India Intelligence Report



   Chávez Wins a Polarized Nation

  In yet another irritant for globalization enthusiasts, Venezuelan President Hugo Chávez won the presidential election by a landslide for the 3rd time based on a strong economy and blatant anti-Americanism and global economy he calls "socialist revolution.


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In yet another irritant for globalization enthusiasts, Venezuelan President Hugo Chávez won the presidential election by a landslide for the 3rd time based on a strong economy and blatant anti-Americanism and global economy he calls "socialist revolution." Accused of autocratic behavior by his critics, Chávez looks bent on assuming the role of Cuban dictator Fidel Castro and has even talked about introducing legislation that will allow him to remain in power past 2020. With this election, he now has almost the entire nation including the legislature, Supreme Court, governors of all states (except two), military, national oil company, bureaucracy, and statutory institutions stuffed by his cronies. He often talks about consolidating power further through legal and personnel changes. So blatant was the manipulation that his energy minister was caught on video telling workers to support Chávez or else lose their job. Conceding defeat, his opponent governor of oil-producing Zulia State Manuel Rosales said "It's been a hard fight against the mechanisms, all the dimensions of the government." Yet, he mustered 40% winning Caracas and several states.

Under Chávez, accused of spending millions in virulent anti-Americanism in international forums, state-supported capitalism is thriving. This economic management coupled with a massive boom in a nation which has the highest conventional petroleum reserves outside West Asia, has seen economic growth set to pass 10% making it the fastest growing economy in the Americas.

While deepening the ideological and philosophical engagement with traditional socialist and communist icons, Chávez has also quietly reformed the banking system that has allowed the inflow of large amounts of capital or 84% more in the last one year. He is essentially sing oil to buy social peace and political stability.

However, the huge growth is fueled by consumption and not by domestic manufacturing. Of all the hatred for the US in Venezuela, the country consumes 300,000 cars from American icons Ford and General Motors prompting many to call it a "harbour economy" referring to the amount of imported goods for consumption. The policy of selling oil to encourage consumerism in rich and poor households has seen Chávez's popularity soar and remain high for the last eight years.

Taking the cue, his main opponent in the president race, Rosales has also not raised this issue either for a couple of reasons. For one, he does not want to appear to be a party-pooper and for another he also believes in this policy of financing consumerism.

Chávez's South-South collaboration at the expense of the developed North is seen in India as means to develop energy security. After all, Indian exports to Venezuela are at only USD 42 million and non-oil imports at USD 20 million.

India's Reliance Limited imported 10 million barrels of Venezuelan crude oil this year through October valued at USD 500 million and is seen by Caracas as a potential partner to further its Asia-Pacific strategy through Reliance's Jamnagar refinery which can handle heavier crude with more sulphur.

Oil and Natural Gas Corporation (ONGC) is helping Venezuela certify heavy oil reserves in the Orinoco river belt, expected to contain 235 billion barrels. If this should also be added to the proven 81 billion barrels of crude oil, Venezuela would become the world's top crude reserve holding nation. The good news for ONGC is that its Junin block is in the sub-region thought to contain the most reserves.

Cipla, the Indian pharmaceutical major is also trying to create a strong presence with 120 approved medications expecting to earn USD 15 million this year. In 2006, half of all HIV patients in Venezuela were treated with at least one Cipla drug at only USD 800 per patient compared to USD 14,000 per patient a few years ago.

While political affinity has always been solid given democratic India's socialist roots and bonhomie of communist parties with Chávez, the buoyant Indo-US relations and strong personal relationship between Prime Minister Manmohan Singh and US President George Bush is seen be a challenging balance. Chávez's personalized attacks against Bush in the UN session at New York, contrived relationship with Iran and Syria, and hostile action against neighbors like Peru for negotiating a free trade agreement with the US has not won him many friends in India. India is politically conservative and socially and economically liberal while Venezuela is politically and socially liberal but economically conservative and presents an odd if not inconvenient mix. Further, economic liberalization of India motivated by globalization and free trade is seeing massive investments and development based on domestic industry and consumption while Venezuela's model is purely consumerist unsustainably financed by oil sales. India is trying to divest holdings in Public Sector Units while Venezuela is consolidating-last year, 32 oil service production contracts with multinationals were revamped so the state will be the largest owner. Just like India, other nations that Chávez is courting are expanding trade, political, and military ties with the US.

Commercially too, the Chevron investment of 5% in Reliance is yet another challenge for Chávez's Asia-Pacific oil distribution strategy-however much one tries, it is impossible to evade globalization. While Reliance will gain an edge because of its neutral location in India and special processing facilities, it is unlikely they will stop dealing with American nations for idealistic and philosophical reasons. Even Opposition members in Venezuela point out that their nation should adopt a moderate and independent view rather than an outdated economic model.

Going against the grain of thinking in the world, despite obvious personal attacks on Bush, Chávez is also opposed to US sponsored trade agreements such as the North American Free Trade Agreement (NAFTA) arguing that regional trade and especially between developing countries are more important. The personal animosity between Chávez and Bush surfaced more blatantly when Venezuela rejected rapprochement initiated by the US with Chávez doubting if "the US Government is sincere" still harboring ill-will against the US for not condemning a 2002 coup against him. While Chávez calls Bush a "donkey," "Mr. Danger," "drunkard," and "Satan," members of both parties in the US call him a "thug" or a "two-bit dictator." The Bush administration has also blocked some credit lines and arms sales as well as blacklisting Chávez for refusing to cooperate with the U.S. anti-narcotics fight and call him a threat to regional security. Paradoxically, the US is the largest buyer of Venezuelan oil and in essence financing Chávez's agenda.

Apologists for Chávez say that Venezuela is reluctant to open up its markets because of past experiences with multi-national companies. They argue that while India has had large-scale expertise in domestic industries, Venezuela does not. This they say is reason for Chávez's strategy. However, it is incomprehensible why Chávez is sponsoring unsustainable consumerism instead of developing local industries that create inherent national value. There are already signs of social fracture as homicides are up 67% since 1999, gun-related deaths are highest among 57 nations evaluated by UNESCO, more than 5,520 presumed executions by the police between 2000 and 2005 with fewer than 100 convictions reported by Human Rights Watch. Naturally, violent crime is the top concern of Venezuela's voters.

How long can Chávez continue to ignore these social issues by governing through a system of extensive handouts that eases the purchase of basic goods depends on how much the world still needs oil and the world's largest consumer of oil, US, continues to buy from Venezuela.