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Venezuela: Oil money

By Michael Rowan | El Universal

30.12.04 | In 2005, the Chavez regime may face the same problem former president Carlos Andres Perez faced in the 1970s: the oil money may dry up. Economic analysis demonstrates that if Venezuela's oil barrel is priced at $35 for the year, then the current waste, corruption, inefficiency, subsidy, intervention and wild-eyed projects can be paid for, but only with more debt, inflation and confiscated funds of PDVSA and the central bank. At $30 per barrel, it is extremely difficult to do so, and at $25 per barrel, impossible.

Chavez has done everything he can to prop up the price of oil at OPEC. But OPEC quotas are only one of many factors determining price. Oil inventories, winter climates, and demand - especially in China - all may be more important. In early December, when OPEC nominally cut supply quotas by several percent to prop up the oil price, it actually fell the next day on the world market. Since 1999, Chavez has supported a price band of $22-28 for OPEC, which it has exceeded on the top end for more than a year. His support for quota cuts at $35 is something that the rules say should happen only under $22. But Chavez needs the high price because he is producing way fewer barrels compared to when knowledge workers, and not military loyalists, ran PDVSA, a fact he refuses to acknowledge publicly.

It was the volatile, roller-coaster behavior of the oil price that defeated the past grand plans of Venezuela and most other oil states. So the big test for him will be when Chavez has to cut spending drastically. A recent Zogby poll shows that even at today's wasteful spending, few Venezuelans approve of his economic management. What will happen when the spending is cut in half? Unrest in the barrios, unmet demands from his base, and rising poverty in the face of profligate spending on international trips, subsidies to Cuba, and corruption in his own ranks, threaten Chavez at the core. While Chavez believes his enemies are the United States and oligarchs, the truth may be more startling. The real enemy of Chavez is Chavez. When poor people recognize how Chavez has fooled them, the wrath that brought down CAP will come one more time to the gates of Miraflores, this time with Chavez inside.

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