INSIGHT: No US valentines for Venezuela

14 February 2008 14:22  [Source: ICIS news]

US says Chavez is undermining his own regimeBy Joe Kamalick


WASHINGTON (ICIS news)--There has never been any love lost between the US and Venezuela’s President Hugo Chavez but increasingly turbulent relations between the two nations suggest they are nearing some sort of breaking point.


That is not to suggest that the US government will move to unseat the volatile and controversial Venezuelan leader - although Chavez regularly and loudly denounces what he claims are multiple and ongoing US plots against his regime.


Instead, high-ranking US intelligence officials and policymakers see the break coming from within Chavez’s own self-styled Bolivarian Revolution as his government’s bloated social spending programmes consume more wealth than the economy can produce.


In recent testimony on Capitol Hill, top US intelligence chief Michael McConnell suggested that Chavez may well hold on for another couple of years but that the outcome is not in doubt.


“While Chavez’s policies are damaging the Venezuelan oil industry and its economy,” McConnell told the US Senate Intelligence Committee in his annual threat assessment, “over the next year or so high oil prices are likely to enable Chavez to retain the support of his constituents through well-funded social programmes.”


Supported by the high price of oil, McConnell said, Chavez “continues to co-opt some members of the economic elite who are profiting from the consumer-led boom”. However, McConnell said, Chavez can only postpone “the eventual consequences of his financial mismanagement”.


“Adverse economic trends are increasingly evident,” McConnell noted, “including food shortages, rising inflation and an overvalued currency.”


“Without question, policies being pursued by President Chavez have Venezuela on a path to ruin its economy,” McConnell predicted.


Reflecting that downward spiral, global credit evaluator Fitch Ratings recently gave Petroleos de Venezuela SA (PDVSA) a negative outlook.


Despite the fact that PDVSA commands the largest hydrocarbon reserves in Latin America, which Fitch estimates at some 80bn barrels of oil equivalent, and enjoys historically high oil prices, the national energy giant is at risk.


Noting that 70% of its proven reserves are heavy and extra-heavy crude, Fitch said: “There is some concern over PDVSA’s technological and financial ability to extract extra-heavy crude, given its high production decline rates”.


Lacking the technical and financial ability to monetise much of its hydrocarbon wealth, Fitch said PDVSA and Chavez would remain critically dependent on foreign energy majors for development. But, waving his nationalist flag, Chavez has already driven off ExxonMobil, Conoco Philips and others by demanding renegotiation - some would say abrogation - of previously contracted development deals, most notably in the Orinoco heavy oil belt in eastern Venezuela.


As has been widely reported, ExxonMobil has won court actions in the US, UK, The Netherlands and elsewhere to freeze and attach up to $12bn worth of PDVSA’s foreign assets in its dispute with Chavez over the trashed Orinoco contract. 


Enraged, Chavez has cut oil shipments to ExxonMobil, a fit of pique that will do no harm to that energy major but which must give pause to current and potential PDVSA partners.


Chavez has also boasted that he will cut off all oil sales to the US but that threat is as empty as it is frequent because the Venezuelan leader is in desperate need of the oil revenue.


Fitch reported that in 2006 approximately $32bn of PDVSA’s revenues were spent on taxes and Chavez’s social programmes, an increase of almost $12bn from 2005.


As a result, said Fitch Ratings, PDVSA’s net income in 2006 actually fell by $1bn to $5.4bn from the $6.4bn in net income for 2005 - and this despite a 20% increase in PDVSA revenues in 2006.


PDVSA’s 2007 financials are not yet out but a hint of what might be more bad news came when, according to Fitch, PDVSA recently borrowed $1bn from its US subsidiary, CITGO.


“This event is of considerable concern,” Fitch said.


For McConnell, who as director of national intelligence has purview over all US intelligence agencies, the end cannot come soon enough.


In detailing his threat assessment to the Senate, McConnell said that Venezuela under Chavez - with help from Cuba and more recently Iran - had inspired and supported “radical populist governments” in Bolivia and Nicaragua and was spending still more of Venezuela’s oil revenue to advance similar radical interests in Ecuador and El Salvador.


Chavez, said McConnell, was seeking to export an agenda that subverted checks and balances on presidential power, weakened media and civil liberties and imposed economic nationalism at the expense of market-based approaches.


However, despite his chequebook socialism at home and his bid to sway other Latin American countries to his authoritarian style, McConnell suggested Chavez’s ruinous economic policies would prove his undoing.


Amid his frequent fist-shaking accusations of plots by US imperialists, Chavez would probably do well to keep looking over his shoulder at erstwhile backers who may soon see that the Bolivian Revolution is killing the golden goose.

By: Joe Kamalick
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