Analysis: Strike may cripple Venezuela
By Brian Ellsworth Special to UPI From the Business & Economics Desk Published 1/2/2003 3:38 PM
CARACAS, Venezuela, Jan. 2 (UPI) -- The Venezuelan government and the political opposition have not been able to agree on almost anything in 2002. However, neither side seems to have any doubt that the opposition strike will have a crippling impact in 2003 on the economy of the world's fifth-largest petroleum producer.
The Venezuelan government is losing an estimated $35 million per day from the decline in petroleum revenue, which accounts for almost half of government finances. While it has been able to continue functioning during the first month of the strike, time may be running out.
The first month of the strike is expected to cause an additional reduction of 1.28 percent in 2002 gross domestic product, which declined by a staggering 6.6 percent in the first semester of the year.
"From a fiscal point of view, the government is against the wall," said Francisco Rodriguez, the head of the government economic analysis office. Rodriguez indicated Thursday that in order to continue meeting obligations, it will have to chose between defaulting on domestic debt or stopping payment of government workers' salaries.
Private sector analysts had a similar perspective.
"The extension of the protest beyond 45 days would make it impossible for the government to pay off its debts," says a report released by the currency exchange house Econoinvest. The report estimates that the government only has enough resources to pay debts until the end of January.
To make up for the losses in December, the government has dipped into its dollar reserves. Central Bank figures show that reserves have declined by $1 billion of a total of $15 billion. As a result, the local currency, the bolivar, has declined sharply against the dollar, slipping from Bs 1,263 on the dollar on December 16 to Bs 1,401 by the end of December.
Legislators are expected to announce changes in the proposed 2003 budget this week.
The strike leaders insist that Chávez must either resign or call early elections, both of which he refuses to do. The opposition hopes to shut down the country's refineries to restrict the supply of gasoline for local consumption. This would eventually restrict transportation prevent effective transport of food, increasing the pressure on Chavez. They also hoped that restricting petroleum exports could starve the government of cash, leaving few alternatives when reserves begin to dwindle. As part of the strike, opposition leaders are encouraging businesses and industries not to pay their taxes to further decrease government funds.
Although it has pinched government finances, the strike has far from paralyzed Venezuela. The shortage of gasoline caused mostly long lines and headaches, but no serious food shortages or public order disturbances. Many small businesses have opened their doors, and the informal economy has kept the streets filled with holiday shoppers.
The strike, combined with the possibility of U.S. military action in Iraq, has pushed the price of petroleum on the international market above $30 per barrel, 57 percent higher than the closing price last year.
The strike represents the culmination of the conflict between Chávez, a populist former left-wing leader who led a failed coup in 1992, and the country's political opposition who say he governs autocratically. A similar petroleum strike last April led to a coup that removed briefly removed Chavez after political violence left 19 people dead. Loyalist troops and supporters restored him to power two days later.
The opposition accuses Chavez of trying to create trying to turn Venezuela into a communist state, and is angered by his populist rhetoric and friendship with Cuban President Fidel Castro. They say the Chavez government has politicized the armed forces, taken over public institutions, and restricted free speech.
Nonetheless, Chavez swept in six consecutive elections starting in 1998. He currently has roughly 35 percent support of the population, which is one of the highest levels of support of any Latin American leader today. He still retains enormous support from Venezuela's poor, which make up 80 percent of the country's population.
The opposition spent most of the year blaming Chavez for the economic recession that began in 2002. Nonetheless, they acknowledge that the strike will cause enormous economic damages in the coming year. The government, for its part, has been put in the awkward position of trying to deny that the strike has affected the country, while simultaneously condemning it as "terrorism."
The opposition and the government maintain a media war over the functioning of the petroleum industry. According to government leaders, the country is producing 800 thousand barrels of crude oil per day, far below the 2.8 million barrels allowed by its quota mandated by the Organization of Petroleum Exporting Countries. However, strike leaders say the nation is only producing 150,000 barrels per day.
Government leaders have given varying estimates of actual production. Last week, PDVSA President Ali Rodriguez announced the country was producing 1.2 million barrels per day, but two days later corrected himself, saying the production was in fact only 800,000.
Sources in the United States indicate that U.S. crude reserves have fallen since the start of the strike. However, some say that both sides are manipulating information.
The government also says that refineries are functioning normally, while the opposition assures that they are almost completely shut down.
The government assures that the petroleum industry will be functioning normally by the end of February. During his a visit to Brazil to celebrate the inauguration of President Inacio Lula da Silva, Chavez asked the Brazilian government to send technicians and equipment to help restart petroleum operations.
The request comes a week after the Venezuelan government purchased 520,000 barrels of refined gasoline from Brazil. It was the first time in Venezuela's history that it had ever imported gasoline. It also purchased gasoline from neighboring Trinidad. However, gasoline purchases have been expensive, since the government buys gasoline on the international spot market at roughly $60 per barrel, and sells it at a subsidized rate of $11 per barrel on the domestic market.