Venezuela Bracing for Recall

Abstract: Unworried, Hugo Chavez is planning alliances which could change the way Venezuelan oil goes to market.

Analysis: Next month, Venezuelan President Hugo Chavez faces a recall referendum petitioned by opponents who want him out of office. The opposition organizations gathered more than three million signatures to force the recall election. And they had to petition twice: many names were disqualified on the first petition. The National Electoral Council has now set the referendum for August 15. If Chavez wins, he continues as president through his term, which ends at the end of 2006. If he loses, new elections will be called. Feelings on both sides are running high, and international interest is keen.

Early Popularity
Chavez took office in February 1999 after winning in December 1998 by a large majority. He gained 56 percent of the vote, against 40 percent for the candidates of the two parties, Democratic Action (AD) and COPEI, that had dominated Venezuelan politics for decades. The poor and working classes in Venezuela felt these were the parties of the rich and corrupt and saw Chavez as a rescuer. Rich and poor alike were upset by free-market reforms installed by AD and COPEI which were not working. And probably the major cause: the party previously in power had taken the hit for the collapse in the price of oil and its effect on Venezuela's economy. Chavez was reelected in July and December 2000.

A populist and liberal who some regard as a socialist, Chavez encountered the immediate mistrust of the U.S. Government. He also ran into trouble with Venezuelans when he introduced a package of unpopular new decree laws, including land reform. When the economy did not improve significantly, and military discontent grew, a general strike occurred in spring 2002. This led to violence and a coup attempt. The U.S. quickly recognized the "transitional government," but the coup attempt was short-lived. Chavez was out of power barely 48 hours when strong support got him reinstated. Many in Venezuela still feel that the U.S. was actively involved in the coup attempt.

General Strike
In December 2002, Chavez's political opponents organized a nationwide strike to call for a referendum on the President's rule. Employees of PdVSA, the national oil company, joined the strike, shutting down a large portion of the oil industry and drastically reducing production.

Chavez declared the strikers' demands unconstitutional and dismissed nearly half of PdVSA's work force--some 18,000 people. In 2003, the strike, along with currency controls, made Venezuela's economy even worse. The U.S. Energy Information Administration says real gross domestic product (GDP) contracted 29 percent in the first quarter of 2003, and 9.2 percent for the entire year, after already shrinking by 8.9 percent in 2002.

Oil production dropped from 3.3 million barrels per day in November 2002 to about 700,000 b/d in January 2003, EIA estimates say. PdVSA says that oil production has recovered to pre-strike levels. Outside observers, including former PdVSA employees, claim that current oil production levels in Venezuela are considerably lower. Furthermore, many analysts believe investment capital needed to bring production up is not materializing largely because of the political uncertainty

The Coming Recall Vote
Now Chavez's political opposition--Coordinadora Democrática--focuses on three main allegations: that Chavez failed to stimulate economic recovery, achieve social stability, or foster Venezuela's unity. Chavez counters with a populist appeal focused on the success of literacy programs, improvements to the country's health care system, and reforms in education.

In mid-June, the European Union (EU) volunteered to monitor the referendum. Envoys from the Organization of American States (OAS) and the Carter Center observed the signature-gathering stages of the referendum drive, but it has not been disclosed whether or not they will be in Venezuela this August. Chavez feels the media and pollsters are opposing him. Government supporters have long complained of bias from Venezuela's media outlets.

Packing the Court
Chavez has lately achieved two successes which may affect the referendum: a new law which will allow him to pack the Venezuelan Supreme Court, and a reactivated organization for regional energy cooperation called PetroAmerica.

The new law, which Human Rights Watch has denounced as a court packing scheme, was signed last month. It expands the Supreme Court from 20 to 32 members. This empowers Chavez's governing coalition, which has only a slim majority in the legislature, to obtain an overwhelming majority of seats on the Supreme Court. The law also gives the governing coalition the power to nullify existing judges' appointments to the bench.

Obviously action in appointing or removing judges would be a huge factor in case of legal questions surrounding the upcoming referendum.

There are many other problems in the country, but Chavez appears to be focused on appearing presidential. He has been visiting political leaders around South America and the Caribbean to promote participation in PetroAmerica. This is an ambitious energy alliance or cooperative which would link the nations of South America in direct energy trading.

Chavez has proposed two organizations under the PetroAmerica umbrella: PetroCaribe for the Caribbean region and PetroSur for continental South America. Both eventually would be brought under PetroAmerica.

The basic concept is not new. Venezuela years ago created and ran producer-consumer alliances under an agreement called the San Jose Accords. The PetroAmerica relationships are envisioned as similar but more direct, without middlemen, dealers, or distributors who add costs and subtract from profit margins on the products. Another advantage claimed for the agreement is greater security of supply in tight markets. Plans call for Venezuela to aid some of the countries in the development of their own oil industries.

Would a successful PetroAmerica change the distribution of Venezuelan crude oil? Markedly affect imports to the U.S. and other countries? That remains to be seen.

Chavez Future Is the Key
If Chavez loses the referendum, PetroAmerica will probably fade away. New presidential elections would be called within 30 days. Chavez can still run as a candidate. The winner would be president until January 2007. If Chavez wins, the big question is: can he gather the investment capital to reinvigorate production?

One possible alternative that has been mentioned is delay of the mid-August election by a week or more. Should this occur, a recall defeat would apparently still remove Chavez, but leave his vice president in charge until scheduled elections in December 2006.

Who is likely to win? The Centre for Public Opinion and Democracy recently reported three polls. One, run in mid-May by Datanalisis, said 57.4 percent of respondents would vote to remove Chavez. Another, more recent poll, by Greenberg, Quinlan, Rosner Research, said 49 percent of respondents supported Chavez. And a survey by North American Research found support for Chavez among 57 percent of respondents. So, who knows? One thing for sure: whether Chavez wins or loses, a healthy Venezuelan oil industry is in the vital interest of the world economy, and the world will be watching with keen interest.