Chavez Makes Gains in Venezuela Strike

www.guardian.co.uk Wednesday January 29, 2003 12:10 AM

CARACAS, Venezuela (AP) - President Hugo Chavez's government scored a victory in Venezuela's political crisis by producing more than 1 million barrels of oil Tuesday, frustrating a 2-month-old opposition drive to strangle the world's No. 5 oil exporter.

By raising production to a third of its normal rate, Chavez seized another advantage over his opponents - jump-starting Venezuela's oil industry while defeating calls for a February referendum on his rule.

But the 58-day-old strike has put Venezuela on the verge of economic collapse, caused long-term damage to oil infrastructure and forced Chavez to extend his ban Tuesday on U.S. dollar purchases to preserve foreign reserves.

Chavez surpassed the 1 million-barrel benchmark by focusing on newer oil fields where crude is easier to extract. But production may not reach 2 million barrels a day if the government doesn't revive older wells, said Ed Silliere, vice president of risk management at Energy Merchant LLC in New York.

They are going for the lowest hanging fruit on the tree, the easiest to grab,'' Silliere said. In a few weeks, it is going to be a struggle.''

Energy analysts warn that Venezuela has lost production capacity during the strike and that it could take months to restore it. Refining is curtailed, and Venezuela is purchasing its gasoline abroad.

Dissident executives at the state oil monopoly, Petroleos de Venezuela S.A., confirmed production surpassed 1 million barrels, compared to a low of 200,000 during the strike. Exports - normally about 2.5 million barrels a day - have reached 800,000, according to shipping agents.

Oil provides half of Venezuela's government revenue and 70 percent of export earnings.

Chavez has fired more than 5,000 striking workers at the state oil monopoly, which employed 40,000, eliminating dissent and trying to increase government control over the semiautonomous corporation.

State oil company executives warn the firings will make it even more difficult to reach full production.

Opposition leaders insist the oil strike will continue. But they are scaling back in other areas, worried about a public backlash over food, gasoline and medicine shortages. The government will impose limits on daily gasoline sales to reduce lines at service stations, said Luis Vierma, director of hydrocarbons at the Energy and Mines Ministry.

Opposition leaders insist the oil strike will continue. But they are scaling back in other areas, worried about a public backlash over food, gasoline and medicine shortages.

Most small businesses are open - either because they never joined the strike or because they couldn't sustain losses.

Factories, shopping malls, restaurants and schools may reopen next week, at least on a part-time basis, said Julio Brazon, president of the Consecomercio business chamber and a strike leader.

Citing political and economic turmoil, Venezuela's opposition called the strike Dec. 2 to force Chavez to call a nonbinding referendum on his rule in February. They delivered 2 million signatures demanding the vote.

Last week, Venezuela's Supreme Court postponed the referendum indefinitely, citing a technicality.

Chavez's foes are now gathering voter signatures to demand an amendment to reduce the president's six-year term to four years - allowing an early binding referendum on his rule.

A similar idea was floated last week by former President Jimmy Carter, whose Carter Center has joined the Organization of American States and United Nations in trying to broker an electoral solution.

Carter also proposed an alternative: Dropping the strike, and holding a binding referendum halfway into Chavez's term, or next August.

Venezuela's opposition - a coalition of labor, business, leftist and conservative political parties - has won international backing for early elections.

Over Chavez's objections, Spain, Portugal, the United States, Brazil, Mexico and Chile have formed a ``Friends of Venezuela'' initiative and are urging both sides to work quickly on the Carter proposals.

Recession, capital flight, stalled investment and strike damage led Santander Central Hispano investment bank to forecast a 40 percent collapse in economic activity the first quarter of 2003.

The finance ministry on Tuesday extended for another week a freeze on foreign currency sales to protect the bolivar, which has lost 25 percent of its value this year. The bolivar was trading at 2,300 to the dollar Tuesday in secondary markets between private parties, bankers said. It was 1,853 to the dollar before the freeze started.

``Chavez many have the initial advantage, but over the long term, he's going to have a much more difficult path,'' said Steve Johnson, senior policy analyst for Latin America at the Washington-based Heritage Foundation.