3) Historical Background and Oil

Our Global Exchange tour took place April 8-17, 2004, encompassing the second anniversary of the coup and subsequent return to power of Hugo Chávez Frias when hundreds of thousands of Venezuelans took to the streets of Caracas and, with the cooperation of the National Guard, without any bloodshed, with no shots fired, retook control of the government two days later. It also coincided with a two-day event, the Second Conference of International Solidarity with the Bolivarian Revolution.

We were fortunate to have excellent interpreters, as all presentations were in Spanish. I have tried to get the major points recorded accurately. Unfortunately, there is always some little something lost in translations, and, added to that, I am not able to take notes without missing some things while I'm writing. What follows is my best representation of what I heard, and if I misrepresent anything that was said, it is not intentional. If I add anything that is my interpretation of what was said, or an opinion about what was said, I will clearly mark it as my own.

On Firday, April 9, we heard presentations from professors Margarita Lopez Maya, PhD at the Center for Development Studies at the Central University of Venezuela, and Luis Lander, Faculty of Economic and Social Sciences at the Central University of Venezuela.

Professor Margarita Lopez Maya
Historical background leading up to the current situation in Venezuela

NOTES from the presentation:

For all practical purposes, Venezuela is two countries. Current society, one of social exclusion, is a result of Spanish colonialism and the introduction of African slaves.

In 1958, with the fall of the Marcos Pérez Jiménez regime and creation of the Punto Fijo Pact, there was a promise of democratic change from colonialism and dictatorship to a model of democratic capitalism, and an acceleration of modernization through state spending of oil revenues. Schools and universities were built, and money was spent on health, housing and infrastructure throughout the 60s and 70s.

In the 80s Venezuela experienced an economic recession and rose to the unenviable position of fourth largest debtor nation in Latin America. The middle class that had only recently been built up (most of whom had emigrated from Europe after WWII) began to crash.

On February 15, 1989, president Carlos Andrés Pérez, who had promised to fight along with other Latin American countries against loan policies by the International Monetary Fund (IMF) that were widely perceived to be a prescription for economic slavery, reversed his position and signed with the IMF. On Monday, the 27th, when Venezuelans went to work, they found that bus drivers were demanding a 100% fare increase, apparently the straw that broke the camel's back, and riots broke out in what came to be known as "El Caracazo".

The government was "absent" that morning. Student protests, which had been going on in anticipation of the IMF deal swelled out of control. There were no police to quell the uprising. They say they had orders not to act. The next day, however, the government announced that it would not tolerate the increasing protests and cracked down. In five days of violence, 470 barrio dwellers were killed. (My note: there was a court case granting reparations for human rights violations by the state in November 1999.)

Beginning in the 90s, people had given up on political promises and no longer wanted to be involved. The armed forces, which had supported the government in 1989, were deeply divided, and in 1992, a coup was attempted on the government of Carlos Pérez. (My note: The current president, Hugo Chávez, was a leading general in the failed attempt.) As the bipartisan system collapsed, political elites decided some action was necessary in order to prevent such a military coup, and in 1993, Congress ousted president Pérez for mismanagement.

Rafael Caldera, offering an anti-neoliberal package and constitutional reform, with more promises of delivering democracy, won the election for president, but delivered on none of his campaign promises.

Caldera turned again to the IMF, in an informal alliance with the Accion Democratica (AD) party. The armed forces, together with the media and the Catholic Church gained political power, and Caldera opened the nationalized oil industry to private interests.

By 1998, oil prices had dropped to an incredibly low $7/barrel, in a downward spiraling financial crisis for the country.

Failed coup leader Hugo Chávez Frias, after being released from a two-year jail term, began a campaign for presidency offering once again an anti-neoliberal policy, but also social reforms, including the distribution of state land as agricultural tracts to Venezuela's poor. His appeal as a non-politico, not with the ubiquitous promise of constitutional reform, but of a completely new constitution, won him the 1998 election by an overwhelming majority of votes from the poor who comprise 80% of Venezuela's population.

Personal notes:

Professor Maya spoke in English, making it easier for me to follow her discourse and take notes. She mentioned in her talk that one of the major obstacles for middle class Venezuelans in accepting President Chávez is his harsh criticisms of them in his speeches. (He has referred to them - by default inclusion with the defeated ruling class of elites in their opposition to his government - as "los esqualidos" - the squalid ones.) I asked her how she, being a member of the middle class, could support him in spite of her aversion to his characterizations, and her reply was that she simply had to look beyond it, because she believed in the social and political reforms he was bringing to the country. I think that's a mark of incredible character on Professor Maya's part, and was therefore even more impressed with her than I already was by her interesting, informative, very well-organized and well-presented talk.

Professor Maya also indicated that her support of the current government has created social and academic blowback for her personally. She is virtually shunned by her academic colleagues, alienated from her peers, and no longer asked to speak, whereas she once was in considerable demand as a prominent university historian.

When I suggested that from my perspective it seemed as though Chávez were learning as he goes, Professor Maya nodded in agreement and said, "And that is very bad for the country."

Professor Luis Lander
Venezuela's oil industry

NOTES from the presentation:

There are three player positions in the oil industry: owner, investor (the company exploiting the oil), and consumer.

In 1976, under the first presidential term of Carlos Andrés Pérez Rodríguez (My note: the same Carlos Pérez who was ousted from the presidency in 1993.), Venezuela's previously privately owned (including Shell and Exxon) oil industry - PDVSA - was nationalized, but the presidents of the oil companies did not change. This put the players in an interesting situation. Whose advantage should the company presidents now pursue? Naturally, rather than change their operations to pursue state interests, the companies tended to move toward independence from state control.

In the 90s, the state opened the way for Venezuelan oil companies to pursue exploration of marginal fields - those fields that would produce less than 200 barrels/day. (This is perhaps meaningless business-wise without a comparison: Texas oil companies explore fields that produce less than 10 barrels/day, and business is good.) In addition, the way was opened to exploit extra heavy oil (a more expensive operation).

Besides 9 Venezuelan fields, the state owns 9 European and 2 Caribbean fields.
In 1996, oil was selling for $20/barrel, but by 1999, the price had dropped to $7/barrel. The drastically dropping oil prices and resultant economic crisis for Venezuela played into the 1998 presidential election. Candidate Hugo Chávez opposed the opening of Venezuela's marginal fields and extra heavy oil to exploitation. He proposed that OPEC countries should not be increasing their production of oil to make up income lost by the drop in oil prices, but should organize in a strong block to regulate the amount of oil going out on the market, and take advantage of the law of supply and demand.

Chávez also proposed that Venezuela's oil revenues be used for literacy programs, schools and medical programs. On these and other campaign promises, he was elected by an overwhelming majority to the office of president in 1998, and instigated his program of oil industry investment in society.

After a failed coup against Chávez in April 2002, the elite Opposition, whose members were still in positions of management in the state-owned oil industry, called for a stoppage of oil production in December and January 2002-2003, in an attempt to shut down the economy and run Chávez out of office.

The stoppage eventually led to Chávez removing upper management opposition (40% of the industry's personnel) and replacing them with pro-government personnel. Amongst the laborers, nearly 30% of them were removed for involvement in the stoppage, which the government reasoned was not a strike for employee benefits, but an actual attempt to shut down the government. Retired employees were brought back to work as replacements alongside new employees. The armed forces and "el pueblo" (the people) - pro-government civilians - came together to defend the refineries.

PDVSA's new president has publicly stated that the oil company must not only invest in society in general, but also attend to the issue of poverty in specific cases, a common stance for oil companies around the world, popular with the majority poor population of Venezuela, but very unpopular with the Opposition, who believe that the oil company should be a business concerned with profit, having no social responsibilities.

Venezuela is not particularly involved in the move to switch to Euros for oil sales since the major customer of the country is the United States. The government's thrust is to get a higher price in dollars for the oil via production control.

Under the San Jose Pact, Venezuela and Mexico sell oil to Central American countries under an agreement whereby financing is available on 25% of of the purchase price. (My note: One of the major complaints from the Oppostion, which is repeated by U.S. media, is that Chávez "gives" oil to Castro, and sometimes the complaint is expanded to say that Castro then sells it for a profit. Professor Lander spoke of Venezuela agreeing to sell oil to Cuba for a certain price and accept credits for market prices that are higher than the agreed upon amount. I can't find any corroboration or explanation of that type of agreement through an internet search, and I remain uncertain about what is going on with Cuba. It seems as though the health clinic program which provides Cuban doctors and medicine to Venezuela's barrio residents free of charge is or was a part of the oil agreement. In this oil deal, like all things pertaining to information about Venezuela, it's impossible for me to uncover satisfying information. Information that comes out of Venezuela's privately owned media is always suspect, as they have been proven to simply fabricate and lie, and the same goes for most information that comes out of Washington, D.C., or Florida - which is where the bulk of U.S. information on Venezuela comes from - due to their extreme anti-Castro politics.)

Gasoline, which for the major part still contains lead, in Venezuela sells for about US $0.17/gallon. Automobiles manufactured for sale in Venezuela after 2000 use unleaded gas, but cars are expensive, and most Venezuelans (at least the Chavistas) have old model cars if they have cars at all.

PDVSA produces gas which is sold to distribution companies. Venezuela owns Citgo, which sells gasoline in the United States. The profits don't necessarily go to the state, however, because when the company was set up, it was set up to get around that through the use of intermediaries. The government is currently trying to amend that situation.
(Note 06/11/04: Susan Mazur has written a report on the U.S./Venezuelan crude oil relationship for the online publication From the Wilderness available by subscription, but it is reproduced in total by the online publication Venezuelanalysis here.)

PDVSA oil company's offices in an Opposition neighborhood
now converted into a university