Washington and the Chavez question

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Capitalising on the arrival of a new generation of leftist leaders in Brazil, Argentina, Uruguay and elsewhere in Latin America, Venezuelan president Hugo Chavez has made every effort to foster an alliance of governments modeled on his so-called “Bolivarian revolution” – a mix of leftist militarism, populism and state-centrism – to raise Venezuela’s profile abroad and roll back Washington’s influence in the region. As dangers of social and political instability break out in Ecuador and Bolivia, and pressures build to raise social spending, fears abound in Washington that President Chavez’s free-spending, semi authoritarian policy formula will gain traction in and outside the Andes, and form the basis of an anti-US, radical leftist block. How likely is Chavez to succeed and how concerned should Washington be?

It is widely believed that Chavez’s government has given small donations and strategic advice to radical leaders and groups in Latin America, including coca growing champion and Bolivian presidential aspirant Evo Morales, Sandinista movement leader Daniel Ortega in Nicaragua and the Farabundo Marti National Liberation Front (FMLN) in El Salvador, a former rebel movement turned legitimate political force. While Venezuela’s sponsorship has been modest, Chavez has played a more direct role in counseling these movements and strengthening their political platforms and leadership ambitions. Other budding radical leaders throughout the region have similarly found in Chavez an inspiration and an example to follow, and use their association with Chavez as a means of solidifying their own revolutionary credentials.

However, none of these movements have gained any significant traction within their countries, and with the possible exception of Ortega, their presidential aspirations are so far rather limited. Morales became one of Bolivia’s most influential and visible political figures through his role at the centre of former President Gonzalo Sanchez de Losada’s removal in October 2003, but won a disappointing 18 per cent of the vote in December 2004’s municipal elections and has yet to carry his appeal beyond Bolivia’s coca growing, rural communities. In El Salvador, the FMLN suffered a crippling defeat at the hands of center-right candidate Tony Saca last year, while Nicaragua’s Sandinista political movement threatens to dissolve under the weight of a leadership battle between party leader Ortega and more moderate Managua mayor Henry Lewittes ahead of the November 2006 presidential elections.

Venezuela’s oil wealth has proven to be a much more effective diplomatic tool, securing strategic alliances with Brazil and Argentina while buying the support of oil-dependent Central American and Caribbean clients. Recent joint-infrastructure agreements between Venezuela’s state oil company Petroleos de Venezuela (PDVSA) and Brazil’s state-owned Petrobras have helped support Brazil’s production diversification strategy, while Argentina’s newly created state company Energia Argentina (Enarsa) has come to rely on PDVSA almost exclusively to help build future production and distribution networks. Venezuela would like to take these alliances further, and has proposed integrating all three state-oil companies to form the basis of a regional oil company (Petroamerica) that would command more than 11 per cent of the world’s oil reserves and raise Venezuela’s diplomatic and commercial clout. Legal complications and Brazil’s refusal to endorse the project will however prevent Chavez’s ambitious project from making much headway.

Other than the direct commercial benefits Brazil and Argentina are likely to derive from partnering with Venezuela, leaders in Latin America’s Southern Cone are not likely to lend their support to Chavez’s radical agenda. Unlike oil-rich Venezuela, Brazil’s and Argentina’s exposures to the international capital market and heavy debt burdens will encourage cautious, fiscally conservative economic policy choices. Both countries will for the most part combine a commitment to social change with increased fiscal responsibility in order to generate stability and avail themselves of the capital they need to fund their social projects. Thus, instead of seeing Chavez as a beacon for the left in the region, Brazilian President Luiz Inacio “Lula” da Silva and his Argentine counterpart Nestor Kirchner are likely to act as a moderating influence and will probably make every effort to stabilise regional relations with the US over the short to medium term. US Secretary of State Condoleeza Rice and Assistant Secretary of State for Western Hemisphere Affairs Roger Noriega are counting on Lula and other moderate regional players to help stave off more radical behaviour in Venezuela while avoiding any more direct diplomatic confrontations with Chavez.

In contrast, oil sales have proven to be a much more effective leveraging tool in Central America and the Caribbean, where discounted oil sales from Venezuela constitute a sizable percentage of oil imports. Chavez’s government supplies over 160,000 barrels per day (bpd) to 11 Central American and Caribbean countries under the terms of the 1980 San Jose accord and the 2000 Caracas Energy Accord, and over 100,000bpd on average to Cuba. Venezuela has regularly used the threat of an oil sale freeze as a means to pressure its commercial partners, including most recently the Dominican Republic over its failure in 2004 to investigate allegations that former Venezuelan president Carlos Andres Perez was conspiring against Chavez from Santo Domingo.

Venezuela’s commercial partners are not likely to import Chavez’s ideals and support the creation of an anti-US, anti-market coalition, but current oil exports and investment agreements combined with Chavez’s popularity among radical leftist constituencies throughout the region will give Chavez’s partners pause before condemning Venezuela’s increasingly anti-democratic practices or siding with Washington’s efforts to isolate Venezuela in the region. As a result, Chavez’s oil partnerships throughout the region should buffer Venezuela against any diplomatic attacks in the near term provided oil prices continue to be high enough to satisfy domestic fiscal demands and Venezuela’s export commitments. A sharp fall in oil prices on the other hand could leave Chavez with substantially less room to maneuver as his government is faced with a choice between supporting Venezuela’s wide array of social projects and supporting Chavez’s allies through discounted sales. While Chavez’s rhetoric will hide some or all of these weaknesses, his government’s limited room for action should help assuage some of Washington’s deepest fears.

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