- The Washington Times - Thursday, March 13, 2003

Venezuelan President Hugo Chavez may have triumphed over the opposition-led national strike that ended last month, but the country's economy has been badly wounded. The Venezuelan subsidiary of Spanish bank BBVA, called Banco Provincial, predicted the country will suffer the largest economic contraction in its history and that oil production will be seriously hampered. The bank's projections help clarify Venezuela's economic conditions, since the assessments made by the government and private sector (which is often aligned with the opposition) have varied widely, and have sometimes been regarded as too subjective.

Washington is observing Venezuela's economic development closely. Last year, Venezuela supplied America with 13 percent of its crude oil imports. The severe economic problems could signal unabated instability and further disruptions in oil production.

According to Banco Provincial, in the first quarter of this year, Venezuela's economy will shrink 40 percent and oil sector activity will drop by 69 percent. To put this in perspective, this slowdown would be more severe than America's sharpest Great Depression contraction. The bank also said that the non-oil sector would contract by 33 percent and the unemployment rate would rise to 25 percent from the official rate of 18 percent.

Still, the situation is not as dismal as it could have been. Many analysts expected Venezuela, which last year was the world's fifth-largest oil exporter, to be producing around 1.3 million barrels of oil a day during the fourth quarter. Even oil workers sympathetic to the national strike say the national oil company, Petroleos de Venezuela, is producing about 1.8 million barrels a day, while the government says this production is up to 2.6 million barrels.

Nonetheless, Venezuela's situation looks grim. Economic projections for the whole year for Venezuela vary widely, with contraction predictions varying between 9 percent to 30 percent, demonstrating how unstable the country's socio-political situation remains. And the economic problems, as Mr. Chavez is well aware, will affect not only the oligarchs (who have become the president's nemesis) but Venezuela's poor as well. In this critical regard, Mr. Chavez's ability to deliver his promised Bolivarian revolution has been undermined.

Mr. Chavez blames the strikers and "coup plotters" for causing the current problems, while the opposition points to the president's heavy-handed tactics. Beyond the finger pointing, which has mutual justifications, it would appear that parties on both sides must strike a truce and find ways to ratchet down the tensions for the good of the country. If the opposition can not see past its hostility to Mr. Chavez, there could be little left of the country at stake. Similarly, if Mr. Chavez fails to honestly review his errors and temper his dangerously polarizing rhetoric, the president will become his own worst enemy.

Thus far, the White House has watched developments in Venezuela with concern and has forged a carefully calibrated policy. But the United States and other countries involved in the Group of Friends initiative, which are striving to facilitate talks, reduced their level of engagement after the national strike was called off. The bombs that exploded last month in Caracas demonstrate that the current situation remains highly volatile. The Group of Friends should step up their efforts, and be more aggressive in calling out publicly the dangerous brinkmanship of both sides.

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