Venezuela. Country Profile 2007

Country Profile 2007 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 www.eiu.com/schedule The Economist Intelligence Unit 26 Red Lion Square London WC1R 4HQ 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 COLOMBIA Cabimas Punto Fijo Altagracia Ciudad Ojeda ZULIA ARUBA 4 Valera Barinas Churuguara Puerto LARA San Felipe Cabello Carora 6 Valencia Barquisimeto Yaritagua El Tocuyo Trujillo BARINAS Elorza Puerto Cumarebo Coro Acarigua COJEDES Guanare PORTUGUESA 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 Soledad Ciudad Bolívar La Paragua Porlamar 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. Apure R. Embalse de Guri Arauca R. R. Apure APURE GUÁRICO DEPENDENCIAS FEDERALES MIRANDA Arauca R. R. Capanaparo R. Caura R. Cinaruco Meta R. Paragua Orinoco R. Erebato R. 4 5 6 1 2 3 ARAGUA CARABOBO DISTRITO FEDERAL TRUJILLO VARGAS YARACUY 2 1 3 5 GUYANA M atacuni R. AMAZONAS NUEVA ESPARTA 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 February 2007 BRAZIL 0 km 100 200 300 400 0 miles 100 200 The Economist Intelligence Unit Limited 2007

Comparative economic indicators, 2006 Gross domestic product (US$ bn) Gross domestic product per head (US$ '000) Brazil Mexico Argentina Venezuela Chile Colombia Peru Ecuador Uruguay Bolivia Paraguay Chile Mexico Venezuela Uruguay Argentina Brazil Peru Ecuador Colombia Paraguay Bolivia 0 200 400 600 800 1,000 Sources: Economist Intelligence Unit estimates; national sources. 0.0 2.0 4.0 6.0 8.0 10.0 Sources: Economist Intelligence Unit estimates; national sources. Gross domestic product (% change, year on year) Consumer prices (% change, year on year) Venezuela Argentina Peru Uruguay Colombia Mexico Ecuador Bolivia Chile Paraguay Brazil 0.0 2.0 4.0 6.0 8.0 10.0 12.0 Sources: Economist Intelligence Unit estimates; national sources. Venezuela Argentina Paraguay Uruguay Colombia Bolivia Brazil Mexico Chile Ecuador Peru 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 Sources: Economist Intelligence Unit estimates; national sources. Country Profile 2007 www.eiu.com The Economist Intelligence Unit Limited 2007

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 19 Health 21 Natural resources and the environment 22 Transport, communications and the Internet 25 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 40 Manufacturing 40 Construction 40 Financial services 45 Other services 46 The external sector 46 Trade in goods 47 Invisibles and the current account 48 Capital flows and foreign debt 49 Foreign reserves and the exchange rate 51 Regional overview 51 Membership of organisations 52 Appendices 52 Sources of information 53 Reference tables 53 Population and labour force 53 Central government finances 53 Interest rates 54 Money supply The Economist Intelligence Unit Limited 2007 www.eiu.com Country Profile 2007

2 Venezuela 54 Gross domestic product 54 Nominal gross domestic product by expenditure 55 Real gross domestic product by expenditure 55 Real gross domestic product by sector 56 Prices and earnings 56 Mineral production 56 Domestic cement sales 56 Selected electricity statistics 56 Main composition of trade 57 Main trading partners 57 Balance of payments, IMF series 58 External debt, World Bank series 58 Foreign reserves 58 Exchange rates Country Profile 2007 www.eiu.com The Economist Intelligence Unit Limited 2007

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, 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 2006 was Bs2,147:US$1; on January 29th 2007 the official exchange rate was Bs2,147:US$1, and the informal parallel exchange rate was estimated at Bs4,300: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 2007 www.eiu.com Country Profile 2007

4 Venezuela Politics The president, Hugo Chávez of the Movimiento Quinta República (MVR), a leftist populist, has been in power since February 1999. He has been re-elected twice, in 2000 and 2006. He has also survived an attempted coup (in early 2002) and a revocatory referendum (in August 2004). In the wake of an opposition boycott of the December 2005 legislative election, Mr Chávez!s party has total control of the 167-seat unicameral National Assembly (parliament). 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 (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 lasted 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, which 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, which 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, distribution of patronage to their clientele underpinned the parties! support. Oil export revenue filtered down through the network of organisations affiliated to Country Profile 2007 www.eiu.com The Economist Intelligence Unit Limited 2007

Venezuela 5 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 Venezuela!s 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, which 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. However, deteriorating economic conditions fuelled an intensification of popular resentment. The population!s faith in the potential of "trickle-down", which 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. The founder of COPEI and a 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), and 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, 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. The Economist Intelligence Unit Limited 2007 www.eiu.com Country Profile 2007

6 Venezuela 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, had 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. 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 approved the assembly, and a new constitution was drafted in just three months. 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%. Abstention in presidential elections (% of electorate) 1978 12.4 1983 12.3 1988 18.1 1993 39.8 1998 36.5 2000 43.5 2006 25.9 Source: Consejo Nacional Electoral. Mr Chávez's "revolution" erodes the middle ground Efforts to remove Mr Chávez end in failure The poor standing and demoralised state of the mainstream parties helped to assure Mr Chávez a protracted honeymoon period. However, by 2001 many middle-class voters who had supported Mr Chávez in 1998 and 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 a result of the prevailing distrust of the impartiality of political institutions, anti-government sentiment was channelled into street demonstrations. In an Country Profile 2007 www.eiu.com The Economist Intelligence Unit Limited 2007

Venezuela 7 increasingly bitter standoff, government policy initiatives were regularly met with protest action, with business groups playing a ever-more proactive role. Anti-government protests climaxed in an abortive coup on April 12th 2002. Mr Chávez was removed from power, and the president of the main business association, 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. 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. Important recent events 2002 An abortive coup attempt in April briefly unseats the president, Hugo 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. 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 collect the 2.5m signatures needed to demand a revocatory referendum on Mr Chávez!s tenure. 2004 The electoral authority validates opposition-gathered 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. 2005 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 abstention. 2006 The governor of Zulia state, Manuel Rosales, manages to unify a fractured opposition around his candidacy and to discredit some of the more extremist and abstentionist elements within its ranks. However, on the back of a massive oilfuelled fiscal stimulus, Mr Chávez gains a comfortable victory in the presidential election on December 3rd. Abstention is reduced to 25.9% of voters. 2007 Just weeks after his election victory, Mr Chávez sets about trying to accelerate the drive towards "21st-century socialism", announcing the nationalisation of a private telecommunications company, CANTV, and suggesting that others will follow. A proposed enabling law, which would allow Mr Chávez to rule by decree for 18 months, raises fears of growing authoritarianism. The Economist Intelligence Unit Limited 2007 www.eiu.com Country Profile 2007

8 Venezuela Recent election results (no. of seats in the National Assembly) 2000 2006 Movimiento Quinta República (MVR) 76 117 Podemos n/a 19 Patria Para Todos (PPT) 1 11 Partido Comunista de Venezuela n/a 7 Acción Democrática (AD) 29 0 Movimiento al Socialismo (MAS) 21 0 Comité de Organización Política Electoral Independiente (COPEI) 5 0 Primero Justicia 5 0 Others 28 13 Total 165 167 Source: Economist Intelligence Unit. 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. Opposition groups successfully mounted a campaign to secure the necessary 2.5m signatures, and a recall referendum was scheduled for August 15th 2004. 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. 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 compared 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 remained plagued by internal divisions and failed to broaden its popular appeal among the large bloc of voters (estimated at the time as accounting for 40% of the electorate) that supported neither the government nor the opposition. In the wake of the referendum, popular support for an opposition movement perceived as divided and ineffective fell drastically. Pro-Chávez candidates made sweeping gains in state and local elections, held at the end of 2004 and in mid-2005 respectively. As an election for the 167-seat national 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 Country Profile 2007 www.eiu.com The Economist Intelligence Unit Limited 2007

Venezuela 9 system that they perceived as authoritarian and an electoral system that they believed to be fraudulent. 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, in 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 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. Mr Chavez signals radicalisation For potential opposition presidential candidates, much of the year leading up to the presidential election on December 3rd 2006 was spent trying to agree a unity candidate and persuade a reluctant opposition to vote. In August, after months of negotiation and just before a planned primary, Manuel Rosales, governor of the populous western border state of Zulia, received the backing of his competitors within the opposition. Agreement on Mr Rosales!s candidacy marked something of a milestone for the opposition, which had lacked direction and impetus since failing to dislodge Mr Chávez in the 2004 recall referendum. The return of politicians to centre stage, after years in which business groups, trade union leaders, media bosses and non-governmental organisations (NGOs) had been the focus of attention, with frequently disastrous results, was also significant. However, Mr Chávez nonetheless gained a comfortable victory over Mr Rosales in December, with a margin of victory of 63% to 37% and a lower abstention rate than in past elections of 26%. Mr Chávez reaped the benefits of high global oil prices, which had permitted a sustained expansion of public spending to record levels and a broadening of the redistributive programmes that had benefited previously marginalised poor voters. Meanwhile, notwithstanding an effective campaign by Mr Rosales, the persistent perception remained among much of the electorate that the opposition was ineffectual, elitist, corrupt or out of touch with ordinary voters. The president evidently sees this clear victory as a strong mandate for a programme that combines high public spending on social investment with a much more controversial drive towards "21st-century socialism". On the eve of his swearing-in ceremony in January 2007, Mr Chávez announced his intention to nationalise Venezuela!s largest private company and dominant fixed-line telecoms monopoly, CANTV. Going further, Mr Chávez stated that all sectors of strategic significance should be nationalised. Complete control of the legislature and strong influence over weak and politicised institutions should facilitate this agenda. However, there are major challenges to policymaking. Perhaps most important, it is unclear whether a majority of voters support the shift to socialism. Opinion polls consistently show that Mr Chávez!s support is based The Economist Intelligence Unit Limited 2007 www.eiu.com Country Profile 2007

10 Venezuela on his pro-poor policies and the rise in real incomes in recent years, rather than solid ideological support for socialism. Meanwhile, weaknesses in the bureaucracy, growing signs of mismanagement and corruption, and pressures on fiscal revenue from falling oil prices will all complicate policy delivery. Failure to deliver on issues such as crime, corruption, housing and inflation could eventually erode support for the government. The opposition has raised fears that the government will respond by repressing dissenters, pointing to the government!s decision at the end of 2006 not to renew the licence of a major privately owned television station as a further check on press freedom. A proposed enabling law, which would allow Mr Chávez to rule by decree for 18 months, is raising concerns over increasing authoritarianism and the concentration of power in the executive. Mr Chávez has stated further that he would like to reform the 1999 constitution (drawn up when he first took office), although there are as yet few details of the reforms. 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 constitution provides for a six-year presidential term (with re-election to one more consecutive term permissible) and a new unicameral legislature, the National Assembly. The National Assembly!s 167 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 by 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 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 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 had been 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 Country Profile 2007 www.eiu.com The Economist Intelligence Unit Limited 2007

Venezuela 11 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 had been 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 president created the MVR in 1994 as a vehicle for his presidential ambitions, but has in office sought support from a much broader range of political organisations, including two existing and more politically experienced left-wing groups, PPT and Podemos. 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. In December 2006, in the wake of his third presidential election victory, Mr Chávez announced his intention to unite these various elements into a single party, the Partido Socialista Unido de Venezuela (PSUV). The aim is to unite the various groups into a more ideologically coherent whole, focused on the government!s still-developing project of "21stcentury socialism". Along the way, leading members of some traditional leftwing minority parties could become sidelined in favour of other political forces. This is likely to lead to some tensions, as politicians wrangle for position. The MVR MAS and Podemos The MVR is a relatively young party. It was formed in 1994 as the electoral arm of the Movimiento Bolivariana Revolucionaria 200 (MBR-200), a military movement established in the 1980s by a group of junior army officers, including Mr Chávez. A decade of covert activity by MBR-200 culminated in a failed coup attempt in February 1992. 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 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. MAS was founded in 1969 by former communist guerrillas who fought in a 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 enabled it to capitalise on the opportunities created by decentralisation The Economist Intelligence Unit Limited 2007 www.eiu.com Country Profile 2007

12 Venezuela Key political figures 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, and tensions quickly surfaced, as the party became critical of the government!s refusal to negotiate with its opponents. Mr Chávez expelled MAS from the ruling alliance in 2001. In 2002 the party formally split, with one faction (Podemos) opting to support the government in the legislature and another (MAS MAS) forming part of the opposition. Hugo Chávez A 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 section 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. The constitution gives significant political power to the executive. In practice, Mr Chávez retains even more influence than stipulated under the constitution. There are few major political figures in their own right in the cabinet. This is particularly the case since a long-serving politician, Alí Rodríguez, took on a less high-profile role as ambassador to Cuba, having previously headed the Ministries of Energy and Foreign Affairs, and since José Vicente Rangel was replaced as vicepresident at the beginning of 2007. However, some ministers in the new administration are likely to be more influential than others. Adán Chávez The president!s older brother and new minister for education, Adán Chávez is a long-time left-wing activist and also something of a troubleshooter for the president in his most recent role of secretary of the presidency (before which he was ambassador to Cuba). Adán!s appointment may be viewed as an attempt to eliminate dissent among cabinet ministers. His challenge will be to merge the education misiones (see Resources and infrastructure), which are funded by the executive, with the normal budget of the Ministry of Education. Adán!s appointment has raised concern among the opposition over the introduction of an ideological element to the school syllabus. Jorge Rodríguez Mr Rodríguez replaced the long-serving vice-president, Jose Vicente Rangel, in January 2007. Before this, he was president of the Consejo Nacional Electoral (CNE, the electoral authority) during a politically charged period, in which the institution faced repeated accusations of bias by the opposition. Mr Rodríguez stepped down in early 2006 in the wake of an opposition boycott of the December 2005 legislative poll. Rafael Ramírez The minister of energy and oil and president of Petróleos de Venezuela (PDVSA, the state oil company). Mr Ramírez has presided over a programme of sweeping changes to private oil contracts, designed to increase the government!s tax take. Mr Ramírez is considered a government hardliner; a secretly filmed video released by the opposition in late 2006 showed him stating to managers that no-one who was not fully identified with the "revolution" had a place in PDVSA. Manuel Rosales By virtue of being the unity opposition presidential candidate in 2006 and one of the few opposition figures with any real public influence (he is governor of Zulia state), Mr Rosales is currently the most noteworthy figure in the opposition movement. However, there are as yet few signs that he has gained much momentum from the presidential campaign. Country Profile 2007 www.eiu.com The Economist Intelligence Unit Limited 2007

Venezuela 13 The PPT AD, COPEI and new opposition forces 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, its candidate, Andrés Velásquez, a union leader, was only narrowly defeated in a contest marred by allegations of fraud. Causa Radical split in advance of the 1998 presidential election, owing to disagreement over whether or not to support Mr Chávez!s presidential candidacy. PPT, the pro-chávez faction of Causa Radical, entered the ruling alliance with MVR and MAS. 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 centrist or 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 2002-04 all of these parties belonged to a broad opposition coalition, the Coordinadora Democratica (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 not yet developed a significant national presence. More recently, Un Nuevo Tiempo, the political party founded by Mr Rosales, the opposition!s losing presidential candidate in the December 2006 election, has come to some prominence. However, this is also centred in the opposition stronghold of Zulia, where Mr Rosales has been governor since 2000. 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 longstanding 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 The Economist Intelligence Unit Limited 2007 www.eiu.com Country Profile 2007

14 Venezuela 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 of 2002, which the Chávez administration believes was backed by the US. Anti- US sentiment is frequently presented as defensive, with Mr Chávez often referring to the threat of US military action in Venezuela. However, particularly in the absence of a strong domestic opposition, strident hostility to the US also provides a useful means of translating nationalist sentiment into support for the government. To emphasise his position, Mr Chávez has increasingly taken a provocatively close stance to some traditional US adversaries, such as North Korea and Iran. He also campaigned unsuccessfully in 2006 for a nonpermanent seat on the UN Security Council on an essentially anti-us platform, which garnered significant attention, but insufficient votes. This failure is unlikely to result in any softening of Venezuela!s diplomatic stance towards the US for as long as Mr Chávez is in power. However, in the wake of Mr Chávez!s third presidential victory in December 2006, there were signs that the US was changing tack, with a counterproductive policy of confrontation with the Chávez government replaced by a more neutral tone (combined with attempts to engage more positively with the rest of the region). Mr Chávez!s foreign-policy 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 in poorer countries, as a result of Mr Chávez!s more solid political position and the country!s oil-driven economic boom, which has increased interest in jointinvestment projects and oil co-operation accords. Recent elections in Bolivia, Nicaragua and Ecuador have brought to power leaders who are strengthening their ties to Venezuela. However, Venezuela!s increasingly radical international agenda has also given rise to unease in the region (relations with Mexico and Peru remain strained after disputes in 2006). In 2006 Bolivia!s nationalisation of its gas industry (which Venezuela was viewed to have influenced) and 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) both created regional tensions. 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. Economic and diplomatic ties between Venezuela and Cuba have been strengthened since Mr Chávez assumed power. Commercial and social agreements include the provision by Cuba of medical and educational personnel, sports instructors and other technical assistance to Venezuela in exchange for discounted oil supplies. Elsewhere in the Caribbean, the Chávez government 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 Country Profile 2007 www.eiu.com The Economist Intelligence Unit Limited 2007

Venezuela 15 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 15-25 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. 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. The major novelty under Mr Chávez stems from his undisguised ambition to forge a joint civil-military 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 towards 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 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. The government embarked on an intensive round of military spending in 2005. According to a 2007 US Defense Department report, military spending in Venezuela totalled US$4.3bn in 2005-06, higher than in China or Iran. The government is also 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. The Economist Intelligence Unit Limited 2007 www.eiu.com Country Profile 2007

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. A period of rapid economic growth in recent years has reduced property theft, but this remains high compared with a decade ago. Moreover, the homicide rate has not declined in recent years and has multiplied over the past decade. According to a respected local human-rights organisation, Provea, there were 9,964 murders in 2005 (37 per 100,000 population), almost five times the 2,000 recorded in 1991. 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 almost 90 per 100,000 in 2005. Most killings occur in poor neighbourhoods, with males aged 15-30 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 Kidnapping has long been a problem in the Colombian border area; although abductions mostly affect local ranchers, foreign citizens (mainly oil workers) have fallen victim with increasing frequency. Most recently, there have been a number of high-profile kidnappings for ransom in urban areas, a development that has raised growing concerns over corruption and mismanagement of the police force. The phenomenon of "express kidnapping", whereby victims are forced to withdraw money from cash machines, is also on the rise in Venezuela. Robberies and express kidnappings are reportedly a particular problem at Caracas!s international airport. Country Profile 2007 www.eiu.com The Economist Intelligence Unit Limited 2007