El Sur
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South American Politics and Government

Thursday, January 30, 2003
Trouble in Paradise: Fractures between left and right have already begun to appear in Brazil's Workers Party, just a month after new Workers Party President Luiz Inacio Lula da Silva took office. According to
Bloomberg.com, quoting the Brazilian paper Correio Braziliense, da Silva has ordered members of the party to stop disputing publicly and maintain unity. The issue agitating the party is whether or not to service Brazil's $300 million foreign debt.
Party members critical of the government include Sen. Heloisa Helena, who has proposed putting International Monetary Fund officials on trial for crimes against humanity.

Helena and other party members have criticized Lula's pledges to cut spending, overhaul the pension system, implement central bank autonomy and pay the nation's debt.
Here is a classic problem for leftist parties that come into power. aaaa

posted by Richard 7:49 AM
. . .
Personal View: Priscilla West, an American who came to work for PDVSA, the state oil company, shortly after Hugo Chávez took office, chronicles the country's decline, in the
Christian Science Monitor:
In the office, now-wavering Chávez supporters grew quiet. As corporate directors were replaced by Army generals, we began to receive questionable decrees from above. In vain, PDVSA executives refuted such mandates as to supply Cuba at special pricing and "indefinite" credit terms - despite arrears exceeding $30 million. Paranoia was building at all levels of the organization as even routine business decisions had to be defended against an overtly hostile "boss" with no industry background or business experience whatsoever.

The government was also sending new clients our way. These "businessmen," from countries including Libya and Colombia, had no knowledge of the petroleum trade. Basic industry jargon drew confused expressions. With no real intention to receive oil cargoes, they bid prices so far above market level that the numbers seemed typographical errors.

One memorable client, whom we nicknamed "Señor Leche En Polvo" (Mr. Powdered Milk, his primary business) managed to slip through all the filters. Unable legally to refuse his bid to buy a tanker of gasoline, managers awarded him a cargo. Predictably, no tanker ever arrived at the load port, causing production losses at the refinery. Some employees suspected PDVSA was being used to launder money via these illegitimate transactions.

posted by Richard 7:43 AM
. . .
Friday, January 17, 2003
Oil production:
El Universal reports that production in Venezuela is 484,000 barrels per day. Yesterday, President Hugo Chávez said production had reached a third of pre-work action levels (see immediately previous post), which is on the order of one-third of pre-job action levels. On the other hand, it appears to be up slightly from previous non-government estimates.

posted by Richard 7:52 AM
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Thursday, January 16, 2003

1. In New York to meet with United Nations Secretary General Kofi Annan, President Hugo Chávez says Venezuelan oil production has returned to about one-third pre-work action levels, reports
Strikers and industry analysts have disputed government figures on oil production.
2. In a second article, Bloomberg.com notes that Venezuela's currency, the bolivar, has fallen to a record 1,761 to the dollar and that Venezuala's central bank has suspended its daily sale of $30 million in U.S. dollars. The reason:
"What's going on right now is a speculative run on the bolivar based on rumors and nervousness," Planning Minister Felipe Perez said late yesterday on the state television station. "The rumor that we plan exchange controls has been criminally planted for political objectives."
The key pharase here being "exchange controls."

3. According to the Financial Times,
Venezuela this year faces the most serious economic collapse in its history because of lost oil output and escalating political tension, bankers and analysts warned on Tuesday.

BSCH, the Spanish bank, said that it expects the economy to contract by 40 per cent in the first quarter and by at least 9 per cent this year. It described the situation as the "biggest [example of] wealth destruction in Venezuelan history".

The contraction could potentially be as deep as 30 per cent, BSCH added, given that for every month that passes without a political solution to reactivate the oil industry the economy will shrink by an additional two percentage points.
Venezuela's economy declined by nine per cent in 2002; since Chávez took office, Venezuela's economy has declined 18 per cent.

The article also says, in contradiction to Chávez, above, that the state oil company, PDVSA, is producing about 400,000 barrels of oil per day.
Alí Rodríguez, the PDVSA chief, said this week that oil production would return to pre-strike levels by the end of February. Most oil industry observers say such a forecast is unrealistic, however. In the most optimistic of scenarios it will take two to four months from the day PDVSA employees return to work to ramp up output to 90 per cent of previous levels.
4. Even if the government gets oil production going with replacement workers and managers, it will face a continuing problem getting product out of the country, reported the Wall Street Journal (International Section, no link) on Tusdeay. The problem:
Most of the tankers that moved PdVsa's oil before the strike are staying away because of the chaotic condition ov Venezuela's ports...

Sincor, a joint venture between Total-FinElf SA and Statoil ASA with exports 150,000 barrels a day of crude oil to the U.S. Gulf Coast, has refused to load ships since the military took over a privately operated oil terminal on Dec. 15. Joris De Smet, Sincor's manager, said the joint venture has concerns about the personnel that took over the terminal, which is normally operated by Williams Cos., Tulsa, Okla, and Enbridge Inc.

"For the time being we don't see that there is a safe situation to load ships," said Mr. De Smet. A spokesman for the Williams/Enbridge consortium said its insurers had canceled its liability coverage because of a lack of harbor pilots and because the terminal had been "militarized."
The problem of obtaining insurance for tankers calling at Venezuelan oil ports has previously been noted in El Sur, here, here and (as early as December 17) here.

posted by Richard 11:13 AM
. . .
Wednesday, January 15, 2003
War of attrition: Venezuela's nationwide work stoppage has settled into a war of attrition. A month ago, when the work action was a week or so old, there were several possibilities. It seemed probable that the opposition couldn't sustain an extended work action. In the alternative, it seemed possible President Hugo Chávez would be forced to accept a non-binding, advisory referendum on his performance. A vehicle to dress up either side's defeat as a compromise was available--the talks mediated by Organization of American States Secretary César Gaviria.

A month later it is clear that Chávez and the opposition are willing and able to sustain the conflict to and through Venezuela's collapse into complete chaos. The opposition has sustained the work action for 40-plus days, growing stronger not weaker. And Chávez has made it abundantly clear he will concede nothing.

Meanwille, Gaviria and the OAS have achieved nothing. Neither the military nor the courts has been willing and able to establish rules that would force the fight to a conclusion. The military keeps the sides apart in the streets, tear-gassing opposition protesters on Monday and Chavista demonstrators on Tuesday, keeping the conflict at a fever pitch, without offering resolution. The Supreme Court decides against anything that would tip the balance: Chávez can't prosecute officers for rebellion or take over the (opposition led) Metropolitan Police; the opposition can't have an advisory referendum.

This last item is today's big news from Caracas.
El Nacional and El Universal both report today that the Supreme Court has suspended the February 2 consultative referendum, pending a decision on a complaint by pro-Chávez legislators about the make up of the National Electoral Council (Consejo Nacional Electoral or CNE), which approved the vote. Last October, the opposition gathered more than 1.2 million valid signatures on petitions seeking the vote.

Meanwhile, the military has moved to disarm the Metropolitan Police. According to another report in El Universal, army and national guard units raided Metropolitan Police armories throughout Caracas early Tuesday and cleaned them out of armas largas, which is anything more powerful than a 38 pistol. In response, Metropolitan Caracas Mayor Alfredo
Peña announced that in view of its disarmament the Metropolitan Police would suspend patrols in lower-income neighborhoods. Also the guarding of banks, embassys and stations on the Caracas subway. He indicated that its participation in marches will be diminished and will depend on the capability left the officers of the teams of public order after the loss.
Peña anunció que en virtud del desarme la PM suspendería el patrullaje por las barriadas populares. También la custodia de bancos, embajadas y estaciones del Metro de Caracas. Señaló que la participación en las marchas se verá disminuida y dependerá de los equipos de orden público que queden en poder de los funcionarios después de los allanamientos.
Adding to Venezuela's burdens is the involvement of two international pests, long-time international ambulance chaser former U.S. President Jimmy Carter and newly minted meddler Brazilian President Luiz Inacio Lula da Silva. Carter visited Venezuela last June to mediate between the government and opposition (noted in El Sur, here and here). Events daily give evidence of Carter's failure. For his part, da Silva ought to have enough to do, managing South America's largest and most populace country, which also happens to be plagued by poverty, corruption and criminality. But no, he's decided, according to Bloomberg.com, that he's the man to deal with Venezuela's problems. Da Silva has formed a "Friends of Venezuela" group of Latin American leaders. He plans to meet with them and Chávez in Quito, Ecuador, where many are attending the inauguration of Ecuador's new President.
"Lula is taking to Quito a combination of proposals that protect the rights of civilians, as well as the institutional rights of the president," said Murilo de Aragao, who runs the Brasilia-based Arko Advice political research company...

De Aragao and other analysts have said Lula may seek to present a compromise solution under which the opposition halts the strike and recognizes Chavez's legitimacy until an election is held. Chavez, whose term ends in 2006, would also refrain from seeking to punish or restrict political opponents, analysts said.
As a generality, this is a formula Chávez and the opposition can agree on. In fact they already do. Both sides want elections and the courts refuse to punish anyone. Question is, which election, when? The opposition's non-binding consultative referendum, scheduled for February 2 (but now suspended), which the Chávez government won't finance and refuses to respect, or an August referendum, under the terms of the Chavista constitution, which the opposition refuses to wait for? When da Silva and the other presidents answer this question they will also be answering the really critical question: Which side are you on? And they will no longer be mediators, but partisans. And for what?, given that every one of them, except perhaps Chile's president, Ricardo Lagos, has multiplying problems of his own, da Silva not least among them.

Actually, Chile's President Lagos does have one problem. The Chilean Supreme Court stripped five pro-government legislators of their immunity in a bribery scandal, forcing their suspension from office. The government's margin in the national assembly is now one vote. Yahoo! News -
and La Tercera have reports.

posted by Richard 7:07 AM
. . .
Saturday, January 11, 2003
Stratfor analysis: The private intelligence company, Stratfor (
Stratfor.com) yesterday distributed a new analysis, avaialble via FreeRepublic.com.

Stratfor analysts believe that such a takeover could give Chávez an immediate PR coup, if foodstuffs are found in the food supply system (as woudl be expected) and portrayed as examples of hoarding. Longer term Stratfor doesn't see much gain . Stratfor analysts identify three specific problems:
First, remaining food stocks could be exhausted quickly and distributed unevenly among the populace. In recent weeks, since the military seized control of PDVSA's installations, local gasoline distribution has been more constant in poor areas -- where Chavez typically has more supporters -- than in opposition strongholds. The Chavez regime would have two clear motives to follow the same pattern with food distribution: first, to maintain the support of poor voters and shore up his sagging popularity ratings, and second, to starve out his foes.

The possibility that food stuffs could be stolen outright in the event of a military seizure also is difficult to discount. While charged with distributing gasoline, sources have told Stratfor that some soldiers demanded cash payments and refused to issue receipts to citizens.

Finally, many food companies in Venezuela are owned by U.S. or European multinationals. Chavez could run afoul of these countries if their governments perceive him as confiscating private property illegally.
The analysis, written after Chávez's speech, noted below, notes the contrast between his admission that the Venezuelan oil company produced barely 150,000 barrels a day during December and his assertion just a week ago that PDVSA production was back to one-million barrels a day. The analysis also says that capital flight from Venezuela amounted to $11 billion in 2002 and $34 billion since Chávez assumed office in 1999.

posted by Richard 6:21 AM
. . .
Friday, January 10, 2003
Self-destruction: Nearly a month ago, President Hugo Chávez ordered the military to take back and run the national oil company. Production would be back to normal by January 15, he said at the time. That's a week away and production is still a fraction of normal. The government's own estimate for a return to normality is now May.

Flush with that success, Chávez yesterday gave a speech in which he ordered the military to make ready take over the food distribution system, according to
Venezuelan President Hugo Chavez ordered the military to prepare to seize food supplies to prevent starvation in the country after a national strike caused shortages of everything from milk to meat....
"What these traitors have done has really affected public finances," Chavez said in a televised speech.

Canned goods, dairy products, meat, soft drinks, flour and sugar are now in short supply, and the empty store shelves have led Chavez to import food from neighboring countries, such as Colombia and the Dominican Republic. Chavez is concerned the shortages may spark riots similar to those in 1989 that killed at least 300 people and weakened then-President Carlos Andres Perez, who was impeached four years later, analysts said.

Chavez said military units would take over silos, storehouses and warehouses if needed to ensure food supplies.

"The poor in the slums are already having troubles getting food," said Janet Kelly, a public affairs professor at Venezuela's Instituto de Estudios Superiores. "Transporting food is already a problem"....
"We've had to import gasoline at international prices and then resell it cheap to Venezuelans," Chavez said. "We've spent billions of dollars importing food, meat from Brazil, milk and flour from Colombia, rice from the Dominican Republic. We've had to do this because some insensitive businessmen have stopped producing flour and are hoarding rice and corn. I can't let people die of hunger."
Supermarkets in Venezuela were closed Thursday and Friday because a nationwide bank job action made it impossible for stores to process purchases by check, credit card and debit card.

In a related item, also from Bloomberg.com, Chávez for the first time publicly acknowledged the true condition of Venezuela's oil industry, though in the typically belligerent and unreflective manner that more than anything else frustrates and arngers the large number of Venezuelans who don't support him.
"For most of December, we were only producing 150,000 barrels a day. For the last few weeks, we haven't been able to sell a single barrel of oil, because we haven't had any tankers available because these traitors stopped all the tankers. What these traitors have done has really affected public finances."
The oil output number is the lowest Chávez has ever given and is close estimates that have been provided by striking oil executives. Tankers are refusing to enter Venezuelan ports because operational and security problems have made it difficult if not impossible to obtain insurance.

Finally, there was this:
"We've fired about 1,000 of the coup mongering managers at the state oil company. Now we have truly patriotic management."

"Kofi Annan called me this morning and said he was concerned and wanted to know what was going on here. I told him there's a group of opposition terrorists here."

"One of the most guilty parties behind this crisis is Gustavo Cisneros. I denounce him in front of all the world as a fascist and a coup monger."
Cisneros is an extremely wealthy Venezuelan, the owner of one of Latin America's largest media groups. He now lives in Miami, for obvious reasons. But, while Cisneros is no friend of Chávez, it is increasingly clear that he is not Chávez's worst enemy, that being Chávez himself.

posted by Richard 7:02 PM
. . .
Wednesday, January 08, 2003

1. Venezuela's banks will be closed Thursday and Friday, reports
Bloomberg.com. The union Fetrabanca voted to strike for the two days as a means of pressuring President Hugo Chávez.

2. PDVSA dissidents are alleging that inadequate maintenance and operational errors by unqualified replacement employees have led to oil spills and other environmental damage, reports El Universal.

3. President Hugo Chávez is again threatening to decree a state of siege or state of exception, reports El Universal. The occasion is the opposition's new call for Venezuelans to not pay their taxes:
"They were not able in April to stop the force of the revolutionary government in benefiting the education of the children and young people, now they intend to break the nation's treasury, destroying the national fiscal accounts. With the petroleum damage we are going to begin the year with many economic difficulties, and now violating the Constitution and the laws, a group of stateless Venezuelans, traitors to their country, are calling for what they imagine is tax disobedience, inciting to to crime. Take note. It is a crime not to pay taxes."
"Ya que no pudieron en abril detener el esfuerzo del gobierno revolucionario en beneficio de la educación de los niños y jóvenes, ahora pretenden hacerlo quebrando las arcas de la nación, destruyendo las cuentas del fisco nacional. Con el daño petrolero vamos a comenzar un año con muchas dificultades económicas, y ahora violando la Constitución y las leyes, un grupo de venezolanos apátridas, traidores a la patria, están llamando a lo que concibe como desobediencia tributaria, incitando al delito. Alerto. Es un delito no pagar impuestos."
Too late. If Chávez finally makes good his threats, he will find that the declaration of a state of siege or emergency has little or no effect. The government has had in place a de facto state of emergency since shortly after the strike began. If issuing decrees and militarizing the economy were going to be effective, they would have been so by now. The government has attempted to operate Petróleos de Venezuela by force for nearly a month, to little effect. As an example of the brand new problems militarization creates, consider from an item posted in yesterday's El Sur the following description of the results of the government's takeover of private gasoline tank truck fleets:
...the revenue of local sale of gasoline did not enter PDVSA' s bank accounts because gas was sold on cash basis to pumps without invoices, (the Army personnel, truck drivers and pump operators negotiated the operation to their personal interest and benefit), an additional loss will be incurred by the sale of the imported gasoline at below cost prices, which may not even be collected. (There are no administrative control over sales.)...
There is no prescription for success here.

4. An article in today's Wall Street Journal (International Section, no link), makes the same point. Oddly titled "Strike in Venezuela Shows Signs of Winding Down," the article in fact gives evidence of the practical difficulties Chávez faces trying to bully the economy back into production.
A desire to reopen factories may not be enough to get assembly lines moving. Ricardo tinoco, a spokesman for Ford Motor Co. of Venezuela in the central city of Valencia, said his company on Moday decided to give its workers a second, consecutive vacation of three weeks. "We have not transportation, no gas, no customs services and no parts," he said.
Any of these alone, would be sufficient to slow production.

posted by Richard 8:10 AM
. . .
Tuesday, January 07, 2003
Duped: President Hugo Chávez fell victim to two Miami disk jockey's hoax, reports the
Miami Herald. The two, Joe Ferrero and Enrique Santos, do a bit called Fidel Te Llama (Fidel is calling you), in which they call people and attempt to con them into believing it's the Cuban dictator on the line. Monday, they fooled Chávez. Hilarious. Afterward,
The station's switchboard lit up with a flood of callers, including the owner, Raúl Alarcón, whom Santos described as ''not very happy.'' Alarcón is chairman of the station's Miami-based parent company, Spanish Broadcasting System.

posted by Richard 9:49 AM
. . .
Analysis: A contributor to
FreeRepublic.com yesterday posted an apparently Venezuelan corporate analysis of the situation in that country 28 days into the nationwide job action. Selected quotes:
PDVSA is hardly hit by the actual situation. December sales of over $1.2 Bn to foreign markets are not made, the revenue of local sale of gasoline did not enter PDVSA' s bank accounts because gas was sold on cash basis to pumps without invoices, (the Army personnel, truck drivers and pump operators negotiated the operation to their personal interest and benefit), an additional loss will be incurred by the sale of the imported gasoline at below cost prices, which may not even be collected. (There are no administrative control over sales.)....

In order to reach November 30th production level PDVSA needs at least 4 months (the expiry of substitution contracts signed by their customers to other vendors, work over of wells, which by the suspension of production will clog requiring repair and maintenance, etc.
People are demonstrating in the streets practically every day. They are a force of its own, evident when we consider that 92% of the population are calling or support the call for elections (according to latest survey by Datanalisis).

Leaders no longer lead or control the process, they just provide directions and schedules as to how to conduct marches and demonstrations in order to avoid "steam build up"....
Many companies obtain the bulk of revenue during December and in view of the nationwide strike they were not able to meet payroll due after December 15th. Nor will they be able to meet January obligations, even in the event that the strike ends, which most likely will result in payroll reductions. Potential personnel dismissal due to lack of payment capacity of salaries is high. This will lead to increased unemployment, which in turn will trigger social unrest....
The members of the Army have assumed a "wait and see" position, meaning they are officially not taking sides yet providing full support to the Government. (Army personnel are only allowed to watch and listen the State owned radio and TV station; and they have shown strong repression at street marches and demonstrations). Those opposing the Government position are retired very quickly....
The Government representatives show up to the daily scheduled meetings only when they feel the heat of the Opposition or when any Government decision goes sour. It is somehow being used by the Government as a tool to gain time under the assumption that it will benefit them in the long run, not considering the danger of: · Increased social unrest due to the increasing food, gas and fuel shortage (already 2 trucks carrying bottled gas for domestic use were looted, the same happened to 1 truckload of corn flour, 1 truck load of canned sardines and 3 truckloads of Coca Cola. There was an aborted attempt controlled by the Army, to loot the Makro Hypermarket). · The Government is holding onto power yet they do not have control over the Country (Governing crisis similar to the one leading Argentina's President De La Rua to resign) · The Schools will not open next January, thus adding to the confusion. · Staple foods shortage likely to occur despite the fact that 2 factories processing rice and corn flour opened in order to guarantee supply. Yet the Government announces it is a Government triumph because the strike is over, not realizing this is a protective measure against a social uprise.

There is the perception that the Government representatives are acting as they are, in fear of the Rome Statute which will prevail world wide in the event they are prosecuted for crimes against the people, leaving them no place to live (and enjoy their fortunes), should the Government they preside fall.
The report purports to have been prepared by a strategic task force in the Venezuelan logistics and transportation company Expotran (website) primarily for domestic and international customers. The report is obviously a translation. It is clearily anti-Chávez in orientation. However, nothing contained in it appears to contradict otherwise available information. In sum, while El Sur cannot vouch for the provenance of the report, it appears to present a realistic depiction of Venezuela's current condition and near term prospects.

posted by Richard 8:20 AM
. . .
Turmoil wrecks gas deals: In better days, Venezuela expected to reap as much as $1.3 billion by auctioning to international oil companies the right to participate in off-shore gas development with the state owned oil company, Petróleos de Venezuela, SA (PDVSA). So far, the auction has generated offers of less than $60 million. The reason, reports yesterday's Wall Street Journal (International Section, no link), is political turmoil.
People close to the confidential auctionprocess, unveiled with much fanfare in August, say that at least two of the five bidders have doubts about partnering with the Chávez government to develop South America's largest gas reserve.
BG Group PLC (England), a preselected preffered bidder decided to make no offer. TotalFinaElf SA (France) bid only $100,000 for one block.
"TotalFinaElf basically wants this for free," said Alejandro Gonzalez , a Latin American gas analyst at Cambridge Energy Research Associates in Massachusetts. TotalFinaElf declined to comment on its bid. However, some observers said the company might not be confident that the Venezuelan government will move ahead quickly with plans to build pipelines and a processing plant that would allow transport of the gas to the Eastern U.S. and Europe.
This last gives the Venezuelan government too much credit. The issue isn't whether it "will" move ahead (choice) but whether it can go ahead (ability), given the mass firing of striking PDVSA managers and technicians and their replacement with foreigners who are, at the very least, untested. The Chávez government continues to try to operate a complex, modern institution by coercion.

Also worth noting: Despite all the bragging by PDVSA President Ali Rodriguez and President Hugo Chávez himself about how Venezuelan production will be restored to normal levels, first by mid- and then by late-January, production remains at very low levels.
Bloomberg.com reports that Rodriguez himself admitted that Venezuelan production remains stalled at 600,000 barrels a day, compared with three million before the job action. Opposition estimates--that is estimates by striking company officials--have consistently run in the 300,000 to 400,000 barrels a day range.

In a January 2 analysis, available via FreeRepublic.com, the private intelligence firm Stratfor (website), says that, regardless of the outcome, the current work stoppage will do great long-term damage to Petróleos de Venezuela. Both the Chávez administration and the PDVSA's striking managers are way too optimistic about the company's post-strike future, according to Stratfor's analysis. Identified problems include financial problems (losses in excess of $6 billion), operational problems (depressurized oil fields) and the loss of credibility (a major cause of the failed gas concession auction, noted above).

posted by Richard 6:40 AM
. . .
Wednesday, January 01, 2003
Lula promises the moon: Inaugurated today, new President Luiz Inacio Lula da Silva promised to end hunger end humger and redistribute agriculture land to the landless, through a peaceful agrarian reform, while generating growth and curbing inflation. So reports

Growth and preventing inflation require investment; it remains to be seen whether domestic, let alone foreign, investors are willing risk money in a leftist-dominated environment. Agrarian reform is a perennial panacea that never pans out. At best it creates a permanent class of rural poor, trying to eke out a living on a too small holding; at worst--if the farmers are put in co-ops or barred from selling their land--it creates a kind of rural peonage. If the land to be redistributed is purchased at market from current owners it's costly; if confiscated, it sends investors--urban and rural--packing.

Better to develop a modern industrial and economy, capable of usefully employing the excess rural population, and a free market in agricultural products, letting rural Brazil find its own balance. That's also the way to end hunger.

If da Silva really intends to follow through on this plan, he's is in for a rocky ride indeed.

posted by Richard 11:49 AM
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