A CONTINENTAL REFERENDUM
(or Chavez diplomatic failures)

Tuesday 13, July 2004

Veneconomy has an interesting editorial today (and short as they always are). The gist of it comes from the first sentences:

The Andean Community of Nations has authorized the negotiations that Colombia, Ecuador and Peru are conducting with the United States to reach free trade treaties, and Bolivia has indicated that it will be joining the negotiations in August.
In taking this stand, the Andean countries have made it clear that they do not share Hugo Chavez’ idea of continental integration, which is always aimed at excluding the United States.

Follows some background considerations and then to finish:

The words of the Venezuelan president during his interview with the ideologue Hans Dietrich Steffan, to whom he said, “I will be a standard bearer of that integration from Mexico to the Southern Cone.”
But, at the referendum on August 15, Chavez will be putting this Bolivarian project at stake, a project that, according to him, is much more important than the economic interests of his own country and those of the Andean Community.

This Monday defeat in Quito, where the Venezuelan voice was drowned by the other countries of the Andean Pact, even by Bolivia who is wisely waiting for the result of its own complex referendum on gas, comes right after the pseudo-triumph of Iguazu. There, Venezuela was granted a slightly better than observer status to Mercosur. Last post I discussed what is more likely a trap set by the Mercosur. Today I will discus the isolation of Chavez and how instead of benefiting from it, he uses it to weaken even further Venezuela's economy.

Venezuela's interests

After 5 years of glorious bolivarian revolution, the industrial tissue is destroyed. Business that have survived have invested little and most are technologically where they were at in 1999. The labor laws are uncertain as the administration has been unable (or unwilling?) to update the labor codes, threatening even to go back to the past regulations that have demonstrated to be not only detrimental to the private sector but to the public administration who is the worst deadbeat as far as fulfilling its contractual obligations. This is a double burden for the economy that cannot find the road of growth until a political settlement is reached and a legal frame work are agreed upon.

In such a situation Venezuela is in NO POSITION to undertake any free trade treaty. Be it Mercosur, be it FTAA, be it Andean Community. It needs actually a temporary well thought "protectionism" until its basic industries recover enough to face the global market. Otherwise what we will be witnessing is rapid take over of inefficient industries, without little capital to modernize, being bought off cheaply by multinational concerns.

Finally, the obvious market for Venezuelan oil is the US. Previous governments have wisely made sure that the US will be always significantly dependant on Venezuela oil to make sure that the amount of Venezuelan exports to the US is not too affected by the up and downs of the oil industry (CITGO is owned by Venezuela's PDVSA). This position gives actually a significant strength to any Venezuelan negotiation with the United States for some trade agreement.

Chavez's interests

Chavez does not know nor cares to know and understand the workings of a modern economy. As Veneconomy points hints quite well, his only interest is to become the leader of Latin America. If Venezuelan interests are sacrificed along the way, so be it. For him oil revenue is his to buy good will wherever this one can be bought. Having a main client that pays well seems to bother him and he would much prefer having all sorts of small clients with all the additional costs that this would imply.

A case could even be made that the downgrading of the Venezuelan economy is a deliberate plan and that chavismo would not be dismayed at all to see a few important Venezuelan concerns be bought by foreign interests. Solid evidence exists: the government did not try to stop the sale of the Caracas private electricity company to AE&S, and did not intervene when Bell South bought off the Cisneros group from Telcel, then the main wireless company in Venezuela.

In fact one can guess a main interest for Chavez in seeing big business bought off: foreign companies are certainly less likely to have lockout as in December 2002, are less likely to finance any Venezuelan opposition, and if needed can be put under strong pressure by the docile chavista trade unions.

Latin America interests

There are very simple: find a fair way to have access to the largest market in this hemisphere, the US of A. You can do it the Lula way by playing hard to get (then again you are Brazil, the second market in the Americas) or the Andean Union way, by blackmailing the US with lowering drug traffic if other products can get in easier in the US (of course this remains unsaid in diplomatic circles and other arguments are advanced such as war on poverty or the proximity to the US market).

Venezuela and Chavez do not fit. It is just that simple. Even Venezuelan oil is not really an asset as the rest of South America has been developing its oil production and even invested elsewhere to obtain their energetic needs. They certainly do not want to depend on the whims of Chavez for their oil! South American business and mainstream political leaders know best! Even if they pay lip service to their "progressive" political groups.

Chavez's foreign failures

Not only his style is not very propitious to seduce other South American leaders but his open gamble on new leftist administrations are down right irritating for countries that are hard pressed to retain enough stability to be able to try to solve the economic problems of its people (Bolivia and Ecuador in particular not forgetting his open liking of the Colombian FARC).

If we consider that he does not bring anything positive to trade, and certainly not stability, it is no wonder that the Mercosur handed him a pacifier and the Andean Community, much more attuned to Venezuela's reality, sent him packing. Venezuela has become the troublemaker of South America that Castro was, allowing by the way this one to perpetuate his dictatorial regime.

Real Venezuelan influence? Nope!