Venezuela. Country Profile 2005

Country Profile 2005 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 http://www.eiu.com/schedule The Economist Intelligence Unit 15 Regent St, London SW1Y 4LR United Kingdom

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R. Machiques Maracaibo ZULIA San Carlos del Zulia San Juan de Colon Tovar Gulf of Venezuela Lago de Maracaibo MØrida San Cristbal COLOMBIA ARUBA Punto Fijo Puerto Cumarebo Coro FALCN Altagracia Churuguara Puerto Cabimas San Felipe Cabello LARA Ciudad Carora 6 Valencia Ojeda Barquisimeto Yaritagua 2 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 Los Teques La Victoria Calabozo Islas Los Roques La Victoria 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 ANZOATEGUI ANZO`TEGUI Soledad NUEVA ESPARTA La Asuncin Porlamar Ro Caribe Carœpano Ciudad Bolvar La Paragua Caripito Maturn Barrancas El Manteco Giria Gulf of Paria Tucupita Ciudad Guayana Upata GRENADA El Callao TRINIDAD AND TOBAGO Orinoco Delta Orinoco R. Manapire R. GuÆrico R. TACHIRA T`CHIRA MERIDA MRIDA Apure R. GU`RICO DEPENDENCIAS FEDERALES Embalse de Guri Arauca R. R. Apure APURE MIRANDA Arauca R. R. Capanaparo R. Caura R. Cinaruco Meta R. Paragua Orinoco R. CaronR. Erebato R. 1 2 3 4 5 6 ARAGUA CARABOBO DISTRITO FEDERAL TRUJILLO VARGAS YARACUY 1 3 5 GUYANA M atacuni R. AMAZONAS BOLIVAR BOL VAR 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 2005 BRAZIL 0 km 100 200 300 400 0 miles 100 200 ' The Economist Intelligence Unit Limited 2005

Comparative economic indicators, 2004 Gross domestic product (US$ bn) Gross domestic product per head (US$ 000) Mexico Brazil Argentina Venezuela Colombia Chile Peru Ecuador Uruguay Bolivia Paraguay 676.5 604.7 Mexico Chile Venezuela Argentina Uruguay Brazil Peru Ecuador Colombia Paraguay Bolivia 0 25 50 75 100 125 150 175 200 Sources: Economist Intelligence Unit estimates; national sources. 0 1 2 3 4 5 6 7 Sources: Economist Intelligence Unit estimates; national sources. Gross domestic product (% change, year on year) Consumer prices (% change, year on year) Venezuela Uruguay Argentina Ecuador Chile Peru Brazil Mexico Colombia Bolivia Paraguay Venezuela Uruguay Brazil Colombia Mexico Bolivia Argentina Paraguay Peru Ecuador Chile 21.8 0 5 10 15 20 Sources: Economist Intelligence Unit estimates; national sources. 0 2 4 6 8 10 Sources: Economist Intelligence Unit estimates; national sources. The Economist Intelligence Unit Limited 2005 www.eiu.com Country Profile 2005

Venezuela 1 Contents Venezuela 3 Basic data 4 Politics 4 Political background 5 Recent political developments 10 Constitution, institutions and administration 11 Political forces 13 International relations and defence 17 Resources and infrastructure 17 Population 19 Education 20 Health 22 Natural resources and the environment 23 Transport, communications and the Internet 25 Energy provision 26 The economy 26 Economic structure 27 Economic policy 31 Economic performance 32 Regional trends 32 Economic sectors 32 Agriculture 33 Mining and semi-processing 39 Manufacturing 39 Construction 40 Financial services 43 Other services 45 The external sector 45 Trade in goods 46 Invisibles and the current account 46 Capital flows and foreign debt 47 Foreign reserves and the exchange rate 49 Regional overview 49 Membership of organisations 50 Appendices 50 Sources of information 51 Reference tables 51 Population 51 Labour force 51 National electricity statistics 52 Central government accounts 52 Money supply The Economist Intelligence Unit Limited 2005 www.eiu.com Country Profile 2005

2 Venezuela 53 Interest rates 53 Gross domestic product 53 Nominal gross domestic product by expenditure 54 Real gross domestic product by expenditure 54 Real gross domestic product by sector 55 Inflation 55 Crop production 55 Minerals production 55 Cement sales 56 Main composition of trade 56 Main trading partners 57 Balance of payments, IMF series 57 Foreign reserves 58 External debt, World Bank series 58 Exchange rates Country Profile 2005 www.eiu.com The Economist Intelligence Unit Limited 2005

Venezuela 3 Venezuela Basic data Total area Population Main towns 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 Climate Weather in Caracas (altitude 1,035 metres) Language Measures Currency Time Public holidays Tropical, cooler in highlands; the rainy season lasts from May to November Hottest months, May-September, 18-32 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 2004 was Bs1,891:US$1; on July 1st 2005 the official exchange rate was Bs2,150:US$1; 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 2005 www.eiu.com Country Profile 2005

4 Venezuela Politics The president, Hugo Chávez of the Movimiento Quinta República (MVR), a leftist populist, has been in power since February 1999. In the election held in 2000 following the introduction of a new constitution, Mr Chávez was reelected to a new six-year term. Politics has been dominated during the past year by the opposition s campaign to secure his removal through a revocatory referendum. 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 1819. 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 1830. Throughout most of its post-independence history, Venezuela has been regarded as an exceptional case within the region. Post-independence caudillismo (strong-man 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 1945. 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 1958. 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, clientelist distribution of patronage underpinned the parties support. Oil Country Profile 2005 www.eiu.com The Economist Intelligence Unit Limited 2005

Venezuela 5 export revenue filtered down through the network of organisations affiliated to the two movements and consent for restricted political participation was obtained though 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 rentist mentality 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 (1974-78), 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 1993. The founder of COPEI and former president in 1968-73, 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 2005 www.eiu.com Country Profile 2005

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 1989. Disaffection with the administration mounted after Mr Caldera adopted an IMF-backed adjustment programme in April 1996. 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) 1978 12.4 1983 12.3 1988 18.1 1993 39.8 1998 36.5 2000 43.5 Source: Consejo Nacional Electoral. Mr Chávez assumed the presidency in February 1999. 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 1999. 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 triggering capital flight and leading to economic decline. But by 2001 many middle-class voters who had supported Mr Chávez in 1998 and Country Profile 2005 www.eiu.com The Economist Intelligence Unit Limited 2005

Venezuela 7 2000 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 bypassing 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 up 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 2002-03. 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 In light of a prevailing distrust of the impartiality of political institutions, antigovernment 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 2002. 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 countercoup, 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 legislature) 1993 1998 2000 Senate Chamber of Deputies Senate Chamber of Deputies National Assembly MVR n/a n/a 12 44 76 AD 16 55 20 64 29 MAS 5 24 5 19 21 Proyecto Venezuela n/a n/a n/a n/a 7 COPEI 14 53 8 26 5 Primero Justicia n/a n/a n/a n/a 5 La Causa Radical 9 40 1 5 5 Others 6 31 11 50 17 Total 50 203 57 208 165 Source: Georgetown University, Political database of the Americas. The Economist Intelligence Unit Limited 2005 www.eiu.com Country Profile 2005

8 Venezuela 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 whereby all elected officials may be subjected to a referendum midway through their term, if a petition is signed by 20% of voters in the relevant constituency. In late 2003 the CD mounted a campaign to mobilise the requisite signatures. After several months of uncertainty, triggered by doubts over the validity of some signatures, the Consejo Nacional Electoral (CNE, the national electoral authority) accepted that sufficient signatures (2.5m) had been collected to trigger a recall referendum, which was scheduled for August 15th 2004. 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 he had received in the 2000 presidential election (3,757,773). Votes in favour of Mr Chávez s removal, 3.99m, surpassed the latter target. However, this was 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 2007. A weak opposition drives an acceleration of policymaking Mr Chávez s success 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 wide-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. Several months on from the referendum, disillusionment with an opposition movement perceived as divided and ineffective had prevented the resurgence of a meaningful political opposition to the government. By mid-2005 this had (in combination with windfall oil revenue) facilitated an acceleration and radicalisation of the government s policymaking agenda, and appeared likely to allow the government to strengthen its position in the regional and legislative elections due later this year. It also, however, set the stage for the re-emergence of internal divisions within the government that had previously been subsumed by the need for unity in the conflict with the anti-government Country Profile 2005 www.eiu.com The Economist Intelligence Unit Limited 2005

Venezuela 9 movement. The run-up to local elections in August was marked by chaotic wrangling for position on the pro-government electoral list. Important recent events 1998 In December Hugo Chávez wins the presidential election with 56% of the vote, the largest majority since 1958. He defeats Henrique Salas Römer, a candidate endorsed at the last minute by the two historically dominant parties, Acción Democrática (AD) and the Comité de Organización Política Electoral Independiente (COPEI). 1999 A referendum in April endorses the convocation of a Constituent Assembly. In December the new constitution (the Bolivarian Constitution) is approved by 71% of voters (with an abstention rate of 56%). 2000 In July Mr 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. 2001 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. 2002 Around 300,000 anti-government protesters march on the presidential palace on April 12th. A violent confrontation with government supporters ensues, during which Mr Chávez is reported to have resigned. Sections of the military support the appointment of an interim government. This collapses within 48 hours and Mr Chávez is restored to power. In December opposition groups launch an indefinite general strike to pressurise Mr Chávez into resigning. The stoppage disintegrates two months later as support peters out amid widespread economic collapse. 2003 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 mobilise more than 2.4m signatures needed to demand a revocatory referendum on Mr Chávez s tenure. 2004 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. The Economist Intelligence Unit Limited 2005 www.eiu.com Country Profile 2005

10 Venezuela 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 consecutive term permissible. The Chamber of Deputies (the lower house) and the Senate is 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 of the people s defender (ombudsman). The CMR is envisaged as a citizens power, 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 bypassed its own constitution and weakened mechanisms designed to act as checks and balances on the executive. Credibility of institutions has also suffered from an appointments system still perceived as politicised. 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 Litigious Court), which handled cases brought by citizens against the state. In the justice system 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, and allows 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 is an attempt to increase leverage of the administration over judicial authorities. Country Profile 2005 www.eiu.com The Economist Intelligence Unit Limited 2005

Venezuela 11 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 MAS and PPT The ruling MVR is a 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 1992. Although the 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 grassroots 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. Divisions were set aside for a time while pro-chávez forces united to combat the threat of his removal from office, but have re-emerged forcefully since the 2004 recall referendum. MAS was founded in 1969 by former communist guerrillas who fought in an eight-year-long 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. MAS figures were appointed to cabinet positions by Rafael Caldera (1994-98) but internal party divisions emerged over the Caldera government s adoption of an IMF programme in 1996. Disaffected sections began working with Mr Chávez and, amid deep internal disagreement, the party decided to support his 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 2001. 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 Economist Intelligence Unit Limited 2005 www.eiu.com Country Profile 2005

12 Venezuela Main political figures Hugo Chávez Former army lieutenant-colonel. A charismatic populist, in December 1998 he won the presidential election with widespread support, including 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). 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 members and to target social programmes that directly address their needs. Ali Rodríguez A former communist guerrilla and labour lawyer, and long-standing personal friend of Fidel Castro, Mr Rodríguez is the architect of the Chávez government s oil policy. He served as minister of energy in 1999-2000, then as OPEC president, before being brought back to Venezuela as president of Petróleos de Venezuela (PDVSA, the state petroleum company) following the abortive coup of April 2002. Mr Rodríguez was instrumental in bringing Venezuela, previously a notorious quota-buster, back into the OPEC fold, in deepening ties with other OPEC members and in creating the OPEC price-band mechanism. As PDVSA s president, he introduced measures to tighten state control over budgets. In 2004 he was appointed foreign affairs minister, where he has been a vocal critic of alleged US interference in domestic politics. Andrés Izarra Mr Izarra was a journalist in the private-sector media until the coup attempt against Mr Chávez. He subsequently assumed responsibility for information and communications at the Venezuelan embassy in the US. Young and recognised as talented, Mr Izarra is an important point of connection between the government and its activist base. Promoted to the post of minister for information and communication in 2004, he has aggressively pursued the government s aim of neutralising the power of the anti-government private-sector media. He is recognised as having potential to develop into a future leader of the Chavista movement. Julio Borges Mr Borges is recognised as a young, dynamic and effective politician and potentially a significant political actor in the future. A co-founder of the Primero Justicia (PJ, Justice First) party, a youthful, right-of-centre organisation, Mr Borges has a background of work in non-government organisations (NGOs) at community level. Mr Borges also played a leading role in the development of the Coordinadora Democrática (CD) opposition alliance. Initially marginalised by elder statesmen from the ranks of the opposition, he was not considered a significant contender for the presidential candidacy of the umbrella movement. His political fortunes have enjoyed an upswing following the displacement of leading CD politicians in the October 2004 regional elections, and he is a leading potential contender for a future opposition presidential candidacy. His party does not, however, have a large presence outside its heartlands in Caracas and the state of Miranda. Country Profile 2005 www.eiu.com The Economist Intelligence Unit Limited 2005

Venezuela 13 The PPT was formed in 1998 as a breakaway group of La Causa Radical (LCR, Causa Radical ). 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 highranking cabinet positions by Mr Chávez, and a number of diplomatic postings. AD, COPEI and new opposition forces 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 centre-left 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 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 2002-04 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 2004. Individually, the two traditional parties, AD and COPEI, have the largest national recognition and established organisational structures. However, they 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 still not developed a significant national presence. International relations and defence Foreign policy is redefined under Mr Chávez 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 The Economist Intelligence Unit Limited 2005 www.eiu.com Country Profile 2005

14 Venezuela in April 2002, which the US administration appeared to welcome. Other sources of tension with the US stem from Mr Chávez s vociferous criticism of the proposed Free-Trade Area of the Americas (FTAA), 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 ; his advocacy of the sovereign rights of states; and his development of trading ties and relations with countries, such as Iran, Iraq, Libya and Cuba, which 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. The resolution of the political crisis following the referendum, combined with a series of elections within the region that have brought to power politicians with ideologies more sympathetic to Mr Chávez, has allowed the development of a series of framework agreements for economic co-operation with Argentina and Brazil, for example. Further progress in pursuing regional agreements will be determined by Venezuela s reputation as a reliable trading partner. Tensions have previously arisen with its trading partners in the Comunidad Andina (CAN, the Andean Community, which comprises Bolivia, Colombia, Ecuador, Peru and Venezuela) over Venezuela s unilateral protectionist measures. 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. In early 2005 tensions surrounding border security and Mr Chávez s alleged sympathy for Colombian guerrillas rose sharply, 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 set to deepen further following the signing of a new series of bilateral agreements between the two countries in early 2005 as part of the Alternativa Bolivariana para las Americas (ALBA, the Bolivarian Alternative for Latin America). ALBA is presented by the Venezuelan government as a counter to the FTAA promoted by the US, although only Cuba and Venezuela are currently members. 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 Country Profile 2005 www.eiu.com The Economist Intelligence Unit Limited 2005

Venezuela 15 (b/d) of discounted oil supplies. The amount of Venezuelan crude sent to Cuba will rise 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. Politicisation of military 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 infrastructural 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, active and retired senior officers expressed their opposition. Hostility toward Mr Chávez was particularly pronounced from 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 Boliviaranos. 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 2002. Since then, personnel changes and alterations to the lines of accountability have been undertaken to diminish the possibility of a coup by anti-government elements within the armed forces. Government concern as to the possibility of infiltration of the armed forces by anti-government groups was also reflected in a decision by the Venezuelan administration in 2005 to cancel military co-operation programmes with the US. 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, 2003/04. The Economist Intelligence Unit Limited 2005 www.eiu.com Country Profile 2005

16 Venezuela 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 2001-04, 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 13,647 murders in 2003 (59 per 100,000 population), more than six times the 2,000 recorded in 1991. Growing violent crime is a particular problem in the largest cities; the murder rate in Caracas was three times the national average in 2003, at 154 per 100,000. 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. Organised crime The US State Department classes Venezuela as a major transit country for cocaine and heroin. The implementation of the US-sponsored Plan Colombia drug-control programme may displace more trafficking activities to Venezuela. Drug-trafficking rarely impinges directly on foreign business, but it contributes to a deterioration of the security environment by fuelling corruption, gang warfare and drug addiction. However, drug-trafficking and possession is one of the few areas in which available data suggest that crime has fallen since 1998. Kidnapping Security along the border with Colombia is poor, and kidnapping in this area is a problem. Colombian guerrillas earn a large percentage of their income from extortion and kidnappings, and there has been an increase in the number of reported incursions by both the Ejército de Liberación Nacional (ELN) and the larger Fuerzas Armadas Revolucionarias de Colombia (FARC). However, although the threat from Colombia is under constant review by Venezuelan officials, the danger remains modest at present, with incursions usually brief and limited to Venezuela s remote western region, where few multinational companies conduct business. The crucial oil hub of Maracaibo in the western state of Zulia has been untouched by rebel threats so far. Country Profile 2005 www.eiu.com The Economist Intelligence Unit Limited 2005