Venezuela Country Analysis

VENEZUELA – COUNTRY ANALYSIS Introduction Venezuela is a tropical country on the northern coast of South America. It possesses recognized borders with Guyana to the east, Brazil to the south, and Colombia to the west. Trinidad and Tobago, Grenada, St. Lucia, Barbados, Curaçao, Bonaire, Aruba, Saint Vincent and the Grenadines and the Leeward Antilles lie just north, off the Venezuelan coast. It was a former Spanish colony & has been an independent republic since 1821. Caracas is the capital of Venezuela. (Spanish) and the official language of Venezuela is Spanish. Mr. Hugo Chavez is the president incumbent of Venezuela, elected President in 1998 with a campaign centering on promises of aiding Venezuela's poor majority, and was reelected in 2000 and in 2006. They talk money in terms of the Bolívar. There are currently two major blocs of political parties in Venezuela: the serving leftist bloc United Socialist Party of Venezuela (PSUV), led by incumbent President Hugo Chávez, and the Communist Party of Venezuela (PCV). The colors of the Venezuelan flag are yellow (stands for land wealth), blue (for courage) and red (for independence from Spain). Venezuela is divided into twenty-three states. Traditionally associated with a totalitarian regime, the country is nevertheless regarded as one of the more stable countries in South America. For the past ten years, the fate of the country has been tied to Hugo Chavez Frias, a former military official who came to power in 1998. When he took office Chavez launched a reform of Venezuela's oil policy, seeking to reestablish a predominant role for the presidency in the design and implementation of an oil strategy through the Ministry of Energy and Mining. This move challenged vested interests in Pdvsa, a powerful, almost autonomous, company with total assets estimated at

$100 billion. While Chavez did not deny the role of the private sector in the oil industry, his reform process aimed at curbing the trend toward the privatization of Pdvsa. On the international front, Chavez worked to achieve a higher price for oil through OPEC – The Organisation of Petroleum Exporting Countries, the oil cartel of which Venezuela was a founding member. He also worked to increase the profile and power of OPEC world wide. Chavez additionally sought to guarantee that the state collected a greater share of oil revenues. He imposed royalties on oil output which was applied on foreign producers operating in the country, chief among them U.S. giant Exxon-Mobil. In addition, much of the money has been spent positioning Venezuela as an alternative to the U.S.-backed IMF and World Bank. Venezuela's alternative funding has generated quite a lot of support and popularity for Chávez. Its loans with preferential interest rates have allowed countries like Ecuador and Argentina to pay back their debt to the IMF and spend more on social services. In Ecuador, for instance, Venezuelan funds have allowed social spending, at 38% of the 2007 budget, to finally catch up to foreign debt payments.

Foreign Relations Venezuela shares close relations with most of the countries of South America. For the first time since the days of Simón Bolívar almost 175 years ago, the idea of South American unity has been resuscitated with the first building blocks being put into place, even though there is a long way to go. Since 2004, Latin America in general and Venezuela in particular have been looking to expand their economic horizons. Chávez’s regular criticism of former President Bush, bold political schemes and ample funding of Latin American countries on preferential stipulations have led to what some analysts refer to as "the Caracas Consensus." Since his election Chávez has used Venezuela's enormous oil supply, to position himself as a major player in the region's geopolitics. As a strong member of OPEC, Venezuela is influential

on global energy issues. President Chávez is actively pursuing stronger relations with Latin American and Caribbean nations (through initiatives such as Petrocaribe) and major emerging markets. Through making cheap oil available to a majority of its neighbors, Chávez hopes to lay the foundation of Latin American unity. In the 2005 Summit of the Americas, Chávez, along with Brazil's Luis Inacio "Lula" da Silva and Argentina's Nestor Kirchner, crushed any U.S. hopes of establishing a freetrade area of the Americas (FTAA). The Free Trade Area of the Americas was a proposed agreement to eliminate or reduce the trade barriers among all countries in the Americas but Cuba which was being negotiated by 34 countries of the Americas, and was intended to be the most far-reaching trade agreement in history, similar to NAFTA. (Under NAFTA the United States came to dominate Mexican trade, muscling out other Latin American countries). As an alternative, he's pitching the ALBA, the Bolivarian Alternative for the Americas (named after the Latin American liberator, Simon Bolivar, who was also Venezuela’s most famous son). ALBA represents an alternative vision to neoliberal economics, one with a socialist agenda in trade relations attempting to re-embed 'the social' back into economic and political relations in the region. This exists alongside numerous other incentives such as the Latin American Parliament (to replace the Organization of American States) the Food Security Fund, the ALBA Bank or Banco del Sur (in place of the IMF and World Bank). Since 2007 Venezuela has been promoting the creation of the Bank of the South (Banco Sur), to concretize regional financial integration and independence from the U.S.-dominated international financial institutions. At an earlier opportunity Chavez has said that he would be willing to have Venezuela's Central Bank deposit 10% of its reserves in Banco Sur. At a meeting in Caracas, Argentina, Brazil, and Venezuela agreed to capitalize the bank with $2 billion each, while Ecuador, Bolivia, Paraguay, and Uruguay offered $1 billion each. These countries have also discussed the creation of a new regional currency. The addition of Brazil to the Bank of the South will be very beneficial to the fund since Brazil has the biggest financial reserves in Latin America.

South American leaders have also sought to deepen regional economic integration, primarily by expanding the Mercosur--South America's most important commercial alliance--and embarking on an ambitious road-building project. When Mercosur was founded in 1991, it was to be little more than a tool to groom individual countries for eventual absorption into the US market. But reformers in recent years have worked to transform it into a real alternative to Washington's FTAA. Now, Mercosur, the “Common Market of the South,” is the largest trading bloc in South America. Mercosur's primary interest has been eliminating obstacles to internal trade, like high tariffs, income inequalities, or conflicting technical requirements for bringing products to market. Venezuela's addition to the group has experts wondering if Mercosur will reorient itself as a political force. Mercosur's blockage of the FTAA and its general disinterest in trade with the United States has discouraged warm relations between the two. While the United States has not overtly criticized Mercosur, Washington views the bloc as being an impediment to the expansion of their trade in Latin America. Early in 2005, Chávez managed to create three new regional agreements known as Petrocaribe, Petrosur and Petroandina. They all have the ultimate goal of bringing together a series of economic, political and social initiatives within Latin America. The first group, known as Petrocaribe, comprises Venezuela and 14 Caribbean countries and is based on an exchange of oil between the two regions. The second, Petrosur, brings together Venezuela, Brazil, Uruguay and Argentina. Petrosur is being touted as a sort of South American OPEC and is seen as the first step to Latin American integration not only in terms of free trade, but also in social, political and more importantly human terms. The third, Petroandina, comprises Venezuela, Colombia, Bolivia and Ecuador. The ultimate goal for the future is to create Petroamerica, a coalition of state-owned oil companies that would cover all of South America. In theory, this approach would help solve the supply problems of the region. Petroamerica is a proposal envisaging the energy integration of the America, which is embraced within the framework of the Bolivarian

Alternative for the Peoples of our America (ALBA) and based on the principles of solidarity and complementariness of the countries concerning the fair and democratic use of resources for the development or their peoples. Even Honduras, long seen as a U.S. satellite state dating back to the days it assisted Washington in overthrowing Guatemala's government in 1954, has joined ALBA, showing that the creeping tide of Bolivarianism is extending to the still fragile Central America. Chavez has maintained a publicly close relationship with Cuban president, Fidel Castro, for which he has been criticized both internationally and by the conservative voices in Venezuela. The opposition has interpreted the good rapport between the two leaders as an indication that Chavez's vision for Venezuela was one based on the Cuban model of government. With illiteracy affecting 1.5 million people nationally, Venezuela, with assistance from Cuba, set out to devise a literacy program modeled after the 1961 Cuban Literacy Campaign. Utilizing modern technology, Misión Robinson, Venezuela’s literacy campaign, employs a video literacy program, which was made by Cuba. In addition to Cuba’s aid in Misión Robinson, Cuba’s support has been vital for Venezuela’s Barrio Adentro (Inside the Neighborhood), a program that brings medical assistance to the poor. Over 20,000 Cuban doctors have participated in the program to date. They provide care for seventeen million Venezuelans, nearly two-thirds of the population, many of whom have never before received healthcare. The inclusion of Evo Morales president of Bolivia into this circle signals a united Latin America. Morales, an indigenous socialist, assumed the presidency of Bolivia in January of 2006. He has spoken to the necessity of the nationalization of natural resources, redistribution of wealth, collaboration with Venezuela and Cuba, and has openly condemned U.S. imperialism. Venezuela through Petroandina in 2008 has developed oil and natural gas production in Bolivia. Morales, along with Cuba's Castro, have emerged as one of Venezuelan President Hugo Chávez's closest confidants. Venezuela is actively using its diplomatic and financial muscle to cultivate the friendship of Bolivia. Venezuelan aid to Bolivia has increased substantially, with Caracas offering important technical support to the renationalised Bolivian oil company, Yacimientos Petroliferos Fiscales Bolivianos (YPFB). Venezuela has also offered Bolivia military aid to bolster its

defences, a controversial move which has been viewed as an attempt by Venezuela to stake out a military presence beyond its own borders. Chávez has made frequent visits to Bolivia, as has Morales to Caracas. Advocating South American integration, President Hugo Chávez oversaw the signing of contracts in 2008 with Argentine firms to construct “Socialist Factories” in Venezuela and inaugurated joint oil exploitation in the Orinoco River Belt with Ecuador. In the Orinoco Oil Belt PDVSA, Venezuela’s state controlled oil corporation, has formed mixed enterprises, maintaining at least 60% control, with oil companies from Brazil, Belarus, Malaysia, Uruguay, Argentina, China, Russia, India, Iran, Paraguay, and Ecuador to exploit what the Venezuelan government says is the world’s largest reserve of oil, estimated at over 235 billion barrels of oil. Argentina and Venezuela signed accords to exchange Venezuelan oil for Argentine food earlier this year, and Venezuela has bought several billion dollars worth of Argentine foreign debt over the past three years. To boost Venezuela’s steel and construction industries, the public industrial supplies company SUVINCA signed a $4.76 million contract with the Argentine firm IVANAR to supply Venezuela with materials to produce metal tubing and construct storage facilities, fences, and houses. The governments of Venezuela and Argentina have also endorsed four training and agricultural agreements. The first is an integral cooperation agreement signed by the Venezuelan Light Industries and Trade Ministry and the Argentinean National Institute of Industrial Technology (INTI) according to which the latter will provide advice, training, technical assistance and specialized service to Venezuela’s Autonomous Service of Normalization , Quality and Technical Regulations. Second is an agreement to acquire agricultural units inked by Venezuela’s Agricultural Corporation Autonomous Institute and the Argentinean Chamber of Manufacturers of Agricultural Machinery. Third is an agreement signed by Venezuela’s Ministry of People’s Power for Agricultural and Lands and the Secretary’s Office of Agricultural, Fishing and Food of the Argentinean Economy and Production Ministry. Fourth is a

cooperation agenda for the industrial technological development endorsed by Venezuela’s National Institute of Socialist Education and Training (INCES) and Argentina’s INTI to carry out a plan of work and strengthen the possible spaces of cooperation. Venezuela and Ecuador are the first and fifth largest oil producing nations in Latin America. In 2007 the two nations signed nine energy accords in a move that strengthened the already close links between the two governments. As part of the agreements Venezuela’s PDVSA will send 220,000 barrels of diesel fuel per day while they will receive from Petroecuador 35,000 barrels of heavy crude over the next five years. The energy cooperation agreements were part of Petroandina and Petroamerica, through which Venezuela pushed energy integration throughout Latin America over the past few years. Though Brazil’s President Lula da Silva’s governing style and ideological roots are different from those of Chávez and has shown far more willingness to engage the U.S. diplomatically than other countries in the region. The attitude of Uruguay President Tabaré Vazquéz is more in line with Lula and Chile's Michelle Bachelet than Chávez'. However, Silva, viewed by Washington and the U.S. corporate media as part of the "acceptable" left, declared in 2007 that developing nations must create their own mechanisms of finance instead of suffering under those of the IMF and the World Bank, which are institutions of more developed nations.

Relationship with the US US-Latin American relations fell to record lows during the Bush presidency. Tensions have been bristling between the two nations ever since April 2002 when Chavez, the democratically elected president, was briefly removed from power in a coup, backed by the US. The rejection of Washington's Free Trade Area of the Americas (FTAA), marked the beginning of an outright challenge to free market orthodoxy, U.S. hegemony, and corporate power.

In November 2006, Venezuela's bid to attain a non-permanent seat on the United Nations Security Council ended in failure when, after, it could not gather enough votes to outand-out remove Guatemala. Guatemala was in exactly the same position as well. The result was a blow to both Venezuela and Guatemala - and by extension, the United States, which had strongly backed Guatemala against Venezuela. Consequently, the countries of the Western Hemisphere reconvened to submit a consensus candidate, and chose Panama. In September 2008 Venezuelan President Hugo Chavez expelled the US ambassador in Venezuela in a gesture of solidarity with Bolivia, who had expelled its US ambassador in response to evidence that the ambassador had met with separatist opposition groups, and incited the Bolivian unrest. The US then removed its ambassador from Venezuela. Since Barack Obama became president of the US in January both countries' presidents have expressed a desire to restore relations. In June 2009, the Venezuelan ambassador to the United States, Bernando Alvarez, re-took his position in Washington, and the US ambassador to Venezuela, Patrick Duddy, returned to Venezuela. Middle east Chávez, a consistent critic of U.S. and Israeli militarism, expelled the Israeli ambassador from Caracas and formally broke off relations with Israel in early January, to protest the U.S. ally’s occupation and invasion of the Gaza Strip. Venezuela-Israel relations have been strained for many years. Israel has opposed Venezuela’s growing economic and political relationship with its enemy Iran. President Chávez says the partnership is part of his plan to construct a “pluri-polar world” that is not

dominated

by

the

United

States

and

Europe.

Also, Israel and Jewish organizations in the U.S. have accused both Iran and Venezuela of supporting radical Islamic groups such as Hamas and Hezbollah in Latin America and the Middle East—an accusation that Venezuela’s foreign minister vehemently denied recently.

The current presidents of Venezuela and Iran, President Hugo Chávez and President Ahmadinejad, have both described themselves as against US imperialism. Maintaining this Ideological standpoint, strong ties exist between the two countries in energy production, economic, and industrial cooperation. Venezuela’s growing military power Venezuela has no history of armed conflict with its neighbours, but low-key territorial disputes with Guyana and Colombia persist. A bilateral commission with Colombia and a UN Good Offices process, in the case of Guyana, are addressing these issues. Columbia’s historical tensions with Venezuela date back to pre-Chávez years. However, chronically strained relations between Colombian President Uribe and Chávez have not helped this situation. Tensions have come about, among other factors, from Chávez declaring his sympathy for the FARC, the Colombian narco-terrorist group .Chávez and President Uribe of Colombia exchanged harsh words in late 2007, following Uribe's decision to end Chávez's formal mediation role to encourage the release of hostages by the FARC. Relations deteriorated further in the first months of 2008. President Chavez ordered military battalions to the border with Colombia in response to a Colombian military incursion into Ecuadorian territory (ruled by his like-minded friend Rafael Correa). Following an OAS meeting that situation subsided and diplomatic relations improved. In July 2008, following the success of a Colombian military operation to rescue 15 FARC hostages, Presidents Chavez and Uribe met in Venezuela, with the aim of normalising relations. Colombia is the largest recipient of U.S. assistance in Latin America. Venezuelan President Hugo Chávez is widely acknowledged as having carried out an aggressive policy of military acquisitions in recent years, which has had far-reaching implications particularly through purchasing Russian military equipment. A key facet of the Russian-Venezuelan partnership has been Chávez's continued interest in purchasing state-of-the-art Russian weaponry. This process can be traced back to 2006, when Russia rejected US pressure to reconsider plans to sign arms sales agreements with

Venezuela. The deals involved the purchase of at least 22 sukhoi-30 Russian jet fighters that will replace Venezuela’s aging F-16s. Also purchased were around the same number of helicopters and a number of other smaller agreements. Venezuela has looked to military arms distributors other than Russia for political reasons and in order to diversify its suppliers. All ten radars should become operational by 2013. Reports in February 2009 established that Venezuela had purchased 24 K-8 Karakorum trainer/light fighter planes from China. The first six will be delivered in early 2010 and will be used for anti-drug and training operations, according to Caracas.

Venezuela looks to further strengthen ties with China and India In order to diversify the Venezuelan market for oil, Chávez has made plans to begin shipping Venezuelan crude to China, the world's second-largest energy consumer after the United States. What is more, Chávez stated that Venezuela wanted to become a "secure, long-term" petroleum supplier to China. The two countries signed a deal that would allow Chinese firms to operate 15 mature oil fields in the east of Venezuela, which could produce more than one billion barrels. Transporting oil to Asia, however, could prove logistically difficult. The State-owned Petroleos de Venezuela SA (Pdvsa) has articulated interest in moving oil across Panama to the Pacific Ocean via pipeline. The company is also exploring the idea of building such a facility across Venezuela’s northern border with Colombia, extending to that country’s Pacific coast. Shipping oil to Asia carries other logistical and infrastructural problems. China presently has an insufficient deep conversion refining capacity and transporting petroleum to the Asian giant would be costly due to the long distances involved. Furthermore, the Panama pipeline coveted by Chávez already transports 100,000 barrels a day of Ecuadorian crude from the Pacific to the Atlantic. According to analysts, there is no way that the pipeline can be converted into being able to simultaneously ship Venezuelan oil to China in the opposite direction. Finally, China may be only interested

in Venezuela in the short run, as Beijing is exploring for oil and gas closer to its shores in the South China Sea. Any interruption in Venezuelan oil exports to the U.S. would bring significant disruption to both countries and Washington is beginning to plan for such a contingency. Oil accounts for half of Caracas’ revenue and a majority percent of its exports. Currently the U.S. purchases 60 percent of Venezuela's oil exports and according to analysts, finding new markets could prove daunting to Venezuelan authorities.

India Venezuela and India teamed up to explore and produce oil and natural gas in eastern Venezuela. State-owned Petroleos de Venezuela SA, or PDVSA, will hold a 60 per cent stake in the joint venture, Venezuelan Oil Minister Rafael Ramirez said. The rest will be controlled by Oil and Natural Gas Corp., or ONGC, India's top petroleum exploration company. Ramirez said ONGC will invest US$450 million (euro290 million) in the project,

known

as

Petrolera

IndoVenezolana.

Venezuela estimates that over the next 25 years, the venture will yield 232 million barrels of crude from the San Cristobal oil field, which spans 62 square miles (160 square kilometers) in the eastern states of Anzoategui and Guarico. Production is expected to begin

within

three

years.

Ramirez said the agreement is "a first step" toward further energy cooperation between the two countries, saying that Venezuela plans to ship 150,000 barrels of heavy crude a day to India.