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aceventura3 · 08-07-2007, 11:48 AM

On many issues I am conservative and definitely libertarian regarding my views on property rights and I don't hate Chavez - particularly since I don't live in Venezuela. I speculate that he will lead his country to ruin in spite of the valuable oil resources.

Here is some history:

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Venezuela benefited from the oil boom of the early 1970s. In 1974, President Carlos Andrés Pérez took office, and in 1976 Venezuela nationalized foreign-owned oil and steel companies, offering compensation. Luis Herrera Campíns became president in 1978. Declining world oil prices sent Venezuela's economy into a tailspin, increasing the country's foreign debt. Pérez was reelected to a nonconsecutive term in 1988 and launched an unpopular austerity program. Military officers staged two unsuccessful coup attempts in 1992, while the following year Congress impeached Pérez on corruption charges. President Rafael Caldera Rodríguez was elected in Dec. 1993 to face the 1994 collapse of half of the country's banking sector, falling oil prices, foreign debt repayment, and inflation. In 1997, the government announced an expansion of gold and diamond mining to reduce reliance on oil.

Leftist president Hugo Chavez took office in 1999, pledging political and economic reforms to give the poor a greater share of the country's oil wealth. A constituent assembly was formed to rewrite the constitution in July 1999, followed by the creation of a constitutional assembly made up of Chavez's allies that replaced the democratically elected Congress. Chavez's assumption of greater power prompted charges that he is establishing a left-wing dictatorship.

Chavez was reelected to a six-year term in July 2000. Troops were called in to quell serious protests over the election in several cities. In 2000 Chavez visited other OPEC countries, becoming the first foreign head of state to visit Iraq since the 1991 Gulf War. He is close to President Fidel Castro of Cuba, which receives Venezuelan oil at reduced prices.

In Dec. 2001, business and labor organizations held a work stoppage to protest Chavez's increasingly authoritarian government. In April 2002, tensions reached a boiling point as workers reduced oil production to protest Chavez's policies. Following a massive anti-Chavez demonstration during which 12 people were killed, a coalition of business and military leaders forced Chavez from power. But international criticism of the coup, especially in Latin America, and an outpouring of support from the president's followers returned Chavez to power just two days later. After the coup, Chavez remained highly popular among the poor, despite the desperate state of the economy. Venezuelan labor unions, business organizations, the media, and a good part of the military remained substantially less enchanted.

Beginning in early Dec. 2002, a general strike was called by business and labor leaders. By Jan. 2003 it had virtually brought the economy, including the oil industry, to a halt. Strike leaders pledged to continue until Chavez resigned or agreed to early elections. But in Feb. 2003, after nine weeks, the strikers conceded defeat. In Aug. 2003, a petition with 3.2 million signatures was delivered to the country's election commission, demanding a recall referendum on Chavez. The Chavez government challenged the referendum process rigorously, and petitions submitted in Sept. 2003 and Feb. 2004 were rejected as invalid. The electoral board finally accepted a petition in June 2004 and scheduled the referendum for August 15. Chavez, who had been shoring up his standing with the Venezuelan poor during the delays, won the referendum with an overwhelming 58% of the vote. The opposition alleged fraud, but international observers confirmed that there had been no irregularities. Chavez's hand was clearly strengthened, and by the spring of 2005, his popularity rating reached 70%, due in large part to his social spending programs. In Dec. 2005 parliamentary elections, Chávez's Fifth Republic Movement won 114 of 167 seats, and the remaining seats were won by his allies. The opposition boycotted the election, maintaining they could not trust the pro-Chavez National Electoral Council. President Chávez won reelection in Dec. 2006 with 63% of the vote.

In early 2007, Chávez took significant steps to further consolidate his power and move Venezuela closer to becoming a socialist state. In January, he announced the nationalization of major energy and telecommunications companies. Days later, the National Assembly voted to allow Chávez to rule by decree for 18 months. In May, Chávez shut down the main opposition television station, RCTV, which has been critical of the government.

http://www.infoplease.com/ipa/A0108140.html

Chavez has an interesting problem. He is highly critical of the US but his country has been in bed with the US for many years. Without the US market, tax payers and past private sector US investment in the Venezuelan oil industry, I doubt the country would be in a position to allow Chavez to do and to say the things he says. Chavez is desperately seeking new, non-US, markets for his oil. His problem is in how to deliver the oil at a competitive price. His country will need to invest billions to do this. Will Chavez's government be able to do this without private investment? I guess time will tell.

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When Venezuelan President Hugo Chavez criticizes the U.S., makes threats to cut off oil exports, cozies up to Fidel Castro, props up other leftist governments in South America or negotiates a major weapons deal with Russia, he puts U.S. taxpayers' money where his mouth is, thanks to a deal approved by the IRS in 1989.

James Williams, an Arkansas-based oil analyst with WTRG Economics, estimates that an obscure 17-year-old pricing formula between Venezuela's state-owned Petroleos de Venezuela and its wholly owned U.S. subsidiary, Citgo Petroleum Corp., is worth up to $1 million a day to Chavez.

Under the agreement, approved by the IRS when oil prices were about 25 percent of what they are today, Citgo is forced to buy PDVSA's crude for at least $5 a barrel over the market price. This results in a reduction in Citgo's taxable earnings in the U.S. and an increase in Venezuela's profits by hundreds of million of dollars annually.

Williams estimates that Citgo has been paying $5 to $8 dollars over market for the past 2 years.

"At the moment, we have the strange situation where the U.S. is subsidizing Venezuela to the extent of the tax relief on the excess above-market prices," Oliver Campbell, a former finance coordinator of PDVSA, told the Washington Times.

http://www.worldnetdaily.com/news/ar...TICLE_ID=51609

The World Economic Forum produced a good report on the economic conditions if countries in Central and South America, here is some of what they wrote about Venezuela:

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Venezuela
With a mediocre score of 3.37, Venezuela lags behind all countries included in this paper, except for Bolivia and Dominican Republic, for the attractiveness of its environment for private investment in infrastructure. As shown in Figure 23a, it ranks among the last in the sample in five of the eight pillars comprising the index. It under performs the region, often by a great deal, in six pillars. Venezuela is the worst performer in the General Investment Environmental Factors sub-index. In particular, Venezuela comes last in the legal framework pillar. A look at the huge gap between its score (2.09) and the regional average (3.25) suffices to indicate the extent to which the country has fallen behind in this dimension. It ranks last not only in all three components of this pillar, but also on nine of its 13 indicators.

http://www.weforum.org/pdf/Global_Co...nchmarking.pdf

Looks like I am becoming the anti-Host with so much data, but here is more:

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There is a sharp contradiction. On the one hand, the state must extract financial resources from the oil industry to underwrite its development and social spending plans (and, increasingly, to meet rising popular expectations and shore up the political base of the Chavez regime). On the other hand, the state must invest to maintain the competitiveness of the oil industry as a capitalist enterprise in the international capitalist market.8

Again, there is great tension here. In the last two years, social programs have absorbed a larger share of the state oil company’s budget than has spending on maintenance and new oil capacity. This social spending by the government puts strains on needed investments in the oil sector. To say investments are “needed” is not to make some pure technical statement; rather, investments are “needed” from the standpoint of an oil-exporting economy and the dictates of the world market—improving efficiency and compensating for possible price declines with expanded output. Because Venezuela’s wells are so old, output declines 23 percent a year—and so it is necessary to drill new wells just to maintain capacity.9 There is a pull exerted by competition on the world market, intensified by low levels of investment in Venezuela’s oil sector relative to other oil-producing countries, to upgrade and expand the industry, and maintain profitability.

If foreign investment comes forth to finance a major share of Plan Siembra, this investment carries with it real control and puts real leverage in the hands of those foreign investors. This is important to bear in mind. Venezuela is not unusual in having formal sovereignty over its oil. Some three-quarters of the world’s oil and gas reserves and half of global output are controlled by national state oil companies like Saudi Aramco, Kuwait Petroleum, and the Algerian state company. But the national-state oil companies rely on international finance, work through international trade and marketing channels, and collaborate with the large, Western-based transnational oil companies, like Exxon-Mobil. These transnational corporations and their service company networks have strong competitive advantage: in scale, reach, and core managerial and technological competences, financial capabilities, support by the Western imperialist governments, and the ability to pull up stakes in a country like Venezuela.

In terms of the second track: higher tax and royalty payments. In April 2006, Chavez announced his intention to increase PDVSA’s share in major projects to 60 percent from 40 percent. The Chavez government is creating new forms of joint ventures (what are now called “mixed companies”) with Shell, Chevron, British Petroleum, and others. Oil resources and oil profits are jointly owned in the form of single new enterprises—only now, the Venezuelan government obtains a higher proportion of profits than it had previously, while the foreign oil companies, with heavy investments, benefit from current high oil prices and prospect of profitable new oil fields. At the same time, the government has negotiated with the 22 foreign companies operating in Venezuela to agree to a new tax law that is being enforced retroactively.

On May 1, 2007, Chavez made good on his ultimatum to the foreign companies that they accept a larger share of ownership by the Venezuelan government or cease operations. Chavez may be a tough negotiator (and did succeed in getting a larger slice of rising oil revenues from companies who want to stay put in order to recoup the value of their investments and make huge profits). At the same time, to keep these projects alive, to go forward with expansion plans, Chavez must reach some kind of understanding with foreign capital, as these firms are providing essential finance and technology. So the threat of takeover was sweetened with a commitment to compensate the firms.10

The third track of the oil program is to restructure Venezuela’s external trade relations away from dependence on the U.S. as a market and source of investment capital and technical expertise. Venezuela accounts for some 12 percent of the U.S.’s daily oil imports, and plays a certain strategic role in the U.S. ability to project power in the world. But the other side of the equation is more telling, illustrating an aspect of Venezuela’s structural dependency : that 12 percent share of U.S. oil imports accounted for by Venezuela represents 60 percent of Venezuela’s total oil exports!11

In seeking to diversify markets, Chavez has opened negotiations with China and has plans to sell Venezuelan oil to China, the world’s second-largest energy consumer, and to India as well. But there are high costs of servicing these markets. Venezuela does not have a Pacific port, and large tankers cannot make it through the Panama Canal. So Venezuela would need to construct pipeline through Colombia in order to ship the oil. But shipment to Asia is costly, owing to the long distances involved. Further, China does not have adequate capacity to refine Venezuela’s sulfur-rich crude. China is investing substantial sums to increase that capacity, but China is also exploring for oil and gas closer to its shores in the South China Sea and angling as well for deals in the Caspian Sea region.

The U.S. connection is a difficult knot for Chavez to cut, especially if oil is to be the centerpiece of development. There is the close proximity of the U.S. market and low transportation costs. There are the refineries in the U.S. adapted to processing Venezuela’s oil. And the U.S. continues to be Venezuela’s most important trading partner (U.S.-Venezuela trade actually rose 36 percent in 2006). These are among the pressures operating on Chavez to maintain stable economic relations with the U.S.,12 even if the U.S. has other plans.

http://www.rwor.org/a/094/chavez-en.html
It will be interesting to revisit this data in a few years.