www.gristmagazine.com by Deborah Knight 11 Mar 2003

Joy Grant was born in a house with no indoor plumbing in the tiny Central American country of Belize. That was 52 years ago. Last year, she accepted one of the top positions at the U.S.-based Nature Conservancy. For both parties, the marriage is a calculated gamble. Joy, oh, Joy. Photo: Deborah Knight.I spent a morning with Grant recently in Belize City. Her voice has a throaty roughness to it, softened by the Belizean Creole lilt. She founded Programme for Belize, a private nonprofit conservation organization that during her 12-year tenure acquired 300,000 acres of forest land -- 4 percent of the country. Impressive as that was, the organization operated in a country the size of Massachusetts with an annual budget of just $2.5 million. The Nature Conservancy, by contrast, is a $250 million-a-year organization, and Grant was brought on as program director for one-third of its global operations: the U.S. mid-Atlantic and southern states, the Carribean, and Central America. "I had to think about that," she said, "moving onto the world stage." To show me her roots, Grant drove me around Belize City. She steered with unflappable precision through its crammed streets: cars parked along either side, narrow or nonexistent sidewalks, bicycles, pushcarts, pedestrians, vendors selling bananas on the sidewalk. We passed the unpaved alley where the house in which she was born once stood (it burned down a few years ago) and the drugstore around the corner where her father worked 60 to 70 hours per week as a pharmacist. As a child, Grant conducted much of the family's banking and shopping, because she always negotiated the best deals. We passed her old high school, where in her senior year she was selected as "head girl" based on her grades and leadership. Her parents had the highest expectations for their three daughters, within the constraints of the world as they knew it: "Since we had only girls, my father would say, 'I want you to be the best secretary Belize has ever seen,'" Grant told me. After high school, Grant worked for a year for Barclay's Bank, then went to Alberta, Canada -- "a cold shock" -- where she earned a bachelors degree in commerce and a masters in business administration. From there, she went to Barbados for eight years, where she worked for the Caribbean Development Bank. She approved loans for development projects in 13 Caribbean countries, but back then, she says, no one ever considered the environmental impact of a project. "For an Antigua fisheries project, we considered how many people can you employ, will they be able to pay the loan back. Whether the amount of fish you were taking was sustainable never entered into the equation." Grant next went to work for the Belize Embassy in Washington, D.C., where one day some people from the Massachusetts Audubon Society made a presentation to the prime minister of Belize about a proposal to buy 110,000 acres of land in Belize and turn it over to a local entity for conservation. It was Grant who kept asking questions, and the next day, she recalls, Massachusetts Audubon called her and said, "'You caught onto this concept. We have money for a salary for three months. Would you like to start an organization to protect this land in perpetuity?'" Sustainable logging on land owned by Programme for Belize. Photo: Deborah Knight.At the time, Grant knew nothing about environmental issues. She was intrigued, however, by the idea of creating something from scratch, something that would last, as she put it, "beyond me." She returned to Belize in 1989, assembled a board for her new organization, and got herself out into the "bush," where she learned about birds, snakes, and red-eyed tree frogs. With help from a number of U.S. scientists and funders, including the Nature Conservancy, she aggressively acquired additional land and embarked on projects that she hoped would use a portion of the land to produce local income and jobs in an environmentally friendly manner. Back then, the idea of sustainable development was not yet well-known, let alone well accepted, Grant says. One of her projects involved logging mahogany by cutting a limited number of trees and removing them carefully from the forest to limit damage to the surrounding ecosystem. She won two different sustainability certifications for the operation, but in the end, could barely sell the logs at all, and certainly not for any premium. She also pursued ecotourism, building cabanas and dormitories that now house visitors and school groups. You Gotta Belize At the Nature Conservancy, Grant is the only member of the seven-person top management team who was born outside the U.S. She sees part of her role as getting her fellow managers out "in the mud." She took the organization's information systems manager into the jungle in Guatemala, by helicopter, foot, boat, and car, then by boat to Belize. Now, she says, he understands why people in the field can't be online monitoring their email all day. She took the human resources manager to Costa Rica, where they released turtle hatchlings and went into the forest to learn about the local trees. "It's crucial," she said, "if we are to be a global organization that the leadership understand what global means." The ecotourism project run by Programme for Belize has created jobs for locals. Photo: Deborah Knight."Certain things I would take for granted that everybody knows, they don't know," she said. For example, in the U.S., the Nature Conservancy has long followed the model of owning land to protect it -- but in developing countries, this model often doesn't work. "I know that if you try to set large tracts of land aside in the developing world, you have to get buy-in of the local people. You cannot police it," Grant said. Rather than recreate its original model everywhere, Grant says, the Nature Conservancy must work with local partners to develop conservation methods that involve the community. "People," she said, "are the key to everything we do." Dan Campbell, the director of the Nature Conservancy's program in Belize, worked with Grant for years when she ran Programme for Belize. He sees her entry into the Nature Conservancy's top management as a reflection of a larger change in the organization, from simply buying land and setting it aside to a more varied approach that encourages greater involvement of local community members such as fishers, ranchers, and indigenous people. This change, he says, is occurring in the U.S. as well, although it has been driven by the organization's international work. In this sense, he says, the tail is wagging the dog, because just 20 percent of the Nature Conservancy's work is international. "We have an organization that sometimes tries to reduce things to models that don't fit the culture of the nations where we work," Campbell says. "Joy can hold up a mirror and say, 'This doesn't work.'" Grant is leading the charge on a new project: development of a greater Caribbean basin marine program that would stretch from Cuba to Venezuela. The program will require the cooperation of at least 20 countries; in many of those, the Nature Conservancy doesn't yet have a presence. "I am taking a huge risk," Grant told me. When I asked her if she'd consulted with groups in all these countries first, she seemed surprised. No, she had simply seen the need and launched herself into the project. Now, though, she is spending a lot of time involving local people in planning the program. That, Dan Campbell told me, is vintage Joy Grant: someone willing to launch into something new, but rooted in cautious, methodical implementation. On the wall in Grant's part-time office in Belize hangs a line drawing of a tropical tree draped with vines. Young sprouts erupt from its trunk, but a thick buttress holds it solidly in place. "I think I know that tree," Grant told me. "It's a mahogany." I couldn't help but see a resemblance.

Deborah Knight is a freelance writer living in San Diego. She writes primarily about environmental topics.

www.fool.com

On the not-so-good-but-important news front, we're beginning to see how economic woes can beget further economic woes.

First, we had ailing corporate profits and rising unemployment, part and parcel with a struggling economy. Now, our nation's reduced economic activity has translated into lower corporate and personal tax revenue, resulting in the largest U.S. state budget deficits since World War II, according to Bloomberg.

The backlash of these deficits will be a combination of reduced government spending at the state level and higher state taxes -- both of which are a drag on the economy. In case you're wondering, most state constitutions disallow running budget deficits, so that's not an option. Economists cited by Bloomberg predict that the total economic impact of states' efforts to right-size their budgets could total $80 billion to $100 billion. That's enough to effectively offset President Bush's economic stimulus package.

Read on about the implications for investors.

American Airlines Flying Low If you want to know how a business is really doing, ask the employees on the front line. Their intuition is usually better than most, and their collective information (by the time they share what they know with each other) is often comprehensive.

Flight attendants at American Airlines, run by parent company AMR Corporation (NYSE: AMR), were among the first to publicly suggest the company would seek bankruptcy protection. Today, the airline's flight attendants' union said bankruptcy could come in the near future, even as American's management refused specific comment.

The numbers aren't encouraging. CEO Donald J. Carty has said for a long time that American must cut $4 billion in operating costs annually in order to avoid financial meltdown. Management suggests $2 billion could be saved by changing routes and flight schedules, cutting salaries, and through additional streamlining (redistributing half-eaten snack bags, perhaps?), but the other $2 billion must come from unions.

The stock is tumbling because the writing is almost on the wall: Either the unions concede to nearly $2 billion in wage and benefit concessions (which they have been reluctant to do), or AMR has little recourse but to seek bankruptcy protection. The company lost $3.5 billion in 2002, and is burning about $140 million a month, giving its available cash balance about 12 months to last.

Management remains hopeful it can avoid bankruptcy through union negotiation, but if AMR does file, it will join major carriers United Airlines (NYSE: UAL) and U.S. Airways, both of which filed last year. U.S. Airways hopes to emerge from bankruptcy by March 31, and United is still struggling with restructuring and planning, for one thing, a discount air carrier.

Everything might get even more difficult. Today, the Air Transport Association warned that U.S. airliners could cut 70,000 jobs and lose up to $4 billion quarterly if war starts with Iraq and the government doesn't offer more industry aid. Airlines are already struggling with higher fuel prices, new taxes, and lower traffic loads.

To end on a positive note, some profitable airlines remain, including Southwest (NYSE: LUV), and where one company fails, there's hope another will step in and do a better job.

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Pay for Performance?

A study published in the Academy of Management Journal shows no correlation between a company's performance and the amount of stock or options owned by its corporate executives.

The research, led by four professors from Indiana University and Texas A&M, looked back over 229 similar studies from 1971 to 2001. They found that compensation designed to motivate executives had no effect on such things as return on assets or stock price performance.

While the researchers did not mention specific companies, USA Today did when reporting on the study. The paper ran its own analysis of Fortune 1,000 companies in search of a connection between insider stock holdings and return on equity (ROE, a common measure of a business' performance), and found little or no correlation. Instead, dozens of companies underperformed the competition "despite their CEOs being laden with stock and options."

Big Mac, Side of Email

Want free, in-store wireless access with that? That's the question some McDonald's (NYSE: MCD) customers will soon hear when they order an Extra Value Meal. Yes, friends, McDonald's is going WiFi.

In a move set to coincide with tomorrow's unveiling of Intel's (Nasdaq: INTC) Centrino, a new, wireless-ready laptop chip, McDonald's joins several other companies announcing impending wireless availability. Borders Books (NYSE: BGP), a host of hotels, and two large airports will all boast wireless Internet access by summer. Another restaurateur, Starbucks (Nasdaq: SBUX), has offered wireless access in many locations for some time now, and is working to expand to more.

The McDonald's offering is a unique one, though. By ordering an Extra Value Meal, customers can get one hour of wireless access right there in the store. Use up the hour and want more? Simply order another combo, or pay $3 for another hour.

McDonald's will first roll out the program in 10 Manhattan locations, and then in 300 locations in New York City, Chicago, and an unannounced California city. (Who will be the lucky one? San Francisco? Los Angeles?) 

Will customers bite? Coffee shops and bookstores are logical fits for laptop users and wireless access. Students, for example, already spend time there, tapping away on essays and research papers. But a fast-food restaurant? Bellying up to your laptop while juggling greasy fries and a dripping burger sounds less than appealing, but maybe people are so time-pressed that they'll go for it.

Then there's the question of demographics. Does the average Mickey D's customer own and carry around a laptop? If not, will wireless access draw new customers? McDonald's, in need of novel ways to drive store traffic, certainly hopes so. Plus, the demographics are likely more selective at the "chosen" locations.

It will be interesting to watch how the program unfolds. McDonald's may yet become a cool hangout for laptop and Big Mac lovers. Or customers may find that greasy fingertips and computer keyboards, combined with too many Extra Value Meals, give them indigestion, thereby disconnecting from McDonald's. 

Quote of Note

"Public and private food in America has become eatable, here and there extremely good. Only the fried potatoes go unchanged, as deadly as before." -- Luigi Barzini, O America, 1977

Oil's Slick Producers Profit

At some point, who hasn't dreamed of being an oil sheik? They control much of the world's most sought-after commodity, next to money itself. You could buy an island and blanket it with private jets and swimming pools, just because.

Today, members of the Organization of  Petroleum Exporting Countries (OPEC) suggested that oil output is adequate, and it will not support suspending output quotas. What OPEC didn't admit is that quotas are partly being ignored anyway, as countries "pump up the volume" in order to take advantage of today's crude oil prices before the spring thaw. 

At $37 per barrel, oil is near the $41 record high reached during the 1990-1991 Gulf War. But war drums aren't the only problem. From December to February, oil production in Venezuela tumbled from 3.1 million barrels per day to 1.4 million in politically motivated work stoppages. A war in Iraq might add to the decline in production.

The world consumes 77 million barrels of oil daily, and OPEC supplies 24.5 million, or 32%. Iraq supplies 1.7 million barrels per day. Oil fields in Kuwait producing 700,000 barrels daily would be closed in the event of war, meaning between Iraq and Kuwait, 2.4 million barrels per day would be lost. Whether this shortfall can be replaced by OPEC is hotly debated.

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Quick Takes

Shares of drug maker King Pharmaceuticals (NYSE: KG) plummeted over 22% after the company announced the SEC has subpoenaed documents regarding its drug pricing and rebates related to Medicaid. The company's CEO reportedly said, "As far as we know, we didn't do anything inappropriate." Because the Justice Department is investigating Schering-Plough (NYSE: SGP) for Medicaid-related practices, the SEC involvement suggests additional concerns at King.

Former ImClone Systems (Nasdaq: IMCL) CEO Samuel Waksal agreed to partially settle the SEC's civil case against him for insider trading. Waksal will pay over $800,000 for the losses he avoided by selling shares ahead of bad FDA news in December 2001, and he will be foreclosed from serving as an officer of any public company. New charges included show that Waksal behaved worse than previously thought: He not only sold company shares to avoid losses, but also bought put options to profit from his own company's coming stock drop. What a weasel!

St. Louis Federal Reserve President Bill Poole warned that Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) don't maintain enough capital to protect them against loan risks. Both companies have been subject to enormous debate -- most recently in Warren Buffett's annual letter to Berkshire Hathaway (NYSE: BRK.A) shareholders -- over their government-sponsored status, capital requirements (higher reserves mean lower profits), and derivatives risk.

Finland-based telecom equipment maker Nokia (NYSE: NOK) issued a Q1 earning warning today, saying its results would be at the low end of prior estimates. The company said the worst hits would come in sales of networking equipment and 3G telecom equipment. Shares initially dropped, but recovered to finish the day up almost 2%.

www.upi.com By Owain Johnson UPI Business Correspondent From the Business & Economics Desk Published 3/11/2003 4:20 PM

CARACAS, Venezuela, March 11 (UPI) -- There is a Venezuelan joke that begins by noting that the best business in the world is a well-managed oil company. And the second best business in the world? A badly managed oil company of course.

Oil is Venezuela's economic lifeblood and whatever the standard of management has been at state-owned energy producer PDVSA, the country's huge reserves have generally provided Venezuelans with a higher standard of living than their regional neighbors.

PDVSA's activities typically account for around 80 percent of Venezuela's gross domestic product and for around 50 percent of government income, giving the company a strategic significance far beyond that of a normal commercial enterprise.

Recognizing the company's power, President Hugo Chavez has repeatedly tried to tie PDVSA more closely to his government and in the wake of the recent disastrous general strike he has finally got his way.

The majority of PDVSA's managerial and administrative staff joined the opposition-led general strike against the government in early December, and by mid-month the energy industry was paralyzed and PDVSA was forced to declare force majeure.

But predictions that Chavez could not survive a long-term oil strike proved unfounded. The former paratrooper refused to reach a compromise deal, and ordered PDVSA President Ali Rodriguez to import gasoline to keep the nation running.

Rodriguez used a mixture of loyal workers, contract workers and new hires to restart operations, and by late December PDVSA was starting to produce and export crude once again.

The payback began immediately. Rodriguez, a former leftist guerrilla and OPEC secretary-general, summarily dismissed 16,000 of PDVSA's 33,000 employees for 'deserting their posts' in order to participate in the strike.

The dismissed employees, who included virtually all the company's top executives, had an estimated average of 17 years' experience in the industry each, and their leaders were confident PDVSA could not operate without them and would soon recall them.

Earlier this month, though, PDVSA lifted force majeure on all its exports, apart from unleaded gasoline, lubricants and asphalt, and Chavez was able to announce that the company's crude production had reached 2.6 million barrels per day (bpd).

Sacked oil managers immediately poured scorn on the president's figures and placed production at 1.6 million bpd. But, as analysts noted, if PDVSA risked lifting force majeure, Rodriguez must be confident the company can reach its pre-strike production levels of 2.8 million bpd within the next few months.

The dramatic restoration of production at PDVSA has taken the wind out of the sails of the strikers, who now see little chance of returning to their posts until the fall of the Chavez government, an event that looks increasingly remote.

Rodriguez attributes his success at restoring production with vastly fewer employees to a combination of factors. PDVSA was overstaffed with middle managers before the strike, he believes, while loyal employees were determined to disprove allegations that they lacked the necessary skills to restore production.

Critics allege, however, that the restoration of production has come at the cost of lower safety standards. They also note that PDVSA has focused on easier wells, and has cut key maintenance, research and exploration divisions, harming its long-term prospects.

The Gente de Petroleo association of dissident oil workers believes PDVSA will inevitably be unable to maintain its current level of production since the current staff lack the know-how to tackle older and more technically challenging wells.

But for all their public confidence, many former company managers privately admit their surprise at how well the industry is performing without them.

They are also quick to express their anger at Venezuela's political opposition, which called off the damaging strike after failing to force Chavez from power, leaving the dismissed oil workers to carry the can.

"Are we disappointed? I think that's somewhat of an understatement," one former senior PDVSA manager said. "Everyone else has gone back to work, and we are the only ones still fighting for our industry and our country. We feel we are in danger of being forgotten."

Rodriguez has repeatedly ruled out an amnesty for the strikers and he has even thanked them for giving him the possibility of carrying out reforms that would otherwise have been impossible.

Meanwhile, the oil workers who struck in April to protest government intervention in PDVSA have, by striking again in December, effectively handed total control of their industry to Chavez loyalists.

With their opponents locked out, Chavez and Rodriguez are now free to carry out whatever actions they wish to PDVSA and the president has already spelled out his aim of setting the company at the service of his social reform project.

"The new PDVSA must never again be a nest to shelter the privileged elite. This company must be now and always the property of the Republic," he said at the recent inauguration of the company's new board.

"There will be no amnesty, selective or otherwise, there will be no forgiveness for anyone, for traitors. They are traitors and they cannot return nor will they," he added.

www.sfgate.com Tuesday, March 11, 2003
(03-11) 10:21 PST CARACAS, Venezuela (AP) --

A mechanical failure will disrupt gasoline production at a Venezuelan refinery for at least two days, the refinery's manager said Tuesday.

The failure Tuesday forced the shutdown of the catalytic cracker, the main gasoline producing unit at El Palito refinery in western Venezuela, Asdrubal Chavez told local Union Radio.

Chavez said the problem should be fixed within 48 hours. El Palito has 20 days worth of stocks and the failure won't affect supply, he added. The cracker produces 60,000 barrels of gasoline a day, Chavez said.

Venezuela is trying to recover from a two-month general strike to demand early elections or the resignation of President Hugo Chavez. The strike ended last month.

Venezuela, which was the world's fifth-largest oil exporter before the strike, is still having to import gasoline to because of difficulties bringing refineries back online.

www.scoop.co.nz Wednesday, 12 March 2003, 9:38 am Press Release: Council on Hemispheric Affairs March 11, 2003 For Immediate Release Memorandum to the Press 03.10 Revised Memoranda, First Issued Yesterday

Scant Prospects Emerge From High-level Meeting on Venezuela

· "Group of Friends" gather to strive for a solution to long-lasting Venezuela dispute

· United States energy and security interests in the region spark Washington to play a bigger hand in Venezuela's political crisis

· But the United States must emphasize supporting the development of Venezuela's democratic institutions

· Bilious relationship between the Chavez administration and the middle class opposition poses a block to constructive resolution of old enmities

· Human rights violations, and the mismanagement of the judiciary and unprofessional media in Venezuela render any electoral solution a remote possibility.

· The opposition-controlled media must substitute professionalism for manipulation of public opinion.

· The executive undermines Venezuela's democracy as it strikes back at the media through control over the judiciary's decisions.

Acting Assistant Secretary of State Curtis Struble met with diplomats from Brazil Mexico, Chile, Portugal and Spain, in Brasilia on Monday to discuss the prospects for an electoral solution to Venezuela's simmering political crisis. A complex mediation task is at hand for Venezuela's self-appointed Group of Friends, who heard starkly different accounts of the crisis from government and opposition representatives.

Two Self Serving Positions

Venezuelan Ambassador to the OAS, Jorge Valero, who spoke on behalf of the Chavez administration, presented a report on the normalization of political and economic life in the country, including the stabilization of oil production. The government obviously was trying to present an image that Venezuela is back to its old politically stable and oil-reliable self, in order to negate support for an opposition-backed constitutional amendment, that calls for immediate elections, and which would reduce the terms of all elected officials, including President Chavez, to four years.

Timoteo Zambrano, a congressman and delegate for the opposition at the negotiations table, urged delegates to pressure the government to accept elections as he painted a stark picture of Venezuelan political realities. Prior to the meeting he informed the press that the government is staging a "political persecution" against the leaders of the Coordinadora Democratica (CD), which heads up the opposition group. His report strongly suggested that the government is blocking efforts to reach an electoral agreement by heightening political tensions surrounding the negotiations. Zambrano cited the law on media contents, drafted by Chavez supporters in the national assembly, and the arrest of several opposition leaders for their participation in the general strike, as acts that have sabotaged prospects for an electoral solution.

The opposition also demanded that the Group of Friends send permanent representatives to the negotiations, who would be in a position to pressure the government to accelerate the negotiations, and could possibly press for the opposition's constitutional amendment. Furthermore, they asked that Secretary General of the O.A.S. Cesar Gaviria, convert his role as a facilitator into that of being a mediator, in which he could influence which items must be resolved on the agenda.

The government camp would most likely consider such action as an intrusion into Venezuela's sovereign rights, mindful of the fact that President Chavez already has lashed out at such countries as Spain for criticizing the Fernandez arrest. But despite the Chavez administration's concerns with foreign intrusion, its delegates pushed once again for the Group of Friends to include countries such as Cuba, France and China, that maintain close political and economic ties with Caracas.

It appears that Venezuelan government and opposition delegates traveled to Brasilia to push for concessions that would facilitate their political agenda, rather than to present proposals that could strengthen Venezuela'sdemocratic institutions, such as reformation of its biased media or its flawed judicial system. As negotiations towards an electoral solution resume in Caracas today, the Group of Friends will be left with few pragmatic points to build upon, while the Chavez government as well as its embattled opposition are single-mindedly hindering prospects for an electoral solution, by seeking to influence the judiciary and manipulate free speech and the press in order to blast each other out of the country's political arena.

Oil Appears to Change the Tide

Washington is showing signs that it might accede to the opposition's requests of becoming more involved in the negotiations process. On Thursday March 6th, seven members of the U.S. House of Representatives sent a letter to Venezuela's President Hugo Chavez, expressing their concern regarding the arrest and criminal charges brought against several leaders of the Venezuelan opposition who helped plan the two-month general strike. In a few words, they meant to remind Chavez that they would not remain indifferent towards any shortcuts in Venezuela's democratic process which does not fully respect the opposition's rights. Overall, the tide seems to be turning in U.S. -Venezuela relations as Washington's officials show signs that they may take a proactive stance towards Venezuela's political crisis.

But does this invigorated stance come solely out of empathy for Venezuela's embattled opposition? After an ill advised and embarrassing demand for immediate elections in the early days of the strike, the White House has avoided any high profile role in Venezuela's conflict by throwingits support behind the OAS' lengthy mediation efforts.

However, it is probable that the Bush Administration might increase its involvement in Venezuela's political strife as White House officials grow concerned that the decay and politicization of PDVSA, Venezuela's national oil company, may threaten U.S. energy interests in the region.

Renewal of a High Profile U.S. role

Washington's professed unrest isn't necessarily a cover to blast Chavez for his leftist and nationalistic ideologies, or defend the interests of the local elite. Oil has been the glue that has held Venezuela and the U.S. together in the past 50 years. For decades, U.S. administrations have tolerated various nationalistic measures taken by Venezuelan governments, even those appearing to be anti-American, such as nationalizing oil production or imposing tariffs on U.S. imports. Venezuela gained Washington's trust by maintaining a reliable oil supply in times of both prosperity and crisis.

The Chavez administration was given similar treatment in its early days in office. Washington officials were prepared to discount the new president's fiery rhetoric and praise for the Fidel Castro regime, as they rushed to assure the American public that his actions didn't match his words and that there appeared to be no evidence that the Bolivarian revolution would threaten United States' energy concerns in the region.

But PDVSA's turmoil could give the U.S. good reason to become more actively involved in negotiations towards resolving the country's political crisis. During the strike, PDVSA became increasingly politicized as mid-level as well as senior managers carried out an oil stoppage in consort with opposition leaders. It is no secret that this alliance decimated PDVSA's production levels and cut exports to the United States. As oil prices rise and a likely war in Iraq approaches, U.S. policy-makers are asking if Chavez's embattled government will be able to supervise this fractured company and deliver oil in a reliable fashion.

Mixing Oil and Politics

Venezuelan officials are eager to convince Washington that PDVSA will soon recover its full production and its reputation as a reliable supplier. However, the State Department is not altogether buying this optimistic projection. At a meeting on February 26th with Venezuelan Energy Minister Rafael Ramirez, State Department officials told that country's officials that Venezuela cannot be considered a reliable oil supplier to the United States at the present time. This sentiment is also shared by some members of the Bush cabinet. Despite assurances from Ramirez that his country was now producing 2.4 million barrels of crude daily in the last week of February, U.S. Energy Secretary Spencer Abraham told a Senate hearing it might be two to three months before Venezuelan oil production reaches its normal levels. Prior to the strike Venezuela produced 2.8million barrels of crude daily.

Chavez's efforts to manage PDVSA efficiently are further complicated by the opposition's negotiation strategy. Its representatives in the negotiations, have demanded that Chavez reinstate thousands of PDVSA beaurocrats, technicians and managers who were fired for joining in the general strike, or no electoral solution will be permitted to come about. Such a demand could be an incentive for the United States to influence negotiations, as it would offer Washington an opportunity to play a hand in the restructuring of PDVSA, its main interest in Venezuela's current strife.

Drugs Invigorate America's Response

Political instability in Venezuela also appears to be undermining Washington's war on drugs. One of the main pillars of the Bush administration's northern South American strategy is to widen Washington's role in combatting Colombia's drug trafficking rebel groups. Recent reports suggesting that important leaders of the FARC, including Manuel Marulanda, are hiding out in Venezuela, have damaged the standing of the Chavez administration in Washington. At the very least, they have led some U.S. officials to ponder whether an embattled government hobbled by protests, unpopularity and constant challenges to its legitimacy is a worthy partner, willing and able to tackle the drug traffic issue with resolve. On February 27th , Drug Czar John Walter's expressed this concern at a House Committee on International Relations hearing, stating that "Venezuela's political problems have created a haven for narco terrorists to operate with impunity."

Oil policy and anti-narcotics interests may be powerful reasons for the United States to claim a bigger stake in the resolution of Venezuela's political tensions. Furthermore, some of Bush's officials are growing suspicious about Chavez's commitment to an electoral solution. Following the arrest of opposition leader Carlos Fernandez, U.S. Ambassador Roger Noriega, who appears to be the administration's choice to succeed Otto Reich as the Assistant Secretary of State for Inter-American Affairs, urged his fellow OAS ambassadors to reflect upon the U.S. belief that "there is little doubt that Chavez's rhetoric has contributed to a climate of violence that does not contribute to the search of a peaceful solution."

Venezuela's Hard Nosed Negotiations

As negotiations resume today in Caracas, the framework for holding elections will top an agenda that also included the disarming of civilians and establishing a truth commission to investigate the controversial eventssurrounding last April's coup aimed at ousting Chavez. In late January of this year, President Jimmy Carter had visited Caracas and proposed that a constitutional and electoral solution could be achieved via a constitutional amendment or a revocatory referendum on President Chavez' rule. Very little progress has occurred on either track.

The middle class led opposition is demanding new elections to be based on a constitutional amendment which it tabled on January 29th. This provision would be subject to a popular vote and, if passed would shorten the president's and congress' terms from six to four years. Once approved, presidential and congressional terms would immediately end and elections for both levels of governance would take place within 30 days. This bold, if self-serving initiative would challenge the government's grip on all elective offices. It also calls for other concessions, including an amnesty for oil workers who participated in the general strike. It is unlikely to find many supporters on the government side, which has repeatedly insisted that constitutional amendments lie outside the scope of the current round of negotiations.

The government's proposal basically buys into the status quo. A mid-term referendum authorized by the Chavez-inspired Bolivarian constitution, would take place in August if the electorate qualifies for it by gathering sufficient signatures. The referendum would only challenge the president's tenure; the national assembly and the constitution would remain intact. Both sides agree that a new national electoral board should be selected. This could also delay either game plan, as the new body becomes institutionalized.

Human Rights: A Condition for an Electoral solution

Human right's violations would endanger the environment in which either electoral proposal would take place. On February 18th, government and opposition negotiators issued a declaration in favor of peace and democracy, with the blessings of Cesar Gaviria, the secretary general of the OAS, the Carter Center and the United Nations Development Programme. One of its most telling points calls for freedom of the press and acknowledges that as a democratic institution, the media must play a constructive role in "promoting peace, tolerance and peaceful coexistence."

But in real life, the media's problems are increasingly reflecting the degree of Venezuela's social and political polarization and its drift away from any prospect for a near-term electoral solution. On the 26th of February, a delegation of journalists from Venezuela's private media visited the Inter American Commission on Human Rights in Washington, to denounce the government's restraints on free speech. In a forum held the previous day at the Heritage Foundation, its members presented evidence that their physical safety was now under threat and that the government is an accomplice to this dangerous situation. According to Sergio Dabar, associate editor of the Caracas daily "El Nacional," there were 200 cases of harassment against Venezuelan journalists in 2002. Most of these have gone unpunished due to the indifference of the courts and the bureaucracy.

In several cases, evidence points directly towards the government's complicity in the intimidation of the press. The opposition claims that during the general strike, civic groups affiliated with the government systematically targeted the media. For example, on the night of December 9th, 26 media facilities were simultaneously attacked by government supporters while the police and national guard made themselves blatantly unavailable. Some government backers went as far as to physically destroy some of their targets, including Globovision news network's Maracaibo studio.

Scenes of journalists in bulletproof vests being beaten back by national guardsmen as well as being hectored by pro-Chavez supporters have become everyday occurrences over Venezuelan TV. At the very least, it appears that state prosecutors appointed to office by the Chavez administration, are taking a convenient siesta when it comes time to defend the safety of journalists working for private television stations and newspapers.

A Darker Picture

Some journalists go further and paint a darker picture of the realities they are facing. They are concerned that the government is wielding its judicial muscle against them, and making them "a war target", as stated by Levy Benshinol, the president of the National Journalist's Association. Unfortunately, President Chavez gives his opponents little reason to believe that he is particularly interested in the status of a free press. An indication of Mr Chavez's personal contempt for the media is his labeling the four major private television stations as " the four horsemen of the apocalypse." The opposition argues that by failing to guarantee freedom of the press, the government threatens any future prospects for fair and free elections. Elections where media coverage is reined in by violence or appears to be intimidated by the manifestation of state power, will inevitably give off an air of illegitimacy.

The Media's Bias Hampers Possibilities

But the media situation is far more complex, and the Venezuelan press is far less peaceful and fair minded than appearances would have it be. The local media is a closely held monopoly where conservative press owners like Gustavo Cisneros, of Cuban refugee descent, decide which issues will be discussed and which will be ignored by the nation's closely held television and radio stations. Coverage of the events surrounding the coup in April 2002, provide a case in point. After reporters valiantly risked their lives and producers defied the government to maintain coverage of Chavez' ouster from power on April 11th 2002, the private media was notoriously absent when Chavez returned to office. Simply put, whatever the issue Chavez was always wrong. Looking back over the past 12 months, the charge can be made that, for the most part, the bulk of Venezuela's media acted in a blatantly unprofessional manner with little accountability and saw itself more as an adversary to Chavez, than a neutral, responsible operation.

Most of the privately owned media has not used its freedom to prudently encourage an electoral solution that is acceptable to both sides in Venezuela's current crisis. This is because most of the nation's newspapers and television stations have been serving as a loud speaker for radical, rightist elements in the opposition. Throughout the general strike, private TV stations sacrificed paid commercial time in order to make way for spots calling for the president's resignation. In some ads, children have been used to play on the audience's emotions. One witty commercial featured a news clip in which a young girl tells the president that she wants a suitcase for Christmas. Chavez cheerfully asks "why a suitcase?" and a black screen with white letters intercepts the clip, replying "para que te vayas" (so that you will leave).

Throughout the two-month general strike, the media's unrelenting antagonism against the government went even further by provoking a sense of derision towards the country's constitutional order. As the strike entered its second month, television stations repeatedly broadcasted statements in which opposition leaders, Carlos Ortega and Carlos Fernandez, incited viewers to undercut the government by boycotting tax payments.

The opposition's de facto merger with the media gives the government grounds to believe that the period running up to the proposed elections will serve as the occasion for a major anti-Chavez defamation campaign which is being scripted right now. This is a serious consideration because in Venezuela, private television stations account for at least 80% of the public audience. Chavez is no fool and for good reason will be reluctant to take part in an electoral event where the media will go to any length to paint him as a villain, with little opportunity for his being able to respond to these charges. Inflexible ground rules must be agreed to.

The Media Under New Threat

Many analysts fear that in response to the opposition's aggressive media tactics, the administration may be taking steps to limit freedom of speech. Currently, Chavistas are wielding their power in the national assembly to draft a radical law on media content. This measure proposes restrictions on the hours in which TV stations may show programming that is not apt for children, which could lead to the banning of the opposition's political shows and their often strident morning news programs. Furthermore, the law bans content which "alarms the audience," "incites violence," or "threatens national identity," which could be used to cancel coverage of opposition rallies as well as unpopular government activities.

Foreign monetary exchange controls dictated by the chief executive could also be put to work against the media's interests, as they will arm the authorities with the ability to prevent opposition newspapers and television stations with access to the foreign currency that is needed to import vital newsprint and other materials required for media organizations to operate.

Freedom of Speech: An Impasse

Venezuelan government officials argue that legitimate elections cannot occur if the media is not conducting itself by professional norms, distorts coverage of Chavez at every turn, while lauding the virtues of the opposition. However, such actions could be equally flawed if the opposition can be silenced by legal or economic schemes.

In order to break with this latest chapter of polarizing confrontation, people of good will are beginning to argue that it would be wise for Chavez and the opposition to open negotiations on the issue of media content right now, where concrete issues such as the number of anti-government commercials or the number of obligatory presidential television appearances could be up for discussion.

The Struggle over the Judiciary

But the struggle over freedom of speech is not the only obstacle towards fair and free elections. The executive's power to appoint judges gives Chavez sway over the judiciary. Lately, some judges have complicated the prospects for an electoral solution by seeming to be part of a campaign to behead the opposition's leadership. The conditions surrounding Carlos Fernandez's detention last month, give the impression that a personal vendetta is being carried out in the name of justice. Fernandez, who heads the country's major business association, Fedecamaras, clearly had been compromised by his likely illegal involvement in the April 2002 coup. Strangely, however, the government only decided to come up with its charges against him the week after it signed a non-aggression pact with the opposition, and then used undercover agents to arrest him. In addition, Mikel Moreno, the judge who ordered the arrest, is himself a person with a suspect background. He has been previously accused of murder and his personal biography fails to fulfill criteria, such as possessing a post graduate degree which the Venezuelan constitution requires in order to be appointed to the bench.

Opposition leaders are not likely to be in a mood to carry out good faith negotiations after what they see as a politically motivated arrest having taken place. Instead, they are fighting back by leveraging their control over the media. Frequent press conferences sympathetic to Fernandez are now the norm, while local TV and newspapers make little effort to remind the public that the business leader was involved in a junta that had illegally overthrown a constitutional government and that he had been fully prepared to abolish civil liberties in the process.

The judiciary has now upped the ante by calling for the detention of 7 executives of the national oil company who participated in the general strike against Chavez. Rather than inappropriately focusing on neutralizingthe opposition, the courts might consider helping to prepare the legal framework for the elections to occur under the terms of the existing constitution.

Back to the Basics

The collection of 4 million signatures calling for a referendum on February 2nd demonstrates that Venezuelan society is aching for healthy debate, and both sides must be heard in a fair and transparent dialogue. But if an electoral solution to the political crisis is to come about, both the government and opposition must be guaranteed fair play by the ground rules. The government must be accorded balanced coverage in the media, while the opposition must receive guarantees against antagonistic laws and judicial prejudice.

As of now, both sides wield their control over their domain as if their mission is to expel each other from the political arena. If the Group of Friends decide to take a stand in favor of free and fair elections, it would be wise to press for the reform of this country's media and its fledging democratic institutions.

This analysis was prepared by Manuel Rueda, Research Associate at the Council on Hemispheric Affairs, Washington, D.C.

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