May 30th., 2005

Oil and Social Expenditures

Summary:

• Armed with petrodollars, Chávez launched his reelection campaign for 2006.

• FONDESPA is the political tool of social expenditures.

• A sizable amount of oil revenues are not transferred to The Central Bank, nor are they part of The National Budget.

• The institutional straight jacket hindering political dividends in social expenditures has vanished.

• PDVSA revenues directly financed the Missions with the greatest popular impact.

• The social expenditure of PDVSA is over 7 billion dollars.

• Beginning in 1998, there is a marked socioeconomic decline.

• Estudio de Datos, mentioned by the President, shows a dramatic decrease in the middleclasses and a strong increase in the poorest sectors.

• A threat of collapse, mismanagement and corruption:  the balance on the PDVSA debate.

• Bush:  the great peril.

• Súmate, the most representative NGO in civil society, will be an observer at The OAS General Assembly in spite of the Government’s opposition.

• There are expectations on Insulza´s promises regarding The Democratic Charter and the on-going evaluation of democracy in Latin America.

• The OAS shall be advised on reasons for the opposition’s loss of electoral credibility.

• The claim is respect for the principles and values of The Democratic Charter.

Oil and social expenditures are the key players in the Revolution’s scenario.  Oil is the worrisome background for officialdom.  Revenues from high prices make their greatest strength.  The inability to manage the industry, a perilous weakness.  Regarding prices, the President and his advisers are convinced prices will stay high for several years.  This guarantees supplies for the upcoming battles:  label and strategic concept applied by the seven electoral commitments of the President since his coming to power.  The next battle may be decisive.  Chávez has already launched his reelection campaign –for seven more years- in 2006.

Social expenditures, to be exact, rather than a player, is the other face of the leading actor.  Social expenditures granting popularity and a vote crop is what PDVSA (state oil) carries out through Fondo para el Desarrollo Económico y Social del País, [FONDESPA], (The Country’s Economic and Social Development Fund).  Since 2001 Venezuela enjoys the high-price party, although in that year and the next two, PDVSA leadership –even if Chávez followers- came from the industry and specialized academic centers in business management.  They kept the decision to channel revenues through the established institutional ways, that is, transfers into The Central Bank for distribution by The Ministry of Finances in keeping with The Budget Act.  PDVSA always had a line for social expenditures.  According to its own figures, in the 1999-2003 five year period, the annual average was of 48 million dollars.  A significant figure but a light one when compared to national budgets between 20 and 30 billion dollars.

The institutional straight jacket hindered political dividends, as evidenced in 2001-2003:  Chávez faced serious public opinion problems and active rejection taking him to the edge of the cliff.  His disapproval rate was steady at 60 % with occasional peaks up to 70 %.

In the already famous speech –last November- in which he profiled The New Strategic Map for The Revolution, Chávez said that at the start of 2004 polls were not favorable and that, together with Fidel Castro, he conceived  the missions, whose role was decisive in the August Referendum.  All analysts agree on this point.  A global glance of the increase in the 2004 PDVSA social expenditures and the noticeable improvement in the President’s popularity are an important element of reference for understanding the present.  In 2004, PDVSA’s social expenditures rose to 2,700 billion dollars with the elimination of institutional constraints.

FONDESPA came into being –a rotating fund independent of The National Budget- with resources outside The Central Bank and managed with discretion under instructions from the President.  A research study published in El Nacional (05-22-05), PDVSA’s revenues were able to directly fund The Missions of greater impact, namely, Barrio Ademtro; Mercal; Vuelvan Caras; -credits for housing; agro activities and micro-enterprises-.  El Nacional, voicing a source at The Venezuelan Embassy in Washington, estimates PDVSA’s social expenditures over a billion dollars.

OIL BELONGS TO THE PEOPLE

After two days of mysterious public absence, Chávez reappeared extensively referring to a study from Information Resource Data, while asking for an analysis by his Cabinet.  Said study shows the Venezuelan socioeconomic decay over the past 40 years, while underscoring  the period beginning in 1998.  There is a dramatic decline of levels of the middleclasses, whereas there is a spectacular rise in the poorest sectors.  Chávez highlighted the data which indicated that in 2004, as an impact of the missions, the monthly income of the poorest increased 33 %.

Official numbers, otherwise, at the end of March, 2005, indicated that 48.5 % of those in working age survived in the informal economy.  Close to half the workforce fills the streets of the cities, earning their living as street vendors.  The jobless are  13 % (officialdom); 20 % (labor unions).  The President called businesspeople to Fuente Tiuna on 26 Thursday, to tell them that, in the first trimester, economic growth was 7.9 %:  some dared to say it was a plausible figure but that the trend would continue to be to invest minimally due to uncertainty over property rights; the threat of new taxes; price controls; labor immobility and “because there is an awareness regarding the non-sustainability of the model.”

Oil policy and the FONDESPA model to fund social expenditures make the matrix  of the intense debate in Venezuela today.  It is a debate nourished by the regime’s internal conflicts.  In Venezuela Today (05-16-05), there is an analysis of PDVSA’s problems.  In the last few days, the war of words between groups furiously fighting for control of the enterprise, together with data filtered by The Central Bank, have heightened alarm levels.  The threat of a collapse seems real.  The managerial inability cannot be hidden.  The uncovered corruption has forced beheadings at the top levels due to the scandal magnitude while it runs at the lower levels, where Red Shirt union members sell positions to the unemployed.

The debate reached The National Assembly, the media and the streets.  Minister Ramírez claims that it is a media conspiracy vs. PDVSA, nourished by foreign elements attempting to takeover the oil industry.  Those in the plot are traitors to the homeland and subject to indictments.  The Minister says that transnational operating in the country ought to pay new taxes as well as those pending.  He eluded questions from opposition deputies on the threats to cancel oil sales to The U. S. and the possibility of a rupture of relations.  Likewise, he bypassed questions on the Presidential announcement that we propose to launch a nuclear energy project:  the Revolution took the debate onto the streets linking it with the extradition of Posada Carriles.  Demonstrators, identifying themselves as beneficiaries of The Missions, raised signs charging President Bush with attempts to takeover national energy resources.  The Vice President closed the activity while maintaining that the PDVSA Debate was over:  “The people spoke and oil belongs to the people.”

THE OAS ASSEMBLY

Civil society is the unbending adversary of Chávez and the leading actor of the legendary popular demonstrations.  The most representative among NGOs in civil society is Súmate, invited as an observer to The OAS General Assembly in Fort Lauderdale, in spite of Venezuela’s strong opposition within that body.  Súmate has endured on-going harassment from the regime.  María Corina Machado and other leaders of this NGO have been criminally indicted for funds received from The National Endowment for Democracy, (NED).   Its presence in Fort Lauderdale seems to tune-in with Insulza’s words in his Inaugural Address, where he stated that it is indispensable to effectively apply The Inter American Democratic Charter, while promoting an on-going mechanism of evaluation of democracy in Latin America. 

The OAS Assembly has brought expectations to Venezuela.  The international community, for several years, paid attention to The Venezuelan Case.  The August Referendum brought it to a close.  Independent NGOs, invited to Fort Lauderdale, will surely warn that the crisis goes on with a threatening explosive potential.  Venezuela Today has underscored that the application of the new stage of the revolution is the determining factor.  Another element to be added is the reluctance of civil society to exercise the right to vote as it considers the vote is kidnapped.  Súmate has said that civil society, the majority of the populace, does not accept the legitimacy nor the credibility of the arbiter.    It argues that The National Electoral Council (NEC) was not elected in keeping with The Constitution and that Electoral Power is controlled by revolutionary militants and activists.  It has also charged that the NEC maintains decisions  which violate the most elementary principles of suffrage, that is, the secret vote; its public scrutiny, the proportionate representation of minorities.  These violations impair the supervision of The National Electoral Registry –which provides updating and purging-.  Generally, NEC behavior lacks impartiality and transparency.

Venezuela Today proposes that the rescue of voting credibility is a must to clear a peaceful solution within the new scenario of the Venezuelan crisis.  The claim of civil society for electoral expression is respect for principles and values of The Inter American Democratic Charter.      

Surely, this will be Súmate’s message to THE OAS Assembly.