Venezuela. Country Profile 2006

Transcription

1 Country Profile 2006 Venezuela This Country Profile is a reference work, analysing the country s history, politics, infrastructure and economy. It is revised and updated annually. The Economist Intelligence Unit s Country Reports analyse current trends and provide a two-year forecast. The full publishing schedule for Country Profiles is now available on our website at The Economist Intelligence Unit 26 Red Lion Square London WC1R 4HQ United Kingdom

2 The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The Economist Intelligence Unit delivers its information in four ways: through its digital portfolio, where the latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising seminars and presentations. The firm is a member of The Economist Group. London The Economist Intelligence Unit 26 Red Lion Square London WC1R 4HQ United Kingdom Tel: (44.20) Fax: (44.20) london@eiu.com Website: New York The Economist Intelligence Unit The Economist Building 111 West 57th Street New York NY 10019, US Tel: (1.212) Fax: (1.212) newyork@eiu.com Hong Kong The Economist Intelligence Unit 60/F, Central Plaza 18 Harbour Road Wanchai Hong Kong Tel: (852) Fax: (852) hongkong@eiu.com Electronic delivery This publication can be viewed by subscribing online at Reports are also available in various other electronic formats, such as CD-ROM, Lotus Notes, online databases and as direct feeds to corporate intranets. For further information, please contact your nearest Economist Intelligence Unit office Copyright 2006 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Intelligence Unit Limited. All information in this report is verified to the best of the author's and the publisher's ability. However, the Economist Intelligence Unit does not accept responsibility for any loss arising from reliance on it. ISSN Symbols for tables n/a means not available; means not applicable Printed and distributed by Patersons Dartford, Questor Trade Park, 151 Avery Way, Dartford, Kent DA1 1JS, UK.

3 R. Machiques Maracaibo ZULIA San Carlos del Zulia San Juan de Colon Tovar Gulf of Venezuela Lago de Maracaibo Mérida San Cristóbal COLOMBIA ARUBA Punto Fijo Puerto Cumarebo Coro FALCÓN Altagracia Churuguara Puerto Cabimas San Felipe Cabello LARA Ciudad Carora 6 Valencia Ojeda Barquisimeto Yaritagua ZULIA El Tocuyo 4 Acarigua Trujillo COJEDES Valera PORTUGUESA Guanare Barinas BARINAS Elorza NETH. ANTILLES Isla Las Aves CARACAS Maracay La Urbana La Guaira Petare Los Teques La Victoria Calabozo Islas Los Roques San Fernando de Apure Puerto Ayacucho Isla Orchila San Juan de los Morros Valle de la Pascua Cabruta San Fernando de Atabapo Isla La Tortuga VENEZUELA Zaraza Moitaco Mapire Isla Blanquilla Isla Margarita Cumana Barcelona CARIBBEAN SEA Puerto La Cruz Anaco El Tigre ANZOÁTEGUI ANZOATEGUI Soledad NUEVA ESPARTA La Asunción Porlamar Río Caribe Carúpano Ciudad Bolívar La Paragua Caripito Maturín Barrancas El Manteco Güiria Gulf of Paria Tucupita Ciudad Guayana Upata GRENADA El Callao TRINIDAD AND TOBAGO Orinoco Delta Orinoco R. Manapire R. Guárico R. TACHIRA TÁCHIRA MERIDA MÉRIDA Apure R. GUÁRICO DEPENDENCIAS FEDERALES Embalse de Guri Arauca R. R. Apure APURE MIRANDA Arauca R. R. Capanaparo R. Caura R. Cinaruco Meta R. Paragua Orinoco R. Caroní R. Erebato R ARAGUA CARABOBO DISTRITO FEDERAL TRUJILLO VARGAS YARACUY GUYANA M atacuni R. AMAZONAS BOLIVAR BOLÍVAR SUCRE MONAGAS DELTA AMACURO DELTA AMACURO R. Orinoc o Main railway Main road International boundary State boundary Main airport Capital Major town Other town July 2006 BRAZIL 0 km miles The Economist Intelligence Unit Limited 2006

4 Comparative economic indicators, 2005 Gross domestic product (US$ bn) Gross domestic product per head (US$ '000) Brazil Mexico Argentina Venezuela Colombia Chile Peru Ecuador Uruguay Bolivia Paraguay Sources: Economist Intelligence Unit estimates; national sources. Mexico Chile Venezuela Uruguay Argentina Brazil Peru Ecuador Colombia Paraguay Bolivia Sources: Economist Intelligence Unit estimates; national sources. Venezuela Argentina Peru Uruguay Chile Colombia Bolivia Ecuador Mexico Paraguay Brazil Gross domestic product (% change, year on year) Venezuela Argentina Brazil Paraguay Bolivia Colombia Uruguay Mexico Chile Ecuador Peru Consumer prices (% change, year on year) Sources: Economist Intelligence Unit estimates; national sources Sources: Economist Intelligence Unit estimates; national sources. Country Profile The Economist Intelligence Unit Limited 2006

5 Venezuela 1 Contents Venezuela 3 Basic data 4 Politics 4 Political background 5 Recent political developments 10 Constitution, institutions and administration 11 Political forces 14 International relations and defence 17 Resources and infrastructure 17 Population 19 Education 20 Health 22 Natural resources and the environment 22 Transport, communications and the Internet 26 Energy provision 27 The economy 27 Economic structure 28 Economic policy 32 Economic performance 33 Regional trends 34 Economic sectors 34 Agriculture 35 Mining and semi-processing 41 Manufacturing 41 Construction 42 Financial services 46 Other services 47 The external sector 47 Trade in goods 49 Invisibles and the current account 49 Capital flows and foreign debt 50 Foreign reserves and the exchange rate 52 Regional overview 52 Membership of organisations 54 Appendices 54 Sources of information 55 Reference tables 55 Population and labour force 55 Central government finances 55 Interest rates 56 Money supply The Economist Intelligence Unit Limited Country Profile 2006

6 2 Venezuela 56 Gross domestic product 56 Nominal gross domestic product by expenditure 57 Real gross domestic product by expenditure 57 Real gross domestic product by sector 58 Prices and earnings 58 Mineral production 58 Domestic cement sales 58 Selected electricity statistics 58 Main composition of trade 59 Main trading partners 59 Balance of payments, IMF series 60 External debt, World Bank series 60 Foreign reserves 60 Exchange rates Country Profile The Economist Intelligence Unit Limited 2006

7 Venezuela 3 Venezuela Basic data Total area Population Main towns Climate Weather in Caracas (altitude 1,035 metres) Language Measures Currency Time Public holidays 912,050 sq km, of which land area, 882,050 sq km; inland waters, 30,000 sq km 23m (2001 census) Population (m), 2001 census Caracas (capital) 1.8 Zulia 2.9 Carabobo 1.9 Tropical, cooler in highlands; the rainy season lasts from May to November Hottest months, May-September, C (average daily minimum and maximum); coldest month, January, 2-13 C; driest months, January-April, 8 mm average rainfall; wettest months, August-October, 145 mm average rainfall Spanish; Indian dialects spoken by 200,000 Amerindians in the remote interior Metric system; local measures used in agriculture include 1 arroba=11.5 kg Bolívar (Bs1=100 céntimos); the annual average exchange rate for 2005 was Bs2,090:US$1; on July 1st 2006 the official exchange rate was Bs2,150:US$1, and the informal parallel exchange rate was around Bs2,570:US$1 Four hours behind GMT January 1st; Thursday-Saturday of Holy Week; May 1st; June 24th; July 5th and 24th; October 12th; December 25th; there are other holidays for bank employees and those in certain other occupations, as well as local holidays The Economist Intelligence Unit Limited Country Profile 2006

8 4 Venezuela Politics The president, Hugo Chávez of the Movimiento Quinta República (MVR), a leftist populist, has been in power since February In the election held in 2000 following the introduction of a new constitution, Mr Chávez was reelected to a new six-year term. He survived an attempted coup in early 2002 and a revocatory referendum in August 2004, and, in the wake of an opposition boycott of the December 2005 legislative election, has total control of the 167- seat unicameral National Assembly. Political background Independence Dictatorship, democracy and the Punto Fijo pact Until the discovery of oil at the end of the 19th century, Venezuela was dependent on coffee and cocoa exports. Originally inhabited by the Carib and Arawak Amerindian peoples, the country was conquered by Spain in the 16th century, ushering in 300 years of Spanish rule. Simón Bolívar, a national hero in Venezuela, led the struggle for independence in the Andean region, which was achieved in Bolívar sought to promote the integration of South American states, perceiving regional unity as an essential counterweight to US power on the continent. This goal proved elusive and, having initially joined with Colombia and Ecuador to form the República de Gran Colombia, Venezuela became fully independent in Throughout most of its post-independence history, Venezuela has been regarded as an exceptional case within the region. Post-independence caudillismo (strongman politics) and military rule ended later than in many other countries in Latin America. Subsequently, a form of civilian democracy that was installed in 1958 endured for three decades, while a wave of authoritarianism and brutal military dictatorships swept through many other countries in the region. Military rule obtained from independence until a brief democratic experiment, the trienio, launched in This was brought to an end in 1948 after a coup against a radical and reformist Acción Democrática (AD) government that had alienated the economic elite. Oppression under the military regime prompted former political enemies to bury their differences, and in 1957 AD and a rival party, the conservative Comité de Organización Política Electoral Independiente (COPEI), devised a political pact, the pact of Punto Fijo, that took effect with the removal of the military government and the transition to the Fourth Republic in Between 1958 and 1988 the country was politically stable, with AD and COPEI dominating national elections. The pact of Punto Fijo was credited with ensuring this democratic continuity, as it guaranteed the sharing of positions in the state administration between AD and COPEI and institutionalised a centrist policy consensus. The Punto Fijo state was characterised by a limited form of democracy and a highly centralised political system, which restricted independent social organisation. All political organisations, including union and private-sector groups, were controlled by AD or COPEI. Although political participation was circumscribed, distribution of patronage to their clientele underpinned the parties support. Oil Country Profile The Economist Intelligence Unit Limited 2006

9 Venezuela 5 export revenue filtered down through the network of organisations affiliated to the two movements, and consent for restricted political participation was obtained through these distributive policies. Recent political developments Mainstream politics becomes discredited Anti-system sentiment supports rise of Mr Chávez Management of petroleum wealth has been the dominant political and economic issue for most of the past century. Political disaffection rose as cycles of oil-led boom and bust became more pronounced following the oil price shocks of the 1970s. Frequent economic crises and endemic corruption eroded support for AD and COPEI, culminating in a crisis of legitimacy for the Punto Fijo system a decade later. Despite mounting fiscal difficulties, successive COPEI and AD administrations eschewed reform of the country s development model, centred on sembrando el petróleo ( sowing the oil ), as political support was dependent on clientelistic distributive policies. Instead, the state bureaucracy became unsustainably large, inefficient and costly. Government and opposition politicians alike encouraged a populist model founded on oil wealth that undermined popular support for economic reform. Carlos Andrés Pérez of the AD was elected president in 1988 on the promise of a return to the good old days of his first presidency ( ), which had coincided with an oil windfall. His decision immediately upon retaking office to adopt stabilisation and structural adjustment measures to address chronic fiscal problems quickly left him isolated. Austerity policies were opposed by his own party and seen as a betrayal by the population. In February 1989 hundreds of people were killed in riots, known as the Caracazo, following sudden increases in public transport fares implemented as part of shock adjustment therapy. After the Caracazo, Mr Pérez sought to defuse rising alienation through political change, and introduced a programme of decentralisation and electoral reform. But deteriorating economic conditions fuelled an intensification of popular resentment. The population s faith in the potential of trickle-down that had underpinned the legitimacy of the traditional political system from the 1950s to the 1970s had all but vanished. In February 1992 six junior officers, including Mr Chávez, attempted a military coup. The coup leaders were imprisoned, but the fact that Mr Chávez achieved folk-hero status illustrated the public s deep disaffection with the political system. A second abortive coup attempt took place in November 1992, and in May 1993 Congress impeached Mr Pérez, after the Supreme Court charged him with the misappropriation of public funds. An independent senator, Ramón José Velásquez, served as interim president until elections in December The founder of COPEI and former president in , Rafael Caldera, capitalised on the popular rejection of Mr Pérez by refashioning himself as a political outsider. Having been rejected as COPEI s presidential candidate, he founded a new political vehicle, Convergencia Nacional (CN), a 19-party alliance. Mr Caldera won the election on a populist platform, marking the first time since 1958 that a party other than the AD or COPEI had won the presidency. However, the election was marred by allegations of fraud and widespread political alienation, reflected in an unprecedented rate of voter The Economist Intelligence Unit Limited Country Profile 2006

10 6 Venezuela abstention, which reached 40%. As the CN failed to win a majority in Congress, Mr Caldera was forced to negotiate with AD in order to secure the passage of legislation. This association with the discredited AD reduced popular support for his government, as did Mr Caldera s attempt to roll back the decentralisation and other political reforms introduced by Mr Pérez in Disaffection with the administration mounted after Mr Caldera adopted an IMF-backed adjustment programme in April Mr Chávez institutes popular democracy Mr Caldera!s term ultimately served to intensify anti-system sentiment. Mr Chávez, who had been released from prison by Mr Caldera in 1994, became the beneficiary of this mass political disaffection. His Polo Patriótico (PP) alliance, which grouped his own MVR with the Patria Para Todos (PPT) and Movimiento al Socialismo (MAS) parties, campaigned on a platform of radical reform of both the economy and the political system. Mr Chávez pledged to replace the discredited Punto Fijo state and lead the country to a new phase, the Fifth Republic. Drawing support from across the social classes, but predominantly from among the poor, Mr Chávez won the presidency in the December 1998 election with 56% of the vote, the largest majority in Venezuela s democratic history, in an election that was regarded as fair. However, a stubbornly high level of voter abstention (36.5%) showed that the alienation created by the decline of the two main traditional parties, AD and COPEI, played a significant role in Mr Chávez s victory. These two parties, which had virtually alternated in power for more than two decades, had become so internally divided that neither fielded a candidate. Abstention in presidential elections (% of electorate) Source: Consejo Nacional Electoral. Mr Chávez assumed the presidency in February On the day of his inauguration, he decreed a popular referendum on the convocation of a Constituent Assembly, in order to rewrite the constitution. The referendum, held in April 1999, approved the assembly, and Mr Chávez s supporters dominated the body, elected in July. Opposition parties unsuccessfully challenged the legality of the constituent process. A new constitution was drafted in just three months and approved in a second referendum held in December Fresh elections were held in July 2000 to relegitimise all elective posts. Mr Chávez was returned with an enhanced landslide, winning 60% of the vote, although abstention reached an unprecedented 43.5%. Mr Chávez s revolution erodes the middle ground The poor standing and demoralised state of the mainstream parties helped assure Mr Chávez a protracted honeymoon period, despite economic policy radicalisation which triggered capital flight and led to economic decline. But by 2001 many middle-class voters who had supported Mr Chávez in 1998 and Country Profile The Economist Intelligence Unit Limited 2006

11 Venezuela became alienated by his inflammatory style and radicalisation of the economic policy agenda, and impatient with the government s failure to deliver on promises to improve personal security, create employment, and reform institutions. The credibility of new institutions created by the 1999 constitution was rapidly undermined by political appointments and by Mr Chávez!s proclivity for by-passing constitutional procedure in order to accelerate the passage of legislation. Amid accusations of increasing authoritarianism and extremism on the part of the Chávez administration, anti-government sentiment broadened. As the main opposition parties, AD and COPEI, were still widely discredited, organisations that had traditionally shied away from direct involvement in political affairs took on a leading role in the burgeoning anti-chávez movement. These included the business chambers, under the leadership of the main business association, the Federación Venezolana de Cámaras y Asociaciones de Comercio y Producción (Fedecámaras), and, most strikingly, middle management at the state petroleum company, Petróleos de Venezuela (PDVSA), whose members would spearhead two national strikes in In 2002, in an attempt to forge greater coherence among these disparate opposition groups, a broad-based opposition front, the Coordinadora Democrática (CD), was created. Efforts to remove Mr Chávez end in failure As a result of the prevailing distrust of the impartiality of political institutions, anti-government sentiment was channelled into street demonstrations. In an increasingly bitter stand-off, government policy initiatives were regularly met with protest action. Anti-government protests climaxed in an abortive coup on April 12th Mr Chávez was removed from power and the president of Fedecámaras, Pedro Carmona, was appointed by the military to replace him. Two days later, a counter-coup, led by elements within the army that remained loyal to Mr Chávez, restored him to the presidency. During his brief de facto presidency, Mr Carmona disappointed some former supporters by appointing a narrow cabinet comprising business figures and decreeing the dissolution of democratically elected institutions. The refusal by the Organisation of American States (OAS) to recognise Mr Carmona s regime was also instrumental in its downfall, as was a series of mass protests in favour of Mr Chávez. Recent election results (no. of seats in the National Assembly) MVR Podemos n/a 19 Patria Para Todos (PPT) 1 11 Partido Comunista de Venezuela n/a 7 AD 29 0 MAS 21 0 COPEI 5 0 Primero Justicia 5 0 Others Total Source: Economist Intelligence Unit. The Economist Intelligence Unit Limited Country Profile 2006

12 8 Venezuela Important recent events 2000 In July Hugo Chávez is re-elected under the Bolivarian Constitution to a new six-year term with 60% of the vote. Abstention of 43.5% is recorded, the highest ever in a presidential election In November Mr Chávez controversially uses enabling legislation to introduce a wide-ranging package of 49 laws addressing social and economic policy, many of them drawn up with little prior consultation. This catalyses a wave of opposition protests and strikes in December An abortive coup attempt in April briefly unseats Mr Chávez. The opposition seeks to regroup around an indefinite general strike from November aimed at forcing Mr Chávez to resign. The unsuccessful strike lasts for two months In February the government imposes draconian exchange controls as a means of halting the loss of reserves and stabilising the economy, following the strike-induced collapse. In December the opposition holds a campaign to collect the 2.5m signatures needed to demand a revocatory referendum on Mr Chávez s tenure After months of political uncertainty, the electoral authority validates oppositiongathered signatures in favour of a recall referendum, which is scheduled for August 15th. In the referendum, more votes are recorded in support of Mr Chávez than against, confirming Mr Chávez s tenure. The opposition disputes the results, but independent observers accept them. Violent demonstrations subside Perceptions of bias in the electoral authority among a large segment of the population persist. Faced with growing pressure to abstain and the prospect of a poor showing, the opposition withdraws from the legislative election held on December 4th. Pro-Chávez candidates sweep an election marked by abstentions. Conciliation efforts following Mr Chávez!s restoration to the presidency rapidly gave way to renewed polarisation and intransigence, with both sides accusing each other of bad faith. A nationwide general stoppage convened by opposition groups in November 2002 sought to force Mr Chávez to resign. Although it dragged on for two months, it failed in its objective and persuaded important opposition groups to shift their efforts towards securing a revocatory referendum, under a clause introduced in the 1999 constitution. The CD successfully mounted a campaign to secure the necessary 2.5m signatures, and a recall referendum was scheduled for August 15th To revoke Mr Chávez s tenure and trigger a fresh presidential election, the opposition needed both a simple majority and more votes in favour of the president s removal than the number (3,757,773) that he had received in the 2000 presidential election. Votes in favour of Mr Chávez s removal, numbering Country Profile The Economist Intelligence Unit Limited 2006

13 Venezuela m, surpassed the latter target. However, they were far exceeded by votes in support of the president, which totalled 5.8m. The results, which were disputed by the opposition, but ratified as free and fair by independent electoral observers, confirmed Mr Chávez in his post until the end of his tenure in The opposition weakens, as does voter participation Mr Chávez s success in the revocatory referendum was aided by the expansion of his core support base in 2004, following a rapid acceleration of spending on social programmes in marginalised neighbourhoods, financed by windfall oil revenue. He also benefited from a rapid and large-scale government voter registration drive targeted at the poor urban communities most likely to support the president. By the time the electoral list was closed to referendum participants in July, it totalled slightly over 14m. This compares with 12.3m in November 2003, when the initial signature-gathering efforts of the opposition required to trigger the referendum took place. Mr Chávez s victory was also a reflection of the weakness of the opposition, which failed to broaden its popular appeal among the large block of voters (estimated at the time as accounting for 40% of the electorate) that supported neither the government nor the opposition. Personal rivalries and policy differences within the CD prevented the opposition from coalescing around a common policy platform or potential presidential candidate. In the absence of any well-elaborated alternative, uncommitted voters were unwilling to vote for Mr Chávez!s mandate to be revoked. In the wake of the referendum, popular support for an opposition movement perceived as divided and ineffective fell drastically. The CD quickly unravelled, and pro-chávez candidates made sweeping gains in state and local elections, held at the end of 2004 and in mid-2005 respectively. As elections for the 167-seat legislature approached at the end of 2005, the main opposition parties were forced to confront the demands of anti-government organisations urging voters not to participate in the election on the basis that this would legitimise a political system that they perceived as authoritarian and an electoral system that they believed to be fraudulent. Reflecting the growing influence of the abstentionist wing of the opposition, the major opposition parties decided to boycott the legislative election just days before the December 4th vote, citing a lack of confidence in the Consejo Nacional de Elecciones (CNE, the electoral authority), and in particular the electoral register and the electronic voting system. The withdrawal of the opposition came despite a last-minute agreement by the CNE, brokered by election observers from the EU and the Organisation of American States (OAS), not to use controversial fingerprinting machines. The government dismissed the opposition s decision as a ploy to avoid an embarrassing defeat, and urged its supporters to vote. Nonetheless, abstention rates (officially put at 75%, although the opposition claims that they exceeded 80%) were high. Moreover, although EU and OAS election observers noted only minor irregularities in the vote (including an extension of voting hours coinciding with efforts to mobilise the Chavista vote), they commented that broad sectors of society had no confidence in the electoral authority. The next presidential election is due in December 2006, and three main opposition presidential candidates have emerged: Teodoro Petkoff, the editor of a daily newspaper, Tal Cual, and a former planning minister; Julio Borges of Primero Justicia (PJ); and Manuel Rosales, the governor of Zulia state (an The Economist Intelligence Unit Limited Country Profile 2006

14 10 Venezuela opposition stronghold). The candidates are working towards holding a primary election, but even if one is held and manages to produce a universally accepted challenger to Mr Chávez, there will still be significant pressure to abstain. This will depend on how concerns that have been raised about the electoral authority are addressed in coming months. Meanwhile, the government has total control of the National Assembly and the boon of windfall fiscal oil revenue with which to finance an ambitious and popular range of social programmes. The lack of a formal opposition has also allowed the government to proceed in the past year with a series of more radical policy moves, such as land reform, which have brought to the forefront concerns over contract and property rights. There have also been growing signs of mismanagement and corruption in recent months. Combined with a failure to address the problem of weak institutions that do not command the respect of broad sections of society, this could set the stage for a gradual erosion of support for Mr Chávez!s government over the longer term, as a lack of checks and balances increases mismanagement and corruption and makes it more difficult for the government to meet its supporters! rising expectations, despite windfall oil profits. Constitution, institutions and administration New constitution in 1999 enshrines a strong executive Venezuela is a federal republic composed of 22 states, one federal district and 72 island dependencies. Venezuela s 27th constitution (the Bolivarian Constitution) was adopted in December 1999, having been hurriedly drafted in just three months. The 1999 constitution concentrates power in the executive, which dominates the four other branches of government (the legislature, the judiciary, the electoral authority, and a new citizens rights council). The presidential term is extended from four to six years, with re-election to one more consecutive term permissible. The Chamber of Deputies (the lower house) and the Senate are replaced with a new unicameral legislature, the National Assembly. The National Assembly s 165 members serve for five years, with seats determined by direct universal suffrage by each state and, in the federal district, by proportional representation. Several seats are reserved for indigenous community representatives. The old Supreme Court is replaced with the Tribunal Supremo de Justicia (TSJ, the Supreme Justice Tribunal). Three new court chambers, handling constitutional, electoral and social affairs are added to the three existing chambers, which have responsibility for political/administrative, civil and penal matters. The old electoral authorities are replaced with the Consejo Nacional Electoral (CNE). The Consejo Moral Republicano (CMR, Moral Republican Council) is created, incorporating the former offices of the comptroller-general and the attorney-general, as well as a new post, the people s defender (ombudsman). The CMR is envisaged as a citizens authority, charged with ensuring that other branches of government fulfil their legal obligations. The 1999 constitution sought to reform political institutions long considered politicised and corrupt, but new institutions have been rapidly weakened by the centralisation of power in the hands of the executive. The Chávez administration has frequently by-passed its own constitution and weakened mechanisms designed to act as checks and balances on the executive. Credibility Country Profile The Economist Intelligence Unit Limited 2006

15 Venezuela 11 of institutions has also suffered from a politicised appointments system. Nowhere have reforms and appointments been more controversial than in the judicial system. During 2003 the Chávez government took the controversial step of dissolving the Corte Primera de lo Contencioso Administrativo (CPCA, the First Administrative Court), which handled cases brought by citizens against the state. In the judicial hierarchy, the CPCA was second in importance only to the TSJ. The government justified its action on the grounds that the CPCA had taken a number of decisions that were clearly biased in favour of the political opposition. During 2004 the introduction of the Ley Orgánica del Tribunal Supremo de Justicia (Supreme Court law) controversially increased the number of Supreme Court judges from 20 to 32. It also allowed appointments to be decided by a simple congressional majority (previously a two-thirds majority was required). The government argues that the legislation, which was pushed through with a simple majority rather than the two-thirds majority stipulated in the constitution, will democratise access to the justice system, but there are concerns that the measure will increase government leverage over judicial authorities. Political forces The ruling PP alliance, formed in 1998, brings together Mr Chávez s own party, the MVR, with two smaller but more politically experienced left-wing groups, PPT and Podemos, a faction of MAS. Many community organisations, interest groups and labour movements also identify with the government and form part of the Chavista network. Small community organisations such as the Círculos Bolivarianos have been encouraged by Mr Chávez to develop outside the organisational framework of the party system with the aim of stimulating new types of political participation. The MVR The ruling MVR is a relatively young and fragile organisation. It was formed in 1994 as the electoral arm of the Movimiento Bolivariana Revolucionaria 200 (MBR-200), a military movement established in the early 1980s by a group of junior army officers, including Mr Chávez. MBR-200 was committed to overthrowing the established political system, which it regarded as corrupt and unrepresentative. A decade of covert activity by MBR-200 culminated in a failed coup attempt in February Although MBR-200 was conceived as a military movement, Mr Chávez sought alliances with parties from the left through contacts fostered by his brother, Adán Chávez, a veteran left-wing activist. Sections of the left participated in the 1992 coup attempt, but their failure to convene a general strike in support of the uprising reinforced Mr Chávez s sceptical view of civilian politicians. Organisationally, the MVR is weak. Its representatives in elective office owe their positions to Mr Chávez s personal popularity. The MVR has failed to build links with the grass roots of Venezuelan society, where the party has been effectively displaced by Círculos Bolivarianos, independently organised groups of Mr Chávez s supporters. Ideological differences between moderates and radicals have caused several splits. The Economist Intelligence Unit Limited Country Profile 2006

16 12 Venezuela MAS and Podemos The PPT AD, COPEI and new opposition forces MAS was founded in 1969 by former communist guerrillas who fought in an eight-year failed insurgency against the Venezuelan state in the 1960s. It did not become a significant political force until the early 1990s, when its shift to the political centre ground enabled it to capitalise on the opportunities created by decentralisation to win power at the regional level. Amid deep internal disagreement, the party decided to support Mr Chávez!s 1998 election campaign. However, MAS was not awarded any cabinet positions by Mr Chávez and tensions quickly surfaced, as MAS became increasingly critical of the government s refusal to negotiate with its opponents. Mr Chávez expelled MAS from the PP in May In 2002 the MAS formally split, with one section of the party (Podemos) opting to support the MVR in the legislature and another (MAS MAS) forming part of the opposition. The PPT was formed in 1998 as a breakaway group of La Causa Radical (LCR). In common with MAS, Causa Radical had its origins in the Venezuelan communist party. Following its formation in the early 1970s, Causa Radical concentrated its organisational activities on the slum areas of Caracas and the industrial sector in Bolívar state, in the east of the country. The party capitalised on growing disaffection with AD and COPEI, and in the 1993 presidential election fielded Andrés Velásquez, a union leader. Mr Velásquez was narrowly defeated in a contest marred by allegations of fraud. Causa Radical split in advance of the 1998 elections, owing to disagreement over whether or not to support Mr Chávez s presidential candidacy. PPT, the pro-chávez faction of Causa Radical, entered the Polo Patriótico alliance with MVR and MAS. In contrast with MAS, PPT politicians have been awarded high-ranking cabinet positions by Mr Chávez, as well as a number of diplomatic postings. The opposition is made up of a number of heterogeneous groupings: the two historically dominant parties, the social democratic AD and COPEI; breakaway groups from these two parties formed in the 1990s, following the failure of AD and COPEI to implement organisational and programmatic reforms; and breakaway groups from the government alliance, mainly moderate centreleft groups in disagreement with policy radicalisation under the Chávez government. Primero Justicia (PJ), Proyecto Venezuela (PV) and Convergencia Nacional were created by former COPEI members, while Alianza Brava Pueblo was set up by disaffected AD politicians. Solidaridad was created by Luis Miquilena, a former mentor of Mr Chávez who left the government in 2001; it joined Causa Radical and MAS among the leftist groups opposing the government. During all of these parties belonged to a broad opposition coalition, the CD, which was created in 2002 to unite the heterogeneous political parties in the campaign to remove Mr Chávez from the presidency. They were joined by non-party groups, such as the main trade union and the business chambers, which had also taken a leading role in rallying opposition activity. However, factionalism persisted within the opposition movement, leading eventually to the break-up of the CD soon after the revocatory referendum in August Individually, the two traditional parties, AD and COPEI, have the largest national recognition and established organisational structures. However, they Country Profile The Economist Intelligence Unit Limited 2006

17 Venezuela 13 Key players to watch suffer from their continued identification with the discredited corrupt political system of the pre-chávez era. The largest of the newer opposition parties, the PJ and the PV, have not yet developed a significant national presence. Hugo Chávez Former army lieutenant-colonel. A charismatic populist, in December 1998 Mr Chávez won the presidential election with widespread support, from the middle class and from the most marginalised members of society, on a platform of radical reform. His victory transformed the political landscape and inflicted a humiliating defeat on the historically dominant parties, Acción Democrática (AD) and the Comité de Organización Política Electoral Independiente (COPEI). In 2000, having reformed the constitution, he won again, extending his base among the most excluded sector of the population but losing much middle-class support. Notwithstanding the number of attempts to remove him from office, Mr Chávez is still the country s most popular politician. His enduring appeal owes as much to the opposition s discredit as to Mr Chávez s ability to connect with society s poorest and to implement social programmes that directly address their needs. Alí Rodríguez Araque Formerly minister of energy and chairman of the state oil company, Petróleos de Venezuela (PDVSA), Mr Rodríguez is also a past president of OPEC. Now minister of foreign affairs, the one-time leftist guerrilla is virtually the only cabinet member who is a major political figure in his own right. Mr Rodríguez belongs to Patria Para Todos (PPT) and is extremely close to the Cuban leader, Fidel Castro. Sober and laconic, with a sharp strategic mind, he is very different in style from the flamboyant president. And while certainly no moderate, he is considered more pragmatic and less inclined to pick unnecessary fights. Diosdado Cabello A former army engineer and a participant in Mr Chávez s failed 1992 coup. Mr Cabello has been a member of the president s inner circle throughout his government, occupying the posts of infrastructure minister, vice-president and minister of the interior. In April 2002 he was sworn in as interim president for a matter of hours, while the cabinet awaited the restoration to power of Mr Chávez, who had been briefly deposed by the military. In 2004 he became governor of the key state of Miranda, which includes part of the capital, Caracas. Seen as among the more efficient managers in an administration tainted by allegations of corruption, Mr Cabello is youthful, ambitious and popular with many grass-roots Chavistas. Although he has lately adopted a low profile, his political future looks promising. Teodoro Petkoff A former communist guerrilla leader and founder of the leftist Movimiento al Socialismo (MAS). Mr Petkoff, now in his early 70s, edits a respected evening newspaper, TalCual, which he founded in He left the MAS over the party s decision to support Mr Chávez s presidential candidacy in In the previous government of Rafael Caldera he had headed the planning ministry, whence he sought to implement a liberal economic reform programme that alienated many among his leftist former allies. A presidential candidate in 2006, Mr Petkoff is a centre-left independent whose main weakness is his lack of a party support base, but who would benefit from his refusal to participate in any of the opposition s previous, ill-fated efforts to oust Mr Chávez, and (among Chavistas) from his evident lack of ties to the US. Julio Borges Mr Borges is recognised as a young, dynamic and effective politician and potentially a significant political actor in the future. Founder of Primero Justicia (PJ), Mr Borges will be a challenger for the presidency in However, his party is still small and suffers from internal tensions that need to be resolved. His principal assets are his youth (he is still in his mid- 30s) and the fact that PJ (founded after Mr Chávez came to power) is unencumbered with responsibility for the corruption and mismanagement of the pre-1998 period. However, his privileged background will remain a handicap in building a broad base of popular support. The Economist Intelligence Unit Limited Country Profile 2006

18 14 Venezuela International relations and defence Mr Chávez makes a bid for regional leadership Venezuela has no history of armed conflict with its neighbours, although there are long-standing territorial disputes with Colombia and Guyana. Mr Chávez has developed his foreign policy in accordance with the main tenets of Bolivarianism. This claims inspiration from the ideas of the 19th-century independence leader, Simón Bolívar, who sought to integrate Latin American countries to counterbalance the power of the US. The Venezuelan government is highly critical of what it sees as US interference in its domestic politics. Relations with the US have been particularly fragile since the short-lived coup in April 2002, which the Chávez administration believes was backed by the US. Other sources of tension with the US stem from Mr Chávez s vociferous criticism of the subregional and bilateral free-trade agreements with the US, which Mr Chávez regards as a tool for deepening US economic hegemony within the region; his vocal opposition to the US s conduct of the war on terror ; and his development of trading ties and relations with countries, such as Iran, Iraq, and Cuba, that have been singled out for opprobrium by the US. Mr Chávez s Bolivarian vision initially met with a sceptical response among neighbouring countries, but since the revocatory referendum in 2004 the Chávez government s attempts to extend its influence in the region through economic integration have achieved greater success, particularly among poorer countrise. However, Venezuela!s increasingly radical international agenda has given rise to unease in the region, particularly in the aftermath of Bolivia!s nationalisation of its gas industry in May 2006 (which Mr Chávez supported), along with Venezuela!s decision to leave the Comunidad Andina (CAN) trade area in mid-2006 in favour of deepening ties with members of the Mercado Común del Sur (Mercosur, the Southern Cone customs union). Relations with Colombia have been fragile since 1999 as a result of Mr Chávez s criticisms of the US-financed anti-narcotics strategy, Plan Colombia, as well as Colombian allegations that Mr Chávez is sympathetic to left-wing Colombian guerrilla groups and has been providing guerrillas with a haven within Venezuelan territory. Tensions have occasionally flared, as in early 2005 following the capture in the Venezuelan capital, Caracas, of a leading member of the Fuerzas Armadas Revolucionarias de Colombia (FARC, a Colombian guerrilla group), which the Venezuelan authorities alleged was in violation of Venezuelan sovereignty. During the diplomatic dispute that ensued, Mr Chávez cut diplomatic ties with Colombia and suspended negotiations on joint investment projects between the two countries. Following an uncomfortable period of acute diplomatic tensions, a rapprochement was reached after a visit by the Colombian president, Alvaro Uribe, to Caracas several weeks later. However, a durable improvement in relations is precluded by the significant ideological differences between Mr Chávez and Mr Uribe. Economic and diplomatic ties between Venezuela and Cuba have been strengthened since Mr Chávez assumed power. Links are deepening further following the signing of a new series of bilateral agreements between the two countries in 2005 as part of the Alternativa Bolivariana para las Americas (ALBA, the Bolivarian Alternative for Latin America). ALBA is presented by the Country Profile The Economist Intelligence Unit Limited 2006

19 Venezuela 15 Venezuelan government as a counter to the (currently stalled) hemispheric accord promoted by the US, although only Cuba, Bolivia and Venezuela are members at present. The ALBA accords build on several existing commercial and social agreements, including the provision by Cuba of medical and educational personnel, sports instructors and other technical assistance to Venezuela in exchange for 53,000 barrels/day of discounted oil supplies. The amount of Venezuelan crude sent to Cuba will rise in the future to 90,000 b/d. In exchange, Cuban experts will train 40,000 Venezuelan doctors and 10,000 teachers. The Cuban government has also undertaken to build on its existing commitment to supply personnel for health and educational social programmes in Venezuela, including Barrio Adentro, a community-based healthcare programme operated by Cuban medical staff. Elsewhere in the Caribbean, Venezuela has developed an energy co-operation accord with 13 countries belonging to the Caribbean Community (Caricom). Under the terms of the deal, Venezuela will provide crude oil and petroleum products on concessional terms, improving on those previously offered through the 2000 Caracas Energy Accord. The new accord consists of a series of sliding scales to allow importers of oil from Venezuela to defray the cost of oil price spikes, to be financed with soft loans repayable over years, depending on the oil price, with a two-year grace period. The programme also involves upgrading storage, refining and distribution facilities in the recipient countries. Looking ahead, Venezuela!s bid to replace Argentina!s non-permanent Latin American seat on the UN Security Council in 2007 would be significantly boosted by the backing of the Caricom countries. Politicisation of military and expansion of reserves In 1999 the four branches of the military were merged into a single national armed force. At the same time, the 1961 constitutional stipulation that insisted on a non-deliberative role in national affairs for the military was removed, and serving personnel were accorded the right to vote. The politicisation of the armed forces is not a new phenomenon. Until the rule was abolished in 1999, legislative approval was required for military promotions, forcing officers to seek patrons in the two dominant parties, AD and COPEI. The major novelty under Mr Chávez stems from his undisguised ambition to forge a joint civilmilitary revolutionary project. This has found expression in the appointment of military figures to high public office and the deployment of the military in infrastructure renewal and social development projects. Mr Chávez s redefinition of corporate identity eroded unity and authority within the armed forces. Although many among the junior ranks remained loyal to Mr Chávez, many active and retired senior officers expressed their opposition. Hostility toward Mr Chávez was particularly pronounced among senior personnel appointed by previous governments. Critics argued that Mr Chávez had eroded the military s monopoly of force by distributing weapons to the estimated 10,000 members of the Círculos Bolivarianos. They also alleged that his government had undermined the territorial integrity of the country by permitting crossborder activities by left-wing Colombian guerrillas. The depth of the fractures within the armed forces was exposed by the abortive coup of April Since then, personnel changes and alterations to the lines of The Economist Intelligence Unit Limited Country Profile 2006

20 16 Venezuela accountability have been undertaken to diminish the possibility of a coup by anti-government elements within the armed forces. The government embarked on an intensive round of military spending in 2005, and is creating a structure of military reserves and territorial guards, intended to reach 2m in number. This is ostensibly aimed at resisting a possible US invasion, but the opposition claims that the political militia will also serve to defend the regime against internal dissent. Military forces Total Army 34,000 Conscripts 27,000 Navy 18,300 Marines 7,800 Air force 7,000 National Guard 23,000 Total armed forces 82,300 Reserves 8,000 Source: International Institute for Strategic Studies, The Military Balance, 2005/2006. Security risk in Venezuela Armed conflict Political polarisation, accompanied by the emergence within both pro- and antigovernment groups of radical factions supportive of political violence, heightens the risk of armed conflict. Violent confrontations have subsided with the resolution of the political crisis in 2004, but with the political environment still highly polarised, violent conflict, particularly during election periods, remains a risk. Civil unrest Public protests, a regular feature of recent years, have subsided with the decline in political tensions. During the political stand-off of , protests"often involving clashes between demonstrators, pro-government groups and the police"had become large and violent. Politically motivated labour unrest"which caused significant disruption to foreign-owned activities, especially in oil"has also subsided with the resolution of political crisis and the weakening of the opposition-controlled unions. Violent crime Violent crime has become a major problem, fuelled by impunity, political polarisation and policing problems. The homicide rate in Venezuela has multiplied in the past decade. According to a respected local human rights organisation, Provea, there were 9,719 murders in 2004 (42 per 100,000 population), almost five times the 2,000 recorded in Growing violent crime is a particular problem in the largest cities; the murder rate in the capital, Caracas, was more than double the national average, at 102 per 100,000, in Most killings occur in poor neighbourhoods, with males aged between 15 and 30 the most common victims. For foreigners, robbery and general lawlessness are the main worries. Car theft has been on an upward trend during the past decade. There has been an increasing reliance on private security firms to protect foreign businesses and expatriate staff, in particular in the oil sector. Country Profile The Economist Intelligence Unit Limited 2006