Archive for the 'LatinAmerica' Category

Venezuelan Bonds Drop. More to come?

October 5, 2013

Venezuelan and PDVSA bonds have not done well lately. While there was a nice rally in September, up to the US Federal Reserve announcing that it was not ready to reduce tapering, after that, they did not well, with a bounce on Friday due mostly to JP Morgan reiterating  its overweight rating on the bonds,in a report entitled something something like “Venezuela: Bending, but not Breaking.

The graph for PDVSA 2022 is shown below:

That was quite a drop, almost 10 points since September 20th., except for Friday’s bounce.

bonos1

Why has this happened? Essentially all news coming out of Caracas is negative. There is nothing positive happening and Maduro has been in power almost six months and very little has been done on economic policy. In fact, there has been total policy paralysis on economic matters since April.

In April, I suggested that investors reduce their position in Venezuela and PDVSA for the simple fact that bonds had gone up because “change” was expected, but as long as Giordani remained in the Cabinet, it was difficult to envision this change.

But for foreign investors signs are even worse, everything coming out of Caracas seems to be negative:

-There is total policy paralysis

-Sidetur bonds defaulted, the first time in 14 years the Chavista Government has allowed this to happen.

-Liquid international reserves are low. There is money in parallel funds,but people don’t know how much. Is Maduro willing or commited to pay as much as Chávez?

-PDVSA has failed to increase oil production significantly. Even more ominous, Lukoil and Petronas have decide to leave the partnerships they joined recently in thePetrocarabobo and Junin 6 fields.

-A new foreign exchange system, called Sicad was set up, but has failed to deliver foreign currency. No auctions have been held in four weeks in what was supposed to be a system that would regularly offer foreign currency to companies.

-The ICSID Court ruled against Venezuela in the ConocoPhillips case, which will eventually have a financial obligation attached. Given the uncertainty over the full amount, this implies an additional financial commitment in the future for the country.

-President Maduro went to China and while he failed to obtain a US$ 5 billion loan in cash, he did extend the Heavy Chinese Venezuela fund with a US$ 5 billion loan. This loan is an extension, which will allow Venezuela to buy Chinese goods in exchange for oil, constraining PDVSA’s cash flow from oil sales.

-The non-payment for the delivery of three oil tankers raises questions as to why PDVSA is holding back payment when the amounts involved are not significant.

-Investors are increasingly concerned that the Government will have to resort to issuance in the near future, if it wants to create any form of new foreign exchange market as resources to supply this market are limited at this time.

-The Government intervened paper product maker Manpa, sending another negative signal to markets. While the intervention is supposedly temporary, President Maduro has suggested a number of irregularities were found and the intervention will be extended.

-Meanwhile, President Maduro continues to blame the private sector for inflation and shortages.

-And oil could drop further now than Iran is talking to the US Government.

But in our opinion, all that is happening is that Venezuelan bonds are sort of resetting their expectations. While I do not expect the government or PDVSA to default or restructure in the next two years, one has to think back to what happened in 2011 when Hugo Chavez got sick. At that time, bonds were trading at a spread of 1,000 to 1,200 basis points to US treasuries, as shown in the curve below:

bonos2

This is a plot of the country risk since 2011, expressed in basis points. As you can see, right before Chávez got sick, the price to insure Venezuela bonds for 5 years was oscillating between 1,000 basis points (19%) and 1,200 basis points (12%). The country risk (the price paid by people to insure Venezuela against default, dropped as low as 600 basis points, as people were betting that once Hugo was gone, there would be change in the way the country was run. However, since Maduro took over over five months ago, little has happened and people are getting concerned. The spread r country risk reached 1,030 on Friday.

Some people are so concerned that they think Venezuela or PDVSA will default soon. I don’t think this is the case. However, looking at the plot above, you can see that the credit risk spread can easily (or should?) go back to 1,200 basis points. Thus, this resetting of the curve is not something I am willing to ride out. Bonds will likely have further to drop.

Thus, I am telling people to simply lighten up on their Venezuela positions. Bonds could easily drop 10 more points, something most investors would have a hard time riding out.

In fact, just as Chávez was sick because of his health, I think Cristina is politically sick in Argentina and investors will bet that things will change down there and bonds from that country will rally sharply in the next couple of years. Even if nothing changes in the end in Argentina, just like in Venezuela.

Yoani Sanchez: The surprise is that this did not happen earlier

November 8, 2009

89-Yoani-Sanchez

Reports out of Cuba that blogger Yoani Sanchez was beaten up are obviously appalling, but represent no surprise to me. While the OAS and Zapatero et al. want us all to believe that something has changed in Cuba, nothing has. The true surprise is why Yoani Sanchez was allowed to go this far without a warning. Or why they let her go when kidnapped and beaten yesterday. Was it a message to others that security forces will continue to repress and jail those that dare dissent from the official line?

After all, if well known Yoani Sanchez can be kidnapped and beaten up like this, those bloggers that are not as well known abroad or have not won any awards can be disappeared at will. Because nothing really has changed in Cuba beyond Castro being old and ill, despite what the hypocrite leaders of the world and Latin America would like you to believe. It’s a double standard that we see everywhere, Castro can repress, Chavez can block the CIDH from coming to Venezuela, Ortega can stage his Constitutional coup, but Zelaya becomes an icon for the defense of democracy in the Hemisphere.

That is why today, beyond Human Rights Watch, I have not been able to find any official condemnation of the brutal attack of this young woman who has more guts than all of the leaders of Latin America put together. I imagine Lula Da Silva does not want to offend the macabre Dictator of Cuba, Zapatero and Moratinos must be busy rewriting the new Spanish immigration law in a way that Franco would be proud of them and Obama and Hillary don’t want to step on Raul’s toes, so as not to affect the phantom thawing of US-Cuban relations. Chavez, of course, would never offend his pathetic alter ego, but he no longer has a clue about what human rights are, if ever he had any.

To bloggers, it matters, in particular to Alex, Daniel, Juan and me, because we try to fight Governments that abuse their people, Yoani Sanchez is very special, because we know the difficulties she has faced to be heard, while we can still express ourselves with ease, even if the threats are always there. Because Yoani blogs in a Dictatorship, where everyone is under suspicion and surveillance, where your neighbors may be your enemies and where the boot of the repressor is right around the corner. She has pushed the boundaries over and over and managed surprisingly to get very far.

The surprise is that she managed to do so much without an ugly incident like yesterday’s taking place. The hope and the prayer is that it will not go beyond that scare. While others want to forget the thousands killed, disappeared and repressed by the Castro Dictatorship, nobody should forget and it is shameful that the wimpy leaders of the world’s democracies are silent in the face of this symbolic act which simply reiterates the true nature and spirit of the Castro Dictatorship.

Salud Yoani! That you may soon get all of the rights you risk your life to defend!

Venezuela: Crowding out the opposition by Javier Corrales and Michael Penfold

April 27, 2007


This is a
very long article with a good synthesis of the last eight years from a political
point of view. It summarizes quite well what has happened and is happening
today in Venezuela.
I could not find a link to it, so I decided to post the whole text. It appeared in
the Journal of Democracy in their April issue.


Venezuela:
Crowding out the opposition
by Javier Corrales and Michael Penfold

For the past few
years, Venezuelas
President Hugo Chvez Fras has enjoyed a favorable political situation at home.
Economic growth, fueled by rising oil prices, has been spectacular since 2003.
Chvez and his allies have won four decisive electoral victories since 2004,
the most recent being his sweeping 63
percent walk to a fresh six-year term in the
December 2006 presidential
race. And since 2005, the opposition has become increasingly tame, while street
turmoil is on the decline and seldom results in violence. In addition, Chvez
has achieved complete control of all check-and-balance institutions, including the
unicameral National Assembly, which after the opposition boycott of the
December 2005 elections now contains not a single opposition legislator. These
political advantages would be the envy of any world leader. And yet, Chvez has
been governing as if Venezuela
faces some kind of emergency. He has been busily concentrating more authority,
even receiving a grant from the National Assembly of enabling powers to rule
by presidential decree for eighteen months starting in February 2007.

How did a
movement that began in 1998 as a grassroots effort to bring democracy back to
the masses turn into a drive to empower the executive branch at the expense of
every other actor? The acceleration of authoritarianism in Venezuela
cannot be explained by recourse to functional theories. These theories, which
draw on Guillermo ODonnells famous explanation of the origins of bureaucratic
authoritarianism in 1960s Latin America,
posit that authoritarianism grows out of chronic governability crises which
prompt actorswhether in office or oppositionto seize and
centralize power in order to cope with dire circumstances.1 Prior to
2004, one could argue that Venezuela was suffering from a governability
crisisalbeit one that was likely at least partly fabricatedand that this
crisis might justify some of Chvezs increasing concentration of powers. Since
2004, however, Chvez has had almost no reason to feel politically threatened
or encumbered yet has notoriously leaped in the direction of authoritarianism.

A necessary
condition for this leap has been what Nancy Bermeo would call elite
intentionsthat is, the ideologies of elected politicians as well as their misreadings of the preferences of larger
constitu
encies.2 But motive alone is not sufficient; means
and opportunity are needed as well. In Chvezs Venezuela,
these have come in the form of economic resources at the states disposal together with weakened institutions of
representation. In addition, it is crucial to underscore the presidents
deliberate political strategies: his use of polarization, clientelism, offers
of the opportunity to engage in corruption with impunity, and discrimination in
favor of supporters when filling government-controlled jobs coupled with threats to see to it that foes are fired. A review
of key moments in Venezuelas
transition toward authoritarianism will make it easier to see how state
resources both tangible and intangible can interact with rising
authoritarianism.

Venezuelas
New Political Regime

Chvez never
tires of proclaiming a commitment to participatory rather than liberal
democracy. He is right that Venezuela
is moving away from liberal democracy, but he is not replacing it with more participation. Instead, Chvez is creating what many
classical-liberal think
ers feared most: a quasi-tyranny of the
majority. The Chvez regime has emerged as an example of how leaders can
exploit both state resources and the publics widespread desire for change to
crowd out the opposition, and, by extension, democracy.

Between 1999
and 2003, the rise of authoritarianism in Venezuela
followed a consistent pattern: The government would target institutions almost
one at a time, attempting to strip each of power in turn. The opposition would
protest, and the government would answer by becoming more hard-line and
exclusionary.3 Starting in late 2003, this game took a turn as the
government wheeled out a fresh tacticheavy barrages of state spending aimed
at rewarding loyalists and punishing dissidents.
This new artillery, as we will show, left the opposition disarmed.

Chvez, a former army lieutenant-colonel who had spent
time in jail for leading a 1992 coup attempt, began the process of regime
change with the rewriting of the constitution shortly after he won his first
presidential election in December 1998. He could have started by focusing on
the flagging economy, but instead aimed to rewrite the rules governing
relations among the branches of government in order to make the presidency
stronger. In what is now becoming a trend in the region, Chvez began 1999 by
appealing to voters widespread antiparty feelings and convoking a National
Constituent Assembly explicitly designed to kill the partidocracia (party dominance) that had
characterized Venezuelan politics since the late 1960s. The weakening of the
nonexecutive branches he sold as a means of stabbing to death the moribund
traditional parties that were holding onto power within and through those
branches

Chvezs first conquest was to ensure himself overwhelming
control of the Constituent Assembly. He did this by manipulating a self-serving
system for selecting delegates (elections were by plurality and took place within districts of varying sizes at the
state level) through a clever
nomination strategy that rationed
candidates from his coalition across districts and coordinated the vote from
his supporters using ad-hoc lists (known as kino cardboards) which helped to
identify official candidates with the adequate numbers for each district.

The new presidents camp drew only 53 percent of the vote but wound up with 93 percent of the seats and
a free hand to rewrite the basic law. The predictable result was the most
heavily presidentialist constitution in contemporary Latin America.4
The presidential term went from five to six years, with the possibility of a
single reelection. The president obtained complete discretion over military
promotions with no need for legislative approval. The Senate was eliminated.
The president gained the power to enact laws and to hold any kind of referendum
without support from the legislature. Public financing for political parties
was banned. The constitution did introduce the possibility of recalling
mayors, governors, or the president, but only under highly stringent
conditions.

By dramatically
raising both the advantages of holding office and the costs of being in
opposition, this constitution produced what scholars call a high-stake power
political system.5 In such a case, incumbents incentives to share
power shrink, as does the oppositions room to accept the status quo. The
opposition, feeling shut out and stripped of other means to affect policy, soon
begins staging street protests in hopes of guarding what few bastions it still
holds.

Chvez replaced the old party-based system with a new
focus on the presidency. The old system had begun with the 1958 interparty
agreement known as the Pact of Punto Fijo.
By the 1970s, the system was well
known
worldwide as a paradigmatic example of how such deals can lead
to
democracy even in unlikely places. By the 1990s, however, Venezuela
had become famous as a case study of how pacting
parties can ossify
until voters reject them in disgust. Chvez exploited
this disgust to weaken legislative powers, after which it became easier for him
to pack the high court and tighten control over the attorney-general, the comp-troller-general,
and the military. The executive branch also acquired control over the National
Electoral Council (CNE), the body that governs electoral affairs. For the
first time in Venezuelas
democratic history, doubts began to arise concerning the fairness of electoral
rule.6 With the executive rampant, the next step was to rearrange
state-society relations.

The Politics of Polarize and Punish

In 2001, Chvez obtained from the legislature enabling powers to rule
by decree in certain policy areas, mostly having to do with property
rights in the hydrocarbon and
agricultural sectors. When he threatened to seek the same sort of control over
public education, broad sectors of society expressed shock at what seemed a
gratuitous power grab. Then they responded with what amounted to a kind of
allergic reaction in the body politic: Business and labor groups, civil society
organizations, and political parties both old and new began to promote national
protests, including a two-day civil stoppage in December 2001. By 2002, the
country was gripped by the worst polarization that Latin America had seen since
the heyday of the Sandinistas in 1980s Nicaragua.

For two
years, the opposition seemed to have the upper hand. Between 2001 and 2003,
the ruling coalition suffered defections in record numbers (from the cabinet, the legislature, and even the military). On
11
April 2002, in the midst of one of the most massive civil protests in
Latin Americas
history, business leader Pedro Carmona and a military faction staged a coup that briefly removed Chvez from power. Carmona swiftly
turned highly punitive against chavistas, dissolved
the National Assembly, and dismissed the elected state governors. His support
collapsed and Chvez returned in less than 48 hours from exile at an offshore
navy base. Although many in the opposition had abandoned Carmona almost
immediately, the episode damaged the anti-Chvez cause by tarring it with the golpista (coupmaker) label.

With
international mediation efforts failing and Chvez refusing to negotiate, the
opposition chose as its new tack a two-month strike by workers and managers
from the state oil company, PDVSA. As oil production dried up, Chvez fired
almost 60 percent of PDVSAs staff and ordered the military to take over the
hydrocarbon industry. The hard times that
ensuedGDP shrank by 17.6 percent in 2003hurt the presi
dent less than
it hurt the strikers, and they blinked first.

The
opposition then went to Plan C: a recall referendum. This first truly electoral
challenge to Chvez faced a high hurdle, however, for the 1999 constitution
demands that proponents of recalling a president must first collect valid
signatures from a fifth of all registered voters and then must obtain not
merely a majority but more votes for recall than the incumbent gained in the
previous election. Although the Chvez camp bombarded the
opposition with an array of legal and administrative obstacles to
valid-signature collection, the CNE finally ruled in March 2004 that the
opposition had gathered more than enough, and that
there would be a referendum. This was the administrations weakest
moment,
the closest it came to succumbing. Polls showed the opposition far ahead.
Again, however, the government did not respond by softening its exclusionary
policies. Instead, it met this new threat from below with that familiar standby
of Latin American politics, vintage populism.

Before the
April 2002 coup, Chvez had been relatively inattentive to social spending, and
in fact had dismantled most of the social programs left behind by the previous
administration. Social spending declined in real terms during the early Chvez
years, and the only social programs that survived were mainly delegated to the
military. But in late 2003, reaping an oil windfall and facing the prospect of
a real electoral challenge, Chvez launched what on his weekly television show
he liked to call missions to save the people. The deluge of money that he
poured out in 2004 (close to 4 percent of GDP) enabled him to turn his low 2003
approval ratings of around 45 percent into a 59 percent victory in the August
2004 recall referendum. Dismayed oppositionists claimed fraud, but international
observers from the Organization of American
States, the Carter Center, and
the UN Development Programme
found no merit in these charges.

Dumbfounded
by the stunning reversal of fortune that Chvez had engineered in just four
months, the opposition went into a postreferendum coma and barely contested the
October 2004 elections for regional office. Chvezs partisans took over 21 of
the 23 state governments and more than 90 percent of the municipalities. In
addition, the administration packed the Supreme Court with a dozen new judges,
each one an avowed friend of the presidents Bolivarian revolution.

In short, Venezuela
switched from a situation of heightened power competition in 2003 to one of
energy asymmetry in 2005: The regime grew bolder, and the opposition grew more
hopeless. Exhausted and discouraged, opposition leaders greeted revelations
that the government could use the automated voting system to trace voter
identity with a decision to sit out the December 2005 National Assembly
elections.

By early 2006, the opposition had virtually capitulated.
Every one of its strategies had failed. Massive mobilizations, labor strikes,
the recall, appeals to the international community, and electoral participation
had produced nothing but waning power and fewer concessions from the
government. The opposition ran out of options and gas at least in part because
in Venezuela,
as in any oil-exporting country in which the state dominates the petrochemical
sector, the government controls the fuel both literally and figuratively, and
can give it to friends while keeping it away from foes.

Unlike the recall vote two years
earlier, the December 2006 presiden
tial election featured no claims of fraud. The CNE
approved a manual audit of the votes that both local and international
observers regarded as confirming the official results. Chvez won at least 50
percent in every state, including Zulia, the home of opposition standard-bearer
Manuel Rosales. The election featured both the highest level of turnout (just
under 75 percent) and the widest margin of victory in Venezuelan history,
adding one more to the string of consecutive elections since 1998 in which
Chvez has broadened his margin among the voters. Chvez garnered a larger
share of the vote in rural states, in four of the five oil states, and in urban centers such as the Capital District of
Caracas.
The one glimmer of hope for the opposition was the
concentration of its vote in just two parties, Un Nuevo Tiempo and Primero
Justicia. This could be a sign that opposition voters are rethinking their
post-1992 tendency to turn away from
partiesa trend that has weakened societys
capacity to hold
authoritarianism in check.7

Social Spending and Rising
Authoritarianism

Between 1989 and 1998, Venezuelan voters repeatedly turned against efforts by presidents to
concentrate power.8 How did Chvez manage to prevent this electoral
sentiment, so strong in the 1990s, from unseating him in the following decade?

To understand
Chvezs electoral fortunes since 2004, it helps to clarify the symbiotic
relationship between clientelistic spending and declining check-and-balance
institutions. When such institutions lose power
amid a growing economy, the incumbent can raise spending while
making it
more discretionary. Opportunities for clientelism expand and with them the
votes that the incumbent commands, while institutions of accountability suffer
more erosion.

Clientelism
is one approach to social spending. Other approaches include: 1) underfunding,
2) cronyism, and 3) spending that is meant to and actually does benefit the
poor (what the World Bank calls propoor spending). 9 Underfunding
happens when governments fail to provide sufficient funds for social programs.
Cronyism consists of social spending that in
reality is mere camouflage for direct subsidies to elites,
mostly friends and family of incumbents.
Clientelism refers to spend
ing that, unlike cronyism, is directed
toward nonelites, but is nonetheless offered conditionally: The state expects
some kind of political favor back from the grantee. Finally, pro-poor spending
occurs when aid is offered on grounds of true need and without political
conditions attached.

All democracies engage in all four
types of spending, though propor
tions vary across countries, programs, and eras. The key
question is which direction a newly elected administration takes when it change

TABLEFOUR TYPES OF SOCIAL SPENDING


CONSTRAINED BY

INSTITUTIONS

NOT CONSTRAINED BY

INSTITUTIONS

High competition

Pro-poor
spending

Clientelism

Low competition

Underfunding

Cronyism
(friends and family)

the
inherited proportions. We suggest that the answer depends on the degree of
political competition and the strength of domestic checkand-balance
institutions at the relevant time.

Political
competition refers to the difference in political force between the incumbent and the opposition.
Competition is relatively weak
if the
opposition musters few votes, has reduced access to state office, or
has
no immediate opportunity to challenge the government at the polls.
Institutional accountability will be stronger when presidents face constraints
from the legislative branch, whether structural (such as high levels of
legislative authority over budgets) or circumstantial (such as when the
opposition party or coalition controls a legislative chamber). An opposition
that is competitive and in possession of robust accountability tools will be
better able to oversee the administration, and contain the executives
temptation to use social policy self-servingly. All this favors pro-poor
spending over vote-buying spending.

Varying degrees of these two democratic conditionscompetiveness and
accountabilitywill yield different results in terms of social spend
ing (see Table). The worst
situation for the poor is low political competition. Incumbents feel no
pressure and thus have no incentive to seek more
(or more reliable) votes through expanded spending. Social spend
ing
will remain sparse and, if institutions of accountability are weak, all too easily divertible toward cronyism. Heightened
competition will drive
incumbents toward the cultivation of wider voter
support and thus promote spending, but with no guarantee that it will be aimed
at helping the poor rather than at helping administration clients. The best
safeguard against clientelism comes from the other key variable: checks on the
arbitrariness of state officials.

In short,
pro-poor spending is most likely to occur when both political competition and
institutional constraints are strong. This proposition helps to explain social
policy under Hugo Chvez. The first stage, from the approval of the new
constitution in 1999 to the beginning of the recall campaign in 2004,
represented the political shift from high to low accountability, leading to
underfunding leavened by cronyism. The second stage saw rising political
competition as the opposition began to focus on the recall referendum.
Competition prompted the executive to spend, and declining accountability
allowed it to spend opportunistically.

It is hard
to estimate the totality of state spending under Chvez, but the best sign of
its magnitude is that, despite the five-fold oil-priceincrease
over the last three years, the accumulated fiscal deficit reached 2.3 percent
of GDP in 2006.10 The government has created special nontransparent
funds, free of legislative oversight, that are believed to hold more than US$15
billion from the recent oil windfall. In 2005, the National Assembly approved a
modification of the Central Bank law to create one such fund by transferring $6
billion from international reserves. Known
as the Development Fund (FONDEN), it is controlled by
the executive
branch through the Ministry of Finance rather than the Central Bank (Venezuelas
Central Bank, like most, was designed to be relatively insulated from direct
executive-branch influence). There is no information on how or even whether
this money has been used. In February 2006, the National Assembly approved another
transfer of $4 billion from the Central
Bank, and the president announced that PDVSA
would transfer $100 million
dollars a week into FONDEN throughout the year, adding another $5.2 billion.

Evidence
shows that Chvez has distributed resources according to different political
criteria for different programs, but clientelism figures heavily in most of
them.11 While a program such as Misin Ribas was influenced by
considerations of poverty relief, it has also been used to buy votes at the
municipal level. Clientelism and poverty thus interact closely. Cash transfers
distribute oil income to the very poorand also
cement support for Chvez. Other programs such as Barrio Adentro
and
Mercal spend according to political criteria as well as demographic
considerations, namely, the size of the population. In these two mission
programs, poverty variables have no influence in explaining the distribution of
resources at the state and municipal levels. What matters are the degrees of
administration loyalty that governors and mayors display, plus the sheer numbers of potential voters who live in a given
area.

The
combination of opportunistic social spending and declining accountability has
had decisive political effects. On the one hand, it leads to favoritism and
thus polarization.12 On the other hand, it creates a state that is
virtually impossible to defeat through voting, since that state can always
heavily overmatch whatever resources the opposition can bring to bear.

In short, state
spending is born from democratic pressures (heightened political competition),
but beyond a certain threshold of irregularity, it begins to undermine
democratic institutions, creating a playing field that is far from level.
Spending has given the Venezuelan government an advantage in competing for
votes: The opposition campaigns with words; the state, with words plus money.

Ambivalent Groups and Intangible State
Resources

Clientelistic
spending has not been Chvezs only tool. Chavismo
also relies on two less tangible but equally powerful instruments. It
offers supporters de facto impunity to engage in corruption, and it practices
job discrimination in their favor while using negative discrimination against
those seen as government foes. These tools are reminiscent of the inducements
and constraints typical of traditional Latin American corporatism.13
Yet there is a difference. In classic
corporatism, orga
nized labor was typically the object of inducements
and constraints; under Chvez and other neopopulists,14 these tools
are applied to groups that are not necessarily organized and that may even be
amorphous. In Venezuela, these groups
consist mainly of voters who are neither strongly
for nor strongly
against Chvez.

Locally, they
are called the ni-nis (neither-nors). Since early on, pollsters have found
substantial evidence of their salience. By July 2001, for instance, one
reputable poll was beginning to classify some Venezuelan voters as repented chavistas.15 This category swelled from 14.7 percent
in July 2001 to 32.8 percent in December. Some of these chavistas became mild opponents of the
president, while others remained mild supporters. As late as 2006, as many as
30 percent of all those polled were professing themselves to be in either
slight agreement or slight disagreement with government policies.16
Thus, even in contexts of polarization, swing groups are nontrivial and likely
to grow in size. Consequently, even radical leftist governments will still need
to learn how to deal with the ambivalent middle. Impunity from prosecution and
job discrimination have been Chvezs answers to the problem.

Impunity from
prosecution differs from clientelism in that the benefits pass from one strong
actor (in this case the state) to other strong actors (the military, perhaps,
or business groups). Like clientelism, the offer
of impunity is an appeal tailored to reach those who are not strongly
aligned.
Because strong actors can wield a veto, not merely over policy but even over
the administrations very survival, a government in a polarized setting must
deploy significant resources to assuage them.17 Furthermore, in
situations of radicalization it helps to have a mechanism for coopting
military and perhaps also business elites, if only as a shield against coups.
This might explain why in Venezuela
there is no competitive bidding for most government contracts, and why few individuals
close to the government have been jailed for corruption. Like clientelism,
impunity has the effect of making beneficiaries intensely conservativethat is,
it makes them dread the prospect of a change in government out of worry that
such a change might end their privileges.

Job discrimination, both positive and negative, is
Chvezs other strategy for winning or at least overawing ambivalent groups.
His administration says repeatedly that government jobs, contracts, and subsidies
will go exclusively to supporters. To make its implied threats of negative job
discrimination more pointed, the administration does all it can to publicize
the notion that it knows peoples voting behavior. The two best-known examples of this tactic are the
Smate and Lista Tascn cases. Smate is a nonprofit organization that Chvez
said had broken the law by receiving a $31,150 grant for voter education from
the U.S.based National Endowment for Democracy.
18 This
modest sum mattered less to the government than did Smates heavy involvement
in collecting signatures to make the 2004 recall referendum possible. The
Lista Tascn bears the name of its compiler, chavista legislator Luis
Tascn, and includes voting data on citizens who signed the recall petition.
The list was openly published on the Internet and was explicitly used to make
citizens withdraw their signatures or else face being fired or denied access
to public contracts and social benefits. The Chvez administrations intention
is clearly to convey that loyalists can gain and dissenters lose a great deal,
a dual signal meant to reach groups that
are mostly untouched by
ideology and polarization.

After eight
years in power, the chavista coalition
has changed enormously. In 1999, it offered a progressive ideology that
promised to free Venezuela
from the stranglehold of the old parties and repeated economic crises. This
agenda favored change but not radicalism, and drew vast majorities. Since then,
the agenda has turned radical, winning the loyalty of the extreme left but at
the cost of polarization, with a large cluster of ambivalent groups in the
middle, together with a substantial number of new and old elites. The lavish
use of corruption, impunity, and job discrimination keeps these groups in
Chvezs camp when it counts, and allows his government to increase its vote
beyond what the extreme left can deliver by itself.

The
oppostion’s dilemma

Dealing with
an uneven playing field, however daunting, is not the worst challenge that the
opposition faces in electoral contests where guarantees of fairness are flimsy
at best. The opposition also needs to overcome its internal divisions and, more
significantly, the tendency of its voters to abstain. In preparing for the 2006
presidential campaign, the opposition took significant steps to correct these
problems, but still did not go far enough.

The first step was to seek internal unity. The race began
with three reputable opposition candidates from varying ideological
backgrounds. The first was Teodoro Petkoff, a 1960s guerrilla leader who had
been planning minister under President Rafael Caldera in the 1990s and then
became editor of the well-regarded daily newspaper Tal Cual. Petkoff was joined by Julio Borges of the new
Primero Justicia party, which controlled a few municipal administrations, and
Governor Manuel Rosales of Zulia, an oil-producing state in the west. For a
while, it seemed that unity would prove impossible, and midyear arrived with no
agreement as to how a unity candidate might be chosen. To everyones
surprise, the candidates amicably agreed to let opinion polling identify the
strongest candidate. By early August, that was clearly Rosales. His rivals
endorsed himanother surprise that gave the opposition a boost.

The strong current of abstentionism posed a harder
problem. Six months before the December voting, many in the opposition (aware
of Chvezs advantages) were still undecided about whether they would even
bother to cast their ballots. The conditions needed for a fair and transparent
contest remained in doubt. The opposition claimed constitutional and
electoral-code violations including: 1) a lack of independence in the CNE; 2)
an electronic voting system open to manipulation; 3) a suspicious swelling in
the ranks of likely pro-Chvez voters after the unscrutinized issuance of a
record number of voter registrations;19 4) a media tilt in favor of
the president;20 and 5) the administrations breaking of
campaign-spending limits set by the CNE

Over the
course of 2006, the government addressed a few of these complaints. The CNE
allowed the Center for Electoral Assistance and Promotion (CAPEL), a group affiliated with the Inter-American System of
Human Rights, to audit the registration system. The CNE also allowed a group
of Venezuelan universities to audit voter registration, but the three most
prestigious schools21 disagreed with the CNEs proposed statistical methodology and declined to take
part. Neither CAPEL
nor the universities study found evidence that
registration was rigged, although they confirmed that the system did not guard
against the casting of ballots by unregistered voters as fully as it might
have.

As with voter
registration, reforms regarding the actual voting system were partial. During
the runup to the 2005 legislative elections, analysts had learned that
officials could use polling-place fingerprintidentification machines together
with the electronic voting machines themselves to find out how individuals had
voted. The alarmed opposition asked for manual voting, but the CNE dismissed
this request, arguing that the law required automated voting. At the last
minute, the opposition withdrew from the race, leaving every seat in the
National Assembly to be filled by pro-Chvez candidates. In preparation for the
2006 presidential elections, the OAS gave the CNE technical assistance to
reduce the possibility of tracing voting records through fingerprints, but the opposition pressed for more changes. The
government then agreed
to remove the fingerprint machines from a
minority of polling stations, none of which lay in the most heavily peopled
precincts. The opposition claimed that by keeping fingerprint machines in
these key spots, the government was trying to scare opposition voters away from
the polls.

The question of state fundingwhich
was flowing solely to Chvez
lay foremost in the oppositions mind. In response, the CNE agreed to
ban public officials from using official acts for electoral purposes and to
limit the daily amount of televised advertising that each candidate could broadcast. When it came to enforcement,
however, the CNE was a
no-show. In November 2006, for example, PDVSA
president Rafael Ramrez was caught on videotape telling employees to vote for
Chvez because the state-owned company was red, very red (roja, rojita), a reference to the
colors of the ruling party. Far from firing or even reproving Ramrez, Chvez
congratulated him and urged other ministers and officers to repeat the message.
International observers in 2006 criticized the excessive state spending that
was helping Chvez just as they had in 2005, but in neither case were these
complaints of much avail.The failure to restrain the
unaccountable, politically minded spending machine that Chvez had set up in
2003 meant that the conditions for fair competition were worse in 2006 than
they had been during the December 2005 National Assembly elections or the
August 2004 recall balloting. Even media access, once an opposition strong
point, had been reversed in the incumbents favor by a wave of cash. The government
invested more than $40 million in upgrading the state-owned television station
and the government news agency, established three more television stations,
acquired more than 145 local radio stations and 75 community newspapers, and
created dozens of administration-friendly websites.

The prospect
of a merely partial reform of the electoral system faced the opposition with a
dilemma. Going along would mean that many opposition voters would remain
dissatisfied, fearful, and inclined to abstain. Yet rejecting the reforms as
insufficient would lay the opposition open to charges of recalcitrance and
disloyalty and possibly damage its
international reputation. The opposition leadership took a gamble
in
favor of going along. But this hurt them with the absentionist antiChvez
forces even as it arguably helped to bolster the oppositions appeal in the
eyes of the ambivalent. The wisdom of this gamble will likely remain a topic of
debate within opposition ranks for years to come. Nor, in all likelihood, will
this be the last time that the opposition must make a hard strategic choice
with uncertain results.

Nothing Can Stop the Revolution

Chvez celebrated his 2006 victory by proclaiming that
Nothing can stop the revolution! He may well be right. All that the
opposition can do for now is watch him try to build what he calls the
socialism of the twenty-first century. His plan seems to have five parts. The
first is full use of his 2007 enabling law to change more than sixty pieces of
legislation without legislative approval. The second is the creation of a
presidential committee that will put to referenda such proposals as allowing
the unlimited reelection of incumbents and attaching even stricter conditions to recall votes. The third is
a redrawing of the admin
istrative and political map to curb the
influence of governors and mayors. The fourth is a renewed effort
to expand the role of the presidents Bolivarian ideology in the hiring and
training of public-school teachers. Finally, Chvez wants to found a
yet-to-be-specified set of communal assemblies that will compete with
existing local authorities. Chvezs new
vice-president Jorge Rodrguez, who was the CNEs presi
dent during its
least transparent period, calls this new phase of the regimeapparently
without ironya dictatorship of true democracy.

At the same
time, Chvez has announced plans to nationalize the telecommunications and electricity sectors as well as to boost the
states
involvement in agro-industry and banking. The telecommunications
policy will assert government control over CANTV, the firm that controls the
transmission of data from the automated voting system. Once this happens,
citizen confidence in ballot secrecy will plummet further and abstentionism by
oppositionists will rise. Moreover, by denouncing the local private media
company RCTV as golpista and
refusing to renew its broadcast licenses,
the Chvez government has made itself the
first popularly elected
administration in Latin America since the
1980s blatantly to curtail press freedom. The RCTV affair shows how open is the
partisan political bias that now infects the governments handling of economic
affairs.

Chvezs
twenty-firstcentury socialism looks much like Latin
Americas mid-twentiethcentury hard corporatism without the
physical coercion.22 In
Venezuela today, the opposition has ever fewer means
and even incentives
to incur the cost of trying to stop authoritarian leaps. The problem goes
beyond mere internal divisions within the opposition, crippling as those might
be. The core problem is that the opposition finds itself on the short end of a
sharp asymmetry in political resources
vis-`a-vis the state. Private donations are the oppositions only
recourse,
but the states offers of impunity and threats or promises of contract
discrimination threaten to close these off too as business elites become
coopted by the new order.

One often
hears that the unlimited spending
of money on election campaigns hurts democracy. Yet uneven campaign financing may be still worse. In Venezuela,
this unevenness has come about not simply because the state under Chvez has
raked in more oil money, but also because institutional constraints have been
wearing away under a deliberate assault. This erosion of constraints generated
the 20022004 governability crisis, rather than the other way around. Chvez
turned back this critical challenge to his rule with policies of polarization,
selective impunity, and job discrimination, in the process building a dominant
coalition of radicalized ideologues and plentiful economic winners. Clearly
some of these winners are low-income Venezuelans. But others are members of
old-fashioned elites and do not look all that different from such winners of
the Punto Fijo era as military officers, government employees, and state
contractors. As of now, this coalition is majoritarian, but it is
hardly being mobilized for democratic gains. The story of Venezuela since
Chvezs rise to power shows how, when democratic
institutions are defective, social spending may all too readily
be bent
not toward correcting, but rather toward entrenching and even exacerbating
these defects.

NOTES

1. Guillermo ODonnell, Modernization and
Bureaucratic-Authoritarianism; Studies in South American Politics
(Berkeley:
Institute of International Studies, University of California, 1973).

2. Nancy Bermeo, Ordinary People in Extraordinary Times: The Citizenry and
the Breakdown of Democracy
(Princeton: Princeton
University Press, 2003).

3. Javier Corrales, In Search of a Theory of Polarization: Lessons from Venezuela,
19992005,
European Review of Latin American and Caribbean
Studies
79 (October 2005): 10518.

4. Michael Coppedge, Venezuela: Popular Sovereignty Versus Liberal Democracy,
in Jorge Domnguez and Michael Shifter, eds.,
Constructing Democratic
Governance in Latin America,
2nd ed. (Baltimore:
Johns Hopkins University Press, 2003); and Javier Corrales, Power Asymmetries
and the Rise of Presidential Constitutions, paper delivered at the annual
meeting of the American Political Science Association, Philadelphia, 31
August3 September 2006.

5. Douglas C. North, William Summerhill, and Barry R. Weingast, Order,
Disorder, and Economic Change: Latin America Versus North America, in Bruce
Bueno de Mesquita and Hilton L. Root, eds.,
Governing for Prosperity (New Haven:
Yale University Press, 2000); and Adam Przeworski,
Democracy and
the Market: Political and Economic Reforms in Eastern Europe and Latin America
(New York:
Cambridge University Press, 1991). For an application of these argu
ments to Venezuela,
see Francisco Monaldi et al., Political
Institutions, Policymaking Process, and Policy Outcomes in Venezuela
(Washington,
D.C.: Inter-American Development
Bank, 2005).

6. Miriam Kornblith, Elections versus Democracy, Journal of
Democracy
16 (January 2005): 12437.

7. Javier Corrales, Strong Societies, Weak Parties: Regime Change in Cuba
and Venezuela
in the 1950s and Today,
Latin American Politics and Society 43 (Summer
2001): 81113.

8. Jennifer L. McCoy, From Representative to Participatory Democracy? Regime
Transformation in Venezuela,
in Jennifer L. McCoy and David J. Myers, eds.,
The Unraveling
of Representative Democracy in Venezuela
(Baltimore: Johns
Hopkins University
Press, 2004).

9. See Making Services Work for Poor People (Washington,
D.C.: World Bank, 2004).

10. Francisco Rodrguez, Why Chvez Wins, www.foreignpolicy.com/story/
cms.php?story_id=3685

11. Michael Penfold, Clientelism and
Social Funds: Empirical Evidence from Chvezs Misiones Programs,
Latin American
Politics and Society
(forthcoming).

12. See Youssef
Cohen,
Radicals, Reformers, and Reactionaries: The Prisoners Dilemma and the
Collapse of Democracy in Latin America
(Chicago:
University of Chicago Press, 1994).

13. Ruth Berins
Collier and David Collier, Inducements Versus Constraints: Disaggregating Corporatism,
American
Political Science Review
73 (December 1979): 96786.

14. Kurt Weyland, Neopopulism and Neoliberalism in Latin
America: How Much Affinity?
Third World
Quarterly
24 (December 2003): 10951115.

15. Jos
Antonio Gil Yepes, Public Opinion, Political Socialization, and Regime
Stabilization, in McCoy and Myers, eds.,
The Unraveling of Representative
Democracy in Venezuela.

16. These figures are from a survey taken in January and February 2006 by
the independent Venezuelan polling firm Consultores 21, www.consultores21.com
.

17. See Bruce Bueno de Mesquita et al., The Logic of Political Survival (Cambridge:
MIT Press, 2003).

18. On similar trends elsewhere, see Thomas Carothers, The Backlash
Against Democracy Promotion,
Foreign Affairs 85 (MarchApril
2006): 5568

19. The
opposition wondered about the hard-to-explain 11.7 percent increase in
registered voters that was noted during the brief time between April and
October 2004.

20. By September
2006, Chvez was using three times the airtime allowed by CNE regulations, and
this count leaves aside his famous
Al Presidente Sunday
television show, which would add another several hours per week.
See the report of Ciudadana Activa, Abuso Presidencial
en los Medios de Comunicacin del Estado, Caracas, 2006.

21. These were the Universidad Simn Bolvar, the Universidad Central de
Venezuela, and the Universidad Catlica Andrs Bello.

22. Alfred Stepan, State Power in the
Southern Cone of Latin America,
in Peter Evans, Dietrich Rueschemeyer, and Theda Skocpol, eds.,
Bringing the
State Back In
(New York: Cambridge University Press, 1985).

Following the tragedy in Haiti

February 23, 2004

If you are worried about what is happening in Haiti,  the latest on what is going on there, can be read at Haitipundit.

Cuba’s most famous writer on the Cuban regime

May 4, 2003

Today’s El Nacional (can’t link to it, can’t read without subscription) has a very interesting article with Cuba’s most famous writer Guillermo Cabrera Infante. Cabrera, who backed the revolution the first few years, has some interesting thoughts on Cuba:


-On the Cubans shot to death for hijacking a ferry: The youngest one was 21. All of them were born during the Government of Fidel Castro. Were they candidates to become the “new man”? One also has to add they were all black.


-On the embargo: Castro can do business with 168 countries! There is only a commercial embargo with the United States


-On Castro: Castro is not communist. Castro is a castrist.


-On what a Cuban writer told an English reporter: I am afraid if Castro falls. They are going to drag me through the streets. My neighbors will. The hate me because I have a PC, a typewriter and a sattelite dish. On top of that Fidel visits me!


-On the European left and the myth of the Cuban revolution: They are stubborn because they deny the evidence. When one is wrong one has to recognize the error.

Amazing Amazon Basin: South African explorers rescued after Amazon nightmare

October 2, 2002

Two South African wild life phtographers were kidnapped by a hostile tribe in the Amazon river basin and denied medical treatment while they made the first major exploration of the two thousand kilometer long Jurua river. Yes, that’s like over one thousand miles in length. Incredible to think that there are still unexplored rivers, hostile tribes and new sights to see. I bet these guys rest a while before going back to exploring.

Four serendipitous comments on or about Braz(s)il

August 9, 2002

Four serendipitous comments on or about Braz(s)il


 


-Why is it that Bras(z)ilians call their country Brasil, while in English it is Brazil. That would be ok with me, but leading presidential contender Ciro Gomez, is called Ciro Gomes in Brasil, while he is called Ciro Gomez in English. Whats the rule? Is there a rule?


 


- Ciro Gomes is the candidate of the Popular Socialist Party, which definitely sounds left-wing, but Mr. Gomes was the Minister of Finance of current President Cardoso, when the famous Real Plan was implemented. This plan was extremely successful. Mr. Gomes was also the successful and popular Mayor of the city of Fortaleza, as well as the popular Governor of Ceara State. With this track record the question is then, why are markets so nervous about the possibility of this left-wing candidate becoming President?. In fact, Mr. Gomes ran for Governor on a more market-oriented platform and actually alienated the private sector, when he was a Minister, by lowering import tariffs on many goods. Go figure..


 


- Since we are talking about Brasil, how about the IMF saving Brasils ass with a US$ 30 billion program over the next year and a half. Reality is that the IMF is not really saving Brasil. Brasil is the eighth  largest economy in the world, while the world and the US can afford to have Argentina fail, the same is not true of Brasil. A Brasilian default would reverberate around the world and undermine the possible economic recovery which appears to be underway. Moreover, Citibank, Fleet Boston and other US banks have important investments in Brasil. Thus the IMF is helping the US, the world, Wall St. and maybe even Brasil. In reality Brasils problem is not its external debt, but the fact that they have a large amount of internal debt indexed to the US dollar. External debt is only 15% of GDP, quite manageable by current international standards. No Banana Republic Brasil, it has been quite well-managed in the last few years, hope it lasts


 


-A woman jogging in Brasil was decapitated by a small plane trying to land at the airstrip where she was exercising. I dont want to make fun of this headline, but I am sure it will give all those that are strongly against physical exercise, another reason to remain nomadic.

August 5, 2002

Argentina: Premier Basket Case, who is next?


Today the NYT carries a story about how Argentinians who used to dislike Brazilians, are slowly learning to love them as their crisis has deepened without Europe or the US giving much of a helping hand. While the article seems somewhat exaggerated (for Argentinians, Brazil winning the World Cup was a non-event), it is interesting that the country that used to be the most “developed” in Latin America 100 years ago, has now become one of the biggest basket cases. As pointed out in the book Del Buen Salvaje al Buen Revolucionario by Carlos Rangel, in the 1850’s Argentina had a higher per capita income than the US. As a country, Argentina is bigger in area than India, which just passed the 1 billion mark in population, but has less than 37 million inhabitants. But decades of mismanagement, have turned Argentina into an economic basket case.


After years of hyperinflation, ten years ago Argentina pegged its currency to the US dollar. Argentinians really believed that their currency was pegged, which lowered inflation and helped growth for the next few years. But the peg was mostly an illusion as the Central Bank did not have the one to one equivalent between a peso and a dollar. In time, this illusion was revealed, forcing the current crisis.


It is interesting to understand however, why Argentina is in such dire straits and whether Venezuela or Brazil are anywhere where Argentina is today. What makes these three cases different is that Argentina, as a State, has few productive assets that it can sell to pay its debts. Unfortunately, most assets were sold ten years ago to create the illusive peg. In contrast both Venezuela and Brazil have real, productive assets which could be used if an extreme situation arose. Venezuela even has important assets abroad, such as Citgo, four refineries in the US and one in Germany, while Brazil has most of them at home. Thus, both countries are far from reaching a crisis like that of Argentina. Brazil has going for it the fact that it is an industrialized country, while Venezuela the huge (70-200 trillion barrels) oil reserves underground. While neither is immune to having serious difficulties, only the immense  incompetence and creativity of their politicians in the future could create an Argentinian-like crisis.


 

August 5, 2002

Argentina: Premier Basket Case, who is next?


Today the NYT carries a story about how Argentinians who used to dislike Brazilians, are slowly learning to love them as their crisis has deepened without Europe or the US giving much of a helping hand. While the article seems somewhat exaggerated (for Argentinians, Brazil winning the World Cup was a non-event), it is interesting that the country that used to be the most “developed” in Latin America 100 years ago, has now become one of the biggest basket cases. As pointed out in the book Del Buen Salvaje al Buen Revolucionario by Carlos Rangel, in the 1850’s Argentina had a higher per capita income than the US. As a country, Argentina is bigger in area than India, which just passed the 1 billion mark in population, but has less than 37 million inhabitants. But decades of mismanagement, have turned Argentina into an economic basket case.


After years of hyperinflation, ten years ago Argentina pegged its currency to the US dollar. Argentinians really believed that their currency was pegged, which lowered inflation and helped growth for the next few years. But the peg was mostly an illusion as the Central Bank did not have the one to one equivalent between a peso and a dollar. In time, this illusion was revealed, forcing the current crisis.


It is interesting to understand however, why Argentina is in such dire straits and whether Venezuela or Brazil are anywhere where Argentina is today. What makes these three cases different is that Argentina, as a State, has few productive assets that it can sell to pay its debts. Unfortunately, most assets were sold ten years ago to create the illusive peg. In contrast both Venezuela and Brazil have real, productive assets which could be used if an extreme situation arose. Venezuela even has important assets abroad, such as Citgo, four refineries in the US and one in Germany, while Brazil has most of them at home. Thus, both countries are far from reaching a crisis like that of Argentina. Brazil has going for it the fact that it is an industrialized country, while Venezuela the huge (70-200 trillion barrels) oil reserves underground. While neither is immune to having serious difficulties, only the immense  incompetence and creativity of their politicians in the future could create an Argentinian-like crisis.


 

August 5, 2002

Argentina: Premier Basket Case, who is next?


Today the NYT carries a story about how Argentinians who used to dislike Brazilians, are slowly learning to love them as their crisis has deepened without Europe or the US giving much of a helping hand. While the article seems somewhat exaggerated (for Argentinians, Brazil winning the World Cup was a non-event), it is interesting that the country that used to be the most “developed” in Latin America 100 years ago, has now become one of the biggest basket cases. As pointed out in the book Del Buen Salvaje al Buen Revolucionario by Carlos Rangel, in the 1850’s Argentina had a higher per capita income than the US. As a country, Argentina is bigger in area than India, which just passed the 1 billion mark in population, but has less than 37 million inhabitants. But decades of mismanagement, have turned Argentina into an economic basket case.


After years of hyperinflation, ten years ago Argentina pegged its currency to the US dollar. Argentinians really believed that their currency was pegged, which lowered inflation and helped growth for the next few years. But the peg was mostly an illusion as the Central Bank did not have the one to one equivalent between a peso and a dollar. In time, this illusion was revealed, forcing the current crisis.


It is interesting to understand however, why Argentina is in such dire straits and whether Venezuela or Brazil are anywhere where Argentina is today. What makes these three cases different is that Argentina, as a State, has few productive assets that it can sell to pay its debts. Unfortunately, most assets were sold ten years ago to create the illusive peg. In contrast both Venezuela and Brazil have real, productive assets which could be used if an extreme situation arose. Venezuela even has important assets abroad, such as Citgo, four refineries in the US and one in Germany, while Brazil has most of them at home. Thus, both countries are far from reaching a crisis like that of Argentina. Brazil has going for it the fact that it is an industrialized country, while Venezuela the huge (70-200 trillion barrels) oil reserves underground. While neither is immune to having serious difficulties, only the immense  incompetence and creativity of their politicians in the future could create an Argentinian-like crisis.


 

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