Although Venezuelan dictator Hugo Chavez insists he is making a miraculous recovery from cancer, a series of revelations in recent months paint the picture of a regime bracing for impact.
In mid-August, opposition congressmen denounced a plan by the Chavez regime to move the nation’s $29 billion in international reserves out of traditional havens in Switzerland, Britain and the United States to banks in Venezuela’s principal creditor nations, China and Russia. Just last week, it was disclosed that Mr. Chavez is planning to renounce a respected world panel for settling business disputes, further undermining investor confidence in doing business in his country.
These momentous decisions by the ailing leader and his nervous cronies suggest they are more concerned with their ability to hold on to power when Mr. Chavez falters than with the well-being of the Venezuelan economy.
Regarding the reserves, Mr. Chavez rushed to explain that he is merely securing his country’s capital by withdrawing it from unstable financial institutions in the West; he failed to mention that China and Russia keep most of their international reserves in U.S. and European banks. As for $11 billion in gold, it will be relocated to the vaults of the Venezuelan Central Bank - a risky operation that will cost about $400 million. Mr. Chavez says this is a “healthy decision,” but to his opponents, it looks like a slow-motion bank heist by a government known for its corruption. One Venezuelan economist told me that the country will be left effectively with no international reserves, casting doubt on its ability to function in the global economy.
The recent decision to abrogate agreements with the World Bank’s International Center for the Settlement of Investment Disputes (ICSID) is another troubling sign. Eighteen claims against Venezuela totaling $40 billion are outstanding, having been brought before ICSID by foreign companies cheated out of their investments during Mr. Chavez’s tenure. Although Venezuela cannot jump bail on these pending claims, the decision to abrogate the ICSID process suggests what the regime has in mind for current or future foreign investments. Without some recourse to the sort of independent arbitration offered by ICSID, all bets are off for anyone looking to put capital in Venezuela.
Taken together, this series of highly unorthodox measures will burn to ashes Venezuela’s credibility among investors and within global capital markets. Why would Mr. Chavez, who recently professed his wish to govern until 2031, do such self-inflicted damage to his nation’s economic viability?
For a decade, many observers in and out of Venezuela have blamed incompetence for Mr. Chavez’s infamous mishandling of the economy. Others have recognized his policies as purposely destroying the private economy to decimate the ranks of potential opponents - except for a few favored opportunistic and pliant plutocrats who benefit from sweetheart deals with the regime.
Another entirely plausible explanation is that Mr. Chavez is a devout socialist who is committed to putting politically reliable state apparatchiks in command of strategic industries. His 2001-02 purge of the state-run oil company, Petroleos de Venezuela S.A. (PDVSA), was a politically risky move that sparked a costly strike and popular uprising, but he emerged from the crisis with PDVSA in his grip and its trillion dollars in revenue as his petty-cash fund. PDVSA is treading water, but everyone knows who’s the boss.
There may be a more proximate cause for the recent decision to move the international reserves. Confidential documents from Mr. Chavez’s desk, which were leaked to the opposition, suggest that the regime is seeking to minimize its vulnerability to Libya-style sanctions should it have to resort to violence or electoral fraud to hold on to power. Recent reports that Col. Moammar Gadhafi looted $1 billion of his country’s gold reserves in a desperate bid to buy time is another clue about what Mr. Chavez’s team has in mind.
Whatever the reasons behind these recent foolhardy economic moves, the impact on Venezuela’s economic viability will do deep and lasting harm to the people. Mr. Chavez would not be the first dictator to hold his own people in contempt or show more regard for his selfish interests than for the nation. That’s what dictators do.
Venezuelans may have to wait to sift through the rubble of the Chavez regime before they get a clear explanation for Mr. Chavez’s recent reckless decisions. In the meantime, regardless of whether Mr. Chavez knows he is dying sooner or hopes he is dying later, it is apparent that he doesn’t give a damn about the harm he is doing to the Venezuelan people or the mess he will leave behind.
Roger F. Noriega was ambassador to the Organization of American States in 2001-03 and assistant secretary of state in 2003-05. He is a visiting fellow at the American Enterprise Institute and managing director of Vision Americas LLC.