Middle classes fear the Chavez factor

06 June 2011, Newspaper: Issue 755

In downtown Caracas, the skyscraper of the Bank of Venezuela throws a long shadow over the single-storey house where Simón Bolívar, the man who liberated most of South America, was born in 1783.

Nearly 200 years after he freed a clutch of countries from Spanish rule, Bolívar is still revered and his reputation unquestioned. Statues of him on and off horseback are found in every town in the land and numerous squares, roads, schools and even the currency bear his name.

His presence in public spaces is rivalled only by that of president Hugo Chavez who, as instigator of the self-styled Bolivarian revolution, socialism in the 21st century, has taken over the socialist cause from Fidel Castro of Cuba.

Billboards of Chavez in military uniform line the motorway between the airport and the capital, exhorting his compatriots to “think of the future” and reminding them that their choice is “death or revolution”.

The bank, whose headquarters in the old town centre dominates the humble colonial house of El Libertador, has been under state control ever since the government bought it for $1bn from Banco Santander in 2009.

As the sun sets, the streets around the bank empty rapidly as office workers hurry back to their homes, fearful of the area’s reputation as a haven for thieves, drug dealers and other criminals.

According to the tourist guidebooks, Caracas is a city where those caught off-guard are just as likely to be mugged by a policeman as by a common criminal.

The contrast between the bank and Bolívar’s birthplace, now a museum, is a potent symbol of this oil-rich country which draws heavily on its past while being sustained by the modern world’s need for petrochemical products.

Venezuela produces an estimated 2.5 million barrels a day making it one of the world’s top-10 oil-producing countries. According to the Council on Foreign Relations, oil generates about 80% of the country’s total export revenue, contributes about half of the central government’s income and is responsible for about one third of the country’s gross domestic product.

Despite these oil riches, the economy contracted by 1.4% in 2010, inflation is running at 27% and Venezuela ended last year with Latin America’s worst economic indicators.

Oil production is starting to slow and revenues at the state-owned oil company PDVSA are falling year on year, despite the rising crude price. Critics blame this decline not on dwindling reserves but on poor management, lack of investment and non-existent research and development at PDVSA.

A situation not helped by the fact that Chavez’s socialism extends to providing heavily subsidised oil to neighbours and friendly nations. According to a WikiLeaks cable released last year, this courtesy was even extended to China, allowing it to buy oil at $5 a barrel at a time when the market rate was $78.

China reportedly then sold it on to other countries, including the US, at much higher prices.

A bizarre foreign exchange policy is adding to the woes: In 2005, Chavez fixed the official exchange rate at 2.15 bolivars to the dollar, instantly making Venezuela one of the most expensive countries in the world. Last year, the rate changed to 4.3 bolivars, but a thriving black market – between 7 and 10 bolivars to the dollar – is driven by middle-class Venezuelans desperate for foreign currency that allows them to buy not only luxuries, but also everyday household necessities.

They live uptown, only a few kilometres as the crow flies from Bolívar’s house but more than an hour in the dense traffic of late-afternoon Caracas.

Some say they are scared by Chavez’s populist measures, anti-business sentiments and failure to maintain law and order. Others talk about starting another life elsewhere. But on one thing they all agree: the petrol is very cheap.

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