Chavez’s curse of oil

Finweek English Edition - - Economic Trends & Analysis - HOWARD PREECE howardp@fin­week.co.za

THERE’S A WIDE­SPREAD VIEW that rich na­tional re­sources are a curse rather than a bless­ing. That’s ex­tremely il­log­i­cal. For ex­am­ple, South Africa didn’t have a dis­mal eco­nomic record be­tween 1981 and 1990 be­cause of its trea­sure chest of gold, platinum, coal and other met­als and min­er­als. The prob­lem was apartheid, white mi­nor­ity rule and the con­se­quent up­surge in in­ter­na­tional po­lit­i­cal, trade and fi­nan­cial sanc­tions.

But coun­try af­ter coun­try does sadly ap­pear to pro­vide com­pelling ev­i­dence, su­per­fi­cially, in sup­port of the “re­sources curse” case. The lat­est im­por­tant in­stance is Venezuela. Some an­a­lysts reckon Venezuela has more oil re­serves than any na­tion other than Saudi Ara­bia.

Un­for­tu­nately, Venezuela also has great po­lit­i­cal tur­bu­lence. That arises from typ­i­cal Latin Amer­i­can class strug­gles – and an au­thor­i­tar­ian mav­er­ick left­ist Pres­i­dent Hugo Chavez. To sup­port his rev­o­lu­tion­ary goals for the South/Cen­tral Amer­i­can re­gion, and his par­tic­u­lar an­i­mos­ity to­wards the United States, Chavez has sold oil at whack­ing dis­counts to al­most ev­ery buyer ex­cept the US.

But he hasn’t paid much at­ten­tion to main­tain­ing ef­fi­ciency at his na­tion­alised oil in­dus­try. As a re­sult, Venezuela’s oil out­put has fallen from 3,2m/bar­rels/day in 1998, when Chavez came to power, to the cur­rent 2,4m. Since oil rev­enues fund 40% of its na­tional bud­get – and world oil prices have slumped sharply from their peak ear­lier this year – that’s in­creas­ingly se­ri­ous.

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