economic growth in Venezuela began in 2003 after the Chávez government gained control of the oil industry.  From 2003 to 2008 Venezuela’s total real GDP grew by 94.7 percent, or 13.5 percent annually, an almost unprecedented figure for anywhere in the world.[14]  Remarkably, much of this growth came from Venezuela’s non-oil sector.  Among the fastest growing sectors were finance and insurance (26.1 percent annual growth), construction (18.9 percent), trade and repair services (18.4 percent), communications (18.3 percent), and manufacturing (13.2 percent).[15]  These figures show that Chávez is attempting to diversify Venezuela’s earnings in sectors other than oil, which will be essential if Venezuela’s economy is to be able to mitigate the adverse affects of periodic oil-pricing crises in the future.  In addition, from 1999 to 2006, the private sector grew faster than the public sector, which meant that private firms were still competing with government-controlled enterprises in spite of an increased government embrace over the economy.[16]  But in 2007, and as a result of the increasing amount of government-controlled industries, the public sector began to expand faster than the private sector and continues to grow today.  This should not pose a problem for private firms and will not constrain economic growth as long as there are profitable investment opportunities in Venezuela.  If private growth continues to decline, then the government could compensate for this by increasing public investment. Incontestably, Venezuela’s infrastructure needs improvement, especially after the consistent power shortages that have caused blackouts across the country and seriously impaired productivity. Therefore, restoring power would be a good place for the government to begin its efforts.

Venezuela’s relative success in the oil industry has allowed the Chávez administration to make progress in other areas such as coping with its poverty.  From 2003 to 2008, poverty was reduced by more than half, from 54 percent to 26 percent.[17]  Extreme poverty fell by an even greater amount—72 percent.[18]  According to Gini index data from the UNDP, Venezuela’s income inequality fell from 49.5 in 2003 to 43.4 in 2010 (0 represents perfect equality, 100 represents perfect inequality).[19] Such a sharp reduction in inequality has made Venezuela the “least unequal” country in Latin America.[20]  The labor market also improved as unemployment dropped from 11.3 percent in 2003 to 7.9 percent in 2009.[21] Despite the recent economic recession and the consequent drop in oil prices, unemployment had only risen to 8.6 percent in 2010.[22]  In addition, those who are eligible for receiving social security benefits have more than doubled.[23]  President Chávez promised to help the poor, and evidence shows that he has complied with this pledge.  There is no doubt that his interest in helping the poor has garnered strong support from the large lower-class population and will be a key factor in securing his reelection next year.

However, Venezuela is unquestionably overly dependent on oil.  Oil revenue accounts for about 95 percent of all export earnings, 55 percent of the federal budget revenues, and around 30 percent of its GDP.[24]  Venezuela’s dependence on oil has caused its GDP to fluctuate sharply throughout its history, with the most drastic changes occurring during Chávez’s presidency. (see Figure 1).  From 2002 to 2003, the country’s economy shrank by a total of 16.7 percent, but shot back up to 18.3 percent in 2004.[25]  Its growth then decelerated, and because of the world oil crisis in 2008, real GDP contracted by a total of 5.2 percent in 2010.[26]  However, this contraction occurred against the backdrop of a 6.1 percent average growth rate throughout Latin America and the Caribbean.[27] Despite a shrinking economy, President Chávez remains optimistic for the future.  According to the Venezuelan president, “We initially estimated GDP growth of two percent for this year.  Now, there are signs that allow me to think it could be double that [amount].”[28] And forecasts from Morgan Stanley, while not as optimistic, predict three percent growth in 2011.[29]  If their predictions come true, then the recent unrest in the Middle East and resultant rise in oil prices will have certainly played a significant role in its making, giving Chávez much needed resources that he can use to regain momentum and the confidence of the Venezuelan people.

Figure 1. Real GDP of Venezuela (2000-2011)

Source: The World Bank[30]

At the same time, Chávez must consider Venezuela’s rising public debt.  From 1998 to 2010 Venezuela’s debt more than tripled (taking into account internal and external debt, PDVSA obligations, and commitments to its prime creditor, China).[31]  The country’s total debt adds up to around USD 120 billion and accounts for about 50 percent of its GDP, which is almost double the average debt amount being carried by the rest of Latin America.[32]  The rising public debt derives from a serious mismanagement of oil revenue.  Heavily subsidized oil exports to elsewhere in Latin America and China, in addition to the cost of extensive social programs have contributed the most to Venezuela’s massive debt.  However, Venezuela still is afforded by some breathing room with oil prices hovering around $100 per barrel today and 500 billion barrels of the fuel in reserve.[33]  As long as prices remain high, public debt should not become a major issue, but if oil prices again drop, and Venezuela can’t pay off or at least adequately service some of its debt, then stagflation and a high level of unemployment could follow.

Inflation in Venezuela continues to be a problem. In 2010 it averaged 29 percent and the most recent figures (October 2011) show a rate of 27.7 percent.[34]  However, it is not accelerating at an intervening rate as predicted, even after the 50 percent devaluation of the bolivar, from 2.15 to 4.3, in January 2010.[35]  Now that the government has devalued its currency, it must wisely focus on diversifying its assets away from such a hypertrophic dependence on oil.  In addition, exports must grow in non-oil sectors for Venezuela to keep inflation low and curb any potential oil crises from bringing on Venezuela’s economic ruin.

Political Indicators

President Chávez has made various administrative changes during his tenure, but the most drastic changes may have been those that came after 2005.  In that year, all anti-Chávez members of the National Assembly boycotted the elections over concerns regarding secrecy in the voting process.  However, their actions backfired by handing over all 167 seats to Chávez’s party, essentially giving the strongman free rein over the country.  Chávez began his reform campaign by nationalizing the country’s telecommunications and electricity sectors in 2007.  Two years later, he moved to nationalize assets in the oil, chemical, tourism, agribusiness, retail, banking, and travel industries (consequently ousting various U.S. industries in the process). This process continued into 2010 when the president nationalized companies in the agricultural, construction and packaging sectors.

Gaining control over some of the most important industries in Venezuela came as a result of the “enabling laws” which allowed President Chávez to rule by decree.  In an ideal democracy, convincing the supreme legislative body to hand over legislative powers so that the president could change the law-making process in order to create law arbitrarily might be relatively difficult to achieve, but in 2007, the Venezuelan National Assembly was composed entirely of pro-Chávez members, and they willingly allowed the enabling laws for a period of 18 months.  What followed was Chávez’s most controversial step—which was approved on February 15, 2009—that would end term limits on all elected officials and allow Chávez to run indefinitely.  In December 2010, and in the wake of a devastating flood that struck the nation, Chávez pushed the National Assembly to award him the power to rule by decree for an additional 18 months in order to immediately address the damage that the natural disaster had caused. [36] Chávez fulfilled his promise by pushing three special laws through to reconstruct damaged housing and provide relief to those who were adversely affected by the flooding.[37]  However, among his new powers was the right to rule by decree in advance of the incoming legislature being seated, rendering the National Assembly almost powerless.  Therefore, the question still remains as to what other laws he will enact as a result of his power, and whether or not he will use that power exclusively for his own benefit or for the benefit of the Venezuelan people as a whole.

Hugo Chávez’s efforts to cultivate relationships abroad have also come under significant scrutiny.  More recently, Chávez attempted to work closely with the former Libyan dictator, Muammar Gaddafi (1969-2011), in order to mediate the unrest in Libya.  In the past, Chávez has spoken on behalf of pariah nations such as Iran, Belarus, and Syria—all countries known for their authoritarian leadership.  In addition, he has developed a lasting relationship with the Castro brothers in Cuba, where Chávez received much of his socialist inspiration.  His vision stems from his desire to dwell in a multi-polar world and to terminate the imperial rule of the United States.  However, by doing so, Chávez is going a long way to alienate Venezuela from much of the capitalist culture and cause both his democratic allies and antagonists to question his allegiance to democratic values.

Most will agree that there is a close division in Venezuela over Chávez’s prospects for reelection in 2012.  According to IVAD, as of February 2011, 42.7 percent would vote in favor of Chávez while 42.5 percent would vote against him if the elections were held today.[38]  However, the same poll shows that 59.9 percent of Venezuelans think Chávez should finish his presidency in or before 2012 versus only 35.4 percent who think he should remain in office past then.[39]  In addition, while 44 percent agree that Chávez should be reelected, 48.8 percent feel that he shouldn’t.[40]  In the volatile Venezuelan political encampment, it appears that Chávez’s controversial performance has caused him to lose some favorability among the Venezuelan electorate, but that can change in short order as long as Chávez can address their basic needs, which in turn means the price of oil staying at around USD 100 per barrel.  If he chooses not to, and the economic (oil) situation in Venezuela worsens, then his chances of reelection seem very much diminished.

The Future of Chávez

Hugo Chávez has done an excellent job improving the social aspects of Venezuela under his presidency.  He has provided healthcare to the poorer segments of society, improved its education system, and essentially eradicated illiteracy.  While he hasn’t reached his housing goal, he has outlined specific benchmarks to provide such stock in the future, which he must now fulfill if he wants to retain credibility.  However, crime is still a pressing issue, and he cannot afford to neglect it if Venezuela’s rampant corruption is to be effectively addressed.

Venezuela’s economy has fluctuated a great deal throughout the Chávez presidency. Record growth was quickly followed by stagnation, followed again by a marginal uplift.  What does President Chávez have to show for all the money Venezuela’s oil has brought the nation?  Poverty and extreme poverty have been effectively reduced, but his expensive social programs have carried his country further into debt.  His interest in helping the poor is one of the best decisions he has made as a politician due to the strong support from the large lower-class population that he has gained. Rising oil prices have opportunely provided extra funds that Chávez could use at his discretion, but it would be wise for him to reduce the public debt, lower the country’s dangerously high inflation rate, and make more progress in diversifying Venezuela’s assets in non-oil sectors.  Sustainable economic growth will only continue if Chávez improves the private investment climate and the negative investor sentiment that is associated with Venezuela.

The administrative changes that Hugo Chávez has made have given him the power to either improve or witness the atrophication of the Venezuelan economy. It is likely that the enabling legislation has granted him perhaps too much discretionary authority and will leave the current legislature bereft of effective power.  At this point, everything that Chávez has done is legal, but his actions may still be cause for concern, but not for exaggeration of his shortcomings or distortions of his performance.  We have yet to see what Chávez will do with his power in the future and whether he will use it for the good or ill of the Venezuelan people. The gnawing gap still remains between the letter and the spirit of the law that all too often records failure in his performance as a democratic leader. A key consideration is whether Chávez will respect not only the letter of the law, but its spirit as well.  He could, as the Colombian Nobel laureate Gabriel Garcia Marquez put it, become “One to whom the caprices of fate had given an opportunity to save his Country,” or on the other hand, he could “pass into the history books as just another despot.”[41]  While the Venezuelan people are likely to make this decision in the coming 2012 elections, there is still time, still room, for Chávez to save the day by moderating his rule and tempering his diction.[42]


References for this article can be found here.

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4 thoughts on “Hugo Chávez and the Future of Venezuela

  • December 5, 2011 at 5:34 pm
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    Based on this analysis, does it seem likely the country's credit rating should be higher, lower, or stay the same?

    Reply
  • December 6, 2011 at 4:27 am
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    I think that the key question is whether Chávez has effectively empowered the poor segments of society, giving them the ability to survive on their own (with assistance of the State in healthcare and education). Spending the revenues of oil in satisfying the needs of the poor is just the beginning… not the goal. And according to this article we are just there… There is a great danger of creating a clientelistic society fed by oil revenues, while other sectors –midlle class, for example– are not better.

    Reply
  • December 6, 2011 at 11:04 am
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    There are several considerstions that are important, the decease in poverty has been possible by generous goverment subsidies nor by impotvrd production. Venezuela has the highest inflation rate en America, it has also the "honor" to be high on the corruption list. Venezuelans were not known to be emigrants, it is said that there are somewere of a million Venezuelan people spread in the world.
    Food peoductiin has dropped tremendously and now a days most of the food consumed in the country is imoorted. It is also known that gas sold at highly subsidiced prizes is mainly imported and paid at market prizes. Health careis shambles, a large portion of the Cuban MD have escaped and native physicians don't like to work in the system.
    And last but not least there is an unknown factor which is Chavez health, some say his tumor is advanced and of a higly malignant nature.
    Things in the country are not as rosy as you try to show.
    Isidoro Zaidman

    Reply
  • September 6, 2012 at 4:34 pm
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    I get pleasure from, cause I discovered exactly what I was having a look for. You have ended my 4 day lengthy hunt! God Bless you man. Have a nice day. Bye

    Reply

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