All Sorts of Things

Random posts on all sorts of things designed to inform and provoke.

Venezuela: Hugo Chavez Dies and Successor Plans for Elections; Let the Accusations and Money Flow

Hugo Chavez’s 14-year reign as president of Venezuela ended today as the long-time leader succumbed to the cancer he had been fighting for the past two years. Chavez, who had not been seen or heard from since December 11, had nevertheless been elected to a new six-year term that started on January 10.

Consequently, his death formally begins the campaign season for the next presidential elections, which, according to the country’s constitution, have to be held within 30 days. The two major candidates in this contest are expected to be the current vice-president, and Chavez’s handpicked successor, Nicolas Maduro and the man who the late-president defeated in the most recent polls, Henrique Capriles.

Even before announcing Chavez’s death, Maduro began his campaign in the tried and true tradition of accusing the United States of conspiring against the Venezuelan people and expelling the military and air attaché’s. He also accused his opponent of being a spy while simultaneously telling the opposition to show some dignity and stay quiet; clearly, the man has learned from his mentor.

The vice-president will also be assisted by the relatively short campaign season since it’s long enough for him to make promises but too short to actually implement or pay for them.

Maduro’s focus will initially be directed towards the military (unlike Chavez, he didn’t serve in any armed service) and members of his party. He will then turn his attention towards the people  and we all should expect lots of promises of new funding programs. We should also anticipate a lot of anti-US rhetoric and speeches espousing the good times of the Chavez-era.

Fortunately, the former president has left his vice-president with an infrastructure effective at distributing these funds as the former had history of generously doling out resources; Venezuela rose up the Gini coefficient index, which measures income distribution, during the Chavez era.

In addition, promises such as building three million homes by 2018 helped maintain Chavez’s popularity and all Maduro has to do is assure people of his commitment to his mentor’s policies and ride those coattails to a victory.

However, regardless of who wins the election, that person will have to lead a country with significant resources weighed down under decades of mismanagement.

Venezuela’s resources come from its being South America’s biggest and the world’s 11th largest crude oil exporter, and, according to OPEC, with crude oil reserves larger than those of Saudi Arabia.

Unfortunately, a political establishment more interested in influence than administration has, heretofore, squandered the potential of these assets. The former president’s tendency to impose short-term solutions through expropriating foreign-owned firms, regular currency devaluations and generous public-sector pay raises hurt productivity and reduced government resources.

This mismanagement of the oil sector is particularly devastating since over 90 percent of Venezuela’s hard currency comes from oil exports. While this lack of economic diversity is not troubling by itself – practically all countries in the Middle East follow the same pattern – the refusal to professionally manage this sector has had a long-term detrimental impact on the country’s revenue stream.

Government generosity, in light of below-potential revenues, has widened Venezuela’s fiscal deficit and, while the economy is estimated to have grown by more than 5% during 2012, it is forecast to expand by only 1.8% in 2013. The country also faces double-digit inflation and billions in debt.

As a sign of the change in Venezuela’s fortunes one need only consider that many of the countries that Chavez once supported through deliveries of low-cost energy and soft loans, now have better economies than Venezuela.

Regardless of one’s opinion about Hugo Chavez’s policies, the fact is that he brought people to the table by spreading wealth in a country not used to this kind of fairness. However, it is also undeniable that his actions such as taking over the oil industry and replacing the efficient private sector with the inefficient crony sector made the table smaller thereby hurting the entire nation.

One hopes the next Venezuelan president understands that using private sector experts will help his country’s recovery and realize its true potential. In the meantime, the next 30 days will be full of accusations, threats and promises – not unlike democratic elections in every other part of the world.

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8 comments on “Venezuela: Hugo Chavez Dies and Successor Plans for Elections; Let the Accusations and Money Flow

  1. stanito
    March 7, 2013

    I loved this analysis, thanks for sharing this!
    I suppose that now that Chavez is goen the US will try to sneak in some way? Oil speaking…

    • AHB
      March 7, 2013

      Thanks. I’d wager companies will wait to see how the election plays out before making their move. Your thoughts?

  2. stanito
    March 7, 2013

    I have Venezuelan friends and their opinions differ dramatically as it can be expected from any sort of dictatorship. So regardless what they say about him, to me any governor who jails his opponents and oppress free opinion is a dictator. In his case a very unusual one, controversial and at occasions even funny, but still a dictator in the end.

    I honestly don’t buy Maduro’s imitation of Chávez, the fact that he is imitating Chavez’s by even wearing his own clothes and saying the same stuff will not endure. Eventually, he will want to establish his own identity, but for now he just need to reassure his people.
    All his implications about the United States being behind Chávez’s cancer and subsequent death are only a precarious mask. The US will desperatly hope that Maduro will soften the hostility his government had toward foreign investment, especially on oil exploration and refining.

    I don’t think Maduro will forget that Chávez did help the poorest by spreading wealth, but he will also bear in mind that the other portion of the country deserve fairness as well, therefore leading to a future more-opened economy.

    • AHB
      March 7, 2013

      Good points. I think that, at the of the day, economics will win out as the new president – whomever he is – realizes that without better management he cannot give the people want Chavez did.

      Therefore, he will be left with no choice but to ask the private sector to help him develop the country’s resources. In order for that to happen, he will have to tamp down on the dumb rhetoric since, obviously, they won’t do that without some stability and that will bring about a turnaround in that country’s fortunes.

      Regardless, it will be interesting to see how this all plays out.

    • OLB
      March 8, 2013

      I enjoyed reading this post. Chavez’s “21st century revolution” will endure, at least until the opposition can offer the majority poor a better deal than Chavez’s party does. Yes, Chavez was a hot-head who led with his heart and not with his mind but it is a mis-characterization to label him a “dictator”. Recall, Chavez won reelection 4 times fairly – the opposition or the U.S. never contested the any election results. Chavez delivered for the majority poor in ways that no other politician in the country’s history ever had.

      He slashed poverty by over ½, cut extreme poverty by over 70% – achieving the U.N. Millennium Development Goals ahead of schedule. He engineered the dramatic expansion of health and education services to the poor and raised the minimum wage, halving unemployment, and promoted local democracy by handing the reigns of social programs to poor communities.

      During Chavez’s reign, per capita income went from appox. $4,400 to $10,800. Anyone who cares about the poor must realize that Chavez’s reign had some remarkable successes. However, it is reasonable to question the notable failures of the “revolution” (like the ones cited in this post). But to better understand and engage Venezuela, Americans must be willing to see both sides of the coin, and not invest absolute trust in the distorted picture painted by the political right.

      • AHB
        March 8, 2013

        Thank you for your comment and I hope I communicated that Chavez was more than the simple caricature that he’s been made out to be.

        Overall though, and speaking in purely economic terms, I think his terms will be recognized as those of lost opportunity.

        Given the country’s resources, however, it isn’t inconceivable that a turn around is just around the corner.

  3. OLB
    March 8, 2013

    Indeed, you did a good job presenting both sides of the coin. Being from a developing country myself (Jamaica), I have great sympathy for the Venezuelan poor and understand how great class inequities can tear apart societies. However, in the final analysis, the role of any responsible government, is to create the conditions for ALL citizens to prosper, the rich and not so rich. Let’s hope that Venezuela can make the course adjustments necessary so that everyone can prosper.

    • AHB
      March 8, 2013

      Agreed, there is potential to do just that. Unfortunately, potential rarely translates to reality.

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This entry was posted on March 5, 2013 by in Global Economy, International Affairs and tagged , , , , .
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