Oil Wars

Sometimes it is hard to believe that less than three years Venezuela’s economy was on the floor. An opposition, hell bent on ousting Chavez even if they had to burn Venezuela to the ground to do it, had thoroughly trashed the economy by shutting down the oil industry and locking out employees of any other companies they controlled. Certainly, it wasn’t a pretty picture for Venezuela – the economy tanked, inflation, unemployment, and poverty all rose sharply, and their were many who wrote off Venezuela and Chavez.

But the opposition has always overestimated itself. And for as much damage as they were able to inflict it was nothing compared to the ability of the Chavez administration and its supporters to not only set things right but to push the entire country to new heights. Over the past months this blog has amply documented the stunning accomplishments of the Venezuelan government; reducing poverty, unemployment and inflation; implementing new and desperately needed social programs to give medical care, education, and the basic necessities of life to those who were previously marginalized; and forging ahead with a bold anti-imperialist foreign policy that has not only kept Venezuela from being isolated by would be enemies but also bettered the lives of many other Latin Americans.

Of course, sometimes all the numbers become a little dry and don’t do justice to the reality of the situation. These numbers need to be balanced by more rounded accounts of events and their impact on peoples lives. And in that regard the New York Times didn’t do half bad today with its summary of what Venezuela has accomplished recently:

CARACAS, Venezuela - Firmly in power and his revolution now in overdrive, President Hugo Chavez is moving fast to transform Venezuela's economy by bucking free-market planning with what he calls 21st-century socialism: founding state companies, seizing abandoned private factories and establishing thousands of cooperatives and worker-run businesses.

The populist government is reorganizing the country's colossal oil industry, taking a bigger share from private multinationals. Planners are reorganizing the banking system, placing stringent restrictions on lending while creating state banks. Venezuela is also developing a state-to-state barter system to trade items as varied as cattle, oil and cement as far away as Argentina and as near as Cuba, its closest ally.

"It's impossible for capitalism to achieve our goals, nor is it possible to search for an intermediate way," Mr. Chávez said a few months ago, laying out his plans. "I invite all Venezuelans to march together on the path of socialism of the new century."

According to many mainstream economists, the change is simply a mix of plans taken from the protectionist policies of the 1960's and others adopted from Cuba and countries of the former Soviet bloc. It may not be communism - as detractors contend it is - but it mixes socialism with capitalism and what some call improvisation.

Many of the president's grandest plans are put into practice at the year-old Ministry for the Popular Economy. Planners there have already created 6,840 cooperatives that employ 210,000 people nationwide, many producing for the state.

The banking system is crucial to the government's plans. Regulators tightly control interest rates and demand that private banks devote 31.5 percent of all loans to agricultural projects, housing construction, tourism and microcredits, loans to tiny startup businesses.

The new measures - which include the seizure of factories, mines and fields the government says are unproductive - are playing well domestically. Mr. Chávez has an approval rating topping 70 percent.

"I'm not afraid of socialism and never have been," said Rivas Silvino, who works in a diaper factory run by workers and managers under a state co-management plan. "The world is afraid. I say, don't be afraid."

So far, no noticeable exodus of foreign companies operating in Venezuela has occurred. Banks and oil companies are making record profits thanks to oil prices that have left the country, the world's fifth-largest exporter, awash in petrodollars. This year, the oil industry is generating $20 billion for the government, nearly $8 billion more than last year.

Still, there is restlessness in the boardrooms, with executives worried about government intervention, which is sometimes seen as haphazard and improvised. Economists say the government has not made the investments needed in the oil sector. And political analysts and mainstream economists warn of recession and dourly note that foreign investment is about a third of what it was five years ago. They say that Venezuela's vast oil profits give the illusion of prosperity - the economy's growth rate is 9.3 percent - but that if prices fall, or Venezuela's growing spending catches up, the economy could founder.

Domingo Maza Zavala, the director of the Central Bank, warned of recession as soon as 2007. "There is uncertainty and instability because of the strategies being used by the state," he said in an interview. "If there was a strategy, defined, well established and clear and with objectives, this would create a climate of confidence that could generate a recuperation of investments."

In the tumbledown barrios where Mr. Chávez draws much of his support, it is easy to see why the new system has been warmly welcomed. The hills around Caracas and the farms in the outback are filled with cooperatives and other businesses in which the state plays an important role. Workers produce everything from shoes to corn.

Aura Matos, 28, is a seamstress in a state-run textile factory that sells to the state, a job she has held just a few weeks. "I was in my house, with nothing to do, and President Chávez and God gave me this opportunity," Ms. Matos said as she took a break from sewing jeans and blouses.

One of the government's most ambitious ventures is a new state airline, price $110 million so far. The airline, Conviasa, now has three planes, which regularly serve Bogotá, Havana and other nearby destinations. It plans to expand to 14 jets in about a year and travel as far as Beijing and Europe.

What about competition in this cutthroat industry? "The philosophy is not to compete, but to cooperate with other airlines," said Wilmer Castro, who as Venezuela's tourism minister oversees the airline. "Our policy is to have fares that are lower than the others in the market."

Another project gives workers a stake in the ownership and management of tottering private companies. In return, management - made up of the original owners and the workers - receives government credits and other incentives.

"The businesses closed by the neoliberal system - factories and farms - are reopening, but it's done by the people," said Elías José Jaua, minister of the popular economy. "This is a state that has the duty to push and support this."

The state is also founding a mining company, an iron and steel company, a tractor factory and a state computer company, which Mr. Chávez says will produce "Bolivarian computers" in honor of his guiding light, the 19th-century independence hero Simón Bolívar. The government has even spoken about acquiring nuclear technology from Brazil and Argentina - emphasizing that it would be for peaceful purposes, like energy production or medical care.

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