Venezuela: Going Nowhere -- Fast

It has recently become clear that Hugo Chavez, Venezuela's president, is going about setting up a coalition with one goal in mind: bringing about the fall of "The Empire," i.e.: the United States. He plans to do this by forming alliances with every unsavory country in the world, from North Korea and Russia, to Syria and Iran. He recently announced a deal with Iran to cooperate on nuclear work. France reminded him that Iran was prohibited from exporting its nuclear technology. In return for nuclear aid, Chavez has promised Iran shipments of oil, even though Venezuela can hardly refine enough to supply itself.

Is this something the United States needs to worry about? The short answer is yes. All the U.S. needs is for Iran to be additionally strengthened and for an anti-American alliance to form with a powerful country like Russia involved. The long answer first requires answering another question: will this help Venezuela or Hugo Chavez?

It's hard to see how this could help Venezuela or its people. By forging an alliance that includes Iran and North Korea, Venezuela is headed on a path to international isolation. Perhaps Chavez thinks that if he makes deals with Russia (arms) and China (oil), this will prevent isolation. On the latter half of this bet, at least, he may actually be right. China is hungering for natural resources like oil. It is not improbable that China might protect Venezuela with its Security Council veto, but only if things don't get too dicey.

But even so, this would not prevent political isolation and isolation in other economic areas. True, oil is an important export, and Venezuela has a lot of it, but it requires foreign investment in order to develop the oil fields, some of them off shore. This investment could be blocked. Besides, making Venezuela even more reliant on oil exports, and therefore the whims of the global oil price, is not something Chavez should wish for. The current crisis saw a large drop in the oil price, bringing trouble for Venezuela's budget. If Venezuela can no longer receive foreign investment, its current fields will dry up (Venezuela's oil production capacity has steadily dropped since Chavez came to power. One would think that a man who increases his country's dependency on one export would ensure the viability of that export's future).

The country is already fighting inflation, as the government has kept fiscal and monetary policy looser than it ought to. This has caused the black-market trade in bolivares to soar. This market indicates that the bolivar is worth a fraction of what the Venezuelan government maintains it is worth. Strict capital controls are in place to prevent a massive slide and the emptying of the central bank's foreign exchange reserves. Domestic industries are already complaining that the strict limits on conversion to the dollar are making it all but impossible to do business by cutting off imports to the country (which has in turn spurred inflation as imports become much more expensive). Chavez is also consolidating the economy under the control of his clan, which of course receives generous exceptions from the dollar-limit regime and import restrictions. High inflation, blocked imports, and extremely restricted access to industry for everyone not associated with the Chavez clan hardly sounds like a good recipe for economic success. Far from the modern socialist revolution Chavez claims to be bringing about, his revolution sounds like many sad stories we have heard before.

This brings us back to our longer answer to the first question: should the U.S. worry about this? In the long run, these policies will ruin Venezuela, which is certainly nothing to hope for on account of the innocent lives that will be ruined along with it. A nuclear Venezuela, or even just a more heavily armed one, is cause for worry about stability in the region. The real concern is that this could spark a South American arms race. Arms races tend to lead to fear mongering and radicalism. It is therefore much more the future of South America that is at stake than that of the United States's alleged "empire." Venezuela will hardly be able to pose a military threat to the United States, even if it becomes nuclear (see my article on North Korea and compare), and the U.S. relies economically very little on Venezuela, Russia, Iran, and North Korea, et al. The political and economic isolation that will be wrought upon Venezuela if it continues, including in South America (Mr. Chavez is not admired everywhere there, particularly in Colombia) will only serve to weaken Venezuela.

But weak states can become even more radicalized and dangerous. For this reason Venezuela, unlike North Korea, is not something the U.S. should write off. Its approach, however, must be multilateral. Unilateralism would play into Chavez's hands, who claims to be battling the evil that is the United States. Better would be to work to convince Chavez's potential allies that the U.S. is not the bad guy, but that Chavez, indeed, is. This can be done via a higher degree of cooperation and other incentives (free trade agreements, etc.). This would do nothing to convince Russia and China, of course, but I posit that they need little convincing anyway. Venezuela is being used by both. China and Russia (and all other countries) will act in their own interests, and these are unlikely to align with Chavez's that often. The point, then, is for the U.S. to make sure that other countries, who can be more effected by U.S. incentives, are convinced that it is not in their best interests to side with Chavez. Given Chavez's poor policies and overt hotheadedness, this should not even be particularly hard, particularly if the U.S. works to cultivate as broad an international consensus as possible. Venezuela is on a road to nowhere, that doesn't mean we all have to go along for the ride.


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