Tue, 21 Apr 2009 18:39:30 +0000 – By Liz PeekFinancial Columnist
How much will President Obama's handshake with Venezuela's Hugo Chavez cost the U.S.? Despite Chavez' bombastic rhetoric about his socialist revolution, the reality is that Venezuela is going broke. While the president's overtures to Chavez at the recent Summit of the Americas have been greeted ecstatically by many in the media, there has been little attention as to why Chavez may so desperately crave rapprochement. (And guess what? It appears to have nothing to do with Obama's politics.) What has also been absent from press coverage is any perspective on just how our relations with Venezuela became so frosty in the first place. The implication is that George W. was just a big old grump and couldn't get along with his neighbors.
Surprise! Even the notoriously friendly Bill Clinton ran afoul of Chavez. When Clinton visited Columbia in 2000 to bolster U.S. support for that struggling country's war on drug cartels, Chavez warned against intervention and refused to sign Plan Columbia, all the while openly backing the insurgents.
Short of a miraculous recovery in oil prices, Chavez is facing a crisis. Without surpluses quieting his opponents and funding his popularity campaign, he may not survive. His out? Befriend the new president of the United States!above Sierra Leone The Heritage Foundation th th
Why the low marks? Since being elected president in 1998, Chavez has
- steadily whittled away at freedom of the press
- has initiated price and foreign exchange controls
- has been cited by Amnesty International as sponsoring torture
- has eliminated term limits, established Soviet-style "Bolivarian Circles" to spy on citizens
- crushed political opponents
According to Stephen Johnson of the Heritage Foundation, in 2006 "57% of respondents to an Associated Press poll said they feared retaliation if they voted against Chavez."
Chavez' hold on his country has been bought and paid for by oil revenues, which he spreads generously prior to an election and which tend to disappear once he is in office. Reflecting the certainty of voter manipulation, the elections in 2000 were deemed "flawed" by the Carter Center; a crisis in 2002 resulted in Chavez being temporarily removed from office. The lesson was clear; democracy ungreased by substantial largesse was not to be trusted.
These days Chavez has a problem. Sinking oil revenues have left him saddled with whopping budget deficit (estimated by the Economist Intelligence Unit at 5.2% of GDP). Denied access to overseas borrowings, Chavez will likely have to increase domestic borrowing by as much as $16 billion, according to The Economist magazine. He may also be forced to cut spending, in real terms, by over one third. Recently, the government has hiked the VAT to 12% -- up from 9% -- but other revenues will also be needed. Monies that were purportedly saved for a rainy day, some $57 billion in a National Development Fund, appear to have vanished.
Failing economic policies, such as nationalizing industries, subsidizing price controls on gasoline (which costs locally just $0.17 per gallon) and artificially supporting currency levels have led to inflation of better than 30% and declining growth rates. A recent 20% hike in minimum wage will only add to the economic disaster that looms, though it should also protect Chavez' popularity among his loyalists. Desperate measures earlier this year included expropriating food companies to mandate higher levels of (unprofitable, price-controlled production).
Short of a miraculous recovery in oil prices, Chavez is facing a crisis. Without surpluses quieting his opponents and funding his popularity campaign, he may not survive. His out? Befriend the new president of the United States, who is so desperate to distinguish himself from his predecessor that he will doubtless jump at the chance to buy Chavez' friendship. What will be the price of that handshake? $16 billion?