Thursday, November 15, 2007

Hugo Chavez's Most Dangerous Enemy? It's Chavez Himself

Hugo Chavez's Most Dangerous Enemy? It's Chavez Himself
By Ian Bremmer

In proven and unproven reserves, Venezuela is believed to control some 270 billion barrels of oil, the deepest supply in the world. As crude prices lurch toward $100 per barrel, President Hugo Chavez would appear to hold the only weapon he needs to further tighten his grip on domestic political power and extend his foreign-policy influence. But a close look at how his government milks the country's cash cow suggests he has serious cause for concern.

Chavez remains popular at home, but if Venezuela's economy turns south and state spending on popular social programs is substantially cut, he may not be popular for long. His fortunes increasingly depend on the future of Venezuela's oil production, because the government's cash comes almost exclusively from the country's state-run energy giant, PetrĂ³leos de Venezuela (PDVSA).

As recently as the mid-1990s, PDVSA hoped that joint development projects with foreign firms would lift production to 6.5 million barrels per day (bpd). In 1998, the company produced about 2.9 million bpd. Output has since fallen to around 1.6 million. There are two main reasons.

First, during a power struggle with Chavez in 2003, PDVSA's workers went on strike. The president retaliated by firing 18,000 of them, including the vast majority of the company's most talented and experienced engineers. Nearly five years later, the company has yet to recover from the loss of expertise.

Second, Chavez is bleeding the company of the revenue that might be reinvested in aging infrastructure and new equipment. He has diverted $12 billion into a fund meant to subsidize health and education projects. Some argue that this is a worthy undertaking, but this spending represents three times the amount devoted to oil exploration and the maintenance of PDVSA's existing assets, the source of Venezuela's future income. In addition, all these subsidies are awarded off the books. It's impossible to know exactly how all that money is really being spent.

The company's profit margins fell by about 25 percent in 2006, despite the surge in oil prices. In the first quarter of 2007, the company took on $12 billion in new debt. These are official figures; the reality may be much worse.



Blogger FairestWitness said...

This what happens when you elect an amateur to run a country rich in resources, yet in need of professionals.

Much like our own Congress controlled by Democrats. They are so bad, they make our past Republican leadership look good. Not an easy thing to do, in light of their spending like drunken sailors and lack of support for our President.

7:26 AM  
Blogger VerityINK said...

Thank you for reading this FW, I know it's long and perhaps a bit dry--but everyone needs to understand what communism does to a country.

12:04 PM  

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