Michael J. Economides - Americas Blind Spot: Chavez, Oil, and U.S. Security

Chvez, Oil, and US Security

50 Bedford Square London WC1B 3DP

80 Maiden Lane New York NY 10038

Andrs Cala and Michael Economides, 2012

All rights reserved. No part of this book may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the permission of the publishers.

ISBN: 978-1-4411-8751-2

Cala, Andrs.

Americas blind spot : Chvez, oil, and U.S. security / Andres Cala and Michael J. Economides. 1st ed.

p. cm.

Includes bibliographical references and index.

ISBN 978-1-4411-8669-0 (hardcover : alk. paper) ISBN 1-4411-8669-7 (hardcover : alk. paper) 1. United StatesForeign economic relationsVenezuela. 2. VenezuelaForeign economic relationsUnited States. 3. United StatesForeign economic relationsLatin America. 4. Latin AmericaForeign economic relationsUnited States. 5. National securityUnited States. 6. Petroleum industry and tradeUnited States. I. Economides, Michael J. II. Title.

HF1456.5.V4C35 2012

337.73087dc23

2012002892

Latin America is a very large region extending from the Rio Grande, the southern border of the United States of America, to the Patagonia in the southern tip of South America. The region has nearly 500 million people and is endowed with abundant valuable natural resources, but it only represents 7 percent of the global economy and less than 7 percent of the global trade.

A century of complex political evolution is the main reason for many decades of poor economic performance, but most recently the explanation can be found in the contemporary regional socioeconomic evolution. Brutal regional instability starting in 1994 with the Tequila Crisis, followed by serious episodes that affected several countries throughout the decade, forced analysts and multilateral institutions to rethink strategies. The Washington Consensus, a package of macroeconomic adjustments based on the premises that stable economic growth requires balanced budgets, low inflation, deregulation, open markets, and private investments, had not addressed properly the distribution of income, especially affecting the lower classes. A general awareness then evolved among policymakers that additional reforms were needed if Latin American economies were to grow more than 6 percent a year, the rate widely believed necessary to lower the number of people living in poverty in the region.

Rejection of the Washington Consensus empowered a resurgent left and consolidated the elections of Hugo Chvez in Venezuela in 1998, Lula in Brazil in 2002, Kirchner in Argentina in 2003, and Tabar Vzquez in Uruguay in 2004, all of them representing left-of-center coalitions and promising to undo the neoliberal excesses of their predecessors. They also stressed the need to reassert their nations independence from the United States and limit the superpowers influence. Yet, most of these new presidents did not really deliver on their more extreme campaign promises, especially on their plans to roll back the economic reforms of the 1990s. Brazils Lula followed an orthodox economic policy, anchored in painfully high interest rates and the active promotion of foreign investments. In Argentina, the only significant departure from the economic orthodoxy of the 1990s was the adoption of widespread price controls and a disdainful attitude toward foreign investors. Chvezs antitrade posture glosses over the reality that Venezuela enjoys a de facto free trade agreement with the United States, the largest in the region.

The responses to these political demands have also been varied. A few leaders have behaved in a traditional, populist fashion, relying on massive public spending, on keeping prices artificially low through government controls, or on scapegoating of the private sector to cement their popularity. Most, however, have implemented responsible economic governance and have shown a willingness to absorb the costs of unpopular but necessary economic policies.

Still, a second generation of reforms followed. A few of the most important reforms included the improvement of the quality of the public sector and the governance, sanctity of contracts, private property and intellectual property, fiscal strengthening, enhancement of the legal and regulatory frameworks, improvement of the performance of the financial markets, and reform of the labor markets.