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Defeat for Hugo Chávez
The wind goes out of the revolution
From The Economist print edition
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Venezuelans have seen the future—and many of them realise that it doesn't work
ON REFERENDUM night, December 2nd, a giant, inflatable Chávez doll lay face-down and semi-deflated on a Caracas street. Nothing better summed up the moment. As workers dismantled the stage that was to serve as the scene of his triumph, letting the air out of the doll, Hugo Chávez was grappling with how to respond to his first-ever defeat at the polls.
Were Venezuela the dictatorship that some of his more radical opponents claim, its people might have spent the night toppling bronze statues of the Leader as he fled the country. Were it a parliamentary democracy, the government would surely have resigned. As it is, Mr Chávez still has the chance to pump some air back into his project and serve out the remainder of his presidency—which now must end in early 2013. But there is no doubt that his plan to install what he calls “21st century socialism” in what was once, in the 1970s, the richest country in Latin America has been badly punctured. And that setback may also take much of the momentum out of his industrious efforts to form a regional block of allies and client states.
Voters had been asked for a yes or no on changes to 69 of the 350 articles in the 1999 constitution. Their effect would have been to concentrate almost all power in an already top-heavy executive. The pluralism enshrined in the current constitution would have been replaced with obligatory “socialism”. And two decades of decentralisation would have been reversed: elected state governors and mayors would have been eclipsed by an unelected “popular power” dependent on the presidency.
On any reasonable interpretation of the 1999 constitution (itself drafted and promoted by the chavistas), such fundamental changes should have been submitted to a separately elected assembly. Instead, Mr Chávez had them drafted in secret and rubber-stamped by a parliament which, thanks to the opposition's boycott of the election in 2005, is overwhelmingly composed of his unconditional supporters.
But by a tiny majority, of around 1.4% according to the official figures, Venezuelans said no. Many supporters of the president stayed at home. Only a year ago he had won a new six-year term with 7.3m votes or 63% of the total; by contrast, only 4.4m voted yes in the referendum.
It is a result that redraws Venezuela's political map. Hitherto, the president has been blessed with an incompetent opposition, tainted by the failures of the 1980s and 1990s, when low oil prices pushed many Venezuelans into poverty. Having sought to overthrow Mr Chávez, first in an abortive coup and then through a general strike-cum-lock-out, many of the opposition's leaders were too easily dismissed as spoiled “oligarchs”.
But since his re-election last year, Mr Chávez has overreached himself and provoked some more dangerous opponents. His first mistake came last January, when he summoned the four parties in his coalition and ordered them to merge into a single Venezuelan United Socialist Party (PSUV), loosely modelled on Cuba's Communist Party. Podemos, a social-democratic party, and two other smaller groups refused. Then, in May, Mr Chávez decided not to renew the broadcasting licence of the main opposition television channel, ostensibly because it had supported the 2002 coup attempt. This was unpopular with ordinary Venezuelans and was opposed by a new and energetic student movement, which went on to take the lead in the No campaign.
The president's drive to turn the armed forces into a tool of his socialist project aroused the weighty opposition of General Raúl Isaías Baduel, who stepped down as defence minister in July and who is a hero to the chavista grassroots for his role in restoring Mr Chávez after the 2002 coup. Installed in a sleek glass office block in Caracas, General Baduel, a man as serene as the president is intemperate, has spent the past few weeks telling Venezuelans that the proposed reform amounted to another coup.
On top of that, many chavista politicians were unenthusiastic, since the reform would have let Mr Chávez run indefinitely for president but banned re-election for other posts. The chavista movement suffered “a top-to-bottom split, from state governors down to the grassroots”, said Ismael García, the leader of Podemos.
The emergence of what Mr García calls a “third pole” between the government and the traditional opposition allowed many of the president's supporters to vote no, or at least to abstain, without feeling that they were betraying their leader. The students did much of the hard work of bringing out voters and watching over ballot boxes. And when it seemed that Mr Chávez might be tempted to claim victory, General Baduel played a key role, with an—at least implicit—threat to reject such a result and split the armed forces.
It is not hard to see what lies behind the decision of many chavistas not to vote. Their continuing loyalty to their comandante is being eroded by mounting economic distortions and the corruption and incompetence of his government.
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It was Mr Chávez's good fortune to preside over a massive increase in the oil price (to which he made a modest contribution by cancelling plans under which private investment would have doubled Venezuela's oil output). The result has been a wild economic boom (see chart 1). This has prompted a sharp drop in the number of Venezuelans living in poverty, from 43% in 1999 to 27.5% earlier this year, according to government figures. Hundreds of thousands of new cars have turned Caracas into an all-day traffic jam.
The boom has been fuelled mainly by public spending, which has risen from around 20% of GDP in the late 1990s to some 38% last year (including several off-budget funds controlled by the president). It has been amplified by expansionary fiscal and monetary policies. To check inflation, the official exchange rate has been pegged at 2,150 bolívares to the dollar. That has been possible hitherto because revenues from oil exports have risen dramatically, from $17 billion in 1999 to $58 billion last year.
The result is known to economists as Dutch disease: an overvalued exchange rate favours imports but makes life hard for manufacturers and farmers. In Venezuela's case this has been exacerbated by Mr Chávez's ideological hostility to the private sector, which has involved selective nationalisation and intermittent threats to private property. While many private companies (and banks) have done well out of the boom, they have been loth to make long-term investments. Imports have risen fourfold over the past four years, while GDP has expanded by only half over the same period.
José Manuel Puente, an economist at IESA, a business school in Caracas, sees four warning lights for the economy: oil output, inflation, fiscal problems and a growing shortage of dollars. Since Mr Chávez took direct control of PDVSA, the state oil company, after the crippling strike of 2002-03, production of crude has declined. That is partly because PDVSA has slashed investment in order to pay for social programmes, and partly because its payroll has doubled to 90,000 in the past four years. The government's policy of maximising its share of oil revenues by obliging foreign companies to become minority partners in joint ventures appears to have intensified the trend. Oil output has fallen for six consecutive quarters, according to the Central Bank. Although officials still insist that oil production is 3.3m barrels per day (b/d), even OPEC, of which Venezuela is a founder member, does not believe this: in October it slashed Venezuela's production quota to 2.5m b/d.
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The second warning light is inflation (see chart 2). In November prices rose by 4.4%, the highest monthly figure for four years, taking the annual rate to 21%, the highest in Latin America. Food prices have risen even faster, by 29%—despite price controls. Because of those controls, staples such as milk, eggs, black beans and cooking oil are in such short supply that shoppers sometimes fight for them.
To try to slow inflation the government slashed VAT earlier this year, from 14% to 9%. To plug the resulting fiscal gap, in November it imposed a tax on financial transactions—one reason for that month's spike in inflation. Another clear sign of strain is a surge in the parallel-market price of the dollar. Even if oil prices remain at current levels, many economists believe the government will have to devalue and start to cool the economy early next year.
That will strain political loyalty further. After nine years of the Bolivarian revolution (named after Símon Bolívar, the South American independence hero) Venezuelans are becoming increasingly disillusioned with its corrupt inefficiency. Look behind the ubiquitous billboards proclaiming the government's social projects, and everywhere the failures and frustrations are palpable.
Take, for example, a model collective farm near the village of Buenos Aires in the coastal plain of Barlovento, an area with a large black population east of Caracas. Set up in 2002, it looks like a neat suburban estate, its one-storey houses for 144 families grouped in 12 circular cul-de-sacs. Three tractors, from China and Iran, are parked nearby. But farming the project's 108 hectares (267 acres) “did not go as we wanted”, says Jacobo Pacheco, one of the community's leaders, with quiet understatement.
Mr Pacheco, who is 62 and whose red beret has an image of Che Guevara, says he continues to support Mr Chávez. But he paints a devastating picture of government mismanagement. Agronomists from the National Lands Institute (INTI), which is responsible for the project, advised the collective's farmers to plant half a dozen different fruits; all but the lemons failed, either because the land was unsuitable or because of defects in the irrigation system. The water supply to the houses has been cut off because a pump doesn't work. None of six promised workshops, providing training and employment in carpentry, metalworking and the like, has been built. The local branch of Mercal, the government's subsidised supermarket chain, has been closed for the past year.
The farm's members have to take outside work to make ends meet. Mr Pacheco says that collective farming doesn't suit Venezuelans. He wants INTI to divide the land into individual plots. He has other grievances, too. When invited to an exhibition about the project at the presidential palace he saw pictures and plans of the houses, showing that they should have been equipped to a higher standard. He has seen receipts for the household equipment and says that between them the officials and supplier involved pocketed 1 billion bolívares ($465,000).
This story rings true. Many government projects are either misconceived, or unfinished, or both—like the gleaming new fish-processing plant along the coast at Boca de Uchire that has stood empty for a year because a planned wharf remains on the drawing board, while just three carpenters work on the beach building the fishing fleet designed to supply it. Two out of three of the Mercal branches in Caracas have closed, reckons Jésus Torrealba, a former opposition activist who now runs a radio programme on the problems of the poor barrios.
Officials point with pride to the Cuban-designed social programmes known as misiones implemented by Mr Chávez when oil revenues picked up in 2003. Certainly, a primary-health programme called Barrio Adentro, which is mainly staffed by Cuban doctors and dentists, seems to work well, and is valued by residents in poorer neighbourhoods. Yet such evaluations as exist of these programmes suggest they have had little overall impact.
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Oil at record prices, but food in short supply |
Mr Chávez declared in 2005 that thanks to Misión Robinson, a scheme to teach adults to read and write, Venezuela had eradicated illiteracy, a boast quickly parroted by UNESCO officials. But the government was later forced to withdraw the claim after its own surveys suggested that over 1m adults are still illiterate. Perhaps the most successful educational policy has been one to extend the school day and provide meals. This was devised by a previous government, though to his credit Mr Chávez implemented it.
Despite the apparent success of Barrio Adentro, a recent decline in infant mortality merely mimics the historical trend in Venezuela, according to a study by Francisco Rodríguez, chief economist at the National Assembly from 2000-04 and now at Wesleyan University in Connecticut. The incidence of stunting and malnutrition in children has even slightly increased, from 8.4 per thousand in 1999 to 9.1 in 2006 according to government data. That points to the deterioration of public hospitals under Mr Chávez.
Strip away the propaganda, and the government's socio-economic policies do not particularly favour the poor. Much of the extra public spending has gone on arms purchases, bureaucracy (public employment has doubled) and infrastructure (some of it useful, to be sure).
The government also spends money on indiscriminate subsidies. These mean, for example, that a tank of petrol costs less than $2, and that all credit-card holders get a quota of cheap dollars. Such policies favour the better off—including the new chavista elite of military officers, political leaders and favoured businessmen. According to the Central Bank, the distribution of income has become less equal under Mr Chávez. The Gini coefficient, a standard measure of inequality, has risen from 44.1 in 2000 to 48 in 2005. Over the same period, income distribution has become more equal in Brazil, Mexico and Chile.
Margarita López Maya, a social scientist at the Central University of Venezuela, points to the Bolivarian revolution's success in bringing the poor into politics and giving them a sense of citizenship, partly through a network of neighbourhood councils. Had the constitutional reform been approved, this would have been jeopardised, she says, since the councils would have depended directly on the president and his largesse.
That sense of inclusion remains Mr Chávez's prime political asset. He still controls almost all the country's institutions, has billions of dollars to spend at will, and for the next nine months—thanks to an enabling law—can rule by decree over wide swathes of national life. He is a man whose political skills have frequently been underestimated, and who could yet bounce back from defeat.
After his reverse, Mr Chávez insisted that his project had not been derailed, merely shunted into a siding “for now”. That was a deliberate echo of the phrase he used after leading a failed military coup in 1992; seven years later, he was president. Maybe the country was not yet “ripe” for socialism, but “there will be no step back”, he said. “You should know that I am not withdrawing a single comma of this proposal.” He promised to reintroduce some bits of the reform by other means.
Nevertheless, the referendum marks a watershed. Mr Chávez “has been winged—he's passed his peak,” says Teodoro Petkoff, a centrist opposition leader and newspaper editor. For the first time in nearly a decade it is possible for Venezuelans to envisage life after Mr Chávez.
The opposition victory, and the admission of defeat by the president, ought to convince radicals on both sides that the only solution to the country's bitter political polarisation is peaceful and electoral. The emergence of the “third pole”, composed of Podemos, General Baduel and the student movement, should in itself herald a less polarised politics. Some talk of calling a constituent assembly to claw power back from the president. Others are looking ahead to elections for mayors and governors next year.
The referendum defeat means Mr Chávez cannot legally run again for the presidency. His aura of invincibility has gone, and the battle for the succession seems bound to begin soon. In the ruling party, political survival no longer demands unquestioning loyalty to the comandante. Fractures have already begun to appear in the supreme court and the parliament.
“This is not a 100-metre sprint, it's a marathon,” cautions Mr Petkoff. But its direction is clear. “Venezuelans have woken up” is a phrase often used by supporters of Mr Chávez to describe the political mobilisation of the poor. The referendum suggests that many of them are waking up to the shortcomings of his revolution.
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