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Monday, June 04, 2007
Perspectives

Chávez Conditionality

Hugo Chavez' alternative to the multinational banks includes off-budget consumption and less transparency.
CHAVEZ SUPPORTER AND BENEFICIARY: Nicaraguan President Daniel Ortega with Hugo Chavez in Caracas on Sunday. Nicaragua is one of the countries that have opted for what the author calls "Chavez Conditionality." (Photo: MinCi)

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BY RICHARD FEINBERG

Sixty years ago the United States cemented its global influence and leadership by contributing billions of dollars to the reconstruction of war-torn Europe — in today’s dollars, around $120 billion. Anyone who tries to downplay Venezuelan President Hugo Chávez’s aspirations should take note of the fact that he has pledged over $110 billion in grants, loans and investments to governments in the developing world — an economic commitment, in other words, of the magnitude of the Marshall Plan.  In Latin America, Chávez’s largesse dwarfs the combined activity levels of today’s major multilateral development institutions, the World Bank and the Inter-American Development Bank.

Chávez claims that the promised deals come without the sort of invasive conditions that burden the programs of the Inter-American Development Bank, World Bank and International Monetary Fund.  The oil mogul says he is driven by philanthropic motives, in the altruistic pursuit of South-South solidarity and Bolivarian regional cooperation.

But, in fact, the recipients of Chávez’s beneficence -- Bolivia, Nicaragua, Ecuador and Argentina chief among them -- are strongly encouraged to mimic the very same policies that Chávez is pursuing at home.  Some Venezuelan aid supports programs directly patterned after Chávez’s own pet domestic projects, such as chains of government stores stocked with cut-priced goods, health clinics and sports clubs manned by Cuban personnel, or farmers’ cooperatives supported by government subsidies.

Some Chavista pressures are imbedded in the projects themselves, as when Venezuela’s national oil company, PDVSA, “partners” with the recipient’s national energy companies, to the exclusion of the private petroleum corporations. Or when Chávez’s budget support allows for generous social spending.

When visiting his recipients, Chávez derides market economics and extols his “21st Century Socialism.”  He expropriates his hosts’ own bully pulpits to press them to more aggressively confront their “enemies” among the local business, media and political elites, and in the courts and legislatures, and to strengthen their presidencies and controls over their local economies. 

Let’s call all this “Chávez Conditionality.”

You might say, “Big surprise - there’s no free lunch.”  Okay, then, let’s compare the conditions generally set by the International Monetary Fund and World Bank (the Bretton Woods twins), and the conditionality of Chávez. Which set of conditions is better for promoting local prosperity and good governance?

Bretton Woods’ conditionality obsesses about fiscal responsibility. Governments must not borrow beyond their future capacity to repay, and they should target low inflation through austere monetary policies.  Chávez Conditionality, in contrast, allows borrowers to subsidize current consumption - bolstering incumbents’ popularity and re-election campaigns – without worrying about the pesky problem of debt build-up.  Some of Chávez’s credits are purposefully kept “off-budget,” so that they do not appear in official debt statistics.

Bretton Woods’ conditionality requires transparency: the size and terms of the loans are public, as are the associated requirements with regard to fiscal budgets, monetary policy and debt management.  Because the Bretton Woods twins believe that more transparency reduces corruption and encourages responsibility and public accountability, they have been pressing for the release of more fiscal data by central and provincial governments. In contrast, for Chávez Conditionality, typically little information is made public regarding the terms, disbursement timetables or repayment requirements.  (This is no surprise: in Venezuela, official data on such basic economic variables as monetary policy and fiscal accounts, and the balance sheets of oil giant PDVSA, have become so shrouded in mystery as to have given birth to a cottage industry of PDVSA estimators.)     

Bretton Woods’ conditionality requires open, competitive bidding on projects.  Chávez prefers that governments select contractors based on political criteria, and he personally invites large firms from “fraternal” governments – like Argentina and Brazil – to enjoy sweetheart joint ventures with his favorite Venezuelan firms.

The Bretton Woods twins advocate setting international prices through market mechanisms and contracts freely entered into by trading partners.  Chávez Conditionality sets up state-to-state barter deals – oil for Cuban sugar and medical personnel, oil for Nicaraguan beans – where the public can only guess at the officially-set “preferential” prices in these exchanges.

The Bretton Woods twins work to strengthen the budget and administrative capacities of municipal governments.  In contrast, Chávez Conditionality favors re-writing constitutions to centralize power in the executive. The Venezuelan leader advises the creation of “municipal councils” controlled by his friends’ national political parties, thereby undercutting previous efforts to build more decentralized decision-making procedures.

Increasingly, the Bretton Woods twins require that large projects undergo careful environmental impact assessments.  Here, Venezuelan largesse comes with less conditionality, as Chávez announces quick construction of sizeable oil refineries and long gas pipelines with nary a mention of environmental sustainability.

Chávez expects clients to follow his lead in publicly denouncing “U.S. imperialism and hegemonism” (as well as to endorse or at least excuse his local political tactics, most recently his seizure of a major television channel).  The Bretton Woods institutions, with universal membership, maintain programs in countries throughout the world with widely diverse foreign policies.

Take your pick. Bretton Woods’ conditionality: strict accounting, debt ceilings, inflation targets, transparency, competitive bidding, market-driven prices, careful environmental reviews, and foreign policy independence.

Chávez Conditionality: off-budget current consumption, confidentiality, closed bidding, government-to-government deals, centralized decision-making, quick project approvals, and proud nationalism.

Why are some Latin American governments attracted to Chávez Conditionality? Suppose you were an incumbent president wanting to please your supporters and bolster your own power. And suppose you were ambitious for re-election without term limits.  Wouldn’t you prefer the Venezuelan model?

Richard Feinberg, who served on the National Security Council during the Clinton administration, is professor of international political economy at the University of California, San Diego. Originally published in the Perspectives of the Americas series from the Center for Hemispheric Policy at the University of Miami. Republished with permission from the center.

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