[R-G] FT on Venezuela

[Yoshie Furuhashi]

<http://www.ft.com/cms/s/0/50b3a566-4b84-11dd-a490-000077b07658.html>
Uribe ascendant: Defeats for the Farc mark a shift of power in Latin America

By Richard Lapper

Published: July 6 2008 19:42 | Last updated: July 6 2008 19:42

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Caracas is forced to press pause on the revolution

Nothing has been quite the same for Hugo Chávez since he suffered a
stinging defeat in a referendum late last year, his first electoral
setback in almost a decade as Venezuela's president. Stripped of his
aura of invincibility, Mr Chávez has been forced into a number of
policy reversals, of which his change of heart over the Farc is just
one, writes Benedict Mander.

On the economy, Mr Chávez is now grappling with inflation of more than
30 per cent and shortages of basic goods. In an attempt to boost
investment, he has recently resorted to wooing a private sector that
has grown increasingly alarmed this year at a series of
nationalisations in the steel, cement and food sectors.

After loosening price controls and attempting to damp demand by
raising interest rates and cutting spending, the president summoned
business leaders last month to announce that an unpopular financial
transactions tax would be scrapped, while currency controls for
importers would also be eased.

Mr Chávez was also forced to shelve a controversial education law that
had middle-class families up in arms, fearing that their children
would be indoctrinated as socialists. Another retreat came on an
espionage law that generated vigorous protests among human rights
groups and the political opposition, which worried that it would clear
the way for an increasingly authoritarian government.

Mr Chavez himself recently appeared to address the question of whether
such changes signal a lasting change in strategy or represent merely a
temporary tactical retreat. "This is a government that rectifies," he
said during a televised address last month. "Some say Chávez is
backtracking. Well, whoever wants to see it that way can see it that
way. No, I move on."

Raúl Baduel, a retired general who was Mr Chávez's defence minister
until a year ago but has since turned against him, thinks the shift is
temporary. "Everything Chávez does is oriented towards creating the
conditions both internally and internationally to achieve his sole
aim: to perpetuate himself in power," he says. "He's just trying to
divert attention, to buy time."

Others see a government in crisis that is increasingly making policy
blunders. Rocío San Miguel, an analyst in Caracas who runs Citizen
Control, a non-governmental organisation that monitors Venezuela's
armed forces, says chaotic and centralised decision-making often
results in poor and contradictory laws that cannot stand up to
criticism.

"After 10 years, Chávez's public management is showing signs of
deterioration. The method of decision-making and strategy formulation
is looking burnt out, and this is having repercussions in both
national and international policy," she says. The result, she adds, is
a paralysis of the system.

Luis Vicente León, a local pollster, argues that Mr Chávez's more
moderate stance dates back to his narrow but hugely significant
referendum defeat last year. Mr Chávez had attempted to make sweeping
changes to the constitution that would have centralised power –
including an amendment allowing the president's indefinite re-election
– and paved the way for the creation of a socialist economy.

The president cannot afford another such reversal if he is to make
good on his promises to bring "21st century socialism" to Venezuela.

"It's not that he wants to be popular, he has to be popular," says Mr
León, adding that Mr Chávez's high approval ratings are impressive
after a decade in power – only Colombia's President Uribe is more
popular in the region.

Elections in November for state governorships and municipalities
represent Mr Chávez's most considerable obstacle in the short term.
Many analysts see his moderation as part of a strategy to win back
support lost since his re-election by a wide margin in December 2006.

"He misinterpreted the results and overplayed his hand," says Daniel
Hellinger, an academic specialising in Venezuela at Webster University
in the US. "Chávez is now presenting a more moderate position to [the]
middle classes in urban areas, where he is surely going to lose some
governorships and mayoralties no matter how well he does – the
question is how many."

Mr Chávez also faces growing criticism that his "Bolivarian
revolution" has failed to tackle such basic problems as crime,
corruption and inflation – in spite of his achievements in reducing
poverty by about half.

Barring a big turnround in the coming months, the president is likely
to lose further ground in November.

Mr Hellinger expects the result to be a "stalemate", leaving little
room for Mr Chávez to radicalise his socialist project.

Additional reporting from Naomi Mapstone in Lima and Anastasia Moloney in Bogotá

<http://www.ft.com/cms/s/0/d1ec8ed8-46c8-11dd-876a-0000779fd2ac.html>
Venezuelans enjoy costly petrol subsidy

By Benedict Mander in Caracas

Published: June 30 2008 17:03 | Last updated: June 30 2008 17:03

Sipping a cool midday beer on the banks of the mighty Orinoco river,
Antonio frowns with distaste as he reminisces about the days when he
used to work hard for a living.

With international oil prices soaring and domestic petrol among the
most heavily subsidised in the world, he ditched his job at a remote
jungle gold mine in southern Venezuela to sell petrol illegally across
the river in Colombia.

"Being a miner was tough," explains Antonio, as he takes another slug
of beer, adding that most of his fellow workers reached the same
conclusion. The gold mine is now abandoned.

"Why bother when you can earn more and work far less by buying petrol
for next to nothing here and selling it for good money just on the
other side of this river? Of course, it helps that the national guard
turn a blind eye for a cut."

Such incentives to smuggle petrol mean the practice is rife in most
border areas – locals even say that Farc, the Colombian Marxist
guerilla group, is profiting handsomely from petrol contraband in the
area.

Venezuelans pay just 3 to 4 cents for a litre of petrol. A tank can be
filled for as little as $1.50.

"It is so cheap as to be practically free. As a result, consumption is
disproportionately high – people use their cars just to go to the
street corner," says Domingo Maza Zavala, an economist and former
director at the central bank.

Together with a booming domestic economy thanks to high oil prices,
this has caused Venezuela's petrol consumption to double in the last
five years.

Elsewhere in the world, particularly in south-east Asia, petrol
subsidies are being trimmed because of increasing costs and the
distortions that they bring as the price of oil rises.

But in Venezuela shorter-term imperatives mean that the subsidy is
unlikely to be eliminated soon. On Saturday Hugo Chávez, the
president, said he had "no immediate plans" for a petrol price rise.

Economists say the petrol subsidy is costing the government at least
$10bn to $12bn (€7.6bn, £6bn) a year in lost export revenues.

However, Mr Chávez is already struggling to contain the highest
inflation rate in the western hemisphere – it is over 30 per cent.
Raising petrol prices would only push this higher.

Another formidable barrier is that such a move would be hugely
unpopular – subsidised petrol has existed in Venezuela for decades and
is now practically considered a birthright.

Analysts say Mr Chávez is not willing to risk a backlash with regional
elections approaching in November. Memories of the 1989 riots
triggered by a rise in petrol prices, which ultimately precipitated
the downfall of the government, remain fresh.

The president publicly branded the subsidy as "disgusting" early last
year and Gregory Wilpert, an academic sympathetic with Mr Chávez, says
the government remains in search of a way to increase petrol prices
without affecting the poor, its core constituency. "So far they
haven't come up with a good plan," he says.

It certainly will not be easy – with prices so low for so long, any
meaningful adjustment would inevitably have a significant impact.

"Although a small increase in petrol prices may not be too politically
costly, a rise big enough to really get rid of the distortions that
the subsidy currently produces could certainly be damaging," says
Tamara Herrera, an economist at Caracas-based Síntesis Financiera.

To make matters worse, Venezuela's economic boom, triggered by high
oil prices, has stimulated consumption across the board.

Car sales in particular have soared, not least because cars have
become a form of investment in an environment of negative real
interest rates. Chronic traffic jams have become a part of daily life.

With estimates of domestic consumption ranging from 550,000 and
780,000 barrels a day, Venezuelans consume anything from a fifth to a
third of total oil production.

The subsidy also creates problems by in effect diverting money away
from investment in projects that would diversify the economy away from
its dependence on oil, as well as from social programmes, which are
the keystone of Mr Chávez's popular support.