Venezuela and the Rise of Chavez: A Background Discussion Paper

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PART 1: Origins of Chavez’s Rule

This section will look at the biography of Hugo Chavez and assess the factors that brought him into Venezuelan politics and led to the emergence of his radical anti-American vision. It will seek to chart the various influences on Chavez’s politics.

1.1 Chavez and the 1960s revolutionary left
This will begin by examining the revolutionary movement that emerged in the wake of the Cuban revolution and its critique of the democratic settlement negotiated in the wake of the overthrow of the Perez Jimenez dictatorship in 1958. By the time that Chavez had joined the army in 1971—as a 17 year-old officer cadet—the guerrilla movement that had been defeated in a fierce counter-insurgency campaign. However, surviving former guerrilla leaders—of which the most well known is Douglas Bravo—continued to campaign for radical alternatives to the established order. A centre-piece of their thinking of groups such as the Venezuelan Revolutionary Party (PRV) was that left-wing forces should work with nationalist sectors within the armed forces in order to build a revolutionary military-civilian alliance.

1.2 Chavez and the Venezuelan army
This idea built on the fact that Venezuela’s army—like that of Peru and other Andean countries but unlike those of Chile and Argentina, for example—drew its officer recruits from the lower middle class, rather than from the upper class. As a result, young officers such as Chavez were more open to left-wing ideas, such as those that in the late 1960s and early 1970s led the Peruvian and some other armed forces (Panama, Honduras, etc.) to seize power in military coups in order to introduce left-wing policies, including land reform and nationalization of the banks and energy sector.

1.3 Simon Bolivar
Another influence on Chavez came from a separate direction. More than any other country in Latin America Venezuela has kept alive the memory of Simon Bolivar, the 19th century revolutionary who led the sub-continent’s independence struggle against Spain. Bolivar was born in Caracas and many of his closest associates were Venezuelan. During the 19th century Venezuela was wracked by civil wars that destroyed the landed aristocracy and severed any link between the original post independence elite and the military governments of the 20th century. Nevertheless, Bolivar continued to be an important reference point and "founding myth" for Venezuelan institutions, especially its armed forces, helping to bind them together in spite of political instability. At school in the 1950s and 1960s, Chavez like other Venezuelan children would have studied the country’s history and learned of Bolivar’s exploits against the Spaniards. At military college the same lessons would have been reinforced.

1.4 The critique of Puntofijismo
These three diffuse influences—the new pro-Cuban left, the military left and Bolivarian nationalism—combined in Chavez and Chavismo. For Chavez to put this nationalist Bolivarian project into effect however he would first have to overthrow the two-party corporative system of government established by the 1958 agreement at Punto Fijo. North American and European political scientists in the 1970s and 1980s praised this model as epitomizing a healthy democratic trend within a region where until the early 1980s at least most countries were governed by military dictatorships. But Chavez and his supporters viewed the system as socially exclusive and corrupt. For example, welfare benefits were concentrated among well-organized urban workers affiliated to the social democrat Democratic Action (AD)-controlled Confederación de Trabajadores de Venezuela (CTV). The two parties had privileged access to state resources. Rural migrants who had arrived in large cities during the 1950s, 1960s and 1970s, accounting for the growth of sprawling shanty-towns or ranchos, especially around the western edges of Caracas, were largely excluded from this system.

1.5 Venezuela’s political crisis of the late 1980s
By the late 1980s, the decline in oil prices was beginning to put Venezuelan society under increasing strain. Starved of revenue from royalties and tax, the government had less money to spend on social welfare. Strains in the system established in 1958 became apparent. Governments led by both parties—the AD and Christian democrat COPEI—wrested with the seemingly inevitable prospect of fiscal adjustment. Proposed cuts in subsidies on domestic petrol and diesel prices resulted in massive rioting and the deaths of several dozen people in Caracas in February 1989. These events, known in Venezuela as the Caracazo, or the big one in Caracas, highlight the extent and degree of social tension there.

1.6 The 1992 coup
By then in his late 30s and a lieutenant colonel in the paratroop regiment, Hugo Chavez was by then a dedicated left-wing activist, working with left-wing groups outside the armed forces and conspiring within the institution to win support for a coup d’etat. The Caracazo confirmed that the punto fijo system or partidocracia was entering into crisis.
In these conditions Chavez and his fellow conspirators launched a military coup in February 1992. The action was unsuccessful although Chavez came to national prominence as a result of a short speech made shortly following his arrest. In prison between 1992 and 1994 he continued to develop his ideas, working with Jorge Giordani, a University of Sussex educated developmental economist on a Masters’ thesis. In prison he also met Luis Miquilena, a veteran democratic left-wing activist who advised Chavez to abandon golpismo and pursue his political ambitions through the electoral process.

1.7 Political fragmentation in the 1990s
During the 1990s Venezuela’s economy continued to bear the burden of low oil prices. Support for its two main political parties declined at elections in 1994, so much so that Raphael Caldera, the COPEI leader, won the presidential elections of that year at the head of an alliance that included the far-left Causa R. Amid a general disenchantment with politics, underpinned by sharp declines in electoral turn-out, Chavez found the population increasingly receptive to his critique of the two-party model and its associated corruption. During 1996 and 1997 his support in opinion polls gradually increased and although only about 35 percent of the registered electorate turned out to vote in the December 1998 presidential contest, Chavez scored a comfortable majority and took power, pledging to eliminate corruption and clean-up politics through constitutional reform.

PART 2: Chavez in power

2.1 Constitutional reform and the concentration of power
This section will look at Chavez’s record in office, detailing the constitutional changes of the period between 1998 and 2001; the confrontation and defeat of the opposition between 2002 and 2004; and the subsequent radicalization of economic and social policy and the growth of Chavez’s influence within Latin America and the Caribbean.

Although Chavez won executive power in 1998, opposition parties preserved a significant power within the two-chamber congress and within the judiciary and other independent institutions. In addition, seven years ago, Chavez’s influence within the armed forces and within the state-owned oil company—Petroleos de Venezuela (PDVSA)—remained limited.

In his initial three years in power, Chavez used a series of referendums and elections to win popular backing for constitutional reforms. At the same time, however, these reforms allowed him to strengthen his control over these same institutions.

In particular, by 2001 the government was backtracking on initially well-intentioned reforms, resorting to mechanisms that undermined judicial independence. Although early reforms had been introduced in order to make government more transparent and increase popular participation in decision-making, the result in many cases was to make government more opaque and unaccountable. The legislature’s control over government finances became weaker, so much so that early this year the text of one bill was not even presented to deputies.

This process of concentration of power has been clearest in the case of two institutions in particular: the judiciary and the central electoral council. In both organizations the government has made appointments that consolidate its own political control. On the council government nominees outnumber the opposition by four to one (both the constitution and electoral law stipulate that the council should be independent).

Judicial independence has been undermined in several ways. In 1998 the provisional status of 60 percent of judges undermined their job security and subjected them to political influence. By 2005, however, even more judges (80 percent of the total) did not enjoy full job security, leaving them vulnerable to political influence and interference. In 2004 the size of the supreme-court was increased from 20 to 32 precisely in order to allow Chavista domination. Supreme court judges are supposed to be independent but take no care to hide their political bias. For example, in January this year the president of the supreme court described himself as "a revolutionary" whose job "was to implement revolutionary justice." Organizations such as the Human Rights Watch and the Andean Commission of Jurists have criticized these changes.

2.2 The 2002 coup
Chavez has taken control of two other important institutions: the armed forces and PDVSA, using political crises in order to do so. The first of these—the military coup of April 2002—was a pivotal moment in Venezuela’s recent political history. It occurred in a context of growing political mobilization by the opposition in protest at a raft of social and economic legislation introduced towards the end of 2001 (and not put into effect until 2005). Protests in April 2002 led to a gun-battle in Caracas between government and opposition supporters and the deaths of more than a dozen people. In these circumstances military leaders refused to act on orders by Chavez to repress demonstrators and subsequently on the evening of April 11 asked the president to leave office. However a small right-wing group off military leaders then took control, closing the assembly. In these confused circumstances, the military high command then asked Chavez back to power late on April 13.

The coup was significant for two reasons. First, in the wake of the coup Mr. Chavez began to purge political opponents in the armed forces and gradually cemented his control over the institution. Second, the coup contributed to deterioration in relations between the United States and Chavez. This is because the United States is widely seen to have botched its diplomatic response to the events. Although the United States signed an OAS motion condemning the coup on Saturday 13 April, earlier U.S. officials made public statements welcoming the changeover. This gave rise to the impression that the United States had been involved in plotting the action. A U.S. congressional investigation found that the local embassy had played no role but the administration has never been able to completely dispel the impression that it was involved.

2.3 The 2002-2003 general strike
Having failed to oust Chavez through a military coup, the opposition opted in late 2002 to force the president out of office by a general strike. Strikers led by managers and technicians at PDVSA virtually closed down oil production for two months. Venezuela was able to survive by dint of support from unskilled workers at the company, technical assistance from Iran, China and other producers and emergency oil supplies from the newly elected government of Luis Inacio Lula da Silva of Brazil. Output gradually increased early in the first two months of 2003 and in March the government sacked 18,000 strikers and took back control of the company.

2.4 The 2004 referendum
These new events—the coup and the strike—set the stage for a new phase in the political process. On the one hand the Organization of American States (OAS) and the so-called group of friends (Brazil, Chile, Mexico, Portugal, Spain, and the United States) sought to persuade the government and the opposition to channel political conflict through democratic channels. This pressure eventually culminated in Chavez agreeing to opposition pressure for a recall referendum, a facility introduced as part of the 1999 constitution that was eventually held in August 2004.

On the other hand, Chavez and his supporters renewed efforts to build political support at the grass roots, focusing efforts in the poorer urban areas where there had been spontaneous demonstrations in the president’s favor during the coup and general strike. A key part of this endeavor was the decision to create a set of social programs, known as misiones. These programs—financed with the proceeds of oil exports and staffed by thousands of Cuban doctors, teachers, paramedics and sport instructors—were launched late in 2003 and were expanded at some pace. Barrio Adentro, which provided free primary health care for the poor, proved to be particularly popular and helped bolster the president’s opinion poll ratings ahead of the referendum. In the run-up to the referendum the government quickly nationalized more than a million Colombian immigrants, almost certainly in order to secure additional votes.

Chavez won the referendum by 59.25 percent (5,800,629 votes) to 40.74 percent (3,989,008votes). Although opposition leaders alleged that the government had organized an elaborate fraud, these assertions have never been fully proven. International observers from the OAS and the Carter Center ruled that the referendum victory had been won fairly.

PART 3: Radicalization of the Regime

3.1 Economic measures
Chavez’s victory in the referendum was followed in November 2004 by an even more decisive triumph in state elections, government candidates securing control of 21 of the 23 governorship posts. Towards the end of 2004, the government moved to secure its control over the judiciary, reforming the basic law of the supreme court in such a way as to allow the appointment of a sizeable majority of pro-government judges. Early in 2005, the government began to implement radical economic measures. "Unproductive" agricultural land was appropriated; takeovers have been running at the rate of roughly one per week since the beginning of this year. The government has begun to renegotiate oil contracts imposing tougher terms and higher royalties and scrapping the association contracts signed with a number of oil majors in the 1990s in favor of more restrictive joint-ventures dominated by PDVSA. The state has increased its control over the banking sector. Interest rates caps were imposed in 2004. This year the central bank has issued guidelines stipulating how much credit can be allocated to each sector of the economy. The government has also appointed directors of its own to sit on the boards of private banks.

3.2 Oil power in Latin America
At the same time, Mr. Chavez has become much more aggressive in expanding his influence in Latin America and the Caribbean. Here a crucial factor has been the gradual rise in the oil price. Since securing control of PDVSA after the 2003 strike, Chavez has had direct control over the oil revenues. The operations of PDVSA have become progressively opaque (the company has not presented its accounts since 2002) and increasing amounts of money directed towards social and other projects. As the oil price has increased the amounts of these discretional funds has risen sharply. In addition, Chavez has taken direct control of swelling international reserves and used them to build influence abroad.

This year, Venezuela has bought several hundred million dollars of Argentine bonds and offered similar financial support to Ecuador. The government provides cheap oil to Cuba—in return for medical and other services—and to several other countries, including Jamaica and some smaller Caribbean islands. Venezuela has also begun to finance an expensive medical program staffed by Cuban doctors offering free eye care to hundreds of thousands of poor people from Latin America and the Caribbean. It has also begun this year to finance a television station Telesur, designed to offer an anti-American news perspective in Latin America.

Additionally, since the beginning of the year Chavez has announced his intention to diversify markets for Venezuelan oil and broaden the range of foreign investors involved in the hydrocarbons sector. The United States currently obtains between 13 and 15 percent of its oil from Venezuela and three U.S. majors—Chevron Texaco, Exxon and Conoco Philips—hold investments in the country, mainly in the Orinoco heavy oil belt. Venezuela’s dependence on the market is more acute, however, with roughly 50 percent of exports destined for the U.S. market. In December 2004 Chavez began selling oil to China and has invited mainly state-owned companies from Russia, Iran, China and India to invest in the sector.

3.3 Anti-Americanism
This diversification of energy has been accompanied by an increasingly belligerent anti-American rhetoric. Chavez talks about building a Bolivarian axis in Latin America, linking Venezuela to Cuba, Argentina, and Brazil, and explicitly talks in terms of containing U.S. influence in the region. He has repeatedly warned about possible U.S. aggression up to and including a direct invasion of Venezuela itself and begun to make military preparations in order to defend against this threat. Earlier this year Chavez announced the acquisition from Russia of 100,000 Kalashnikov rifles, for example. A military reserve or militia of approximately 20,000, under Chavez’s direct control, has been established, which the president would like to become two million-strong force in the near future.

3.4 Colombia
Chavez’s links with Colombia’s left-wing guerrilla movement, the Revolutionary Armed Forces of Colombia (FARC), has been a particular cause for concern in Washington. Officially Venezuela does not cooperate with the FARC but by the same token it refuses to co-operate with the Colombian armed forces in counter-insurgency operations. Although the FARC share Chavez’s revolutionary Bolivarian ideology political cooperation between the Fifth Republic Movement (MVR) in Venezuela and the FARC has been limited. The FARC do not form part of the Chavista umbrella movement for Latin America—the Bolivarian Congress. Membership of this group is limited to those organizations pursuing political power through electoral means rather than through arms. In so far as Chavez did cooperate with the FARC, informally these connections have become weaker in the last two years. Indeed, there is some evidence that Fidel Castro has used his sway over Chavez to persuade him to distance himself from the FARC, on the grounds that this would unnecessarily increase instability and might even jeopardize Cuba’s access to Venezuelan oil. Earlier this year, Venezuela and Colombia clashed diplomatically over the kidnapping in Caracas of Rodrigo Granda, a FARC leader, Castro played a part in forging a solution to the dispute.

3.5 A new oil dependency
Much of what Chavez has done both domestically and internationally has depended on the availability of abundant oil revenues. It would have been possible neither to finance domestic social programs nor the extensive relationship with Cuba without the windfall from oil. In other words were to Chavez to face the kind of conditions in the oil market that Venezuela experienced for much of the 1980s and 1990s he would be unable to be so politically ambitious. In fact, it is likely that even a modest fall in the oil price towards levels quite typical during the early part of the present decade would increase Venezuela’s economic problems quite significantly.

Here it is important to point out that despite is oil wealth Venezuela’s government has in the last two years been borrowing heavily inside the country in order to finance a fiscal deficit that in 2004 reached about 3 percent of GDP. Outside the oil sector private investment has virtually dried up. Public investment has been inadequate and roads, bridges, ports and other infrastructure are deteriorating.

Nevertheless it seems likely that international economic conditions will remain favourable to Venezuela for at least the next two to three years. If the oil price remains at anything like present levels it is highly likely that Chavez will win assembly elections in December, increasing his legislative majority, and be in a strong position to win next year’s presidential elections. If he were to do so Chavez would be in power until at least 2012 and would probably seek to continue in government indefinitely.

Richard Lapper is the Financial Times’ Latin American editor and is authoring a Council Center for Preventive Action Special Report on Venezuela.