PIIE Blog | RealTime Economic Issues Watch
The Peterson Institute for International Economics is a private, nonprofit, nonpartisan
research institution devoted to the study of international economic policy. More › ›
Subscribe to RealTime Economic Issues Watch Search
RealTime Economic Issues Watch

Hugo Chavez’s Bolivarian Legacy and Aspirations in Venezuela and Latin America

by | March 7th, 2013 | 11:25 am
|

Hugo Chavez, fiery leader of Venezuela since he took power in a 1999 coup, architect of the 21st century socialism model and dreamer of a united Bolivarian front of South American nations died on March 5 in Caracas. What has been his legacy for Venezuela and the Latin American region?

For Venezuela, Chavez’s fourteen years of rule have left a record of limited progress and many serious problems. Chavez’s rise represented a clear expression of popular discontent with the status quo. Whether Venezuelans are better off at the end of his term than they were at the beginning of 1999, however, is in doubt. Chavez’s social programs, and his pro-poor rhetoric, encouraged political participation of formerly disenfranchised people, and set up many poverty alleviation programs from which some have undoubtedly benefitted. His term has seen mixed GDP growth and some reductions in poverty and inequality, resulting from use of the nation’s oil revenues, but not more than the regional average, and Venezuela has become one of the most crime-ridden countries in the world.

Charges of corruption, political persecution, and ineptitude have followed Chavez throughout his presidency, and he leaves Venezuela with high inflation, unsustainable fiscal deficits, and multiple market distortions, many of which predominantly hurt the poor and middle class. Widespread expropriations have created a tenuous environment for both domestic and foreign investment. PDVSA, the state-owned oil company, once seen as competitive and professional, is now a mess, with oil output down 25 percent from pre-Chavez levels. Currency problems have persisted over the past years. The so-called strong Bolivar has been plagued by real erosion due to high inflation. A 30 percent devaluation from 4.3 to 6.3 bolivares to the dollar in early February sent additional signals of potential serious instability and fanned fears of more inflation to come.

Vice President Nicolas Maduro, who will preside over Venezuela until elections are called and is Chavez’s designated successor, has inherited an economy that continues to suffer from poverty and inequality. Its economic growth model seems unsustainable—particularly as its main trading partners shift from oil to natural gas and alternative energy sources.

While Chavez has rewritten Venezuela’s economic development model, he has also had an impact in the rest of Latin America. Through his engagement and, especially through oil subsidies, he fuelled the fire of other left-leaning leaders such as Bolivia’s Evo Morales, Ecuador’s Rafael Correa, and Nicaragua’s Daniel Ortega.

The greatest recipient of Chavez’s subsidies, of course, is Cuba. Fidel Castro was a mentor to Chavez, who cited him as a father figure. Chavez sent significant amounts of below-market priced oil to Cuba in exchange for Cuban doctors and other professionals, who helped implement the “misiones”—Venezuela’s social programs inspired by the 19th century Venezuelan independence leader Simon Bolivar—and whose salaries were paid by Caracas. This gave Cuba access to fuel and hard currency, and the program employed significant numbers of professionals. Whether Venezuela’s successor government will be willing and able to continue such support is in question.

Chavez has also had an impact on the regional trade landscape in Latin America: When Chavez took power, the hemisphere was characterized by several major trading blocs: the North American Free Trade Agreement (NAFTA), the Andean Community and the MERCOSUR (the “Common Market of the South”), the Caribbean Community (CARICOM), and the Central American Common Market. Thirty-four countries in the Americas were aiming to untangle this spaghetti bowl of trade arrangements by negotiating a free trade agreement, the Free Trade Area of the Americas (FTAA). Chavez actively fought against the FTAA—indeed against any trade negotiations with the United States—setting up a counter-initiative called the Bolivarian Alliance for the Peoples of Our America (ALBA). While this did not pick up too much support—members include Antigua and Barbuda, Bolivia, Cuba, Dominica, Ecuador, Nicaragua, St. Vincent, and the Grenadines—Chavez’s efforts did take some of the steam out of the FTAA engine. While the ALBA has not had a large regional presence, members have benefitted from preferential trade ties, particularly through favorable oil prices.

Chavez expressed his anti-American stance (he famously called US President George W. Bush the devil in a 2006 United Nations speech) by pulling Venezuela out of the Andean Community, effectively emasculating this organization, in response to Colombia’s and Peru’s initiating free trade negotiations with the United States. While Chavez was only one of many factors scuttling the FTAA, there is no doubt that he has had some impact on the configuration of regional trade.

Rather than building a Bolivarian union, however, Chavez’s main influence seems to have been the further polarization of the hemisphere. Colombia and Peru, his spurned Andean Community partners, have joined with Chile and Mexico to form the Pacific Alliance, a promising trading bloc that is harmonizing trade policies and reaching out to the Asia Pacific to better integrate their economies into global supply chains and enhance their competitiveness. MERCOSUR, which last year accepted Venezuela as a full member (by kicking out Paraguay while it was experiencing a political crisis) has turned far away from its economic potential, focusing instead on politics and protectionist trade measures—largely against each other. Venezuela’s addition to the bloc brings the level of MERCOSUR trade as a percent of total trade even lower than it was with the original membership. Tellingly, both recently kicked-out Paraguay and Uruguay have asked to be observers in the Pacific Alliance.

Despite his strong anti-US stance, the United States remains Venezuela’s main export market, particularly for oil.

Whoever follows Chavez in Venezuela will inherit significant economic problems. How Venezuela comports itself on the regional stage will no doubt be largely influenced by how these are handled. In the meantime, regional dynamics will help determine how long Chavez’s legacy will last.