[NYTr] TIME Rag, others on Venezuela's Oil Industry - Profits for Social Needs - Horrors!
 
Date: Fri, 30 Nov 2007 12:24:26 -0600 (CST)

Via NY Transfer News Collective  *  All the News that Doesn't Fit
 
Venezuela Information Office (VIO)
http://www.rethinkvenezuela.com

excerpted from VIO Venezuela Daily News Roundup - Nov 30, 2007

[Time reports on Venezuela's oil industry today, which it notes is
under attack by those who criticize the new commitment on the part of
the state oil company, Pdvsa, to social spending.  According to the
article, Pdvsa reinvested $5.5 billion into the oil industry last year,
while dedicating $30 billion in profits to what Time calls "a vast
social-welfare crusade that has helped reduce official poverty and
jobless rates appreciably." -VIO]

[Moody's meanwhile, give an optimistic assessmen of Venezuela' banking
industry. Jens Erik Gould in The New York Times also reports on a
growing system of domestic barter exchange in place of using currency.

In addition, The New York Times gets into Chavez's social spending from
oil revenues.Apparently the Times wanted an interview on
funding and social spending, and got no reply. boo-hoo, Would you talk
to one of the Romero-Forero twins if you were an Venezuelan offcial? It
just gives them a frame on which to hang their anti-Venezuela disinfo. ]

                               ***

Time RAG - November 29, 2007
http://www.time.com/time/printout/0,8816,1689226,00.html

Is Chavez Taking Too Many Oil Risks?

By Tim Padgett and Jens Erik Gould

The world's largest oil-refinery complex sits on an arid peninsula off
the western coast of Venezuela. The ParaguanC! facility processes more
than 700,000 bbl. of crude each day for the state-owned oil monopoly,
PetrC3leos de Venezuela, S.A. (PDVSA), while tankers line up on the
Caribbean horizon to ship it around the world. Towering burn-off pipes,
as loud as jet engines, shoot flames above giant posters of President
Hugo ChC!vez. His fist raised, he roars, "Of course we can!"

The question is, Does he really want to? Last year the government
announced a $280 million plan to upgrade ParaguanC! and increase its
capacity to process Venezuela's abundant heavy crude from 50,000 bbl.
to 130,000 bbl. per day. But workers say they have yet to see the
project move ahead, and some complain the refineries are
underperforming. "It's precarious," says a veteran supervisor. "The
plant isn't living up to its original design because [PDVSA doesn't]
want to cover the costs."

So is this good or bad for Venezuela and the U.S.? The answer is yes.
As oil nears a once unthinkable $100 a bbl., ChC!vez can afford to delay
costly drilling and refining expansions like ParaguanC!'s and spend that
money on socialist programs and other political pursuits. In a bravado
performance at a Nov. 18 meeting of the Organization of Petroleum
Exporting Countries (OPEC), ChC!vez and his new best friend, Iranian
President Mahmoud Ahmadinejad, mocked the U.S. and blamed the weak
dollar, not Venezuelan production capacity, for the high price of oil.
"The fall of the dollar is not the fall of the dollar," ChC!vez crowed.
"It's the fall of the American empire."

Oil experts say Venezuelan production is slipping and ChC!vez's industry
policy for the long term is risky. Venezuela, like Mexico and Iran,
needs reinvestment and foreign investment to keep its $100 billion
industry in prime condition. But with China's and India's demand for
crude inspiring projections for exponential growth and the U.S.'s
determination to remain a slave to oil, the oil industry may well have
hit a point when the short term is the long term--every barrel not
pumped today will be worth more tomorrow. "The Venezuelans are
investing as much as they want to," says economist Mark Weisbrot, a
co-director of the Center for Economic Policy and Research in
Washington. "That is, they're not in a hurry at all to expand
production."

Venezuela B.C.--before ChC!vez--could usually be relied on to do that,
especially when things got dicey in the Middle East. In the 1990s, a
more U.S.-friendly PDVSA ambitiously raised output (even defying its
OPEC quota) to earn revenue for new drilling projects. But when ChC!vez
and his anti-U.S. agenda took office in February 1999, prices were
languishing at about $10 a bbl.--so the former paratroop commander
campaigned to revive OPEC, persuading the cartel to rein in production
to boost prices. The effort paid off when the 2003 U.S. invasion of
Iraq shook oil markets and prices began their awesome ascent. The spike
also helped ChC!vez recover from a reckless and devastating 2002 strike
by his opponents inside PDVSA.

It's less certain that PDVSA really recovered. Before the strike,
Venezuela pumped more than 3 million bbl. of oil a day (m.b.d.). ChC!vez
and his loyal Energy Minister, Rafael RamC-rez, who is also PDVSA's
president, say they're back to 3.2 m.b.d., but even OPEC says
Venezuela's output is 2.4 m.b.d. PDVSA's exploration and production
vice president, Luis Vierma, warned last July of an "operational
emergency" because of a lack of drilling rigs. In recent years, there
has been a troubling string of accidents; and oil corruption, the
blight that ChC!vez vowed to eradicate, became an issue this year when
Vierma was investigated--but not charged--for handing lucrative
contracts to rig operators who had no experience.

Venezuela may be sitting atop one of the world's largest oil
deposits--ChC!vez claims there are more than 200 billion bbl. in the
Orinoco Belt, which, if true, is nearly 10 times as many proven
reserves as the U.S. has. But most of the stuff is extra-heavy crude.
Tapping and processing that tarlike oil require billions in investment.
Analysts say PDVSA has been slow to start those projects, including
joint stakes with China's CNPC, Brazil's Petrobras and Iran's Petropars
in southeastern Venezuela.

Then, to complicate matters, ChC!vez mandated this year that the state
own a majority stake in heavy-oil developments. Two major investors,
ExxonMobil and ConocoPhillips, walked away, taking critical technology
with them. Abandoning its Petrozuata and Hamaca heavy-oil ventures,
plus an offshore project, cost Conoco $4.5 billion in impairment
charges. The French oil corporation Total signed a deal earlier this
month to help fill the void. Still, Venezuela's output "is declining,"
says Rafael Quiroz, an oil economist at Venezuela's Central University.
"If it dips below 2.1 m.b.d. ... it could bankrupt the industry."

The risk to ChC!vez is that his brand of socialism runs on oil. PDVSA
sends more than a third of its revenue to the government, which spent
more than $30 billion last year for a vast social-welfare crusade that
has helped reduce official poverty and jobless rates appreciably. PDVSA
runs many of the programs, and while that might sound more like Marx
than Rockefeller, it "reflects our right to set globalization's terms
in our people's favor for once," RamC-rez has told TIME. Critics say it
also means a hyperpoliticized PDVSA, in which RamC-rez demands employee
allegiance to ChC!vez and his Bolivarian revolution.

The irony is that ChC!vez and RamC-rez are adamant that Venezuela can
keep delivering to the U.S.--about 1.3 m.b.d., or 12% of U.S. imports.
They also insist that in the next few years, investment and output will
climb. In 2005 PDVSA launched a seven-year plan, but analysts consider
its goals--5.5 m.b.d. by 2012 and $11 billion a year in total
investment--a pipe dream. Investment reached half that last year.

Venezuela is counting on the state-run oil companies of allies like
China to replace Western oil outfits--a prospect that pains Washington,
especially since ChC!vez is ratcheting up oil exports to China to reduce
dependence on the U.S. market. Chavistas argue that if the U.S. is so
concerned about global oil supply, it should lean on its own
petro-allies--like Mexico and Saudi Arabia--which ban the foreign
participation in oil ventures that Venezuela at least still allows.
(Oil production in Mexico is also in serious decline.)

Venezuela's 26 million people have seen four straight years of near
record economic growth, and they are driving up domestic oil demand:
almost 500,000 new cars are expected to be sold this year. (Why not,
with gas at 12B" a gal.?) But the bolC-var is sharply overvalued,
inflation is the highest in Latin America, and even ChC!vez fears that
his "21st century socialists" are living like capitalist nouveaux
riches, the so-called boli-bourgeoisie.

For now, "ChC!vez can keep raking in tons of cash without expanding
production--even with production declining," says David Mares, an
oil-politics expert at the University of California at San Diego. "He's
taking advantage of the situation we consumers dropped in his lap."
Mares says ChC!vez has to invest more in his oil industry in the future.
Although it also wouldn't hurt if Americans learned to consume less oil.

                                  ***

Thomson Financial via Forbes - November 30, 2007
http://www.forbes.com/markets/feeds/afx/2007/11/30/afx4389674.html

Venezuela's banks outlook stable - Moody's

BANGALORE - Moody's Investors Service said the outlook for the ratings
of Venezuela's banks are stable citing a core of well-managed
first-tier institutions, good financial standing and economic growth.

However, the ratings agency said government intervention on the banking
system is intensifying, seriously affecting banking activity.

The Venezuelan banks are subject to a number of controls, including
floors and caps on interest rates, mandatory lending buckets, controls
on commissions and fees, and a high cash reserve requirement,
constraining the banks' activities.

                                  ***

The New York Times - November 30, 2007
http://www.nytimes.com/2007/11/30/business/worldbusiness/30chavez.html

Venezuela's Fateful Choice

By Jens Erik Gould

CARACAS, Venezuela, Nov. 29 ? As petrodollars stream into oil-producing
countries, Western officials have begun to demand greater
accountability for how they are spent. Some countries known for
corruption, like Nigeria and Azerbaijan, have heeded the call,
increasing their financial transparency, or at least paying lip service
to it. But Venezuela under the leadership of President Hugo ChC!vez
appears headed in the opposite direction.

Oil revenue supports a diploma-granting program on the edge of Caracas.

"We see Venezuela on the other side of the road," said Mercedes de
Freitas, executive director of Transparency International here. The
group, which tries to combat corruption worldwide, ranks Venezuela as
the least transparent country in Latin America and 162 out of 179
nations globally. And that could soon fall even lower.

On Sunday, Venezuelans will vote on constitutional changes that would,
among other things, grant Mr. ChC!vez unparalleled power to run the
country's finances as he sees fit. If the referendum is approved,
government accounting is expected to become still harder to fathom, and
foreign businesses, many of them already afraid to invest, will find
Venezuela even more forbidding.

Already, Mr. ChC!vez's government is putting large amounts of oil
revenue into development funds and state-owned companies that operate
outside the official budget and are not subject to audits or
legislative approval. The Fund for National Development, a leading fund
of this sort, has received more than $30 billion since 2005 without
regularly disclosing its balance, the progress of projects it finances,
the whereabouts of billions of dollars it invests in bonds, or how
often it receives revenue injections from the state oil company,
PetrC3leos de Venezuela.

Under the proposed changes, Mr. ChC!vez seeks to formally strip the
central bank of its autonomy, giving him the power to dictate monetary
policy and the spending of excess foreign-currency reserves. Another
measure would eliminate an already neglected rainy-day fund.

Opinion polls released in the last week have found Mr. ChC!vez's
proposals tied or trailing the opposition position among likely voters,
after months of polls showing it likely to pass. In recent weeks,
students have rallied in Caracas to protest the changes, and some of
those demonstrations have turned violent. On Thursday, tens of
thousands of people flooded the streets of the capital in opposition to
the referendum proposals.

Venezuela's foreign minister, NicolC!s Maduro, asserted on Wednesday
that a United States Embassy official was conspiring to defeat the
referendum proposals, and threatened to expel the diplomat. And Mr.
ChC!vez said this week that CNN was trying to instigate his
assassination.

Like this sort of political volatility, reduced access to information
on public finances is expected to make investing in Venezuela a riskier
prospect, said Francisco RodrC-guez, who teaches economics and Latin
American studies at Wesleyan University.

Investors in Venezuelan bonds already struggle to ascertain what assets
back the country's debt and what resources it could count on in the
event of a financial crisis.

Oil profits are the basis of Mr. ChC!vez's intended socialist
revolution, which aims to help the poor in Venezuela and other
countries. Petrodollars finance social benefits including free health
care, free education and government-subsidized food, and oil profits
permit the vast public spending that has helped create nearly four
years of economic growth.

But large chunks of revenue have been managed opaquely ? to a degree
that it is hard to measure the state's success in carrying out its
social projects or in monitoring corruption.

"It's not really clear how the money is invested," said Theresa
Paiz-Fredel, a senior director of Fitch Ratings.

The Extractive Industries Transparency Initiative, a program started by
the British government with support from the World Bank, says that a
lack of clarity in oil-revenue management can be a sign of the
"resource curse," where natural resources fuel corruption and undermine
the rule of law instead of contributing to long-term growth. Venezuela
is not one of the 15 signers of the initiative, and some economists say
it is laboring under the curse.

They point to corruption charges this year against the state oil
company, leveled by a pro-ChC!vez lawmaker. Officials denied wrongdoing,
but eventually conceded that the oil company had too few rigs.
Separately, a director of PetrC3leos de Venezuela resigned after a
shadowy incident involving company executives, a charter flight to
Buenos Aires with a Venezuelan businessman, and a briefcase with
$800,000 in cash.

Facing mounting criticism, Finance Minister Rodrigo Cabezas has
released two reports this year disclosing the Fund for National
Development's revenue balance, and he promised in May to conduct a
comprehensive audit of all projects the fund financed to give it "more
transparency." But analysts trying to gain access to the data are still
frustrated, saying that the reports are neither detailed nor frequent
enough.

The New York Times requested interviews to obtain details on the fund
from the finance ministry, the central bank, PetrC3leos de Venezuela and
the state-run Banco del Tesoro. After more than two months of efforts,
none of those organizations granted an interview or provided any
information.

SimC3n Escalona, vice president of the National Assembly's finance
commission, said he had not "seen any lack of transparency" in the
development fund. But, Mr. Escalona was unable to provide updated
information on its total assets, bond investments or on transfers from
the state oil company to the fund.

Mr. ChC!vez has long sought control over Venezuela's foreign reserves.
The central bank has already lost much of its independence; a report in
March by Barclays Capital said transfers from the bank to the Fund for
National Development were determined more by Mr. ChC!vez than the bank.

Still, the central bankers occasionally criticize government policy, a
practice likely to end if the referendum passes, as will most public
debate on state spending, Mr. RodrC-guez of Wesleyan said. And the
unfettered spending of reserves could increase inflation, at 17 percent
already the highest in Latin America.

"They will stop being foreign reserves," Mr. RodrC-guez said, and become
just "another account." In October, Fitch Ratings lowered Venezuela's
outlook to negative from stable, saying that inflation and a weakening
currency had made it vulnerable to a decrease in oil prices.

Still, oil-producing countries are not generally known for their
transparency. Qatar, for instance, does not publish figures for its
large investment fund, which is fed by oil revenue, according to Luc
Marchand, an analyst at Standard & Poor's.

But even Russia, despite criticism that the government is weakening
institutions, is adopting a system used by Norway that will integrate
its main oil fund into the budget and make it easier to track,
according to Frank Gill, also of Standard & Poor's. And authorities in
Moscow have strict investment criteria for the oil fund.

Venezuela differs from Russia and many petrostates, including Nigeria,
Saudi Arabia and Kuwait, in another way. Those countries all run budget
surpluses, while Venezuela's heavy social spending results in a
deficit, according to data compiled by Mr. Marchand.

Some economists, like Mark Weisbrot at the Center for Economic and
Policy Research in Washington, say that social spending, which he puts
at 21 percent of the gross domestic product last year, is proof that
Mr. ChC!vez is combating the resource curse. Mr. Weisbrot points to
government statistics showing that poverty has fallen to nearly 30
percent from 44 percent since Mr. ChC!vez was elected nine years ago,
and unemployment has dropped to 8 percent from 15 percent.

Mr. ChC!vez frames his designs on full control of oil revenue as part of
a crusade against Washington-based institutions like the World Bank and
the International Monetary Fund, which he says advance American
business interests. A deputy finance minister, Rafael Isea, told state
television last summer that eliminating the central bank's autonomy
would curb the I.M.F.'s ability to "manage our reserves and influence
internal policies."

The government has nationalized electric and phone companies here that
once had American companies as stockholders, has ceased filing
financial reports of the state oil company to the Securities and
Exchange Commission, and has announced plans to withdraw Venezuela from
the I.M.F. and the World Bank. In September, Mr. ChC!vez ordered the oil
company to convert its investment accounts from dollars to euros and
Asian currencies.

The march to socialism has not been as smooth as he may have hoped.
Officials became aware that plans to leave the I.M.F. could conceivably
result in a default of Venezuelan debt. Months after the announcement,
the country is still part of the I.M.F.

Students of history warn that the 1970s oil boom also coincided with
heavy spending and questionable accountability.

In his book "The Magical State," Fernando Coronil, a professor of
history and anthropology at the University of Michigan, documents how
policies intended to spur development in the 1970s loaded Venezuela
with debt and helped create financial crisis in the 1980s and '90s.

"It's one thing to declare the intent to use these resources for the
benefit of the population, it's another to prove it," he said, "and in
order to do that you have to have checks and balances." 

                                ***

The New York Times - November 30, 2007
http://www.nytimes.com/2007/11/30/business/worldbusiness/30chavez.html

Venezuela's Fateful Choice

By Jens Erik Gould

CARACAS, Venezuela, Nov. 29 ? As petrodollars stream into oil-producing
countries, Western officials have begun to demand greater
accountability for how they are spent. Some countries known for
corruption, like Nigeria and Azerbaijan, have heeded the call,
increasing their financial transparency, or at least paying lip service
to it. But Venezuela under the leadership of President Hugo ChC!vez
appears headed in the opposite direction.

Oil revenue supports a diploma-granting program on the edge of Caracas.

"We see Venezuela on the other side of the road," said Mercedes de
Freitas, executive director of Transparency International here. The
group, which tries to combat corruption worldwide, ranks Venezuela as
the least transparent country in Latin America and 162 out of 179
nations globally. And that could soon fall even lower.

On Sunday, Venezuelans will vote on constitutional changes that would,
among other things, grant Mr. ChC!vez unparalleled power to run the
country's finances as he sees fit. If the referendum is approved,
government accounting is expected to become still harder to fathom, and
foreign businesses, many of them already afraid to invest, will find
Venezuela even more forbidding.

Already, Mr. ChC!vez's government is putting large amounts of oil
revenue into development funds and state-owned companies that operate
outside the official budget and are not subject to audits or
legislative approval. The Fund for National Development, a leading fund
of this sort, has received more than $30 billion since 2005 without
regularly disclosing its balance, the progress of projects it finances,
the whereabouts of billions of dollars it invests in bonds, or how
often it receives revenue injections from the state oil company,
PetrC3leos de Venezuela.

Under the proposed changes, Mr. ChC!vez seeks to formally strip the
central bank of its autonomy, giving him the power to dictate monetary
policy and the spending of excess foreign-currency reserves. Another
measure would eliminate an already neglected rainy-day fund.

Opinion polls released in the last week have found Mr. ChC!vez's
proposals tied or trailing the opposition position among likely voters,
after months of polls showing it likely to pass. In recent weeks,
students have rallied in Caracas to protest the changes, and some of
those demonstrations have turned violent. On Thursday, tens of
thousands of people flooded the streets of the capital in opposition to
the referendum proposals.

Venezuela's foreign minister, NicolC!s Maduro, asserted on Wednesday
that a United States Embassy official was conspiring to defeat the
referendum proposals, and threatened to expel the diplomat. And Mr.
ChC!vez said this week that CNN was trying to instigate his
assassination.

Like this sort of political volatility, reduced access to information
on public finances is expected to make investing in Venezuela a riskier
prospect, said Francisco RodrC-guez, who teaches economics and Latin
American studies at Wesleyan University.

Investors in Venezuelan bonds already struggle to ascertain what assets
back the country's debt and what resources it could count on in the
event of a financial crisis.

Oil profits are the basis of Mr. ChC!vez's intended socialist
revolution, which aims to help the poor in Venezuela and other
countries. Petrodollars finance social benefits including free health
care, free education and government-subsidized food, and oil profits
permit the vast public spending that has helped create nearly four
years of economic growth.

But large chunks of revenue have been managed opaquely ? to a degree
that it is hard to measure the state's success in carrying out its
social projects or in monitoring corruption.

"It's not really clear how the money is invested," said Theresa
Paiz-Fredel, a senior director of Fitch Ratings.

The Extractive Industries Transparency Initiative, a program started by
the British government with support from the World Bank, says that a
lack of clarity in oil-revenue management can be a sign of the
"resource curse," where natural resources fuel corruption and undermine
the rule of law instead of contributing to long-term growth. Venezuela
is not one of the 15 signers of the initiative, and some economists say
it is laboring under the curse.

They point to corruption charges this year against the state oil
company, leveled by a pro-ChC!vez lawmaker. Officials denied wrongdoing,
but eventually conceded that the oil company had too few rigs.
Separately, a director of PetrC3leos de Venezuela resigned after a
shadowy incident involving company executives, a charter flight to
Buenos Aires with a Venezuelan businessman, and a briefcase with
$800,000 in cash.

Facing mounting criticism, Finance Minister Rodrigo Cabezas has
released two reports this year disclosing the Fund for National
Development's revenue balance, and he promised in May to conduct a
comprehensive audit of all projects the fund financed to give it "more
transparency." But analysts trying to gain access to the data are still
frustrated, saying that the reports are neither detailed nor frequent
enough.

********** NOTE THIS PARAGRAPH ************* 

The New York Times requested interviews to obtain details on the
fund from the finance ministry, the central bank, PetrC3leos de
Venezuela and the state-run Banco del Tesoro. After more than two
months of efforts, none of those organizations granted an interview or
provided any information. 

*********************************************

SimC3n Escalona, vice president of the National Assembly's finance
commission, said he had not "seen any lack of transparency" in the
development fund. But, Mr. Escalona was unable to provide updated
information on its total assets, bond investments or on transfers from
the state oil company to the fund.

Mr. ChC!vez has long sought control over Venezuela's foreign reserves.
The central bank has already lost much of its independence; a report in
March by Barclays Capital said transfers from the bank to the Fund for
National Development were determined more by Mr. ChC!vez than the bank.

Still, the central bankers occasionally criticize government policy, a
practice likely to end if the referendum passes, as will most public
debate on state spending, Mr. RodrC-guez of Wesleyan said. And the
unfettered spending of reserves could increase inflation, at 17 percent
already the highest in Latin America.

"They will stop being foreign reserves," Mr. RodrC-guez said, and become
just "another account." In October, Fitch Ratings lowered Venezuela's
outlook to negative from stable, saying that inflation and a weakening
currency had made it vulnerable to a decrease in oil prices.

Still, oil-producing countries are not generally known for their
transparency. Qatar, for instance, does not publish figures for its
large investment fund, which is fed by oil revenue, according to Luc
Marchand, an analyst at Standard & Poor's.

But even Russia, despite criticism that the government is weakening
institutions, is adopting a system used by Norway that will integrate
its main oil fund into the budget and make it easier to track,
according to Frank Gill, also of Standard & Poor's. And authorities in
Moscow have strict investment criteria for the oil fund.

Venezuela differs from Russia and many petrostates, including Nigeria,
Saudi Arabia and Kuwait, in another way. Those countries all run budget
surpluses, while Venezuela's heavy social spending results in a
deficit, according to data compiled by Mr. Marchand.

Some economists, like Mark Weisbrot at the Center for Economic and
Policy Research in Washington, say that social spending, which he puts
at 21 percent of the gross domestic product last year, is proof that
Mr. ChC!vez is combating the resource curse. Mr. Weisbrot points to
government statistics showing that poverty has fallen to nearly 30
percent from 44 percent since Mr. ChC!vez was elected nine years ago,
and unemployment has dropped to 8 percent from 15 percent.

Mr. ChC!vez frames his designs on full control of oil revenue as part of
a crusade against Washington-based institutions like the World Bank and
the International Monetary Fund, which he says advance American
business interests. A deputy finance minister, Rafael Isea, told state
television last summer that eliminating the central bank's autonomy
would curb the I.M.F.'s ability to "manage our reserves and influence
internal policies."

The government has nationalized electric and phone companies here that
once had American companies as stockholders, has ceased filing
financial reports of the state oil company to the Securities and
Exchange Commission, and has announced plans to withdraw Venezuela from
the I.M.F. and the World Bank. In September, Mr. ChC!vez ordered the oil
company to convert its investment accounts from dollars to euros and
Asian currencies.

The march to socialism has not been as smooth as he may have hoped.
Officials became aware that plans to leave the I.M.F. could conceivably
result in a default of Venezuelan debt. Months after the announcement,
the country is still part of the I.M.F.

Students of history warn that the 1970s oil boom also coincided with
heavy spending and questionable accountability.

In his book "The Magical State," Fernando Coronil, a professor of
history and anthropology at the University of Michigan, documents how
policies intended to spur development in the 1970s loaded Venezuela
with debt and helped create financial crisis in the 1980s and '90s.

"It's one thing to declare the intent to use these resources for the
benefit of the population, it's another to prove it," he said, "and in
order to do that you have to have checks and balances." 

                                ***

Reuters via the Wash Post - November 29, 2007
http://www.washingtonpost.com/wp-dyn/content/article/2007/11/29/AR2007112901356.html

Venezuela tests Chavez socialism at barter market

By Enrique Andres Pretel

URACHICHE, Venezuela (Reuters) - Neris Pineda will never make a cent
from selling bananas at her local Venezuelan market, but she likes it
that way.

The community market is an experiment in bartering promoted by
President Hugo Chavez as he seeks to enshrine socialism as a state
priority in a new constitution that goes to a referendum on Sunday.

Pineda swaps her produce for anything from haircuts to cellphone cases,
using a currency named after an indigenous cult goddess that only
circulates in this poor farming town at the foot of lush mountains near
the Caribbean coast.

"Barter is not just the exchange of merchandise, it's an exchange of
values, of solidarity, of love," said Pineda, 52, plying her wares on a
recent Sunday morning. "The idea is to become integrated with the
community."

Barter exchange is the latest weapon in the anti-U.S. president's
ideological crusade to turn the consumer-driven oil republic into a
Cuba-inspired socialist state and wipe out capitalist values he says
are destroying the planet.

Economists have largely dismissed his experimental economics as a
quirky sideshow while consumerism booms on record oil revenues and Wall
St. banks lap up Venezuelan debt issues.

Aged whisky at parties and out-sized sport utility vehicles on the
roads are common even as Chavez's price controls prompt periodic
shortages of milk and eggs on supermarket shelves.

But the alternative economics of a man who calls capitalism evil are
central to his vision of a revolutionary society.

Chavez vows to accelerate his revolution through a referendum on
Sunday, when Venezuelans vote on constitutional changes that create new
forms of "collective" and "social" property and formalize the economy
as socialist.

The reforms would also allow Chavez to stay in power for as long as he
keeps winning elections, and increase state powers to expropriate
private property.

Venezuela's military already uses Chavez's slogan of "Homeland,
socialism or death" as its salute and the state oil company spends more
on social programs such as school-building than on exploration.

After remolding state institutions, Chavez has focused on remaking the
OPEC nation's economy to match his promised "21st Century socialism."

He has proposed solving economic imbalances by passing aggressive
anti-hoarding laws, empowering community councils to scrutinize
businesses, and creating barter markets with "alternative currencies"
to eliminate financial speculation.

TRUE BELIEVERS

In Urachiche, Chavez has true believers.

Rather than pure barter exchange, shoppers at the market in the town of
23,000 residents use a currency named after the Venezuelan goddess
Maria Lionza who devotees pay homage to at a nearby mountain.

The market has about 100 members and opens once every two weeks with
more and more people coming to spend their laminated cardboard
"Lionzas."

Its leaders say the money is a socialist currency because it cannot be
used for accumulation or speculation.

"We call ourselves 'pro-sumers' because it unites consumer and producer
in the same word. The capitalist system divides us: producers on one
side, consumers on another," said Pablo Mayayo, who helped create the
market.

Chavez will have to rely on a massive state-backed get-out-the-vote
machine to win the referendum on Sunday.

While he is popular with the majority poor, many moderate supporters
are alarmed his redrafting of the constitution could water down private
property rights and give too much power to the president. Critics say
he is establishing a dictatorship.

Polls say the "Yes" and "No" camps are neck-and-neck, making turnout
crucial. That may give the advantage to Chavez against an underfunded
opposition, political analysts say.

It is the toughest campaign of Chavez's career. Since taking power in
1999, he has handily swept to victory at the ballot box about once a
year, thanks largely to his spending of oil income on health and
education services for the poor.

Venezuelans in 2003 spontaneously created barter systems to swap
services like dentistry and auto repair after a failed opposition
strike nearly shuttered the oil industry and left millions without jobs
or much income.

But this is precisely the opposite of Venezuela's current situation in
which record oil revenues, heavy government spending, and burgeoning
monetary liquidity have left the country with more money than it knows
what to do with.

With Venezuelans enjoying unprecedented consumption growth, critics say
bartering makes little sense.

Opposition councilman Biagio Pilieri from the municipality around
Urachiche said Chavez wants to return Venezuela to the era of Spanish
colonial rule.

"Barter exchange is long on rhetoric and short on logic," he said.

                                 *
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