When Venezuela’s oil industry is on strike it means that the economy has effectively closed down, because petroleum accounts for fully four-fifths of exports and a third of gross domestic product. The challenge for the beleaguered left-wing President Hugo Chavez could hardly be more serious. Unfortunately, the former paratroop officer and failed coup leader, who finally came to power in a landslide democratic victory in 1998, has demonstrated that he is a stubborn man.
Overwhelmingly re-elected in July 2001, by April this year Chavez was briefly ousted in a coup before retaking office after massive popular demonstrations of support. Though still intensely popular with the country’s disproportionately large number of poor, his failure to deliver on his promise to reform the economy and clean up corruption has disillusioned the rest of the electorate.
Too impatient for drawn out negotiations, Chavez has tried to use his presidential powers to fix domestic problems at a stroke of then pen. Thus, believing that the hugely dominant state oil company, Petroleos de Venezuela (PDVSA), was resisting his change agenda, he fired 19 top executives. The problem was that his judgement was based on political rather than technical considerations. PDVSA has earned itself a reputation as a highly efficient and well-run company. In attacking its position as the dominant economic power in the state, the president also attacked the efficiency of the company itself.
There is no doubt that PDVSA needs reform but Chavez has taken the wrong approach.
Despite is vast mineral potential which includes very large quantities of coal, iron ore, bauxite and gold, Venezuela remains a one-horse economy. The Venezuelan currency, the bolivar, was long kept strong by oil wealth, which made imports cheap. This meant that local producers were unable to compete economically with foreign goods. No substantial economic alternatives have developed to the energy industry. It was this economic dominance that was so abused by Chavez’s bickering political predecessors. While they made sure that PDVSA remained a center of technical excellence, they steered its revenues into their uneconomic projects designed purely to line their own pockets and those of their cronies.
It was this cycle of corruption and inefficiency which left 85 percent of Venezuelans on the bread line, which Chavez promised to fix. Unfortunately, in tackling the entrenched interests that undoubtedly center around PDVSA, he has ended up taking an ax to the organization itself. There was no carrot in his approach, just stick and it has lost him the support even of those PDVSA employees who accept that their organization needs reform.
It is hard to see where the president can go now. The strikers have vowed to continue until he quits office. The military is becoming increasingly uneasy and even many of Chavez’s poorest supporters are beginning to question his wisdom. of the man they once idolized. The political Old Guard are waiting in the wings for the president’s ouster. It can only be hoped that if they regain power, they will devote genuine efforts to real economic reform and not return to the bad of days.
