The Bolivarian Socialism of the 21th century

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The Bolivarian Socialism of the 21th century

• An old-time Latin American movie

Ignacio De León, Ph.D.
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The emergence of Bolivarian socialism

• How did Latin American neo-liberalism reforms led
  to neo-populism?

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Latin America in the 1990s Democracy and market
reforms were in the making
1990 Violeta Barrios UNO Unión Nacional Opositora
1989 Carlos Andres Pérez 1994 Rafael Caldera
Venezuela
1990 César Gaviria Partido Liberal
Colombia
1992 Sixto Durán Ballén
1994 Fernando H. Cardoso
Perú
Brasil
1993 Gonzalo Sánchez de Lozada
Bolivia
1989 Andrés Rodriguez Partido Colorado
Paraguay
1990 Patricio Aylwin
1990 Luis A. Calle
Argentina
Representative Democracy
1989 Carlos Menem
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Pitfalls of neoliberal reforms

• Merely macroeconomic reforms no concern about
  microeconomic reforms
• No productivity increase
• No equity
• No concern over property rights allocation
• Only property right holders (a minority) earnde
  the benefits of trade liberalization
• No concern about the political economy of
  reforms Harsh measures impacted the population
  thereby creating political resistance

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2000 2008 The aftermath of neoliberal reforms
a backlash against democracy and pro-market
reforms
2007 Alvaro Colom
2005 Manuel Zelaya
1998 2000 2006 Hugo Chávez
2006 Daniel Ortega
Ven.
Col
2006 Rafael Correa
Brasil
2002 2006 Lula da Silva
Perú
Bolivia
2005 Evo Morales
Par.
2008 Fernando Lugo
Argentina
2004 Tabaré Vázquez
2003 2007 Mr. And Ms. Kirchner
Representative Democracy
Socialist Populism
Social Democracy
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An expansionist regime

• The Bolivarian Socialism of the 21th century

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Tenets of Bolivarian Socialism

• Substitution of Popular plebiscites for
  Representative Democracy Constant plebiscites
  undermining the voting system technological
  rigging elimination of minority system
  promotion of the government-funded Communal
  councils over representative Local councils.
• Totalitarian control of society Encroachment of
  political and economic rights through control of
  courts the police and the army. If unsuccessful,
  then, promotion of parallel organizations
  Bolivarian business associations Bolivarian
  labor unions Bolivarian professional
  associations and Bolivarian student
  organizations
• Political apartheid legal cases are
  systematically brought against journalists
  opposition activists exile of prominent
  opposition leaders spreading fear among voters
  (the Tascon list)
• State control over the economy Renationalization
  of so-called strategic industries controls over
  foreign exchange, prices and interest rates
  legal monopolies that favor close political
  allies trade autarchy denouncing free trade

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An expansionist regime (I)

• The humanitarian purpose of health missions
• Only parties associated to the Revolution qualify
  to send their candidates for the program
• Oil diplomacy
• Under Petrocaribe, PDVSA gives preferential
  conditions to penetrate other countries in
  Central America and the Caribbean Honduras,
  Guatemala, Nicaragua, Caribbean countries, etc.
• Conditions 60 discounted price of oil barrel to
  be paid in 90 days (industry custom paid in 30
  days) financing remaining 60 at 1-2,5 up to 25
  years

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An expansionist regime (II)

• Chavez regime financially supports political
  campaigns of left wing parties throughout the
  region
• Evo Morales (2005)
• Daniel Ortega (Nicaragua, 2006)
• Majors of FMLN (El Salvador)
• The scandal suitcase and Ms. Kirchner (Argentina,
  2007)
• Supporting Houses of ALBA (Peru)

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An expansionist regime (III)

• Alleged links with desestabilizing groups in
• Argentina (Piqueteros)
• Uruguay (Montoneros)
• Brazil (Sin Tierra)
• Peru (MRTA)
• Colombia (FARC)

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An Economic miracle?

• How has the Bolivarian Socialism fared thus far?

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A glimpse into the economic Revolution

• Scrap central bank autonomy
• Widespread nationalizations CANTV (telecom
  company) Elecar cement producers etc.
• Change business code/laws
• Cancel the broadcasting license of Venezuela's
  oldest TV network (RCTV).
• Seek special powers from Congress to approve new
  Revolutionary laws...
• The state should have a majority stake in Orinoco
  Basin heavy oil upgrading joint-ventures.

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Venezuela Gov. Spending ( GDP)
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Economic Independence?
Share of Venezuelan and Colombian exports to the
US market
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(No Transcript)
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Income Per Head v. Price Oil Barrel (1970-2007)
Income per head has steadily declined since the
1970s
no matter oil price increases!
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Public spending
Between 2000 and 2007 government spending has
increased.
510
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The Bolivarian strategy

• Increasing idle productive capacity through
  public spending, high commodity (i.e. oil) prices
  and easy credit boosted the economy between
  2004-2007
• Record government spending helped to boost GDP in
  2006 by about 9 and in 2007 by about 8
• Yet, nationalization and confiscation of private
  property led domestic production to plummet
• Socialist Productive Enterprises (supposed to
  replace capitalist enterprises) have not
  delivered expected results
• As result, imports increased 44 a year since
  2003 in average
• Government has tried to control inflation by
  issuing public bonds

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The Bolivarian outcome
2005 10
2006 9
2008 30
2007 8
Growth?
Oil prices have increased five fold since 2003
2008 4.5
2007 23
Total inflation between 2000 and 2007 329
Inflation!
2006 17
2005 14
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An economic miracle of a new sort

• 1999-2008 More than US700 billion have been
  received in the country (compared to US13
  billion Marshall Plan rescue package)
• More than US120 billion have been spent on
  handouts to third countries (e.g. hospital
  construction in Uruguay cheap fuel to London and
  Harlem poor residents refinery construction in
  Cuba)
• 1999-2008 According to Conindustria, 57 of
  Venezuelan registered businesses have vanished
• Dependency on oil revenues is at its highest ever
  (90 of export earnings, more than 50 of the
  federal budget revenues, and around 30 of GDP)
• 2008 Each Venezuelan earns USD 7 daily

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Cuba Since late 2000, Venezuela has been
providing oil on preferential terms, and it
currently supplies about 100,000 barrels per day
of petroleum products. Cuba has been paying for
the oil, in part, with the services of Cuban
personnel in Venezuela, including some 20,000
medical professionals. In 2007, high metals
prices continued to boost Cuban earnings from
nickel and cobalt production.
Ecuador From 2002-2006 the economy grew 5.5,
the highest five-year average in 25 years. The
poverty rate declined but remained high at 38 in
2006. In 2006 , the government imposed a windfall
revenue tax on foreign oil companies, leading to
the suspension of free trade negotiations with
the US. This generated economic uncertainty
private investment has dropped and economic
growth has slowed significantly
Argentina Real GDP rebounded to grow by an
average 9 annually over the subsequent five
years, taking advantage of previously idled
industrial capacity and labor, an audacious debt
restructuring and reduced debt burden, excellent
international financial conditions, and
expansionary monetary and fiscal policies.
Inflation, however, reached double-digit levels
in 2006 and the government of President Nestor
KIRCHNER responded with "voluntary" price
agreements with businesses, as well as export
taxes and restraints. Multi-year price freezes on
electricity and natural gas rates for residential
users stoked consumption and kept private
investment away, leading to restrictions on
industrial use and blackouts in 2007.
Bolivia Government imposed significantly higher
royalties and nationalized natural gas. The law
also required that the state energy company
regain control over the five companies that were
privatized during the 1990s - a process that is
still underway. In 2006, higher earnings for
mining and hydrocarbons exports pushed the
current account surplus to about 12 of GDP and
the government's higher tax take produced a
fiscal surplus after years of large deficits
Source CIA Factbook 2008
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El Salvador Robust growth in non-traditional
exports have offset declines in the maquila
exports, while remittances and external aid
offset the trade deficit from high oil prices and
strong import demand for consumer and
intermediate goods. Implementation in 2006 of the
CAFTA has strengthened an already positive export
trend. Dollarization in 2001 has forced the
government to maintain a disciplined fiscal
policy. The current government has pursued
economic diversification, with some success in
promoting textile production, international port
services, and tourism through tax incentives. It
is committed to opening the economy to trade and
investment, and has embarked on a wave of
privatizations extending to telecom, electricity
distribution, banking, and pension funds.
Colombia High growth between 2003-2008. Austere
government t budgets, focused efforts to reduce
public debt levels, an export-oriented growth
strategy, improved domestic security, and high
commodity prices has promoted trust among
investors. President URIBE has promoted the
following goals pension system reform reduction
of high unemployment, increasing productivity and
negotiating free trade agreements.
Peru High economy growth rates (4 between
2002-06, and 7.5 in 2007), driven by higher
world prices for minerals and metals. Low
inflation rates (average 2) Government's
austere fiscal policies and openness to trade and
investment have boosted investors confidence.
Despite the strong macroeconomic performance,
underemployment and poverty have stayed
persistently high.
Source CIA Factbook 2008
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Bolivarian socialism An old time movie?

• Nationalization (and/or high taxes) on strategic
  industries, political regulation low property
  rights institutional erosion Ubiquitous
  government monopolies and cartels (i.e. price
  controls) will undermine the rule of law
• Foreign dependency is as high as ever High
  commodity prices enable fiscal surpluses whereas
  future low commodity prices will cause big
  deficits, public debt and high inflation rates
  Increased public spending leads to consumption
  boom (populism) as long as high commodity prices
  lasts
• Lower foreign investment rates caused by weak
  institutions
• Poverty remains high (above 45)
• Productivity remains low even in high profitable
  industries (e.g. oil)
• Trade protectionism implemented along political
  lines will supersede free trade