<a href=www.vheadline.com>Venezuela's Electronic News Posted: Sunday, June 22, 2003 By: Andrew McKillop

VHeadline.com petroleum industry commentarist Andrew McKillop writes: Anytime oil prices rise, the business columns of mass circulation newspapers, backed by weighty pronouncements from economic agencies like the OECD, will tell us that rising oil prices are surely bad for business, the economy, and consumer spending.

Rising oil and energy prices, we are assured, will certainly ‘hurt’ growth, investment, the stock exchange, raise inflation and cut jobs. More august economic and finance journals will explain that due to ‘price elasticity’ of demand, large oil price rises will necessarily cut oil demand as well as economic growth.

Not only will this ‘hurt’ economic growth, unless ‘strong measures’ are taken to rein-in prices, but the greedy oil exporters will also be hurt by falling demand for their Sunset Commodity ... their weakening cartel OPEC, controlling less and less of world supply, will then be divided between the most desperate ‘price takers’ seeking revenues to feed their growing populations, and the ‘hawks’ which are obviously the countries needing the most radical ‘persuasion’ to maintain or increase production and more rapidly exhaust their one-time-only and irreplaceable fossil fuel resources.

If the natural play of mostly imaginary ‘free market’ forces does not work in bringing oil prices back to ‘reasonable’ levels of about $20/barrel in 2003 dollars (although finance columnists are less ready, these days, to pontificate on the ‘right and reasonable’ price), then radical solutions must be applied. These tend now to start with regime change in the Middle East, and only secondarily by threatened use of the interest rate weapon.

This latter was tried and proved, with great success in hindsight, in the 1980-83 period. At the time interest rates in most OECD countries were gouged to more than 20%-per-year, triggering wall-to-wall recession not seen in these countries since the 1929-31 entry to what became the Great Depression.

Apart from destroying tens of millions of jobs, and many thousands of businesses, the use of the interest rate weapon also cut oil demand, for the OECD bloc, by about 9% over three years.

After this flirt with 1930s-style economic depression, from 1984, the OECD countries started increasing their oil consumption again. However, ‘structural over-supply’ of oil on the world market, and the occasional oil war such as the ‘liberation of Kuwait’ in 1991 are believed to ensure that oil prices ‘can never again rise’ to dangerously high, economy hurting levels.

The oil supply context, in compliance with prevailing New Economy myth, was and is believed always to be growing as fast, or faster than demand despite vague acceptance of need to reduce oil demand ‘to slow or limit climate change’, or because of ‘long-term depletion’ of oil supplies, perhaps in 40 or 50 years, by which time of course the ‘Hydrogen Economy’ will solve all and any energy problems.

Economic myth and the real world economy

Probably the most basic economic myth is that ‘price elastic’ responses describe inevitable, real and worldwide results of price rises. Any rise in oil prices beyond a certain level (perhaps 1.5 times present prices) is supposed to automatically trigger a fall in world oil demand, because of the economy being so hurt that world economic activity shrinks fast and by a large amount. However, to go from that notion ... simply and utterly controverted by real world and regional oil consumption trends through the last 30 years (see below) ... to an even more fragile and ridiculous assertion that any oil price rise necessarily and immediately reduces economic growth is a travesty of fact and reality.

From today’s price levels for oil (around $30/barrel in the USA for light crudes), ‘extreme’ price levels would be needed before world economic growth fell. Until very elevated oil prices are achieved ... probably well above $70/barrel in 2003 dollars ... world economic adjustment mechanisms will always result in higher oil demand. It is a fact, of course unremarked by the rent-a-crowd ‘experts’ telling us to believe in their ‘rising oil prices hurt growth’ slogan, that oil prices in the period 1998-2000 roughly tripled, from a low around $10/barrel to about $30/bbl in today’s dollars.

Since 1998, world oil demand has increased very significantly, by about 7.5% or 5.5 Mbd. In 2002, Chinese oil demand increased by over 6%. Compared with 1998 (when prices were much lower) China’s oil demand had increased 19% by late 2002. The US economy, in the first 5 months of 2003, was increasing its oil burn at a rate of about 2.9% on an annual base ... the highest growth rate of oil demand for more than 10 years.

Using the above and simple fact, we could say ‘tripled oil prices give record US oil demand growth’, or using Chinese oil demand facts we could say ‘tripled prices maintain very high growth rates of national oil demand'. The first reason for these facts is that oil prices are still low, today. To do damage to the economy, that is ‘hurt’ it, prices would need to triple ... and even if tripled, to $90-per-barrel in today’s dollars, this would barely rival the 30-year peak price of late 1979 in inflation and purchasing power corrected terms, for oil in late 1979 at about $42-per-barrel in dollars of 1979. Interestingly enough, world oil demand increased about 4.5% in 1979, a year in which oil prices roughly tripled from price levels (in today’s dollars) of about $33/bbl to almost exactly $100/bbl.

Another, and perhaps the most basic reason, is that higher oil and energy prices increase economic growth at the world level. Depending on the oil price level, and the fiscal (tax and interest rates), economic and trade structures, etc., of a country or group of countries this increase of economic growth can be with or without inflation.

Even at today’s quite low oil and energy prices ... relative to 30-year record prices as noted above ... current price levels provide some small, but real impetus to world economic growth. This effect will only become strong at price levels around 1.5 times current, that is about $45-per-barrel in today’s dollars. Oil prices well above $90/bbl would be needed to ‘abort’ this growth stimulating effect, through generating high inflation in the weaker, less flexible and sluggish economies of the OECD bloc, but not generating such inflation in the growth-oriented NICs.

How oil prices rises increase economic growth

Any well-paid, fit-to-print advocate of " High oil prices hurt growth " has to explain away the simple fact that the US economy’s absolute record economic growth, since 1945 and to date, was in 1984. With oil prices around $60/barrel in today’s dollars the US economy achieved 7.5% growth on a real GDP base (or about 10.75% growth before inflation adjustment). Today, the US economy is struggling hard to achieve 1.5%-2% real GDP growth, with oil prices one-half the 1984 level in real terms. An explanation can be attempted through focusing record US federal deficit spending decided by the first Reagan administration to fight wars in space, that is the Star Wars program, which was nothing else but military Keynesianism.

The G.W. Bush administration, today, is beating those record deficits, with its virile War on Terror and colonization of Iraq, which again is military Keynesianism, but without a trace of 1984-style economic growth coming into view ... one missing element is much higher oil prices.

Real explanations as to why and how higher oil prices increase growth are found, for example, in the 1975-83 boom in non-oil commodity prices, rapid demand growth for manufactured goods exports from the then fast-emerging New Industrial Countries (NICs) called the Asian Tigers, and greater international liquidity. To the price factors that shaped revenue flows away from the OECD bloc can be added much higher world liquidity in part due to higher oil and energy prices and the financing of payments for higher-priced oil, gas, minerals and other energy-intense commodities. Yet another pro-growth factor due to higher oil prices, in the overall 1973-85 period, was the boom in worldwide oil and gas development and a regime of resource oriented economic development project funding, for lower income developing countries, associated with low interest rates for such projects.

The non-oil commodity price boom of about 1975-83 covered a range of export goods from generally poorer countries that included everything from coffee, copper, nickel, spices, sugar and iron ore for steel to mineral fertilizers, jute and cotton. This price boom was triggered by the earlier Oil Shock of 1973-74, before which oil prices, in today’s dollars languished in the range of around $7-$12/barrel, but had quickly risen to an average price around $42-per-barrel.

Working through the pricing structure for generally energy-intense commodities, with a variable but often 2- to 3-year delay, this price shock resulted in rapidly increasing earnings for commodity exporter countries, which soon translated to increased solvent demand for manufactured goods exports by the Asian Tigers. These latter countries, with a 1- to 2-year delay, then increased their imports of capital goods and services from OECD countries.

The OECD bloc in the 1980-1983 and as previously noted, was wallowing in a self-imposed, entry to Great Depression-style recession, decided only on doctrinal grounds. Fast growth in East and SE Asian economies, and buoyant demand from oil exporter countries undoubtedly helped lift the OECD bloc out of recession in the early 1980s.

This ‘salvation of the OECD economy’ is doubly ironic in the fact that the very welcome external demand on the OECD bloc was fuelled by much higher oil and energy prices; the OECD recession had been decided, in part, to ‘fight the menace’ of high oil prices and the ‘inflation they bring’.

Increasing oil consumption with increasing oil prices

The Asian Tiger economies, as well as countries such as India, Brazil and Pakistan where fast industrialization was beginning to stir in that period (before 1985), were and are oil importers exactly as the OECD countries, but their imports increased as oil prices increases in the 1970s and early 1980s.

Today, China and India are increasing their annual oil utilization at 5% - 6%, unperturbed by the tripling of oil prices through 1998-2000. The ‘traditional’ NICs and ‘emerging’ NICs (like China, India, Brazil, Iran, Pakistan and Turkey) typically spend as much as 20% of total import purchases on oil imports. In the 1973-81 period and for some Asian Tiger NICs this attained over 25%.

• In the same period and for the OECD countries ‘wracked by inflation due to high-priced oil’, oil imports rarely accounted for more than 5%-10% of imports by value.

Attributing inflation to oil prices, as any fit-to-print finance ‘expert’ will do today in 2003 when pontificating on the ‘terrible experience of the 1970s Oil Shocks’ is nice economic propaganda to induce fear about oil price rises. But this sage ‘explanation’ does not tell us why inflation at the time was so much lower in the fast growing NICs of Asia - importing much higher amounts of oil as a proportion of their imports.

The simple and real answer is: fast-growing NICs and the emerging NICs ‘grew their way out’ of inflation. The OECD countries wallowed in inflationary recession. Extreme interest rates, which were set ‘to strengthen the money’ themselves placed a very high floor to any falls in inflation, until the economy had been seriously downsized. So-called ‘good management’ was in fact simple destruction of activity.

The pace of industrial expansion in the Asian Tiger economies through 1974-81 can be understood by a few figures on their oil imports and consumption. NICs like Malaysia, Taiwan, Singapore and South Korea increased their oil consumption by a minimum of 5O% in that 7-year period in which oil prices, in nominal terms, increased by 405% ! Champions of NIC oil demand growth (South Korea and Taiwan) managed an increase of more than 70%, by volume, in that period, during which oil prices attained a little over $100-per-barrel in today’s dollars.

That is ... their oil demand increased with rising prices. Not a few well-paid and respected ‘experts’ on energy economics will opine that oil demand necessarily and obligatorily decreases when prices rise. They should be asked to ‘explain’ why the Asian Tigers, in a period of 405% rise in nominal oil prices, all increased their oil demand, by a minimum of 50% through 8 years

Price elasticity and economic adjustment

As noted above, the more august economic and finance journals will argue for ‘price elasticity of demand’, and this will be negative ... that is oil demand will fall by a certain percentage for a certain percentage price rise. The prestigious or other writers published in such journals will of course not waste their time on real world facts, because their journals are bolstering conventional myth. Comfort for the belief that this ‘function’ expressed by the slogan "oil price rise = oil demand fall" should apply anywhere, in any economy, at any stage of economic development is obtained through narrowly focusing energy-economic performance of large OECD economies during those somber and frightening times of the 1973-81 Oil Shock period. At the time, simply through recession and mass unemployment, oil demand fell.

This ‘price driven response’ was crafted and re-styled as ‘delinking’ or ‘decoupling’ of the economy from oil. Automobiles and airplanes of the time, we were invited to believe, needed almost no oil at all, while the expansion of pizza parlors and financial services was to liberate civilized nations from bondage to price-gouging oil exporters! Smart weapons and massive troop deployments are now used for that purpose.

Thus, for the period 1979-83, in which oil prices in nominal terms increased by about 115% (in the two years 1979-81), several large OECD economies showed year-on-year falls in oil consumption, by volume, that attained nearly 10% in certain quarterly periods, and well above 5% on an annual base.

For example, in 1981 and 1982 volume oil demand of the US and Japanese economies respectively fell by 6.5% and 4.9% (USA) and 6.1% and 5.4% (Japan), all data being on a year-to-year base.

However, it should immediately be noted that preceding the 1979-81 Oil Shock both economies showed consistent annual increases in their oil consumption (more than 3% for the US in 1978), in their ‘adjustment and retrenchment’ following the 1973-74 Oil Shock, in which oil prices had risen by about 295% to a level of about $55/barrel in dollars of 2003.

Through the period of 1975-79, following a short and sharp initial downturn, both in economic growth and oil demand, the USA, Japan, Germany and all other large OECD economies showed fast adjustment through growth of their economies. Typical economic growth rates of these countries (real GDP, annual base) were in the 3%-4% region at that time, well over two times their typical growth rates today.

• By direct consequence ... oil being the ‘swing fuel’ par excellence ... their annual oil consumption growth rates were close, in percentage terms, to their percentage annual economic growth rates measured by increase of real GDP.

It can be noted that because of economic cyclic factors, and energy-economy ‘structural’ factors (including electrification and fuel mix changes), even OECD service dominated economies can experience a higher annual oil demand growth than their growth rates of real GDP, or very closely similar ratios, around 0.95. This is the recent and current situation (since about 1995).

The fall in average real annual growth rates of nearly all OECD economies has not at all entrained a fall to zero growth, or contraction of their oil demand. A case in point concerns the US energy economy in 2002-03.

Despite very sluggish, and erratic quarterly economic growth trends (perhaps an annualized 1.5%-2% growth rate in real GDP terms), oil demand growth of the US economy was at 2.9% in volume terms in the first 5 months of 2003. That is, the US economy, at this moment in time, is growing its oil demand more than its economy. So-called ‘delinking and the energy-lean economy’ are a long way back in the fantasies and myths of Neoliberal ‘good management’ of the economy!

Sequencing and impacts in the ‘classic’ Oil Shocks

In the period following the 1973-74 Oil Shock, during which nominal price rises for oil were about 295%, there was an initial ‘price elastic’ response, that is fall in oil demand growth rates, for nearly all OECD economies. In no case, however, did this stagnation or slight fall in oil demand exceed a 4% reduction in oil demand on an annual base. The period of ‘decoupled’ relationships between economic performance and oil demand did not exceed one year or four successive Quarters in any large OECD economy. As economic growth, oil consumption ‘bounced back’ rapidly, with typical oil demand growth rates approaching three-fifths to three-quarters the annual rate of real GDP growth.

This pattern was very different through 1979-83, following the second Oil Shock. In a context of extreme interest rates, the ‘decoupled’ period in which annual oil consumption fell, always with stagnant or falling real GDP, was very much longer for nearly all large OECD economies. The ‘decoupled’ period, in some cases, extended to about 36 months or 12 successive Quarters, that is from early 1980 to late 1983. Oil demand falls, for the OECD group, attained an aggregate 9% over the three years 1980-83.

Other factors contributed to this context of sluggish and hesitant economic adjustment, notably the accelerated electrification of many OECD countries, itself a policy response to the first Oil Shock of 1973-74. However, after each of the ‘classic’ Oil Shocks of the 1973-81 period there was ‘retrenchment’ and then recovery.

With the return to economic growth there was a return to annual rises in oil consumption within a certain period; the ‘decoupled’ period was much longer when oil prices had attained a level of about $103/barrel in 2003 dollars (in 1979), than in the first Oil Shock adjustment period when they had attained about $56/barrel in 2003 dollars (in 1974).

Real ‘decoupling’ and Peak Oil

No extended ‘decoupling’ occurred after either Oil Shock. It is a travesty of the facts to claim that ‘high oil prices hurt economic growth’ until and unless prices rise to ‘extreme’ levels. Perhaps worse, the inevitable oil and energy price rises due to depletion and the arrival of Peak Oil will firstly bring about a period of faster economic growth at the world level, and faster growth rates for world oil and energy demand, inevitably terminating with inflationary recession.

Without complete restructuring of the economy, food production, and transport systems, and de-urbanization of population the world’s economies will in fact remain ‘coupled’ with oil demand whatever the price, because of the complete dependence of modern urban-industrial economies on oil and oil products. That is, in other words, energy conservation or the reduction of energy demand through transition to a low energy economy will effectively be the only way that advanced urban and service economies of the OECD ‘break the oil habit’.

Forecasts made by the ASPO group are of world peak production capacity for oil being no more than about 83 Million barrels/bay (Mbd) and attained by or before 2010. World demand depending on growth rates can easily exceed 83 Mbd before 2010. The time interval before physical depletion disallows any ‘downward spikes’ in the oil price, and prices for natural gas and coal because of fuel switching, is very short. Current world oil demand is at least 77.9-78.4 Mbd (‘all liquids’ base ... including the small but growing quantities of shale and bitumen oil now produced).

Current growth of world oil demand is considerably higher than projected or hoped for by agencies such as the US EIA and OECD IEA which ‘suggest’ average growth rates around 1.6%-1.8% annual. On a 78 Mbd base this gives about 1.3-1.6 Mbd additional for 2003. By at latest 2006-07 we arrive at 83 Mbd, but in fact world oil demand growth, for reasons explained above, is way above 1.6%-1.8% annual. The current and real growth rates for world oil demand are more like 2%-2.25% annual.

If these are maintained we can likely arrive at 83 Mbd by 2005. After that date there should – at least in theory – be no prospect at all of oil prices ‘down-spiking’. The comedy of communiqués and counter communiqués, OPEC versus the economic forecasting agencies, with periodic falls in the oil price because ‘the world is awash with oil’ will be over. We then enter new territory, in which oil and energy prices can only rise.

Emerging oil price trends and future world demand

As noted by Colin Campbell of the ASPO group, we are moving quite rapidly towards Peak Oil. Even at the low average annual rates of world oil demand growth that held in the 1990-2000 period, total growth of oil demand was impressive. In 1990, before Desert Storm and the restoration of Kuwait to full sovereignty and full oil output, world demand was about 66.5 Mbd. Today it is about 78 Mbd, an increase of 11.5 Mbd, which is considerably more than Saudi Arabia will ever be able to supply however much its current rulers might want to deplete the country’s oil reserves in the shortest possible time.

Recent news releases by these rulers, now anxious to not suffer the ‘regime change’ fate of Iraq’s previous regime, make claims that the country ‘could produce at 10 Mbd for 90 years’, and other communiqués have hinted that production ‘could’ be increased to perhaps 12 Mbd.

The simple fact is that Saudi Arabia has yet to produce more than about 9.5 Mbd. Its exports, after domestic needs of about 0.5 Mbd, are little above 9 Mbd and this may indeed be the peak export capacity of Saudi Arabia because of growing difficulty in raising production, and increasing domestic needs for its fast growing, ever poorer population.

All downside action in oil pricing since March-April 2003, when prices shaved the ‘psychological barrier’ of $40/bbl, can be traced to two main causes. The first is over optimistic interpretations of Iraqi production and export potentials in the short- and longer-term. The second is incorrect and unfounded analysis of world oil demand trends going forward.

Recession trends notably in the US, German and Japanese economies were overvalued, together with the demand reducing impact of the now abating SARS epidemic, while the pro-growth impacts of generally higher oil prices as a factor in economic growth were almost totally ignored.

Oil prices were marked down to the $25-per-barrel range following Baghdad’s capture but have significantly rebounded since.

Today, the extent of pillage, arson and vandalism of key infrastructures either directly or indirectly needed to produce and export oil from Iraq is wider known, and increasing every day. Forecasts made by Dick Cheney that Iraq may produce up to 2 Mbd by end-December 2003, allowing up to 1.45 Mbd of net exports after domestic needs, are very unlikely to be the real outturn. While prewar export numbers are highly variable and open to different interpretations, it is likely they attained over 2.25 Mbd (not including ‘grey’ and illegal exports, themselves around 0.4 Mbd).

Year-end net exports by Iraq will likely struggle to exceed 1-1.25 Mbd, and could in fact be much less, if gathering resistance to military occupation continues, and social chaos does not abate.

As oil production difficulties for New Iraq become better known it is now clear that world supply has lost at least 1.5 Mbd at a time when demand is increasing by about 1.6 Mbd per year.

At the same time, it is unsure that OPEC supply can easily be brought to a full 27.4 Mbd, with recent supply limitation accords, and difficulties for Venezuela and Nigeria all contributing to perspectives of OPEC supply being set in the 26-26.5 Mbd range, and increasingly difficult to raise above that level.

Firm demand will bolster prices

On a year-average basis and for 2003, prices may well remain within the $25-$30/barrel range and then increase outside this range by or before winter 2003. If oil prices firstly remain ‘firm’, and then increase, perhaps to above $45/barrel, this will almost certainly be called an ‘Oil Shock’ by fit-to-print finance columnists and business observers. In the case of ‘high’ oil prices remaining a part of economic reality we can expect the energy economic mechanisms and factors, discussed above, to play a part in deciding and shaping future world oil demand trends, that is ... on balance ... underpinning demand.

The major reason is that oil demand by fast growing manufacturing and export activities in the NICs will tend to more than compensate any fall in oil demand by the OECD economies due to recessionary trends inside the sluggish OECD economic bloc. In addition, the emerging or ‘new’ NICs, especially China and India, but also Brazil, Pakistan, Turkey and Iran account for nearly one-half of the world’s population.

These countries have entered, or are entering the ‘dynamic’ of conventional economic ‘takeoff’ into energy intensive, urban-industrial economies, thus reinforcing their own domestic demand for oil in particular, as well as all other forms of commercial energy.

If it was possible for China to achieve today’s per capita oil demand of the US (an average 25.6 barrels/person/year), China alone would need about 80 Mbd with its current population.

Conclusions

In no way at all do ‘high oil prices hurt growth’ until and unless we attain oil prices probably above $90-per-barrel in today’s dollars.

At price levels of around $45-per-barrel it is in fact likely that economic growth rates, even inside the OECD bloc, will tend to increase considerably relative to current economic growth rates. This pro-growth impact of higher oil prices will operate through the price and revenue impact on lower and middle income primary product exporter countries, leading to increased demand on the NICs, and reinforcing the already existing dynamic of industrialization and urbanization in these countries.

The observed and simple fact that economic growth is strong, or even accelerating in the giant, emerging NICs of China and India, and is buoyant in several other large-population industrializing countries (e.g. Brazil), will ensure that oil demand growth rates at the composite or world level will be rather unlikely to fall below the so-called ‘long term trend rate’ of 1.8%/year, that held for the 1990-2000 period.

Depending on oil price rises, and certainly with price levels of up to $50 - $60/barrel, overall world oil demand growth rates may well break out of the ‘long term trend rate’, as used by the IEA and EIA to forecast future demand, and attain levels of considerably above 2%/year. World oil demand growth may well attain 2%-2.25% per year with prices at $50-$60/barrel.

• Current growth rates are already around 2% annual, probably because of and not despite oil price rises since 1998.

The likely ‘supply pinch’ due to Peak Oil may start to strongly impact price trends ... smaller and shorter ‘down-spikes’ and longer, higher ‘upsikes’ in the oil price ... by as early as 2005.

In this context, and not ironically, the initial economic impact will be a trend towards higher economic growth rates. This growth trend, however, is unlikely to last more than a few years, and will necessarily entrain serious economic deterioration, until and unless energy transition to a low energy economy begins and proceeds at least at the rate of declining fossil energy availability ... with world natural gas supplies likely also to start their decline by about 2015-2018.

Andrew McKillop  is a former expert, policy and programming, Divn A - Policy, DG XVII-Energy, European Commission, founder member, Asian Chapter, Intl Assocn of Energy Economists. You may contact Mr. McKillop by email at andrewmckillop@onetel.net.uk

<a href=www.vheadline.com>venezuela's Electronic News Posted: Sunday, June 22, 2003 By: Gustavo Coronel

"No hay peor sordo que quien no desea oir" "The worst type of deafness belongs to those who do not want to listen" Old Spanish proverb.

"Chavez has utilized 60,000 minutes of national TV and radio hookups to distill his hate... in his "yagua" speech ... only two hours long ... he mentions "Chavez" twice as often as he mentions Bolivar ... he mentions revolution 16 times and democracy 9 times ... he uses terms like armed forces, army, soldiers, generals ... 207 times and citizens only one time ... he mentions coupsters 30 times ... traitors 6 times ... oligarchs 2 times ... squalids not at all ... Chavez shamelessly suggests that Venezuelan history started with him..." The Distillery of Hate; Antonio Pasquali, Venezuelan philosopher and communications expert Tal Cual, page 9, June 20, 2003.

VHeadline.com commentarist Gustavo Coronel writes: My summary of a plan being put together by Venezuelans who are preparing for a probable post-Chavez transition has received at least two replies from followers of the current President. I would like to comment on those replies since it would serve to expand on some aspects of what I see as the Venezuelan tragedy.

I will comment, first, on the commentary by David Cabrera: What are the real incentives for Venezuelan right-wing and semi-fascist ideas?  The headline contains an archaic term (right wing) and an imprecise one (semi-fascist.... is that 50% fascist?).

A response is very disappointing for those who are waiting for concrete ideas on how to help Venezuela emerge from its most profound social and economic crisis since Ezequiel Zamora was alive and destroying the countryside. In fact, it looks as if the commentarist had essentially used my editorial as an excuse to exhibit his new-found knowledge on economic theory. He dedicates about one third of his reply to a description of neoliberalism in the US and China, mentioning Keynes, the "invisible hand," free market and so on ... all well and dandy, but mostly irrelevant to the issue at hand.

So that we are on solid ground, let me remind readers of what the Venezuelan reality looks like (percentages are approximate, as I am writing from memory, but within 10% or so):

• Poverty ... 80-85% of total population.
• Unemployment ... 22% according government ... 25% according the private sector.
• Inflation ... 35% according MVR member Rodrigo Cabezas, 45% according to the private sector.
• GDP for 2003 ... will fall between 10 and 15%, an historical record.
• Internal Debt ... has increased by a factor of six since 1998, to $12 billion.
• External debt ... stable at about $30 billion.
• Crime Rate ... second highest in Latin America. 500 murders per month.
• Quality of Governance ... next to last in Latin America, according the World Bank.
• International Competitiveness ... next to last, according the Davos Group.
• Index of Corruption ... second highest in Latin America, after Paraguay.
• United Nation's Human Development Index ... Dropped four places since 1998.
• Children in the Streets.... more numerous today than in 1998.
• 2003 Budget Deficit ... about $8 billion, new debt being sought.
• Agricultural production ... down about 10% according expert Hiram Gaviria.
• Food consumption in 2003 ... 35% lower than last year. This means hunger.
• Industrial production ... in chaos due to the government restrictions.
• Foreign private investment ... 60% lower than in 2002.
• Car sales  2003 ... 70% lower than in 2002, already considerably down from 2001.
• Currency controls ... foreign currency only available on the black market at Bs. 2,500 per US$.

These indices are just an example of the revolutionary fiasco, although they do not take into consideration the "intangible" components of the crisis, such as the hate, stress,  fear, frustration and indignation prevailing in society.

This explains why 75% of Venezuelans ... as shown by all available surveys ... reject the government today. It also illustrates why it is so important to have a plan to try to revert Venezuela back to normalcy. The experience of Chavez in the Presidency has shown us, beyond doubt, that Venezuela can not be efficiently managed by a charlatan, particularly when surrounded by inept collaborators.

Cabrera claims that "there is hardly anything new" in the plan. I ask: Why should there be "new" elements in the plan, besides those old and valid elements of reconciliation, private investment, justice for all, action over rhetoric? What should be new in a plan is the will to put it into motion. What is new about this plan is that it has been structured by a group of true democrats, in an open forum. This is a welcome change from the Chavez "plan", made as he goes along from Sunday to Sunday in "Alo Presidente." Depending on who he has been talking with, he will decide to create the vertical chicken coops, the route of the empanada, the Bank of Women or a new literacy plan staffed by Cubans, although the country has had over 92% literacy for years now ... without Cuban help.

The commentarist resents that the plan calls for military subordination to civilian authority ... something that is the norm in all developed countries of the world. He says that, then, the military will not be able to sell chickens anymore. Well, they probably will not. Frankly, military selling chickens while the Colombian guerrilla trespass our national borders with total impunity is not my idea of what an army should be.

We spend over $1 billion per year in military toys for these boys ... only good for parades three times a year. I say that this is money badly spent. More conceptually, military subordination to civilian authority is a fundamental ingredient of democracy. Countries which are not democratic ... like Cuba, Iraq and North Korea ... have had a military regime for many years. When we speak of progressive societies we term them civilized, not militarized. In a civilized society Generals do not burp on national TV.

Cabrera is also worried about the privatization of prisons ... he mentions the negative experience of  the Wackenhut Corporation in New Mexico. I am no expert on prisons, but I think that what can not continue is the present situation of our prisons. I go by the Tocuyito prison almost every day, and I am horrified by the sight of this filthy group of buildings which have 2,000 inmates originally designed for a capacity 600 . These inmates eat rats and snakes because money allotted to feed them does not reach the place.

The man responsible for this outrage is General Lucas Rincon Romero, the highest ranking officer in the Venezuelan Army and current Minister of the Interior & Justice ... the same man who asked Chavez to resign in April 2002 and obtained his resignation ... according to his report on national TV in the early hours of April 12th ... as everybody in Venezuela saw and heard.

Rincon Romero is also the same man who has been charged with illegal use of military funds, together with other generals, by no less than by the Military Comptroller.

While the commentarist is fully entitled to his views on the privatization of prisons, and he could well have some valid points in this regard, what he is not entitled to do is to say that "I happen to believe that all of these right wing and semi-fascist ideas should be looked upon carefully to discover the real incentives behind them..."

In plain English, he says that the promotion of the privatization of prisons has as its main objective making a buck or two i.e: the opposition is corrupt.

Well, this is insulting and does Cabrera no credit ... rather than predicting corruption in a future that seems a little distant, he should be protesting, like all decent Venezuelans, against the high levels of corruption present at this very moment within the revolutionary government ... a corruption which already involves many of the big fish and the small fish in the regime. His silence about the current reality contrasts with his sentencing of people he has never seen ... a selective ethical posture which is typical of the fanatical deaf.

Cabrera confesses to being all in favor of a "politically-oriented PDVSA." This is all I need to hear to calibrate his views. What he wants is what we now have ... a PDVSA in shambles, undergoing a power struggle while normal operations grow increasingly faulty, where maintenance has ceased, where exploration, research and training are words of the past. This current PDVSA is a mad house and if this is what he wants ... he can have it.

Mr. Elio Cequea's reply is much more to the point, no intellectual cellulitis here.

However, it shares many of the presuppositions which weakened Mr. Cabrera's posture. Mr. Cequea chooses to say that what the plan means by "national reconciliation" will be no more than "rapid elimination of subversive elements." I ask: why should reconciliation mean this rather than reconciliation? Mr. Cequea shows a deep distrust of the "others" which illustrate how successful the distillery of hate constructed by Chavez has been.

To almost every point of the plan, Mr. Cequea adds his own deformed vision of what he thinks the point "really" means ... economic recovery, to him, is "surrendering to the IMF." Self-financing of universities, to him, only means that no poor student can enter them (he has never heard of scholarships to the bright?). Military obedience to the civil authority only means that the army will be used to "disappear" people.

I have news for him. Today, the armed force in Venezuela is an instrument of popular repression at the service of a man, not at the service of the nation. With this attitude of distrust, Mr. Cequea, how can we solve the Venezuelan crisis by non-violent means?

• If distrust is at the bottom of this discussion, how can we ever hope to get out of this horrible mess?

You remind me of the patient who was to undergo a colonoscopy. The night before, he was put in a hospital room and, just before sleeping, he placed his glass eye in a glass of water by his side. Next morning they went to look for him and he, very nervous, drank the water and swallowed the glass eye. When the doctor inserted the instrument up the tract, the first thing he saw was the glass eye that seemed to be looking at him. Taken aback, he said to the patient: " Mister Smith. I am very sorry, but if you don't trust me, I will not be able to be your doctor."

Well, let us make an effort to be more trusting...

I refuse to join this insane tournament of hate and fear which Chavez has been very good at installing in our country. And. above all, never swallow your glass eye...

Gustavo Coronel is the founder and president of Agrupacion Pro Calidad de Vida (The Pro-Quality of Life Alliance), a Caracas-based organization devoted to fighting corruption and the promotion of civic education in Latin America, primarily Venezuela. A member of the first board of directors (1975-1979) of Petroleos de Venezuela (PDVSA), following nationalization of Venezuela's oil industry, Coronel has worked in the oil industry for 28 years in the United States, Holland, Indonesia, Algiers and in Venezuela. He is a Distinguished alumnus of the University of Tulsa (USA) where he was a Trustee from 1987 to 1999. Coronel led the Hydrocarbons Division of the Inter-American Development Bank (IADB) in Washington DC for 5 years. The author of three books and many articles on Venezuela ("Curbing Corruption in Venezuela." Journal of Democracy, Vol. 7, No. 3, July, 1996, pp. 157-163), he is a fellow of Harvard University and a member of the Harvard faculty from 1981 to 1983.   You may contact Gustavo Coronel at email gustavo@vheadline.com

<a href=www.vheadline.com>Venezuela's Electronic News Posted: Sunday, June 22, 2003 By: Patrick J. O'Donoghue

Venezuelan media sources are speculating about the permanence of Venezuelan Episcopal Conference (CEV) president, Monsignor Baltazar Porras at the Nuncio Apostolic's residence in Caracas. 

Speaking to the media, Porras says the reason why he is staying at the Vatican Embassy is because he is recovering from a bout of pneumonia and the doctors ordered complete rest.

Dispelling rumors that he is seeking asylum, the Archbishop of Merida insists that he will be out by Monday and is not afraid of arrest for alleged civil rebellion on April 12, 2002. 

Another rumor sweeping media sources is that the government has put out an arrest warrant against Bishop of Coro, Monsignor Roberto Luckert for treason. 

Porras says he does not know where the rumors started. 

Attorney General Isaias Rodriguez brushes aside the rumors and denies that state prosecutors have requesting arrest warrants against members of the Catholic Church.  CEV general secretary Jose Luis Azuaje has confirmed that there are no arrest warrants either nationally or in Merida and wryly comments that the Church is waiting because "there could be surprises in these times." 

Movements have been detected inside conservative Church groups to heigthen tension in Church-government relations, especially after Foreign Minister Roy Chaderton Matos' unfortunate remarks about Christians a week ago. 

Venezuelan media simulators have published articles on the matter suggesting the government will clamp down on the Church. The latest is a piece entitled, "The Catholic Church: Hungry 1951-Venezuela 2003?" suggesting that Catholics should oppose a repeat performance. 

• Monsignor Porras also wrote a piece implicitly comparing events in Venezuela to Hitler's Germany.

These incidents would seem to tie in with an analysis suggesting the loony opposition is mounting another coup attempt said to revolve around early July with the military promotions.

<a href=www.vheadline.com>Venezuela's Electronic News Posted: Sunday, June 22, 2003 By: Patrick J. O'Donoghue

Brazilian President Luiz Inacio Lula da Silva says President Hugo Chavez Frias will find a way out of Venezuela's political crisis, which has been brewing for a long time. Speaking after meeting US President George W. Bush in Washington for the third time, Lula says he fully supports the recent negotiations agreement between the Venezuelan  government and opposition ... "it's an important step forward ... Chavez Frias has enormous problems to solve but he also has the will to solve them." 

The Brazilian President points out that Brazil played an active part in the Venezuelan mediation process through its participation in the six-nation (Chile, Mexico, Brazil, Portugal, Spain and the USA) Group of Friends. 

Lula da Silva met President Chavez Frias during a meeting of the Southern Cone Economic Community (Mercosur) in Paraguay last week. 

The US media has welcomed Lula's visit has positive saying he reminds then of Latin American politicians of the 50 and 60s because of his pragmatism and charismatic leadership. It would appear that the US government is coming round to seeing Brazil as its spokesman in the region, especially given the thorny problems of civil war in Colombia, Cuba, narco-trafficking, defense of democracy and of course, Venezuela's unending political crisis. 

Some US analysts are suggesting more caution in US policy, alleging that Brazil has come of age and Lula will pursue greater independence as Brazil attempts to gain economic and political bargaining power in the region turning into an equal partner and possible rival with the USA ... Lula da Silva is backing President Chavez Frias and defending Brazil's economic openings in eastern Venezuela that will have a decisive knock-on effect in the poorly developed Northern Brazil.

<a href=www.sunspot.net>SunSpotBy A Sun Staff Writer Originally published June 22, 2003

Four hundred workers on the banks of Chesapeake Bay at Cove Point were laboring furiously in the rain last week, pouring concrete, laying fiber optics and welding steel to renovate a liquefied natural gas terminal mothballed since 1980.

There was little time to spare.

The first tanker loaded with the liquid form of natural gas, called LNG, is expected at the Calvert County terminal at the end of July. It will pull up to Cove Point's pier a mile offshore and pump millions of gallons of the frigid fuel through submerged insulated steel pipes and into four giant storage tanks on land.

The ship will be the first of several dozen LNG vessels expected to make that same trip to Southern Maryland this summer from natural gas fields around the world.

Cove Point LNG, which will be the largest operating in the country, is being resurrected as the nation grapples with rising natural gas prices and the tightest supply in a quarter century.

The supply crunch has gotten attention in Washington. This month, Federal Reserve Chairman Alan Greenspan warned a congressional panel that rising prices and dwindling supplies could further damage the weakened economy and urged the country to expand its ability to import LNG.

"He all but named Cove Point," said Daniel Donovan, spokesman for Dominion Resources Inc., which purchased the LNG terminal in September from financially strained Williams Cos. for $217 million.

With gas prices up more than 70 percent in a year, it's no wonder that Dominion is spending another $180 million to upgrade the Cove Point terminal, build a fifth storage tank and refurbish the aging pier that seagulls had claimed as home.

LNG is profitable when natural gas prices reach $2.50 to $3.50 per million British thermal units, according to study by the Institute for Energy Law & Enterprise at the University of Houston. Prices now are well above $6 per million Btu.

"This is the furthest the plant has come," said Chris Buffalini, a control room operator who has worked at Cove Point for five years. "I'm really looking forward to the ships coming in."

A number of those who live near the terminal - about three miles from Constellation Energy Group's Calvert Cliffs nuclear plant - have been less eager about the LGN plant's revival.

Some said it would ruin one of the best fishing spots on the bay. Others worried that a spill would create a vapor cloud that would cause a horrific explosion if ignited. Still others expressed concern that the terminal could become another target for terrorists.

"A few years ago, they started talking about reopening the terminal," said James Oneyear, 64, a retired electrician who has lived in Cove Point since 1966. "There were a lot of people who were really disturbed about it. I went to all three of the meetings that they had and they just told us they were going to do it whether we wanted them to do it or not."

Others in the area said they have come to accept it.

"When you live on the bay, you also live with all the things that could happen ... floods, tornadoes, Calvert Cliffs Nuclear Plant," said Barbara Moyers, 64, a Rockville resident who has lived part time in Southern Maryland since the 1970s. "This is just another thing to add to the list. If you were in bed worrying about all the things that could transpire, you'd have to shoot yourself."

To be inspected

Company officials point out that federal regulators must approve the plant's facilities before the first ship arrives.

Once it is operational, the terminal will be monitored by a number of agencies. The Federal Energy Regulatory Commission, which approved the reopening, will continue to inspect the site once a month. Cove Point's underground pipelines will be regulated by the federal Office of Pipeline Safety and its underwater pipes and pier monitored by the Coast Guard.

Analysts say Dominion's move, at a time when LNG imports account for 1 percent of the nation's natural gas consumption, is astute. The federal Energy Information Administration expects LNG to reach 3 percent of consumption by 2020.

"Dominion is one of the largest companies in the nation," said Shelby Tucker, an analyst with Banc of America Securities. "They do exploration of oil and gas, so they have a sense of overall demand and supply in the country. They're smart people. Acquiring Cove Point was the right move at the right time."

By the time Cove Point is fully operational, which is expected to be in August, the plant will be able to store 5 billion cubic feet of LNG, chilled to 260 below zero to convert it to liquid. Cove Point can pump out enough energy a day through three pipelines to run about 3.4 million homes.

A single ship can carry enough LNG to meet the daily energy needs of more than 10 million homes. Dominion is expecting about 60 ships a year bearing fuel from places that include Nigeria, Trinidad and Tobago, Algeria, Venezuela and Norway.

The company and energy analysts say there is little chance that Cove Point will fall victim to the industry conditions that cut short its use more than two decades ago.

Production in domestic gas fields won't be able to meet demand, which is expected to keep growing, especially because new electricity generating plants mostly use clean-burning natural gas as fuel, they say.

Built in the 1970s, Cove Point imported LNG from 1978 to 1980, until a pricing dispute with suppliers in Algeria shut it down.

The terminal remained dormant as natural gas prices dropped and domestic production increased, supplying 83 percent of the nation's needs. An additional 16 percent was supplied by Canada, so there was no need to import LNG.

Reopened in 1995

Then, in 1995, the original owner, Columbia Gas, reopened Cove Point to serve mainly as a storage site for energy companies in peak winter months, when natural gas prices on the spot market are higher.

Columbia never got far with its reactivation plan before selling it three years ago to Texas-based Williams, which moved ahead with plans to reopen Cove Point. In December 2001, the Federal Energy Regulatory Commission gave its approval. But Williams was derailed by the turmoil racking the energy industry and sold out to Dominion, which is based in Richmond, Va.

Dominion is rushing to get ready for the first load of LNG, which will chill the pipes and tanks to prepare them for regular shipments. The utility also is preparing its operational plan, including security and emergency procedures, which must be approved by the Coast Guard before the first tanker docks.

Regardless of who owns the terminal, Oneyear said, the damage done to the Chesapeake Bay and its surroundings will be the same.

"Those ships, when they come in here, are as large as three football fields," said the retired electrician. "That's a lot of ship. They've got big propellers so there will only be a 4-foot difference between the bottom of the ship and the bottom of the bay. It's just going to churn the heck out of the bay."

LNG has had a fairly good safety record compared with those of refineries and other petrochemical plants, according to the U.S. Department of Energy. In the 40 years that LNG has been delivered across the ocean, eight marine incidents worldwide have resulted in LNG spills.

Fatalities occurred at several onshore facilities in earlier years, but industry experts say more stringent operational and safety regulations have been implemented since then.

Cove Point fatality

One of those fatalities occurred at Cove Point in 1979, when LNG leaked through an inadequately tightened LNG pump seal. The liquid vaporized, passed through 200 feet of underground electrical conduit and entered an electrical substation.

The explosion killed an operator in the building, seriously injured a second and caused about $3 million in damage.

Since then, industry analysts and experts say, the technology involved in producing, storing and processing liquid natural gas has improved greatly.

"One of the demonstrations we like to put on for people is putting out a cigarette in a thermos of LNG," Donovan said. "It's not explosive, and it's not flammable. Then we pour it out on a desk and it gradually vaporizes into the sky. I guess someone could burn that, but the chances of them getting close enough to make that happen are pretty remote."

Donovan said Dominion has upgraded Cove Point's electronic surveillance system and that security guards keep a close watch on the grounds.

A Coast Guard vessel will accompany LNG tankers up the Chesapeake, and a 200- to 500-yard security perimeter will keep other boats and ships from getting close.

"I've got mixed feelings about it," said Marvin Green, 81, who has lived in Cove Point Beach for 15 years. "I used to tell people this place is great because we've got three libraries and no traffic lights. Now I tell people the fishing is lousy because of pollution. It's too crowded now."

"But am I worried?" Green said. "At my age, I've already got one foot in the grave. I'm not all that worried about a gas plant."