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Tumbling oil could hurt Chavez's revolution

Tumbling oil could hurt Chavez's revolution

As Hugo Chavez gloats over the crisis in the global capitalist system, the Venezuelan president is acting as if his socialist project is somehow immune. But with oil worth half what it was in July, Chavez's free-spending revolution is bound to be hurt.
For starters, he's apt to cut back on the checkbook diplomacy that helps sustain his regional ambitions. But will Chavez be forced to pare down populist handouts to the poor? Slash a bloated government payroll? Try to win over foreign investors he previously alienated?
Opinion is mixed.
"This country is headed for crisis," predicts former Venezuela central bank president Domingo Maza Zavala.
But some economists say Venezuela has experienced far worse in the past. And for now at least, Chavez is showing few signs of concern.
_He plans to boost state spending by 22 percent next year to US$79 billion after nearly tripling Venezuela's budget since 2004. And that is after overspending this year's budget by about 30 percent.
_Venezuela's state oil company has added almost 11,000 workers this year to what many consider an already bloated payroll, boosting the number of workers to more than 70,400.
_The military said this week that it would buy dozens of Russian tanks and armored vehicles, adding to more than US$4 billion in arms purchases from Moscow.
_And Chavez's government now plans to reduce the workday from eight to six hours, something critics say could put a squeeze on the private sector just as times are getting tough.
"We have the ability to weather this crisis," Chavez told state television Thursday from the presidential palace. He added that he isn't "singing victory" and that the government will review all spending and "watch every cent."
Finance Minister Ali Rodriguez said this month that cost-cutting will be unavoidable _ but the only cuts he initially mentioned involved taking government SUVs off the road, slicing cell phone bills and holding less-extravagant parties. Oil prices were down when he spoke _ but not to the level they reached Friday: about US$68 a barrel for Venezuelan crude.
On Friday, Rodriguez said the government could raise the price of gasoline, currently 12 cents a gallon.
"It's not in my hands to say it at the moment, but I won't rule it out. It's a decision that's not even being studied yet," he said.
Oil prices are also hurting a key Chavez ally, President Rafael Correa of Ecuador. Like Chavez, he has relied on high crude revenues to ease the burden on his country's poor, and like Chavez he has created expectations of an enduring social safety net.
Both countries' economies depend mightily on petroleum. It accounts for 94 percent of Venezuela's exports and half the national budget. In Ecuador, it's 70 percent of exports and a third of the budget.
Pollster Alfredo Keller says Venezuelans consider a share of petro-profits their birthright: "The dominant idea is that Venezuela is a very rich country and thus poverty is solved when the administrator of riches, the government, distributes them."
So no matter how low oil prices drop, he predicts Chavez won't dare cut social programs, which include subsidized food and free education. Nor, he says, will Chavez cut a government payroll that has swelled to 2 million people _ roughly one in 14 Venezuelans.
Chavez's popularity dropped last year when Venezuela _ a net importer of food and durable goods _ experienced sporadic food shortages. Polls show Chavez has since recovered. But especially with Caracas inflation at 36 percent, some people are worried.
"The only thing we produce is oil. We live from imports," said Franco Bolivar, a 50-year-old importer. "Imagine if there are no dollars. How will we buy? How will we import?"
Many economists believe Venezuela's cushion against fiscal disaster is more than adequate to stand up to anything short of a global depression. Venezuela has international reserves of almost US$40 billion, Chavez says, and total reserves on the order of US$100 billion.
That should allow Chavez to "weather the storm without making any significant adjustments for at least 18 to 24 months," said analyst Patrick Esteruelas of the Eurasia Group.
Ana Maria Di Leo, head economist at the newsletter Veneconomia, says Venezuela has seen worse in the past _ including a 1994 banking crisis and oil prices as low as US$6 a barrel.
But some analysts believe Chavez will nevertheless cut back on hundreds of millions worth of petrodollar diplomacy _ which has included underwriting eye surgery in Peru and building soccer fields in Bolivia.
Venezuela needs to export oil at US$94 a barrel in order to offset its imports of goods and services, according to calculations by PFC Energy, a Washington-based consulting firm.
The United States has long had a similar "balance of payments" problem but offsets it by selling Treasury bonds that people readily buy, said RoseAnne Franco, an analyst at the firm.
"Venezuela," she said, "does not have the same array of options."
The Petrocaribe program, through which Chavez sells oil at highly favorable rates to Caribbean and Central American states _ has already been affected. Venezuela has financed well over US$2 billion in sales since 2005 to its 18 members.
As long as oil was over US$100 per barrel, Petrocaribe members had only to pay 40 percent of the bill immediately, canceling the balance over 25 years at 1 percent interest.
Under the agreement, once crude prices fall below US$80 a barrel, the initial payment jumps to 50 percent. It goes to 60 percent if oil hits US$50 a barrel.
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Associated Press Writers Rachel Jones, Fabiola Sanchez and Ian James in Caracas and Jeanneth Valdivieso in Quito contributed to this report.


Updated : 2021-10-20 22:01 GMT+08:00