Wednesday, July 25, 2007

High gear again for Chavez

After his electoral "victory” of December 2006 Chavez started speeding up the radicalization of his pseudo revolution. Thus a new constitution format was announced, 5 socialist motors would be running to speed up changes, weapons galore would be bought to arm the revolution and RCTV would be closed so everyone would feel good about the changes.

Unfortunately reality, long repressed by the financial electoral narcotic slumber of 2006, came back with a vengeance. Food started missing from the shelves. People did not like their novelas taken away. The whole world seemed to dislike the idea of closing a major network just because Chavez said so. Thus we saw a strange backpedaling; Chavez even said that the constitutional change was not urgent and could wait for 2008.

And suddenly, zasss, the constitutional changes are back in the front burner, with an extraordinary energy as the National Assembly chair is even talking of a ratification referendum in December. What happened? Two factors: the internal situation evolution implies that the longer Chavez waits for the constitutional change the more difficult it will be to get ratification; and the planned changes will make Chavez a life term dictatorlet. This last one gives the window to pass such changes with complaisant ignorance from foreign players a short term opening.

The troubles at home

The situation at home is fast reaching a critical point.

Devaluation cannot be postponed for long. The street rate is now TWICE the official rate and climbing. Chavez seems very intend to keep the exchange rate as it is, so in January when the new currency hits the streets (1) he will be allowed to claim the hollow victory that the “Bolivar fuerte” is better than the Bolivar of the 70ies when it was at 4,30 per USD. Any devaluation before that time will unleash an inflationary wave, above the current 20%, and that will not be popular at all.

Food shortages are not going to improve much. If certain rather high tech sectors such as chicken or pig farming will be able to keep growth as long as the government allows for grain import (those becoming more expensive everyday), other sectors will not recover for a foreseeable future, such as cattle and dairy. There is no indication that current agricultural policies will allow for the required increase in sugar and corn production. And corn production is crucial for “arepa”, chicken and pork production.

After the recession of 2003, the industrial park is somewhat recovered but it is not expanding. Let’s remember that the Venezuela important growth rate of the last three years is the reflection of a commercial expansion enabled by high oil prices, not a production expansion. There is no significant investment, at least not the type of private investment required, and thus when you combine that with the industries that went down in 2003 and never reopened, it seems that material goods production will not be able to supply the increasing demand. More pressure on inflation.

Paradoxically many social programs such as Mision Vuelvan Caras are depressing the work market and making hiring of personnel more difficult for the few industries that are working at full capacity. Such Misiones allow too many people to cash a small stipend without providing any significant economical activity. They are in fact a very ill conceived jobless program. If to this you combine the prohibition of economical layoff and new and expensive and time consuming regulations of the work place, there is a definite reluctance in the small and medium sized business to expand the work force, a work force increasingly expensive to maintain, and thus increased costs feeding inflation. Historically it is the small enterprise which are the largest creators of jobs and this is not happening, by far, at the scale the country requires. For all the government talk, the national cooperative system is failing consistently to provide the economical relief sought.

All of these factors will keep increasing the inflationary pressure in Venezuela with all the consequences that such a situation eventually carries for a country: a recession in the near future with an inflation rate well above 20%. If to this you add the prospect of a temporary oil production drop, all but directly admitted last week by some of PDVSA executives, the recession could hit any time in 2008 if some corrective measures are not taken right now. These measures will start by control of public spending, a no-no in an electoral year if Chavez wants to ratify the constitutional changes by December. The vicious electoral circle is thus well established.

The troubles abroad

There has been always the rush to assume the mantle of Castro before this one dies. To this you can add now the badly deteriorated image of Chavez as a consequence of the closing of RCTV.

A mild anti Chavez feeling among Europe ruling class and elite caused by a rather strong anti Castro feeling has not been improved at all when RCTV was closed. However Europe right now is mired again into a treaty renegotiation, is concerned about Iran and what not. But that will last only so long; a deterioration sped up whenever Chavez hugs Ahmadinejerk.

With the US things are pretty much done when all major contenders for the 2008 elections have expressed anti Chavez sentiments. But the US is now mired in the presidential campaign on top of an ever more difficult Iraq situation. Not to mention the worries over Iran.

The constitutional reforms that Chavez wants to introduce are a life long presidency, the end to decentralization, the creation of a strong personal and centralized administration, the end of any investment guarantees, including for those investments that already exist in Venezuela. Even worse, in the new economical system that Chavez proposes, any opposition movement could never establish the democratic bases to challenge Chavez and will be forced into some form of violent response with the irresponsibly magnified repression that usually follows in such systems. In other words, all of this is anathema to established democratic practices where the opposition should have fair access to political tools.

To this we can add the troubles in the neighboring countries. The tension with Colombia is everyday more and ore difficult to hide, even more when at the border the Colombian Peso is now the currency of choice. The Mercosur alliance is now questioned by Chavez himself, and the all but certain arrival of Cristina Kirchner at the Casa Rosada is no guarantee of an unconditional Argentinean support. She will be much less dependent on Chavez generosity than her husband was, and she is a supporter of Jewish communities and definitely not a friend of Iran, now Chavez main ally after Cuba. Lula himself is running into some problems and might soon find that it does not pay off to keep supporting Chavez as he does. An increasingly unstable Ecuador and Bolivia could radicalize the nascent anti Chavez opposition in Peru and Chile and even Uruguay and Paraguay.

Of course, none of these countries is going to send a single soldier to unseat Chavez, but his dreams of international stardom will be curtailed fast if he postpones his constitutional reforms further, as he still benefits of a democratic label as the implications of the RCTV closing are not fully felt outside of Venezuela. Right now the world is very distracted and Chavez antics might not matter much, but a fresh US president, for example, or a new Middle East new crisis could isolate a newly autocratic Chavez.

The timetable

Thus Chavez has redone his math quickly.

Right now, he can still pull out a reasonably acceptable referendum to validate the changes he wants to make to the constitution (2). But the longer he waits, the more difficult this will be. If in December the people approve a non democratic constitution then the world will have to grudgingly accept that Venezuela democracy committed suicide. It is Venezuela’s right after all. But if in 2008 the ratification follows a strong street movement, and a likely rigged vote, then Chavez will be a pariah just as Mugabe is. This is something that Chavez tries desperately to avoid even if in the mind of many foreign leaders he is already such a pariah.

This also applies at home. Many people still think that there was nothing wrong with the Recall Election of 2004, but the RCTV closing has done terrible damage to Chavez image. Not the direct damage, mind you, Chavez is still loved by too many. But among many of his followers the seed of doubt has been planted. The more Chavez let’s the debate on the constitution drag on, the more that small chinck on his Teflon coat will start to expand and become a fault line. Add to this all the other domestic problems brewing and their effect felt more and more by the hoi polloi, and you can guess that suddenly time is running short.

So Chavez has decided, apparently, to gamble on the vacation period of Venezuelans. That is, dissident students supposedly will be off the streets, opposition leaders in vacation in Miami, or in Margarita resorts and the National Assembly will not need to put up the pretense of open debate with the people as no one will show up to any debate they might call. If it works, then the opposition AGAIN, will not have time to organize a reasonable challenge in just the two months of October and November, which late start was also one of the major handicaps of the Rosales campaign in 2006 (3).

Will that work? The country is very different in July 2007 than it was in July 2006. There is a new sense of urgency that could trump all the plans of Chavez, starting by many people inside his base that this time will not follow that adventure. For example, a strong anti constitutional change challenge in Aragua state by Governor Didalco Bolivar could even yield a narrow No vote for the changes! Chavez needs a victory margin for the Yes at least as large as his vote of December 2006. But right now this cannot be achieved without electoral fraud. In fact, a Yes vote is even questionable in December, much more in 2008. Thus for the time being it seems that Chavez is trying a honest victory in December, and you should not be surprised that the initial radical proposal about to be unveiled might be greatly watered down by the December vote. After all, the only thing that Chavez really, really needs, is unlimited reelection. If he gets that, all the other non democratic changes can be postponed and gained in due time. This, in the end might be the real strategy of Chavez, settle for the unlimited reelection but get it in an acceptable vote.

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PS: this post comes with no link at all. There would be so many that it would become almost unreadable if all appropriate details were added. I thought about doing it as a multi part post but time is short these days so I settle for this very long "summary". At any rate, many of today items have already been reported in preceding posts such as this one or this one. And perusing El Universal web page is enough to verify 90% of the information noted here, even from the skimpy English section.

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1) Three zeros will be loped off from the actual VEB. That is, 1,000 VED of today will become 1 “Bolivar fuerte”.

2) The constitutional changes will be the subject of another post. Stay tuned.

3) What the opposition can do will be the topic of yet another post.


-The end-

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