Analysis: Oil helps Venezuela growth again

By CARMEN J. GENTILE, UPI Energy Correspondent  |  Jan. 2, 2007 at 7:16 PM
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MIAMI, Jan. 2 (UPI) -- Venezuela's supercharged petroleum-based economy has posted greater than 10 percent economic growth, for the third year in a row, according to the country's central bank.

While backers of the country's leftist leadership view the numbers as a validation of the country's decision makers at the top, particularly the ever controversial President Hugo Chavez, others warn that the Venezuelan economy could be a house of cards ripe and ready to tumble.

The statistics, at face value, seem to support the Chavez policy of renegotiating contracts with foreign oil firms to increase Venezuela's share of the profits. Growth reached 10.3 percent in 2006, said Central Bank President Gaston Parra, equaling last year's mark. In 2004, the Venezuelan economy expanded by a staggering 18 percent.

The country's recent economic success -- attributed mostly to inflated global oil prices amid ongoing wars in Iraq and Afghanistan -- has in turn boosted commercial spending in the Latin American nation.

Despite U.S. fears that Chavez intends to create a Cuba-style state in Venezuela, the ever outspoken leader's "21st-century socialism," as he likes to call it, has resulted in increased demand for items like automobiles and new homes as well as luxury goods.

High prices at the pump have also allowed Chavez to make good on his ambitions to state fund wide-ranging social projects known as "misiones" where education and health care services are readily available to those who can't afford either.

Some experts, however, predict that the president's penchant for social spending will ultimately doom the country's economy.

"Not enough PDVSA [Venezuela's state-run petroleum company] monies are being reinvested back in the company and are instead going into state spending," Dorothea El Mallakh, executive director of The International Research Center for Energy and Economic Development, told United Press International.

In El Mallakh's estimation, Chavez's failure to adequately address maintenance and improvements to PDVSA could eventually lead to production slippage that will prove damaging to Venezuela's remaining free enterprise, foreign investment sector and the president's socialist agenda.

Adding credence to her concerns is Tuesday's central bank report that inflation rose 17 percent in Venezuela in the past year. Chavez had previously promised to keep inflation below 10 percent on the year, though his administration later backed away from his remarks.

Meanwhile, Oil Minister Rafael Ramirez recently reassured Venezuelans and the world that the country's oil policy "will remain the same" in the president's next tenure following his landslide reelection bid late last year. Chavez defeated his opposition opponent with 62 percent of the vote, the highest tally he's garnered in two elections and a referendum vote in 2004.

But Ramirez did note he was keen on pushing for production cuts in 2007 by half a million barrels a day, raising eyebrows in Washington, where Bush administration officials have taken to regularly criticizing Chavez.

In turn, Chavez threatened in November to cut off oil supplies to the United States if unduly provoked. "Not another drop" of Venezuelan oil would reach U.S. shores, said Chavez, in December if he felt Washington tried to interfere in the presidential election.

"If they [the United States] try to destabilize PDVSA, if the empire and its lackeys in Venezuela attempt another coup, ignore the election results or cause election or oil-related controversy, we won't send another drop of oil to the United States," he said.

Though the president talks a big game about reducing oil output to the United States and has actively courted China for its ever-increasing petroleum demand, there currently is no conceivable way Chavez could shut off the oil flow to north without decimating the Venezuelan economy in the process.

For now though, the always confident Chavez is likely content in the fact that his 21st century socialism is proving particularly lucrative.


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